Exhibit 10.2

 
Second Lien Term Loan Agreement
 
Dated as of
September 9, 2008
 
among
 
Petro Resources Corporation,
as Borrower,
 
CIT Capital USA Inc.,
as Administrative Agent,
 
and
 
The Lenders Party Hereto
 

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Sole Lead Arranger and Sole Bookrunner
 
CIT Capital Securities LLC
 
REFERENCE IS MADE TO THE INTERCREDITOR AGREEMENT DATED AS OF SEPTEMBER 9, 2008
(AS AMENDED, RESTATED, SUPPLEMENTED OR OTHERWISE MODIFIED FROM TIME TO TIME, THE
“INTERCREDITOR AGREEMENT”), AMONG THE BORROWER, CIT CAPITAL USA INC., AS FIRST
LIEN COLLATERAL AGENT (AS DEFINED THEREIN), AND CIT CAPITAL USA INC., AS SECOND
LIEN COLLATERAL AGENT (AS DEFINED THEREIN).  EACH LENDER HEREUNDER
(A) ACKNOWLEDGES THAT IT HAS RECEIVED A COPY OF THE INTERCREDITOR AGREEMENT,
(B) CONSENTS TO THE SUBORDINATION OF LIENS PROVIDED FOR IN THE INTERCREDITOR
AGREEMENT, (C) AGREES THAT IT WILL BE BOUND BY AND WILL TAKE NO ACTIONS CONTRARY
TO THE PROVISIONS OF THE INTERCREDITOR AGREEMENT AND (D) AUTHORIZES AND
INSTRUCTS THE SECOND LIEN COLLATERAL AGENT TO ENTER INTO THE INTERCREDITOR
AGREEMENT AS SECOND LIEN COLLATERAL AGENT AND ON BEHALF OF SUCH LENDER.  THE
FOREGOING PROVISIONS ARE INTENDED AS AN INDUCEMENT TO THE LENDERS UNDER THE
FIRST LIEN CREDIT AGREEMENT TO PERMIT THE INCURRENCE OF INDEBTEDNESS UNDER THE
SECOND LIEN CREDIT AGREEMENT AND TO EXTEND CREDIT TO THE BORROWER AND SUCH
LENDERS ARE INTENDED THIRD PARTY BENEFICIARIES OF SUCH PROVISIONS.
 

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TABLE OF CONTENTS
 
Page
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
     
Section 1.01
Terms Defined Above
1
Section 1.02
Certain Defined Terms
1
Section 1.03
Types of Loans and Borrowings
20
Section 1.04
Terms Generally; Rules of Construction
20
Section 1.05
Accounting Terms and Determinations; GAAP
20
     
ARTICLE II
THE CREDITS
     
Section 2.01
Term Loans
21
Section 2.02
Loans and Borrowings.
21
Section 2.03
Requests for Loans
22
Section 2.04
Interest Elections; Conversions.
22
Section 2.05
Funding of Loans.
24
Section 2.06
Total Reserve Value
24
Section 2.07
Termination
25
Section 2.08
Intercreditor Agreement
25
     
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES
     
Section 3.01
Repayment of Loans
25
Section 3.02
Interest.
25
Section 3.03
Alternate Rate of Interest
26
Section 3.04
Prepayments.
26
Section 3.05
Administrative Agent Fees
28
     
ARTICLE IV
PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS
     
Section 4.01
Payments Generally; Pro Rata Treatment; Sharing of Set-offs.
28
Section 4.02
Presumption of Payment by the Borrower
29
Section 4.03
Certain Deductions by the Administrative Agent
29
Section 4.04
Disposition of Proceeds
29
     
ARTICLE V
INCREASED COSTS; BREAK FUNDING PAYMENTS; TAXES
Section 5.01
Increased Costs.
30
Section 5.02
Break Funding Payments
31
Section 5.03
Taxes.
31
Section 5.04
Designation of Different Lending Office
32
     
ARTICLE VI
CONDITIONS PRECEDENT

 

 
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Section 6.01
Effective Date
32
Section 6.02
Additional Conditions
35
     
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
     
Section 7.01
Organization; Powers
36
Section 7.02
Authority; Enforceability
36
Section 7.03
Approvals; No Conflicts
36
Section 7.04
Financial Condition; No Material Adverse Change.
36
Section 7.05
Litigation.
37
Section 7.06
Environmental Matters
37
Section 7.07
Compliance with the Laws and Agreements; No Defaults.
38
Section 7.08
Investment Company Act
39
Section 7.09
Taxes
39
Section 7.10
ERISA.
39
Section 7.11
Disclosure; No Material Misstatements
40
Section 7.12
Insurance
40
Section 7.13
Restriction on Liens
40
Section 7.14
Subsidiaries
40
Section 7.15
Location of Business and Offices
41
Section 7.16
Properties; Titles, Etc.
41
Section 7.17
Maintenance of Properties
42
Section 7.18
Gas Imbalances, Prepayments
42
Section 7.19
Marketing of Production
43
Section 7.20
Swap Agreements
43
Section 7.21
Use of Loans
43
Section 7.22
Solvency
43
Section 7.23
Casualty Events
43
Section 7.24
Material Agreements
44
Section 7.25
No Brokers
44
Section 7.26
Reliance
44
Section 7.27
Payments by Purchasers of Production
44
Section 7.28
Existing Accounts Payable
45
Section 7.29
Development Plan.
45
     
ARTICLE VIII
AFFIRMATIVE COVENANTS
     
Section 8.01
Financial Statements; Ratings Change; Other Information
45
Section 8.02
Notices of Material Events
48
Section 8.03
Existence; Conduct of Business
48
Section 8.04
Payment of Obligations
48
Section 8.05
Operation and Maintenance of Properties
49
Section 8.06
Insurance
49
Section 8.07
Books and Records; Inspection Rights
50
Section 8.08
Compliance with Laws
50
Section 8.09
Environmental Matters.
50
Section 8.10
Further Assurances.
51

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Section 8.11
Reserve Reports.
51
Section 8.12
Title Information.
52
Section 8.13
Additional Collateral; Additional Guarantors.
53
Section 8.14
ERISA Compliance
54
Section 8.15
Swap Agreements
54
Section 8.16
Marketing Activities
55
Section 8.17
Modifications to Development Plan
55
Section 8.18
Operating Account, Deposit Accounts and Securities Accounts.
55
Section 8.19
Performance of Obligations under Loan Documents
56
     
ARTICLE IX
NEGATIVE COVENANTS
     
Section 9.01
Financial Covenants.
56
Section 9.02
Debt
56
Section 9.03
Liens
57
Section 9.04
Dividends, Distributions and Redemptions
58
Section 9.05
Investments, Loans and Advances
58
Section 9.06
Nature of Business
59
Section 9.07
Limitation on Leases
59
Section 9.08
Proceeds of Notes
60
Section 9.09
ERISA Compliance
60
Section 9.10
Sale or Discount of Receivables
60
Section 9.11
Mergers, Etc
60
Section 9.12
Sale of Properties
61
Section 9.13
Environmental Matters
61
Section 9.14
Transactions with Affiliates
62
Section 9.15
Subsidiaries
62
Section 9.16
Negative Pledge Agreements; Dividend Restrictions
62
Section 9.17
Gas Imbalances, Take-or-Pay or Other Prepayments
62
Section 9.18
Swap Agreements
62
Section 9.19
Development Plan
63
     
ARTICLE X
EVENTS OF DEFAULT; REMEDIES
     
Section 10.01
Events of Default
63
Section 10.02
Remedies.
65
     
ARTICLE XI
THE ADMINISTRATIVE AGENT
     
Section 11.01
Appointment; Powers
66
Section 11.02
Duties and Obligations of Administrative Agent
66
Section 11.03
Action by Administrative Agent
67
Section 11.04
Reliance by Administrative Agent
68
Section 11.05
Subagents
68
Section 11.06
Resignation or Removal of Administrative Agent
68
Section 11.07
Administrative Agent as Lender
69
Section 11.08
No Reliance.
69

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Section 11.09
Administrative Agent May File Proofs of Claim
70
Section 11.10
Authority of Administrative Agent to Release Collateral and Liens
70
Section 11.11
The Arranger
70
     
ARTICLE XII
MISCELLANEOUS
     
Section 12.01
Notices.
71
Section 12.02
Waivers; Amendments.
71
Section 12.03
Expenses, Indemnity; Damage Waiver.
72
Section 12.04
Successors and Assigns.
75
Section 12.05
Survival; Revival; Reinstatement.
77
Section 12.06
Counterparts; Integration; Effectiveness.
78
Section 12.07
Severability
78
Section 12.08
Right of Setoff
78
Section 12.09
GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS.
79
Section 12.10
Headings
80
Section 12.11
Confidentiality
80
Section 12.12
Interest Rate Limitation
81
Section 12.13
EXCULPATION PROVISIONS
82
Section 12.14
No Third Party Beneficiaries
82
Section 12.15
USA Patriot Act Notice
82

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ANNEXES, EXHIBITS AND SCHEDULES
 
 

 
Annex I
Commitments
   
Exhibit A
Form of Note
Exhibit B
Form of Loan Notice
Exhibit C
Form of Interest Election Request
Exhibit D
Form of Compliance Certificate
Exhibit E
Development Plan
Exhibit F
Security Instruments
Exhibit G
Form of Assignment and Assumption
       
Schedule 7.05
Litigation
Schedule 7.14
Subsidiaries and Partnerships
Schedule 7.18
Gas Imbalances
Schedule 7.19
Marketing Contracts
Schedule 7.20
Swap Agreements
Schedule 7.24
Material Agreements
Schedule 7.28
Existing Accounts Payable
Schedule 8.13
Additional Oil & Gas Properties
Schedule 9.12
Oil & Gas Properties subject to the Assignment of Overriding Royalty Interest

 
 
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THIS SECOND LIEN TERM LOAN AGREEMENT dated as of September 9, 2008, is among
Petro Resources Corporation, a corporation duly formed and existing under the
laws of the State of Delaware (the “Borrower”); each of the Lenders from time to
time party hereto and CIT Capital USA Inc. (in its individual capacity, “CIT”),
as administrative agent for the Lenders (in such capacity, together with its
successors in such capacity, the “Administrative Agent”).
 
R E C I T A L S
 
A.           The Borrower has requested that the Lenders provide certain second
lien loans to the Borrower.
 
B.           The Lenders have agreed to make such loans subject to the terms and
conditions of this Agreement.
 
C.           In consideration of the mutual covenants and agreements herein
contained and of the loans and commitments hereinafter referred to, the parties
hereto agree as follows:
 
ARTICLE I
Definitions and Accounting Matters
 

Section 1.01 Terms Defined Above.  As used in this Agreement, each term defined
above has the meaning indicated above.
 
Section 1.02 Certain Defined Terms.  As used in this Agreement, the following
terms have the meanings specified below:
 
“ABR”, when used in reference to any Loan or Borrowing, refers to whether such
Loan, or the Loans comprising such Borrowing, are bearing interest at a rate
determined by reference to the Alternate Base Rate.
 
“Adjusted LIBO Rate” means, with respect to any Eurodollar Borrowing for any
Interest Period, an interest rate per annum (rounded upwards, if necessary, to
the next 1/100 of 1%) equal to (a) the LIBO Rate for such Interest Period
multiplied by (b) the Statutory Reserve Rate.
 
“Affiliate” means, with respect to a specified Person, another Person that
directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
 
“Aggregate Commitments” means the Commitments of all the Lenders in the
aggregate amount of $15,000,000.
 
“Agreement” means this Second Lien Term Loan Agreement, as the same may from
time to time be amended, modified, supplemented or restated.
 
“Alternate Base Rate” means, for any day, a rate per annum equal to the greater
of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective
Rate in effect on such day plus ½ of 1%.  Any change in the Alternate Base Rate
due to a change in the Prime Rate or the Federal Funds Effective Rate shall be
effective from and including the effective date of such change in the Prime Rate
or the Federal Funds Effective Rate, respectively.
 

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“Applicable Margin” means, on any day, (a) with respect to any Eurodollar Loan,
a rate per annum equal to 7.50% and (b) with respect to any ABR Loan, a rate per
annum equal to 6.50%.
 
“Applicable Percentage” means, with respect to any Lender, on or prior to the
Effective Date, the percentage of the Aggregate Commitments represented by such
Lender’s Commitment as such percentage is set forth on Annex I.
 
“Approved Counterparty” means (a) any “Lender” as such term is defined under the
Senior Revolving Credit Agreement or any Affiliate of any such “Lender” at such
time the Swap Agreements were entered into; (b) any other Person whose long term
senior unsecured debt rating is A-/A3 by S&P or Moody’s (or their equivalent) or
higher or (c) with regard to Swap Agreements in respect of commodities, and
subject to the conditions set forth therein, any other Person listed on Schedule
1.02 of the Senior Revolving Credit Agreement as of the Effective Date or
approved by the Lenders in writing hereafter, provided that, with respect to (b)
and (c) above, such Person shall have executed an intercreditor agreement in
form and substance reasonably acceptable to the Administrative Agent.
 
“Approved Fund” means (i) any Person (other than a natural person) engaged in
making, purchasing, holding, or investing in commercial loans and similar
extensions of credit and that is advised, administered, or managed by a Lender,
an Affiliate of a Lender (or an entity or an Affiliate of an entity that
administers, advises or manages a Lender); (ii) with respect to any Lender that
is an investment fund, any other investment fund that invests in loans and that
is advised, administered or managed by the same investment advisor as such
Lender or by an Affiliate of such investment advisor; and (iii) any third party
which provides “warehouse financing” to a Person described in the preceding
clause (i) or (ii) (and any Person described in said clause (i) or (ii) shall
also be deemed an Approved Fund with respect to such third party providing such
warehouse financing).

 
“Approved Petroleum Engineers” means (a) Cawley, Gillespie & Associates, Inc.,
(b) DeGolyer and MacNaughton, (c) Ryder Scott Company, L.P., (d) Netherland,
Sewell & Associates, Inc., and (e) any other independent petroleum engineers
reasonably acceptable to the Administrative Agent.
 
“Arranger” means CIT Capital Securities LLC, in its capacities as the sole lead
arranger and sole bookrunner hereunder.
 
“Assignment and Assumption” means an assignment and assumption entered into by a
Lender and an assignee (with the consent of any party whose consent is required
by Section 12.04(a)), and accepted by the Administrative Agent, in the form of
Exhibit G or any other form approved by the Administrative Agent.
 
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“Board” means the Board of Governors of the Federal Reserve System of the United
States of America or any successor Governmental Authority.
 
“Borrowing” means Loans of the same Type, made, converted or continued on the
same date and, in the case of Eurodollar Loans, as to which a single Interest
Period is in effect.
 
“Business Day” means any day that is not a Saturday, Sunday or other day on
which commercial banks in New York City or Houston, Texas are authorized or
required by law to remain closed; and if such day relates to a Borrowing or
continuation of, a payment or prepayment of principal of or interest on, or a
conversion of or into, or the Interest Period for, a Eurodollar Loan or a notice
by the Borrower with respect to any such Borrowing or continuation, payment,
prepayment, conversion or Interest Period, any day which is also a day on which
banks are open for dealings in dollar deposits in the London interbank market.
 
“Capital Expenditures” means, in respect of any Person, for any period, the
aggregate (determined without duplication) of all exploration and development
expenditures and costs that should be capitalized in accordance with GAAP and
any other expenditures that are capitalized on the balance sheet of such Person
in accordance with GAAP.
 
“Capital Leases” means, in respect of any Person, all leases which shall have
been, or should have been, in accordance with GAAP, recorded as capital leases
on the balance sheet of the Person liable (whether contingent or otherwise) for
the payment of rent thereunder.
 
“Cash Receipts” means all cash or cash equivalents received by or on behalf of
the Borrower and its Subsidiaries with respect to the following: (a) sales from
the Oil and Gas Properties (including any other working interest owner receipts
received by Borrower or its Affiliates as operator of Oil and Gas Properties),
(b) cash representing operating revenue earned or to be earned by the Borrower
and its Subsidiaries, (c) any insurance proceeds received by the Borrower or its
Subsidiaries, (d) any net proceeds from Swap Agreements and (e) any other cash
or cash equivalents received by the Borrower or its Subsidiaries from whatever
source; provided that advances under the Loans, and any capital contributions or
transfers made to the Borrower by any of its members, or by the Borrower to any
of its Subsidiaries, shall not constitute “Cash Receipts”.
 
 “Casualty Event” means any loss, casualty or other insured damage to, or any
nationalization, taking under power of eminent domain or by condemnation or
similar proceeding of, any Property of the Borrower or any of its Subsidiaries,
in each case having a fair market of value to such Property in excess of
$250,000.
 
“Change in Control” means the occurrence of the following events (a) the
acquisition of ownership, directly or indirectly, beneficially or of record, by
any Person or group of Equity Interests representing more than 30% of the
aggregate ordinary voting power represented by the issued and outstanding Equity
Interests of the Borrower, (b) occupation of a majority of the seats (other than
vacant seats) on the board of directors of the Borrower by Persons who were
neither (i) nominated by the board of directors of the Borrower nor (ii)
appointed by directors so nominated, (c) the management of the Borrower is, in
the reasonable opinion of the Lenders, substantially diminished as a result of
the departure of Donald L. Kirkendall or Wayne P. Hall, (d) Eagle Operating Inc.
is no longer the operator of the Oil and Gas Properties located in the Williston
Basin in North Dakota or (e) Approach Resources Inc. is no longer the operator
of the Oil and Gas Properties located in West Texas.
 
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“Change in Law” means (a) the adoption of any law, rule or regulation after the
date of this Agreement by any Governmental Authority, (b) any change in any law,
rule or regulation or in the interpretation or application thereof by any
Governmental Authority after the date of this Agreement or (c) compliance by any
Lender (or, for purposes of Section 5.01(b)), by any lending office of such
Lender or by such Lender’s holding company, if any) with any request, guideline
or directive (whether or not having the force of law) of any Governmental
Authority made or issued after the date of this Agreement.
 
“Code” means the Internal Revenue Code of 1986, as amended from time to time,
and any successor statute.
 
“Collateral” means any and all (a) Oil and Gas Properties of the Borrower and
its Subsidiaries of whatsoever kind or description (whether now owned or
hereafter acquired), (b) of the issued and outstanding Equity Interests of all
existing or future acquired or created Subsidiaries of the Borrower and (c)
other Properties of whatsoever kind or description, in each case, in which an
interest is granted or pledged under a Security Instrument.
 
“Commitment” means, with respect to each Lender, the obligation of such Lender
to make its Loan to the Borrower pursuant to Section 2.01 on the Effective Date
in an aggregate principal amount not to exceed the amount set forth opposite
such Lender’s name on Annex I under the caption “Commitment”.
 
“Consolidated Net Income” means with respect to the Borrower and the
Consolidated Subsidiaries, for any period, the aggregate of the net income (or
loss) of the Borrower and the Consolidated Subsidiaries after allowances for
taxes for such period determined on a consolidated basis in accordance with
GAAP; provided that there shall be excluded from such net income (to the extent
otherwise included therein) the following: (a) the net income of any Person in
which the Borrower or any Consolidated Subsidiary has an interest (which
interest does not cause the net income of such other Person to be consolidated
with the net income of the Borrower and its Consolidated Subsidiaries in
accordance with GAAP), except to the extent of the amount of dividends or
distributions actually paid in cash during such period by such other Person to
the Borrower or to a Consolidated Subsidiary, as the case may be; (b) the net
income (but not loss) during such period of any Consolidated Subsidiary to the
extent that the declaration or payment of dividends or similar distributions or
transfers or loans by that Consolidated Subsidiary is not at the time permitted
by operation of the terms of its charter or any agreement, instrument or
Governmental Requirement applicable to such Consolidated Subsidiary or is
otherwise restricted or prohibited, in each case determined in accordance with
GAAP; (c) the net income (or loss) of any Person acquired in a
pooling-of-interests transaction for any period prior to the date of such
transaction; (d) any extraordinary gains or losses during such period; (e)
non-cash gains, losses or adjustments under FASB Statement Nos. 133 or 143; and
(f) any gains or losses attributable to writeups or writedowns of assets,
including ceiling test writedowns and writedowns under FASB Statements Nos. 19,
142 and 144; and provided further that if the Borrower or any Consolidated
Subsidiary shall acquire or dispose of any Property during such period, then
Consolidated Net Income shall be calculated after giving pro forma effect to
such acquisition or disposition, as if such acquisition or disposition had
occurred on the first day of such period.
 
 
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“Consolidated Subsidiaries” means each Subsidiary of the Borrower (whether now
existing or hereafter created or acquired) the financial statements of which
shall be (or should have been) consolidated with the financial statements of the
Borrower in accordance with GAAP.
 
“Control” means the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or otherwise.  For the
purposes of this definition, and without limiting the generality of the
foregoing, any Person that owns directly or indirectly 10% or more of the Equity
Interests having ordinary voting power for the election of the directors or
other governing body of a Person (other than as a limited partner of such other
Person) will be deemed to “control” such other Person.  “Controlling” and
“Controlled” have meanings correlative thereto.
 
“Debt” means, for any Person, without duplication and on a consolidated basis,
the sum of the following (without duplication): (a) all obligations of such
Person for borrowed money or evidenced by bonds, bankers’ acceptances,
debentures, notes or other similar instruments; (b) all obligations of such
Person (whether contingent or otherwise) in respect of letters of credit, surety
or other bonds and similar instruments; (c) all accounts payable and all accrued
expenses, liabilities or other obligations of such Person to pay the deferred
purchase price of Property or services incurred in the ordinary course of
business, in each case which are greater than ninety (90) days past the date of
invoice or delinquent; (d) all obligations under Capital Leases; (e) all
obligations under Synthetic Leases; (f) all Debt (as defined in the other
clauses of this definition) of others secured by (or for which the holder of
such Debt has an existing right, contingent or otherwise, to be secured by) a
Lien on any Property of such Person, whether or not such Debt is assumed by such
Person, to the extent of the value of such Property; (g) all Debt (as defined in
the other clauses of this definition) of others guaranteed by such Person or in
which such Person otherwise assures a creditor against loss of the Debt
(howsoever such assurance shall be made) to the extent of the lesser of the
amount of such Debt and the maximum stated amount of such guarantee or assurance
against loss; (h) all obligations or undertakings of such Person to maintain or
cause to be maintained the financial position or covenants of others or to
purchase the Debt or Property of others; (i) obligations to deliver commodities,
goods or services, including, without limitation, Hydrocarbons, in consideration
of one or more advance payments, other than gas balancing arrangements in the
ordinary course of business; (j) obligations to pay for goods or services
whether or not such goods or services are not actually received or utilized by
such Person; (k) any Debt of a partnership for which such Person is liable
either by agreement, by operation of law or by a Governmental Requirement but
only to the extent of such liability; (l) Disqualified Capital Stock of such
Person; and (m) the undischarged balance of any production payment created by
such Person or for the creation of which such Person directly or indirectly
received payment.  The Debt of any Person shall include all obligations of such
Person of the character described above to the extent such Person remains
legally liable in respect thereof notwithstanding that any such obligation is
not included as a liability of such Person under GAAP.  Notwithstanding anything
herein to the contrary, Debt shall not include obligations of any Person under,
or in respect of, any Swap Agreements.  For the avoidance of doubt, any amount
owing in respect of the Eagle PSA shall not be considered Debt.
 
 
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“Default” means any event or condition which constitutes an Event of Default or
that upon notice, lapse of time or both would, unless cured or waived, become an
Event of Default.
 
“Development Plan” shall mean the Borrower’s Plan of Development for the Oil and
Gas Properties and the related Hydrocarbon Interests as of the Effective Date
attached hereto as Exhibit E, as approved by Administrative Agent and as updated
pursuant to Section 8.01(k)(iii) and from time to time pursuant to Section 9.19.
 
“Disqualified Capital Stock” means any Equity Interest that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable) or upon the happening of any event, matures or is mandatorily
redeemable for any consideration other than other Equity Interests (which would
not constitute Disqualified Capital Stock), pursuant to a sinking fund
obligation or otherwise, or is convertible or exchangeable for Debt or
redeemable for any consideration other than other Equity Interests (which would
not constitute Disqualified Capital Stock) at the option of the holder thereof,
in whole or in part, on or prior to the date that is one year after Termination
Date.
 
“dollars” or “$” refers to lawful money of the United States of America.
 
“Eagle PSA” means that certain Purchase and Sale Agreement, dated as of December
11, 2006, by and between Eagle Operating Inc. and the Borrower.
 
“EBITDAX” means, for any period, the sum of Consolidated Net Income for such
period plus the following expenses or charges to the extent deducted from
Consolidated Net Income in such period: interest, income taxes, depreciation,
depletion, amortization, exploration expenses and other similar noncash charges
(including, without limitation, accretion related to non-cash stock based
compensation), minus all noncash income added to Consolidated Net Income;
provided that EBITDAX for the fiscal quarters ending December 31, 2008, March
31, 2009 and June 30, 2009 shall be calculated as follows:
 
(a)           for the fiscal quarter ending December 31, 2008, EBITDAX shall be
EBITDAX for such quarter multiplied by four;
 
(b)           for the fiscal quarter ending March 31, 2009, EBITDAX shall be
EBITDAX for the six-month period ending on such date multiplied by two.
 
(c)           for the fiscal quarter ending June 30, 2009, EBITDAX shall be
EBITDAX for the nine-month period ending on such date multiplied by four/thirds.
 
Thereafter, EBITDAX shall be calculated using EBITDAX for the period of four
fiscal quarters ending on the last day of the fiscal quarter immediately
preceding the date of determination for which financial statements are
available.
 
“Effective Date” means the date on which the conditions specified in Section
6.01 are satisfied (or waived in accordance with Section 12.02).
 
 
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“Environmental Laws” means any and all Governmental Requirements pertaining in
any way to health, safety, the environment, the preservation or reclamation of
natural resources, or the management, Release or threatened Release of any
Hazardous Materials, in effect in any and all jurisdictions in which the
Borrower or any Subsidiary is conducting, or at any time has conducted,
business, or where any Property of the Borrower or any Subsidiary is located,
including without limitation, the Oil Pollution Act of 1990 (“OPA”), as amended,
the Clean Air Act, as amended, the Comprehensive Environmental, Response,
Compensation, and Liability Act of 1980 (“CERCLA”), as amended, the Federal
Water Pollution Control Act, as amended, the Occupational Safety and Health Act
of 1970, as amended, the Resource Conservation and Recovery Act of 1976
(“RCRA”), as amended, the Safe Drinking Water Act, as amended, the Toxic
Substances Control Act, as amended, the Superfund Amendments and Reauthorization
Act of 1986, as amended, the Hazardous Materials Transportation Law, as amended,
and other environmental conservation or protection Governmental Requirements.
The term “oil” shall have the meaning specified in OPA, the terms “hazardous
substance” and “release” (or “threatened release”) have the meanings specified
in CERCLA, the terms “solid waste” and “disposal” (or “disposed”) have the
meanings specified in RCRA and the term “oil and gas waste” shall have the
meaning specified in Section 91.1011 of the Texas Natural Resources Code
(“Section 91.1011”); provided, however, that (a) in the event either OPA,
CERCLA, RCRA or Section 91.1011 is amended so as to broaden the meaning of any
term defined thereby, such broader meaning shall apply subsequent to the
effective date of such amendment and (b) to the extent the laws of the state or
other jurisdiction in which any Property of the Borrower or any Subsidiary is
located establish a meaning for “oil,” “hazardous substance,” “release,” “solid
waste,” “disposal” or “oil and gas waste” which is broader than that specified
in either OPA, CERCLA, RCRA or Section 91.1011, such broader meaning shall
apply.
 
“Environmental Permit” means any permit, registration, license, notice,
approval, consent, exemption, variance, or other authorization required under or
issued pursuant to applicable Environmental Laws.
 
“Equity Interests” means shares of capital stock, partnership interests,
membership interests in a limited liability company, beneficial interests in a
trust or other equity ownership interests in a Person, and any warrants, options
or other rights entitling the holder thereof to purchase or acquire any such
Equity Interest.
 
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
and any successor statute.
 
“ERISA Affiliate” means each trade or business (whether or not incorporated)
which together with the Borrower or a Subsidiary would be deemed to be a “single
employer” within the meaning of section 4001(b)(1) of ERISA or subsections (b),
(c), (m) or (o) of section 414 of the Code.
 
“Eurodollar”, when used in reference to any Loan or Borrowing, refers to whether
such Loan, or the Loans comprising such Borrowing, are bearing interest at a
rate determined by reference to the Adjusted LIBO Rate.
 
“Event of Default” has the meaning assigned such term in Section 10.01.
 
 
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“Excepted Liens” means:  (a) Liens for Taxes, assessments or other governmental
charges or levies which are not delinquent or which are being contested in good
faith by appropriate action and for which adequate reserves have been maintained
in accordance with GAAP; (b) Liens in connection with workers’ compensation,
unemployment insurance or other social security, old age pension or public
liability obligations which are not delinquent or which are being contested in
good faith by appropriate action and for which adequate reserves have been
maintained in accordance with GAAP; (c) statutory landlord’s liens, operators’,
vendors’, carriers’, warehousemen’s, repairmen’s, mechanics’, suppliers’,
workers’, materialmen’s, construction or other like Liens arising by operation
of law in the ordinary course of business or incident to the exploration,
development, operation and maintenance of Oil and Gas Properties each of which
is in respect of obligations that are not delinquent or which are being
contested in good faith by appropriate action and for which adequate reserves
have been maintained in accordance with GAAP; (d) contractual Liens which arise
in the ordinary course of business under operating agreements, joint venture
agreements, oil and gas partnership agreements, oil and gas leases, farm-out
agreements, division orders, contracts for the sale, transportation or exchange
of oil and natural gas, unitization and pooling declarations and agreements,
area of mutual interest agreements, overriding royalty agreements, marketing
agreements, processing agreements, net profits agreements, development
agreements, gas balancing or deferred production agreements, injection,
repressuring and recycling agreements, salt water or other disposal agreements,
seismic or other geophysical permits or agreements, and other agreements which
are usual and customary in the oil and gas business and are for claims which are
not delinquent or which are being contested in good faith by appropriate action
and for which adequate reserves have been maintained in accordance with GAAP,
provided that any such Lien referred to in this clause does not materially
impair the use of the Property covered by such Lien for the purposes for which
such Property is held by the Borrower or any Subsidiary or materially impair the
value of such Property subject thereto; (e) Liens arising solely by virtue of
any statutory or common law provision relating to banker’s liens, rights of
set-off or similar rights and remedies and burdening only deposit accounts or
other funds maintained with a creditor depository institution, provided that no
such deposit account is a dedicated cash collateral account or is subject to
restrictions against access by the depositor in excess of those set forth by
regulations promulgated by the Board and no such deposit account is intended by
Borrower or any of its Subsidiaries to provide collateral to the depository
institution; (f) easements, restrictions, servitudes, permits, conditions,
covenants, exceptions or reservations in any Property of the Borrower or any
Subsidiary for the purpose of roads, pipelines, transmission lines,
transportation lines, distribution lines for the removal of gas, oil, coal or
other minerals or timber, and other like purposes, or for the joint or common
use of real estate, rights of way, facilities and equipment, that do not secure
any monetary obligations and which in the aggregate do not materially impair the
use of such Property for the purposes of which such Property is held by the
Borrower or any Subsidiary or materially impair the value of such Property
subject thereto; (g) Liens on cash or securities pledged to secure performance
of tenders, surety and appeal bonds, government contracts, performance and
return of money bonds, bids, trade contracts, leases, statutory obligations,
regulatory obligations and other obligations of a like nature incurred in the
ordinary course of business and (h) judgment and attachment Liens not giving
rise to an Event of Default, provided that any appropriate legal proceedings
which may have been duly initiated for the review of such judgment shall not
have been finally terminated or the period within which such proceeding may be
initiated shall not have expired and no action to enforce such Lien has been
commenced; provided, further that Liens described in clauses (a) through (e)
shall remain “Excepted Liens” only for so long as no action to enforce such Lien
has been commenced and no intention to subordinate the first priority Lien
granted in favor of the Administrative Agent and the Lenders is to be hereby
implied or expressed by the permitted existence of such Excepted Liens.
 
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“Excluded Taxes” means, with respect to the Administrative Agent, any Lender, or
any other recipient of any payment to be made by or on account of any obligation
of the Borrower or any Guarantor hereunder or under any other Loan Document, (a)
income or franchise taxes imposed on (or measured by) its net income by the
United States of America or such other jurisdiction under the laws of which such
recipient is organized or in which its principal office is located or, in the
case of any Lender, in which its applicable lending office is located, (b) any
branch profits taxes imposed by the United States of America or any similar tax
imposed by any other jurisdiction in which the Borrower or any Guarantor is
located, and (c) in the case of a Foreign Lender, any withholding tax that is
imposed on amounts payable to such Foreign Lender at the time such Foreign
Lender becomes a party to this Agreement (or designates a new lending office) or
is attributable to such Foreign Lender’s failure to comply with Section 5.03(e),
except to the extent that such Foreign Lender (or its assignor, if any) was
entitled, at the time of designation of a new lending office (or assignment), to
receive additional amounts with respect to such withholding tax pursuant to
Section 5.03(a) or Section 5.03(c).
 
“Existing Credit Agreement” means that certain Credit Agreement, dated as of
February 16, 2007, among PRC Williston LLC, D.B. Zwirn Special Opportunities
Fund, L.P., and the lenders party thereto.
 
“Federal Funds Effective Rate” means, for any day, the weighted average (rounded
upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published on the next succeeding Business Day by
the Federal Reserve Bank of New York, or, if such rate is not so published for
any day that is a Business Day, the average (rounded upwards, if necessary, to
the next 1/100 of 1%) of the quotations for such day for such transactions
received by JPMorgan Chase Bank, N.A. from three Federal funds brokers of
recognized standing selected by it.
 
“Fee Letter” means that certain Fee letter dated as of September 9, 2008, by and
between the Borrower and the Administrative Agent.
 
“Financial Officer” means, for any Person, the chief financial officer,
principal accounting officer, treasurer or controller of such Person.  Unless
otherwise specified, all references herein to a Financial Officer means a
Financial Officer acting on behalf of the Borrower.
 
“Financial Statements” means the financial statement or statements of the
Borrower and its Consolidated Subsidiaries referred to in Section 7.04(a).
 
“Foreign Lender” means any Lender that is organized under the laws of a
jurisdiction other than that in which the Borrower is located.  For purposes of
this definition, the United States of America, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.
 
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“Foreign Subsidiary” means any Subsidiary that is not organized under the laws
of the United States of America or any state thereof or the District of
Columbia.
 
“GAAP” means generally accepted accounting principles in the United States of
America as in effect from time to time subject to the terms and conditions set
forth in Section 1.05.
 
“General and Administrative Costs” means reasonable, normal and customary
expenses and costs paid or payable that are classified as general and
administrative costs, including salaries and all other compensation to the
management of the Borrower, consulting fees, salary, rent, supplies, travel and
entertainment, insurance, accounting, legal, engineering and broker related
fees, required to manage the affairs of the Borrower.
 
“Governmental Authority” means the government of the United States of America,
any other nation or any political subdivision thereof, whether state or local,
and any agency, authority, instrumentality, regulatory body, court, central bank
or other entity exercising executive, legislative, judicial, taxing, regulatory
or administrative powers or functions of or pertaining to government over the
Borrower, any Subsidiary, any of their Properties, the Administrative Agent or
any Lender.
 
“Governmental Requirement” means any law, statute, code, ordinance, order,
determination, rule, regulation, judgment, decree, injunction, franchise,
permit, certificate, license, authorization or other directive or requirement
(whether or not having the force of law), whether now or hereinafter in effect,
including, without limitation, Environmental Laws, energy regulations and
occupational, safety and health standards or controls, of any Governmental
Authority.
 
“Guarantors” means PRC Williston LLC and each other Subsidiary of the Borrower
that guarantees the Indebtedness pursuant to Section 8.13(c).

“Guaranty Agreement” means that certain Second Lien Guaranty and Collateral
Agreement executed by the Borrower and the Guarantors in form and substance
reasonably acceptable to the Administrative Agent unconditionally guarantying on
a joint and several basis, payment of the Indebtedness, as the same may be
amended, modified or supplemented from time to time.
 
“Hall Houston Minority Investment” means the Borrower’s Equity Interest in Hall
Houston Exploration II L.P., a Delaware limited partnership.
 
“Hazardous Material” means any substance regulated or as to which liability
might arise under any applicable Environmental Law and including without
limitation:  (a) any chemical, compound, material, product, byproduct, substance
or waste defined as or included in the definition or meaning of “hazardous
substance,” “hazardous material,” “hazardous waste,” “solid waste,” “toxic
waste,” “extremely hazardous substance,” “toxic substance,” “contaminant,”
“pollutant,” or words of similar meaning or import found in any applicable
Environmental Law; (b) Hydrocarbons, petroleum products, petroleum substances,
natural gas, oil, oil and gas waste, crude oil, and any components, fractions,
or derivatives thereof; and (c) radioactive materials, explosives, asbestos or
asbestos containing materials, polychlorinated biphenyls, radon, infectious or
medical wastes.
 
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“Highest Lawful Rate” means, with respect to each Lender, the maximum
nonusurious interest rate, if any, that at any time or from time to time may be
contracted for, taken, reserved, charged or received on the Notes or on other
Indebtedness under laws applicable to such Lender which are presently in effect
or, to the extent allowed by law, under such applicable laws which may hereafter
be in effect and which allow a higher maximum nonusurious interest rate than
applicable laws allow as of the date hereof.
 
“Hydrocarbon Interests” means all rights, titles, interests and estates now or
hereafter acquired in and to oil and gas leases, oil, gas and mineral leases, or
other liquid or gaseous hydrocarbon leases, mineral fee interests, overriding
royalty and royalty interests, net profit interests and production payment
interests, including any reserved or residual interests of whatever nature.
 
“Hydrocarbons” means oil, gas, casinghead gas, drip gasoline, natural gasoline,
condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all
products refined or separated therefrom.
 
“Indebtedness” means any and all amounts owing or to be owing by the Borrower,
any Subsidiary or any Guarantor (whether direct or indirect (including those
acquired by assumption), absolute or contingent, due or to become due, now
existing or hereafter arising): (a) to the Administrative Agent or any Lender
under any Loan Document and (b) all renewals, extensions and/or rearrangements
of any of the above.
 
“Indemnified Taxes” means Taxes other than Excluded Taxes.
 
“Initial Reserve Report” means the reports prepared on behalf of the Borrower by
Cawley, Gillespie & Associates, Inc. and DeGolyer and MacNaughton dated as of
July 17, 2008 and July 23, 2008, respectively, with respect to certain Oil and
Gas Properties of the Borrower and its Subsidiaries as of July 1, 2008.

“Intercreditor Agreement” means that certain Intercreditor Agreement by and
among the Borrower, the Administrative Agent and the administrative agent to the
Senior Revolving Credit Agreement, dated as of the date hereof, as the same may
from time to time be amended, modified, supplemented or restated in accordance
with the provisions thereof.
 
“Interest Election Request” means a request by the Borrower to convert or
continue a Borrowing in accordance with Section 2.04.
 
“Interest Payment Date” means (a) with respect to any ABR Loan, the last day of
each March, June, September and December and (b) with respect to any Eurodollar
Loan, the last day of the Interest Period applicable to the Borrowing of which
such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest
Period of more than three months’ duration, each day prior to the last day of
such Interest Period that occurs at intervals of three months’ duration after
the first day of such Interest Period.
 
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“Interest Period” means with respect to any Eurodollar Borrowing, the period
commencing on the date of such Borrowing and ending on the numerically
corresponding day in the calendar month that is one, two, three or six months
thereafter, as the Borrower may elect; provided, that (a) if any Interest Period
would end on a day other than a Business Day, such Interest Period shall be
extended to the next succeeding Business Day unless such next succeeding
Business Day would fall in the next calendar month, in which case such Interest
Period shall end on the next preceding Business Day and (b) any Interest Period
pertaining to a Eurodollar Borrowing that commences on the last Business Day of
a calendar month (or on a day for which there is no numerically corresponding
day in the last calendar month of such Interest Period) shall end on the last
Business Day of the last calendar month of such Interest Period.  For purposes
hereof, the date of a Borrowing initially shall be the date on which such
Borrowing is made and thereafter shall be the effective date of the most recent
conversion or continuation of such Borrowing.
 
“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, purchase or other
acquisition of any Debt or equity participation or interest in, or other
extension of credit to, any other Person (including the purchase of Property
from another Person subject to an understanding or agreement, contingent or
otherwise, to resell such Property to such Person, but excluding any such
advance, loan or extension of credit having a term not exceeding ninety (90)
days representing the purchase price of inventory or supplies sold by such
Person in the ordinary course of business); or (c) the purchase or acquisition
(in one or a series of transactions) of Property of another Person that
constitutes a business unit.
 
“Lenders” means the Persons listed on Annex I and any Person that shall have
become a party hereto pursuant to an Assignment and Assumption, other than any
such Person that ceases to be a party hereto pursuant to an Assignment and
Assumption.
 
“LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest
Period, the rate appearing on Reuters Screen LIBOR01 Page (or on any successor
or substitute page of such service, or any successor to or substitute for such
service, providing rate quotations comparable to those currently provided on
such page of such service, as determined by the Administrative Agent from time
to time for purposes of providing quotations of interest rates applicable to
dollar deposits in the London interbank market) at approximately 11:00 a.m.,
London time, two Business Days prior to the commencement of such Interest
Period, as the rate for dollar deposits with a maturity comparable to such
Interest Period.  In the event that such rate is not available at such time for
any reason, then the “LIBO Rate” with respect to such Eurodollar Borrowing for
such Interest Period shall be the rate at which dollar deposits of an amount
comparable to such Eurodollar Borrowing and for a maturity comparable to such
Interest Period are offered by the principal London office of a banking
institution selected by the Administrative Agent in immediately available funds
in the London interbank market at approximately 11:00 a.m., London time, two (2)
Business Days prior to the commencement of such Interest Period.
 
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“Lien” means any interest in Property securing an obligation owed to, or a claim
by, a Person other than the owner of the Property, whether such interest is
based on the common law, statute or contract, and whether such obligation or
claim is fixed or contingent, and including but not limited to (a) the lien or
security interest arising from a mortgage, encumbrance, pledge, security
agreement, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes or (b) production payments and the like payable out of Oil
and Gas Properties.  The term “Lien” shall include easements, restrictions,
servitudes, exceptions or reservations. For the purposes of this Agreement, the
Borrower and its Subsidiaries shall be deemed to be the owner of any Property
which it has acquired or holds subject to a conditional sale agreement, or
leases under a financing lease or other arrangement pursuant to which title to
the Property has been retained by or vested in some other Person in a
transaction intended to create a financing.
 
“Loan Documents” means this Agreement, the Notes, the Fee Letter, the
Intercreditor Agreement and the Security Instruments.
 
“Loan Notice” means a request by the Borrower for the Loans in accordance with
Section 2.03.
 
“Loans” means the loans made by the Lenders to the Borrower pursuant to this
Agreement.
 
“Majority Lenders” means, Lenders holding more than fifty percent (50%) of the
aggregate amount of the outstanding Loans at such time; provided, that if there
are only two Lenders, both Lenders shall be required to constitute the “Majority
Lenders”.
 
“Material Adverse Effect” means a material adverse change in, or material
adverse effect on (a) the business, operations, Property or condition (financial
or otherwise) of the Borrower and its Subsidiaries taken as a whole, (b) the
ability of the Borrower, any Subsidiary or any Guarantor to perform any of its
obligations under any Loan Document, (c) the validity or enforceability of any
Loan Document or (d) the rights and remedies of or benefits available to the
Administrative Agent or any Lender under any Loan Document.
 
“Material Agreements” has the meaning assigned such term in Section 7.24.
 
“Material Indebtedness” means Debt (other than the Loans), or obligations in
respect of one or more Swap Agreements, of any one or more of the Borrower and
its Subsidiaries in an aggregate principal amount exceeding $500,000.  For
purposes of determining Material Indebtedness, the “principal amount” of the
obligations of the Borrower or any Subsidiary in respect of any Swap Agreement
at any time shall be the Swap Termination Value.
 
“Moody’s” means Moody’s Investors Service, Inc. and any successor thereto that
is a nationally recognized rating agency.
 
“Mortgaged Property” means any Property owned by the Borrower or any Guarantor
which is subject to the Liens existing and to exist under the terms of the
Security Instruments.
 
“Multiemployer Plan” means a Plan which is a multiemployer plan as defined in
section 3(37) or 4001 (a)(3) of ERISA.
 
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“Net Cash Proceeds” means:
 
(a)           with respect to any disposition by the Borrower or any of its
Subsidiaries, the excess, if any, of (i) the sum of cash and cash equivalents
received in connection with such transaction (including any cash or cash
equivalents received by way of deferred payment pursuant to, or by monetization
of, a note receivable or otherwise, but only as and when so received) over (ii)
the sum of (A) the principal amount of any Indebtedness that is secured by the
applicable asset and that is required to be repaid in connection with such
transaction, (B) the reasonable and customary out-of-pocket expenses incurred by
the Borrower or such Subsidiary in connection with such transaction and (C)
income taxes reasonably estimated to be actually payable within two years of the
date of the relevant transaction as a result of any gain recognized in
connection therewith; provided that, if the amount of any estimated taxes
pursuant to subclause (C) exceeds the amount of taxes actually required to be
paid in cash in respect of such disposition, the aggregate amount of such excess
shall constitute Net Cash Proceeds; and
 
(b)           with respect to a Casualty Event, the sum of the cash and cash
equivalents received in connection with such Casualty Event shall constitute Net
Cash Proceeds.
 
“Net Debt” means, at any date, all Debt of the Borrower and the Consolidated
Subsidiaries on a consolidated basis, excluding cash on the balance sheet of the
Borrower and the Consolidated Subsidiaries.
 
“Nexen Contract” means, collectively, those certain Crude Oil Purchase
Contracts, dated as of March 8, 2007, by and between PRC Williston, LLC and
Nexen Marketing U.S.A. Inc. bearing the Nexen Contract Numbers: P07030486L,
P07030487L and P07030488L.
 
“Notes” means the promissory notes of the Borrower described in Section 2.02(d)
and being substantially in the form of Exhibit A, together with all amendments,
modifications, replacements, extensions and rearrangements thereof.
 
“Oil and Gas Properties” means (a) Hydrocarbon Interests; (b) the Properties now
or hereafter pooled or unitized with Hydrocarbon Interests; (c) all presently
existing or future unitization, pooling agreements and declarations of pooled
units and the units created thereby (including without limitation all units
created under orders, regulations and rules of any Governmental Authority) which
may affect all or any portion of the Hydrocarbon Interests; (d) all operating
agreements, contracts and other agreements, including production sharing
contracts and agreements, which relate to any of the Hydrocarbon Interests or
the production, sale, purchase, exchange or processing of Hydrocarbons from or
attributable to such Hydrocarbon Interests; (e) all Hydrocarbons in and under
and which may be produced and saved or attributable to the Hydrocarbon
Interests, including all oil in tanks, and all rents, issues, profits, proceeds,
products, revenues and other incomes from or attributable to the Hydrocarbon
Interests; (f) all tenements, hereditaments, appurtenances and Properties in any
manner appertaining, belonging, affixed or incidental to the Hydrocarbon
Interests and (g) all Properties, rights, titles, interests and estates
described or referred to above, including any and all Property, real or
personal, now owned or hereafter acquired and situated upon, used, held for use
or useful in connection with the operating, working or development of any of
such Hydrocarbon Interests or Property (excluding drilling rigs, automotive
equipment, rental equipment or other personal Property which may be on such
premises for the purpose of drilling a well or for other similar temporary uses)
and including any and all oil wells, gas wells, injection wells or other wells,
buildings, structures, fuel separators, liquid extraction plants, plant
compressors, pumps, pumping units, field gathering systems, tanks and tank
batteries, fixtures, valves, fittings, machinery and parts, engines, boilers,
meters, apparatus, equipment, appliances, tools, implements, cables, wires,
towers, casing, tubing and rods, surface leases, rights-of-way, easements and
servitudes together with all additions, substitutions, replacements, accessions
and attachments to any and all of the foregoing.
 
 
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“Operating Account” means the deposit account #0750275588 maintained at the
Borrower’s expense with the Operating Account Bank.

“Operating Account Bank” means Whitney National Bank or such other financial
institution selected by the Borrower and notified to the Administrative Agent in
writing.
 
“Organizational Documents” means, with respect to any Person, (a) in the case of
any corporation, the certificate of incorporation and by-laws (or similar
documents) of such Person, (b) in the case of any limited liability company, the
certificate of formation and limited liability company agreement (or similar
documents) of such Person, (c) in the case of any limited partnership, the
certificate of formation and limited partnership agreement (or similar
documents) of such Person, (d) in the case of any general partnership, the
partnership agreement (or similar document) of such Person and (e) in any other
case, the functional equivalent of the foregoing.
 
“Other Taxes” means any and all present or future stamp or documentary taxes or
any other excise or Property taxes, charges or similar levies arising from any
payment made hereunder or from the execution, delivery or enforcement of, or
otherwise with respect to, this Agreement and any other Loan Document.
 
“Participant” has the meaning assigned such term in Section 12.04(c)(i).
 
“Patriot Act” has the meaning assigned such term in Section 12.15.
 
“Person” means any natural person, corporation, limited liability company,
trust, joint venture, association, company, partnership, Governmental Authority
or other entity.
 
“PetroBridge Participation Agreement” means, collectively, that certain
Participation Agreement, dated as of February 16, 2007, by and between PRC
Williston LLC and Drawbridge Special Opportunities Fund LP, that certain
Participation Agreement, dated as of February 16, 2007, by and between PRC
Williston LLC and D.B. Zwirn Special Opportunities Fund, L.P. and that certain
Letter Agreement, dated as of February 16, 2007, by and among PRC Williston LLC,
Drawbridge Special Opportunities Fund LP and D.B. Zwirn Special Opportunities
Fund, L.P.
 
“Plan” means any employee pension benefit plan, as defined in section 3(2) of
ERISA, which (a) is currently or hereafter sponsored, maintained or contributed
to by the Borrower, a Subsidiary or an ERISA Affiliate or (b) was at any time
during the six calendar years preceding the date hereof, sponsored, maintained
or contributed to by the Borrower or a Subsidiary or an ERISA Affiliate.
 
 
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“Post Default Rate” shall mean, in respect of the principal of any Loan or any
other amount payable by the Borrower under this Agreement or any other Loan
Document, a rate per annum during the period commencing on the date of
occurrence of an Event of Default until such amount is paid in full or all
Events of Default are cured or waived equal to the applicable interest rate plus
two percent 2% per annum, but in no event to exceed the Highest Lawful Rate.
 
“Prime Rate” means the rate of interest per annum publicly announced from time
to time by JPMorgan Chase Bank, N.A. as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as being
effective.  Such rate is set by the JPMorgan Chase Bank, N.A. as a general
reference rate of interest, taking into account such factors as the JPMorgan
Chase Bank, N.A. may deem appropriate; it being understood that many of the
JPMorgan Chase Bank, N.A.’s commercial or other loans are priced in relation to
such rate, that it is not necessarily the lowest or best rate actually charged
to any customer and that the JPMorgan Chase Bank, N.A. may make various
commercial or other loans at rates of interest having no relationship to such
rate.
 
“Property” means any interest in any kind of property or asset, whether real,
personal or mixed, or tangible or intangible, including, without limitation,
cash, securities, accounts and contract rights.
 
“Proved Reserves” means “Proved Reserves” as defined in the Definitions for Oil
and Gas Reserves (in this paragraph, the “Definitions”) promulgated by the
Society of Petroleum Engineers (or any generally recognized successor) as in
effect at the time in question.  “Proved Developed Producing Reserves” means
Proved Reserves which are categorized as both “Developed” and “Producing” in the
Definitions, “Proved Developed Nonproducing Reserves” means Proved Reserves
which are categorized as both “Developed” and “Nonproducing” in the Definitions,
and “Proved Undeveloped Reserves” means Proved Reserves which are categorized as
“Undeveloped” in the Definitions
 
“Redemption” means with respect to any Debt, the repurchase, redemption,
permanent prepayment, repayment, defeasance or any other acquisition or
retirement for value (or the segregation of funds with respect to any of the
foregoing) of such Debt.  “Redeem” has the correlative meaning thereto.
 
“Register” has the meaning assigned such term in Section 12.04(b)(iv).
 
“Regulation D” means Regulation D of the Board, as the same may be amended,
supplemented or replaced from time to time.
 
“Related Parties” means, with respect to any specified Person, such Person’s
Affiliates and the respective directors, officers, employees, agents and
advisors (including attorneys, accountants and experts) of such Person and such
Person’s Affiliates.
 
“Release” means any depositing, spilling, leaking, pumping, pouring, placing,
emitting, discarding, abandoning, emptying, discharging, migrating, injecting,
escaping, leaching, dumping, or disposing.
 
“Remedial Work” has the meaning assigned such term in Section 8.09(a).
 
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“Required Lenders” means, Lenders holding at least sixty-six and two-thirds
percent (66 2/3%) of the aggregate amount of the outstanding Loans at such time;
provided, that if there are only two Lenders, both Lenders shall be required to
constitute the “Required Lenders”.
 
“Reserve Report” means a report, in form and substance reasonably satisfactory
to the Administrative Agent, setting forth, as of each January 1st or July 1st
(or such other date in the event of a redetermination pursuant to Section 2.06)
the proved oil and gas reserves attributable to the Oil and Gas Properties of
the Borrower and the Subsidiaries, together with a projection of the rate of
production and future net income, taxes, operating expenses and Capital
Expenditures with respect thereto as of such date, based upon the economic
assumptions consistent with the Administrative Agent’s lending requirements at
the time.
 
“Responsible Officer” means, as to any Person, the Chief Executive Officer, the
President, any Financial Officer or any Vice President of such Person.  Unless
otherwise specified, all references to a Responsible Officer herein shall mean a
Responsible Officer of the Borrower.
 
“Restricted Payment” means any dividend or other distribution (whether in cash,
securities or other Property) with respect to any Equity Interests in the
Borrower or any of its Subsidiaries, or any payment (whether in cash, securities
or other Property), including any sinking fund or similar deposit, on account of
the purchase, redemption, retirement, acquisition, cancellation or termination
of any such Equity Interests in the Borrower or any of its Subsidiaries or any
option, warrant or other right to acquire any such Equity Interests in the
Borrower or any of its Subsidiaries.
 
“SEC” means the Securities and Exchange Commission or any successor Governmental
Authority.
 
“Security Instruments” means the Guaranty Agreement, mortgages, deeds of trust
and other agreements, instruments or certificates described or referred to in
Exhibit F, and any and all other agreements, guarantees, instruments, consents
or certificates now or hereafter executed and delivered by the Borrower or any
other Person (other than Swap Agreements with the Lenders or any Affiliate of a
Lender or participation or similar agreements between any Lender and any other
lender or creditor with respect to any Indebtedness pursuant to this Agreement)
in connection with, or as security for the payment or performance of the
Indebtedness, the Notes,  or this Agreement, as such agreements may be amended,
modified, supplemented or restated from time to time.
 
“Senior Indebtedness” means the “Indebtedness” as defined in the Senior
Revolving Credit Agreement.
 
“Senior Revolving Credit Agreement” means that certain Loan Agreement dated of
even date herewith among the Borrower, CIT, as the administrative agent, and the
other agents and lenders from time to time party thereto, together with all
other amendments, modifications and supplements thereto permitted by the
Intercreditor Agreement.
 
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“Senior Revolving Credit Documents” means the Senior Revolving Credit Agreement,
the Senior Revolving Credit Notes and any “Loan Documents” (as defined therein),
in each case, together with all amendments, modifications and supplements
thereto.
 
“Senior Revolving Credit Notes” means the promissory notes from time to time
issued pursuant to the Senior Revolving Credit Agreement.
 
“S&P” means Standard & Poor’s Ratings Group, a division of The McGraw-Hill
Companies, Inc., and any successor thereto that is a nationally recognized
rating agency.
 
“Statutory Reserve Rate” means a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board to which the Administrative Agent is subject with
respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred
to as “Eurocurrency Liabilities” in Regulation D of the Board).  Such reserve
percentages shall include those imposed pursuant to such Regulation
D.  Eurodollar Loans shall be deemed to constitute eurocurrency funding and to
be subject to such reserve requirements without benefit of or credit for
proration, exemptions or offsets that may be available from time to time to any
Lender under such Regulation D or any comparable regulation.  The Statutory
Reserve Rate shall be adjusted automatically on and as of the effective date of
any change in any reserve percentage.
 
“Subsidiary” means: (a) any Person of which at least a majority of the
outstanding Equity Interests having by the terms thereof ordinary voting power
to elect a majority of the board of directors, managers or other governing body
of such Person (irrespective of whether or not at the time Equity Interests of
any other class or classes of such Person shall have or might have voting power
by reason of the happening of any contingency) is at the time directly or
indirectly owned or controlled by the Borrower or one or more of its
Subsidiaries or by the Borrower and one or more of its Subsidiaries and (b) any
partnership of which the Borrower or any of its Subsidiaries is a general
partner.  Unless otherwise indicated herein, each reference to the term
“Subsidiary” shall mean a Subsidiary of the Borrower.
 
“Swap Agreement” means any agreement with respect to any swap, forward, future
or derivative transaction or option or similar agreement, whether exchange
traded, “over-the-counter” or otherwise, involving, or settled by reference to,
one or more interest rates, currencies, commodities, equity or debt instruments
or securities, or economic, financial or pricing indices or measures of
economic, financial or pricing risk or value or any similar transaction or any
combination of these transactions; provided that no phantom stock or similar
plan providing for payments only on account of services provided by current or
former directors, officers, employees or consultants of the Borrower or the
Subsidiaries shall be a Swap Agreement.
 
“Swap Termination Value” means, in respect of any one or more Swap Agreements,
after taking into account the effect of any legally enforceable netting
agreement relating to such Swap Agreements, (a) for any date on or after the
date such Swap Agreements have been closed out and termination value(s)
determined in accordance therewith, such termination value(s) and (b) for any
date prior to the date referenced in clause (a), the amount(s) determined as the
mark-to-market value(s) for such Swap Agreements, as determined by the
counterparties to such Swap Agreements.
 
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“Synthetic Leases” means, in respect of any Person, all leases which shall have
been, or should have been, in accordance with GAAP, treated as operating leases
on the financial statements of the Person liable (whether contingently or
otherwise) for the payment of rent thereunder and which were properly treated as
indebtedness for borrowed money for purposes of U.S. federal income taxes, if
the lessee in respect thereof is obligated to either purchase for an amount in
excess of, or pay upon early termination an amount in excess of, 80% of the
residual value of the Property subject to such operating lease upon expiration
or early termination of such lease.
 
“Taxes” means any and all present or future taxes, levies, imposts, duties,
deductions, charges or withholdings imposed by any Governmental Authority.
 
“Termination Date” means four years from the Effective Date.
 
“Total Reserve Value” means, with respect to any Proved Reserves expected to be
produced from any Oil and Gas Properties, the net present value, discounted at
10% per annum, of the future net revenues expected to accrue to the Borrower’s
and its Subsidiaries’ collective interests in such reserves during the remaining
expected economic lives of such reserves.  Each calculation of such expected
future net revenues shall be made in accordance with the then existing standards
of the Society of Petroleum Engineers, provided that in any event (a)
appropriate deductions shall be made for severance and ad valorem taxes, and for
operating, gathering, transportation and marketing costs required for the
production and sale of such reserves, (b) the pricing assumptions used in
determining Total Reserve Value for any particular reserves shall be based upon
(i) annual quotations on the New York Mercantile Exchange for Henry Hub (natural
gas) or Cushing, Oklahoma (oil) futures on the date of the relevant Reserve
Report for each calendar year to the extent such quotations are available for
future periods, provided that with respect to quotations for calendar years
after the fifth calendar year, the quotation for the fifth calendar year shall
be applied, (ii) with respect to future periods for which quotations are not
available on the New York Mercantile Exchange, constant pricing for such periods
based on the quotation for the last period for which a quotation is available on
the New York Mercantile Exchange for Henry Hub (natural gas) or Cushing,
Oklahoma (oil), (c) operating expenses shall be held constant, (d) future
Capital Expenditures shall be expressed in current year dollars (i.e., inflation
shall not be assumed), and (e) to the extent basis Swap Agreements are not in
place, the cash-flows derived from the pricing assumptions set forth in clause
(b) above shall be further adjusted to account for the historical basis
differentials for each month during the preceding 12-month period calculated by
comparing realized crude oil and natural gas prices to Cushing, Oklahoma and
Henry Hub NYMEX prices for each month during such period.
 
“Touradji Preferred Equity” means the shares of Series A Convertible Preferred
Stock of the Borrower issued or issuable in the aggregate to Touradji DeepRock
Master Fund, Ltd. and Touradji Global Resources Master Fund, Ltd. pursuant to
that certain Securities Purchase Agreement, dated as of April 2, 2007, by and
among the Borrower, Touradji DeepRock Master Fund, Ltd. and Touradji Global
Resources Master Fund, Ltd.
 
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“Transactions” means, with respect to (a) the Borrower, the execution, delivery
and performance by the Borrower of this Agreement and each other Loan Document
to which it is a party, the borrowing of Loans and the use of the proceeds
thereof, and the grant of Liens by the Borrower on Mortgaged Properties and
other Properties pursuant to the Security Instruments and (b) each Guarantor,
the execution, delivery and performance by such Guarantor of each Loan Document
to which it is a party, the guaranteeing of the Indebtedness and the other
obligations under the Guaranty Agreement by such Guarantor and such Guarantor’s
grant of the security interests and provision of collateral under the Security
Instruments, and the grant of Liens by such Guarantor on Mortgaged Properties
and other Properties pursuant to the Security Instruments.
 
“Type”, when used in reference to any Loan or Borrowing, refers to whether the
rate of interest on such Loan, or on the Loans comprising such Borrowing, is
determined by reference to the Alternate Base Rate or the Adjusted LIBO Rate.
 
Section 1.03 Types of Loans and Borrowings.  For purposes of this Agreement,
Loans and Borrowings, respectively, may be classified and referred to by Type
(e.g., a “Eurodollar Loan” or a “Eurodollar Borrowing”).
 
Section 1.04 Terms Generally; Rules of Construction.  The definitions of terms
herein shall apply equally to the singular and plural forms of the terms
defined.  Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms.  The words “include”,
“includes” and “including” shall be deemed to be followed by the phrase “without
limitation”.  The word “will” shall be construed to have the same meaning and
effect as the word “shall”.  Unless the context requires otherwise (a) any
definition of or reference to any agreement, instrument or other document herein
shall be construed as referring to such agreement, instrument or other document
as from time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth in the
Loan Documents), (b) any reference herein to any law shall be construed as
referring to such law as amended, modified, codified or reenacted, in whole or
in part, and in effect from time to time, (c) any reference herein to any Person
shall be construed to include such Person’s successors and assigns (subject to
the restrictions contained in the Loan Documents), (d) the words “herein”,
“hereof” and “hereunder”, and words of similar import, shall be construed to
refer to this Agreement in its entirety and not to any particular provision
hereof, (e) with respect to the determination of any time period, the word
“from” means “from and including” and the word “to” means “to and including” and
(f) any reference herein to Articles, Sections, Annexes, Exhibits and Schedules
shall be construed to refer to Articles and Sections of, and Annexes, Exhibits
and Schedules to, this Agreement.  No provision of this Agreement or any other
Loan Document shall be interpreted or construed against any Person solely
because such Person or its legal representative drafted such provision.
 
Section 1.05 Accounting Terms and Determinations; GAAP.  Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all financial statements and certificates and reports as to financial matters
required to be furnished to the Administrative Agent or the Lenders hereunder
shall be prepared, in accordance with GAAP, applied on a basis consistent with
the Financial Statements except for changes in which the Borrower’s independent
certified public accountants concur and which are disclosed to the
Administrative Agent on the next date on which financial statements are required
to be delivered to the Lenders pursuant to Section 8.01(a); provided that,
unless the Borrower and the Majority Lenders shall otherwise agree in writing,
no such change shall modify or affect the manner in which compliance with the
covenants contained herein is computed such that all such computations shall be
conducted utilizing financial information presented consistently with prior
periods.
 
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ARTICLE II
The Credits
 
Section 2.01 Term Loans.  Subject to the terms and conditions set forth herein,
each Lender agrees to make a term Loan (its “Loan”) to the Borrower in the
amount of its Applicable Percentage of the amount requested by the Borrower as
provided in Section 2.03, not to exceed such Lender’s Commitment.  The Borrower
may not request additional Loans after, and the Commitment of each Lender shall
terminate on the Effective Date.  The Loans are not revolving and any portion of
the Loans that is prepaid prior to the Termination Date may not be reborrowed
hereunder.
 
Section 2.02 Loans and Borrowings.
 
(a) Borrowings; Several Obligations.  Each Loan shall be made as part of a
Borrowing consisting of Loans made on the Effective Date by the Lenders ratably
in accordance with their respective Commitments.  The failure of any Lender to
fund its Loan shall not relieve any other Lender of its obligations hereunder;
provided that the Commitments are several and no Lender shall be responsible for
any other Lender’s failure to fund its Loan as required.
 
(b) Types of Loans.  Subject to Section 3.03, the Borrower may request a
Borrowing hereunder comprised entirely of ABR Loans or Eurodollar Loans, as the
Borrower may request in accordance herewith.  Each Lender at its option may fund
any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of
such Lender to fund such Loan; provided that any exercise of such option shall
not affect the obligation of the Borrower to repay such Loan in accordance with
the terms of this Agreement.
 
(c) Minimum Amounts.  At the commencement of each Interest Period for any
Eurodollar Loan, such Loan shall be in an aggregate amount that is an integral
multiple of $500,000 and not less than $500,000.  At the time that each ABR
Borrowing is made, such Borrowing shall be in an aggregate amount that is an
integral multiple of $500,000 and not less than $500,000.  Borrowings of more
than one Type may be outstanding at the same time, provided that there shall not
at any time be more than a total of one (1) Eurodollar Borrowing
outstanding.  Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request, or to elect to convert or continue,
any Borrowing if the Interest Period requested with respect thereto would end
after the Termination Date.
 
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(d) Notes.  The Loans made by each Lender shall be evidenced by a single
promissory note of the Borrower in substantially the form of Exhibit A, dated,
in the case of (i) any Lender party hereto as of the date of this Agreement, as
of the date of this Agreement or (ii) any Lender that becomes a party hereto
pursuant to an Assignment and Assumption, as of the effective date of the
Assignment and Assumption payable to the order of such Lender in a principal
amount equal to such Lender’s funded Loans as in effect on such date, and
otherwise duly completed.  The date, amount, Type, interest rate and, if
applicable, Interest Period of each Loan made by each Lender, and all payments
made on account of the principal thereof, shall be recorded by such Lender on
its books for its Note, and, prior to any transfer, may be endorsed by such
Lender on a schedule attached to such Note or any continuation thereof or on any
separate record maintained by such Lender.  Failure to make any such notation or
to attach a schedule shall not affect any Lender’s or the Borrower’s rights or
obligations in respect of such Loans or affect the validity of such transfer by
any Lender of its Note.  
 
Section 2.03 Requests for Loans.  The Borrower shall request the Loans by
notifying the Administrative Agent by telephone (a) in the case of a Eurodollar
Borrowing, not later than 12:00 noon, New York City time, three Business Days
before the Effective Date or (b) in the case of an ABR Borrowing, not later than
12:00 noon, New York City time, one Business Day before the Effective
Date.  Each such telephonic Loan Notice shall be irrevocable and shall be
confirmed promptly by hand delivery or telecopy to the Administrative Agent of a
written Loan Notice in substantially the form of Exhibit B and signed by the
Borrower.  Each such telephonic and written Loan Notice shall specify the
following information in compliance with Section 2.02::
 
(i) the aggregate amount of the requested Loans;
 
(ii) the date of proposed funding, which shall be the Effective Date and which
shall be a Business Day;
 
(iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar
Borrowing;
 
(iv) in the case of a Eurodollar Borrowing, the initial Interest Period to be
applicable thereto, which shall be a period contemplated by the definition of
the term “Interest Period”;
 
(v) the location and number of the account to which funds are to be disbursed,
which shall comply with the requirements of Section 2.05.
 
If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be an ABR Borrowing.  If no Interest Period is specified with
respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed
to have selected an Interest Period of one month’s duration.
 
Promptly following receipt of a Loan Notice in accordance with this Section
2.03, the Administrative Agent shall advise each Lender of the details thereof
and of the amount of such Lender’s Loan to be made as part of the requested
Borrowing.
 
Section 2.04 Interest Elections; Conversions.
 
(a) Conversion and Continuance.  Each Borrowing initially shall be of the Type
specified in the applicable Loan Notice and, in the case of a Eurodollar
Borrowing, shall
 
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 have an initial Interest Period as specified in such Loan Notice.  Thereafter,
the Borrower may elect to convert such Borrowing to a different Type or to
continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect
Interest Periods therefor, all as provided in this Section 2.04.  The Borrower
may elect different options with respect to different portions of the affected
Borrowing, in which case each such portion shall be allocated ratably among the
Lenders holding the Loans comprising such Borrowing, and the Loans comprising
each such portion shall be considered a separate Borrowing.
 
(b) Interest Election Requests; Conversion Requests.  To make an election or
conversion, as the case maybe, pursuant to this Section 2.04, the Borrower shall
notify the Administrative Agent of such election by telephone by the time that a
Loan Notice would be required under Section 2.03 if the Borrower were requesting
a Borrowing of the Type resulting from such election to be made on the effective
date of such election.  Each such telephonic Interest Election Request shall be
irrevocable and shall be confirmed promptly by hand delivery or telecopy to the
Administrative Agent of a written Interest Election Request in substantially the
form of Exhibit C and signed by the Borrower.
 
(c) Information in Interest Election Requests.  Each telephonic and written
Interest Election Request shall specify the following information in compliance
with Section 2.02:
 
(i) the Borrowing to which such Interest Election Request applies and, if
different options are being elected with respect to different portions thereof,
the portions thereof to be allocated to each resulting Borrowing (in which case
the information to be specified pursuant to Section 2.04(c)(iii) and (iv) shall
be specified for each resulting Borrowing);
 
(ii) the effective date of the election made pursuant to such Interest Election
Request, which shall be a Business Day;
 
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar
Borrowing; and
 
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period
to be applicable thereto after giving effect to such election, which shall be a
period contemplated by the definition of the term “Interest Period”.
 
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month’s duration.
 
(d) Notice to Lenders by the Administrative Agent.  Promptly following receipt
of an Interest Election Request, the Administrative Agent shall advise each
Lender of the details thereof and of such Lender’s portion of each resulting
Borrowing.
 
(e) Effect of Failure to Deliver Timely Interest Election Request and Events of
Default.  If the Borrower fails to deliver a timely Interest Election Request
with respect to a Eurodollar Borrowing prior to the end of the Interest Period
applicable thereto, then, unless such Borrowing is repaid as provided herein, at
the end of such Interest Period such Borrowing shall be converted to an ABR
Borrowing.  Notwithstanding any contrary provision hereof, if an Event of
Default has occurred and is continuing:  (i) no outstanding Borrowing may be
converted to or continued as a Eurodollar Borrowing (and any Interest Election
Request that requests the conversion of any Borrowing to, or continuation of any
Borrowing as, a Eurodollar Borrowing shall be ineffective) and (ii) unless
repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the
end of the Interest Period applicable thereto.
 
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Section 2.05 Funding of Loans.
 
(a) Funding by Lenders.  Each Lender shall make its Loan on the Effective Date
by wire transfer of immediately available funds by 1:00 p.m., New York City
time, to the account of the Administrative Agent most recently designated by it
for such purpose by notice to the Lenders.  The Administrative Agent will make
such Loans available to the Borrower by promptly crediting the amounts so
received, in like funds, to an account designated by the Borrower in the
applicable Loan Notice.  Nothing herein shall be deemed to obligate any Lender
to obtain the funds for its Loan in any particular place or manner or to
constitute a representation by any Lender that it has obtained or will obtain
the funds for its Loan in any particular place or manner.
 
(b) Presumption of Funding by the Lenders.  Unless the Administrative Agent
shall have received notice from a Lender prior to the Effective Date that such
Lender will not make available to the Administrative Agent such Lender’s Loan,
the Administrative Agent may assume that such Lender has made its Loan available
on such date in accordance with Section 2.05(a) and may, in reliance upon such
assumption, make available to the Borrower a corresponding amount.  In such
event, if a Lender has not in fact made its Loan available to the Administrative
Agent, then the applicable Lender and the Borrower severally agrees to pay to
the Administrative Agent forthwith on demand such corresponding amount with
interest thereon, for each day from and including the date such amount is made
available to the Borrower to but excluding the date of payment to the
Administrative Agent, at (i) in the case of such Lender, the greater of the
Federal Funds Effective Rate and a rate determined by the Administrative Agent
in accordance with banking industry rules on interbank compensation or (ii) in
the case of the Borrower, the interest rate applicable to ABR Loans.  If such
Lender pays such amount to the Administrative Agent, then such amount shall
constitute such Lender’s Loan.
 
Section 2.06 Total Reserve Value.  The initial Total Reserve Value shall be
$93,722,000 for Oil and Gas Properties located in the State of North Dakota and
$36,710,000 for Oil and Gas Properties located in the State of Texas.  In
connection with each semi-annual redetermination, the Borrower shall deliver to
the Administrative Agent a certificate, in form reasonably satisfactory to the
Administrative Agent, no later than April 1st and October 1st of each year,
setting forth in sufficient detail the Borrower’s calculation of Total Reserve
Value as of the immediately preceding January 1st and July 1st, commencing April
1, 2009.  In addition, the Borrower may, by notifying the Administrative Agent
thereof, and the Administrative Agent may, at the direction of the Required
Lenders, by notifying the Borrower thereof, each elect to require the Total
Reserve Value to be determined one additional time on a specified “as of” date
between such regular determinations (which shall be the first day of a calendar
month following the date of such notice), in which event the Borrower shall
deliver to the Administrative Agent a certificate, in form reasonably
satisfactory to the Administrative Agent, no later than three months after such
specified date reflecting the Total Reserve Value as of such specified
date.  The Borrower shall calculate the Total Reserve Value based upon the
applicable definitions of this Agreement, and provide with each such certificate
the Reserve Report and other information used by the Borrower in calculating the
Total Reserve Value.  In addition to the foregoing, the Total Reserve Value
shall be subject to further adjustment from time to time in accordance with
Section 8.13 and Section 9.12.
 
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Section 2.07 Termination.  The Commitments shall terminate at 4:00 p.m. New York
City time on the Effective Date.
 
Section 2.08 Intercreditor Agreement.  Each Lender hereunder (a) acknowledges
that it has received a copy of the Intercreditor Agreement, (b) consents to the
subordination of Liens provided for in the Intercreditor Agreement, (c) agrees
that it will be bound by and will take no actions contrary to the provisions of
the Intercreditor Agreement and (d) authorizes and instructs the Administrative
Agent to enter into the Intercreditor Agreement as Second Lien Collateral Agent
(as defined therein) and on behalf of such Lender.  The foregoing provisions are
intended as an inducement to the lenders under the Senior Revolving Credit
Agreement to permit the incurrence of Indebtedness under this Agreement and to
extend credit to the Borrower and such lenders are intended third party
beneficiaries of such provisions.
 
ARTICLE III
Payments of Principal and Interest; Prepayments; Fees
 
Section 3.01 Repayment of Loans.  The Borrower hereby unconditionally promises
to pay to the Administrative Agent for the account of each Lender the then
unpaid principal amount of each Loan in full in cash on the Termination Date.
 
Section 3.02 Interest.
 
(a) ABR Loans.  The Loans comprising each ABR Borrowing shall bear interest at
the Alternate Base Rate plus the Applicable Margin, but in no event to exceed
the Highest Lawful Rate.
 
(b) Eurodollar Loans.  The Loans comprising each Eurodollar Borrowing shall bear
interest at the Adjusted LIBO Rate for the Interest Period in effect for such
Borrowing plus the Applicable Margin, but in no event to exceed the Highest
Lawful Rate.
 
(c) Post-Default Rate.  Notwithstanding the foregoing, if an Event of Default
has occurred and is continuing, or if any principal of or interest on any Loan
or any fee or other amount payable by the Borrower or any Guarantor hereunder or
under any other Loan Document is not paid when due, whether at stated maturity,
upon acceleration or otherwise, then all Loans outstanding, in the case of an
Event of Default, and such overdue amount, in the case of a failure to pay
amounts when due, shall bear interest, after as well as before judgment, at the
Post Default Rate, but in no event to exceed the Highest Lawful Rate.
 
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(d) Interest Payment Dates.  Accrued interest on each Loan shall be payable in
arrears on each Interest Payment Date for such Loan and on the Termination Date;
provided that (i) interest accrued pursuant to Section 3.02(c) shall be payable
on demand, (ii) in the event of any repayment or prepayment of any Loan (other
than an optional prepayment of an ABR Loan prior to the Termination Date),
accrued interest on the principal amount repaid or prepaid shall be payable on
the date of such repayment or prepayment, and (iii) in the event of any
conversion of any Eurodollar Loan prior to the end of the current Interest
Period therefor, accrued interest on such Loan shall be payable on the effective
date of such conversion.
 
(e) Interest Rate Computations.  All interest hereunder shall be computed on the
basis of a year of 360 days, unless such computation would exceed the Highest
Lawful Rate, in which case interest shall be computed on the basis of a year of
365 days (or 366 days in a leap year), except that interest computed by
reference to the Alternate Base Rate at times when the Alternate Base Rate is
based on the Prime Rate shall be computed on the basis of a year of 365 days (or
366 days in a leap year), and in each case shall be payable for the actual
number of days elapsed (including the first day but excluding the last
day).  The applicable Alternate Base Rate, Adjusted LIBO Rate or LIBO Rate shall
be determined by the Administrative Agent, and such determination shall be
conclusive absent manifest error, and be binding upon the parties hereto.
 
Section 3.03 Alternate Rate of Interest.  If prior to the commencement of any
Interest Period for a Eurodollar Borrowing:
 
(a) the Administrative Agent determines (which determination shall be conclusive
absent manifest error) that adequate and reasonable means do not exist for
ascertaining the Adjusted LIBO Rate or LIBO Rate for such Interest Period; or
 
(b) the Administrative Agent is advised by the Majority Lenders that the
Adjusted LIBO Rate or LIBO Rate, as applicable, for such Interest Period will
not adequately and fairly reflect the cost to such Lenders of making or
maintaining their Loans included in such Borrowing for such Interest Period;
 
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective,
and (ii) if any Loan Notice requests a Eurodollar Borrowing, such Borrowing
shall be made as an ABR Borrowing.
 
Section 3.04 Prepayments.
 
(a) Optional Prepayments.  Subject to any break funding costs payable pursuant
to Section 5.02 and prior notice in accordance with Section 3.04(b), the
Borrower shall have the right, at any time and from time to time, to prepay the
Loans, in whole or in part, subject to the following:
 
(i) if such prepayment is made on a date on or prior to the first anniversary of
the Effective Date, with a premium equal to 2% of such amount prepaid;
 
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(ii) if such prepayment is made on a date after the first anniversary of the
Effective Date, but prior to and including the second anniversary of the
Effective Date, with a premium equal to 1% of such amount prepaid;
 
(iii) if such prepayment is made on a date after the second anniversary of the
Effective Date, without premium or penalty;
 
(iv) provided that, each prepayment is in an amount that is an integral multiple
of $1,000,000 and not less than $1,000,000, or if such amount is less than
$1,000,000, the outstanding principal amount of the Loans.
 
(b) Notice and Terms of Prepayment.  The Borrower shall notify the
Administrative Agent by telephone (confirmed by telecopy) of any optional or
mandatory prepayment hereunder (i) in the case of prepayment of a Eurodollar
Borrowing, not later than 12:00 noon, New York City time, three Business Days
before the date of prepayment, or (ii) in the case of prepayment of an ABR
Borrowing, not later than 12:00 noon, New York City time, one Business Day
before the date of prepayment.  Each such notice shall be irrevocable and shall
specify the prepayment date and the principal amount of each Borrowing or
portion thereof to be prepaid.  Promptly following receipt of any such notice
relating to a Borrowing, the Administrative Agent shall advise the Lenders of
the contents thereof.  Each prepayment of a Borrowing shall be applied ratably
to the Loans included in the prepaid Borrowing.  Prepayments shall be
accompanied by accrued interest to the extent required by Section 3.02.
 
(c) Mandatory Prepayments.
 
(i) The Borrower shall prepay the Loans in amounts equal to, if required
pursuant to Section 9.12, 100% of the Net Cash Proceeds of any sale of any Oil
and Gas Property of the Borrower.  Such prepayment shall be made no later than
the next Business Day after the receipt of such proceeds.
 
(ii) The Borrower shall prepay the Loans in amounts equal to 100% of the Net
Cash Proceeds of any Casualty Event related to the Borrower or any of its
Subsidiaries.  Such prepayment shall be made no later than 20 Business Days
after the receipt of such proceeds; provided if any of the Net Cash Proceeds of
any Casualty Event will otherwise be reinvested (including without limitation,
acquiring Property, plant and equipment, or any business entity used or useful
in carrying on the business of the Borrower and its Subsidiaries and having a
fair market value at least equal to the fair market value of the Properties
sold, leased or otherwise disposed of, or to improve or replace any existing
Property of the Borrower and its subsidiaries, or for actual repair and
replacement following a Casualty Event) in assets used or useful in carrying on
the business of the Borrower and its Subsidiaries within 90 days after the
receipt thereof, then prepayment shall only be required to the extent any excess
Net Cash Proceeds remain after making such reinvestment during such 90-day
period.  If the Borrower plans such reinvestment with the Net Cash Proceeds of
any Casualty Event, then it shall deliver and certify such intention in a
certificate from a Responsible Officer of the Borrower to the Administrative
Agent no later than 20 Business Days after the receipt of such Net Cash Proceeds
under this Section 3.04(c)(ii).  Any of the Net Cash Proceeds remaining after
such 90-day period, the completion of such repair or replacement or after the
Borrower has discontinued its good faith pursuit of such repairs or replacement
will be promptly applied as a prepayment of the Loan.
 
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(iii) Notwithstanding anything herein to the contrary and subject to the
Intercreditor Agreement, if the amount of any Net Cash Proceeds referred to in
Section 3.04(c)(i) or Section 3.04(c)(ii) would otherwise be a required
prepayment under the terms of the Senior Revolving Credit Agreement, then
prepayment shall only be required to the extent any excess Net Cash Proceeds
remain after making such prepayment.
 
Section 3.05 Administrative Agent Fees.  The Borrower agrees to pay to the
Administrative Agent, for its own account, fees payable in the amounts and at
the times separately agreed upon between the Borrower and the Administrative
Agent as outlined in the Fee Letter.
 
ARTICLE IV
Payments; Pro Rata Treatment; Sharing of Set-offs
 
Section 4.01 Payments Generally; Pro Rata Treatment; Sharing of Set-offs.
 
(a) Payments by the Borrower.  The Borrower shall make each payment required to
be made by it hereunder (whether of principal, interest, or fees, or of amounts
payable under Section 5.01, Section 5.02, Section 5.03 or otherwise) prior to
1:00 p.m., New York City time, on the date when due, in immediately available
funds, without defense, deduction, recoupment, set-off or counterclaim.  Fees,
once paid, shall be fully earned and shall not be refundable under any
circumstances.  Any amounts received after such time on any date may, in the
discretion of the Administrative Agent, be deemed to have been received on the
next succeeding Business Day for purposes of calculating interest thereon.  All
such payments shall be made to the Administrative Agent at its offices specified
in Section 12.01, and except that payments pursuant to Section 5.01, Section
5.02, Section 5.03 and Section 12.03 shall be made directly to the Persons
entitled thereto.  The Administrative Agent shall distribute any such payments
received by it for the account of any other Person to the appropriate recipient
promptly following receipt thereof.  If any payment hereunder shall be due on a
day that is not a Business Day, the date for payment shall be extended to the
next succeeding Business Day, and, in the case of any payment accruing interest,
interest thereon shall be payable for the period of such extension.  All
payments hereunder shall be made in dollars.
 
(b) Application of Insufficient Payments.  If at any time insufficient funds are
received by and available to the Administrative Agent to pay fully all amounts
of principal, interest and fees then due hereunder, such funds shall be applied
(i) first, towards payment of interest and fees then due hereunder, ratably
among the parties entitled thereto in accordance with the amounts of interest
and fees then due to such parties, and (ii) second, towards payment of principal
then due hereunder, ratably among the parties entitled thereto in accordance
with the amounts of principal then due to such parties.
 
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(c) Sharing of Payments by Lenders.  If any Lender shall, by exercising any
right of set-off or counterclaim or otherwise, obtain payment in respect of any
principal of or interest on its Loan resulting in such Lender receiving payment
of a greater proportion of the aggregate amount of its Loan and accrued interest
thereon than the proportion received by any other Lender, then the Lender
receiving such greater proportion shall purchase (for cash at face value)
participations in the Loans of other Lenders to the extent necessary so that the
benefit of all such payments shall be shared by the Lenders ratably in
accordance with the aggregate amount of principal of and accrued interest on
their respective Loans; provided that (i) if any such participations are
purchased and all or any portion of the payment giving rise thereto is
recovered, such participations shall be rescinded and the purchase price
restored to the extent of such recovery, without interest, and (ii) the
provisions of this Section 4.01(c) shall not be construed to apply to any
payment made by the Borrower pursuant to and in accordance with the express
terms of this Agreement or any payment obtained by a Lender as consideration for
the assignment of or sale of a participation in any of its Loan to any assignee
or participant, other than to the Borrower or any Subsidiary or Affiliate
thereof (as to which the provisions of this Section 4.01(c) shall apply).  The
Borrower consents to the foregoing and agrees, to the extent it may effectively
do so under applicable law, that any Lender acquiring a participation pursuant
to the foregoing arrangements may exercise against the Borrower rights of
set-off and counterclaim with respect to such participation as fully as if such
Lender were a direct creditor of the Borrower in the amount of such
participation.
 
Section 4.02 Presumption of Payment by the Borrower.  Unless the Administrative
Agent shall have received notice from the Borrower prior to the date on which
any payment is due to the Administrative Agent for the account of the Lenders
that the Borrower will not make such payment, the Administrative Agent may
assume that the Borrower has made such payment on such date in accordance
herewith and may, in reliance upon such assumption, distribute to the Lenders
the amount due.  In such event, if the Borrower has not in fact made such
payment, then each of the Lenders severally agrees to repay to the
Administrative Agent forthwith on demand the amount so distributed to such
Lender with interest thereon, for each day from and including the date such
amount is distributed to it to but excluding the date of payment to the
Administrative Agent, at the greater of the Federal Funds Effective Rate and a
rate determined by the Administrative Agent in accordance with banking industry
rules on interbank compensation.
 
Section 4.03 Certain Deductions by the Administrative Agent.  If any Lender
shall fail to make any payment required to be made by it pursuant to Section
2.05(b) or Section 4.02 then the Administrative Agent may, in its discretion
(notwithstanding any contrary provision hereof), apply any amounts thereafter
received by the Administrative Agent for the account of such Lender to satisfy
such Lender’s obligations under such Sections until all such unsatisfied
obligations are fully paid.
 
Section 4.04 Disposition of Proceeds.  The Security Instruments contain an
assignment by the Borrower and/or the Guarantors unto and in favor of the
Administrative Agent for the benefit of the Lenders of all of the Borrower’s or
each Guarantor’s interest in and to production and all proceeds attributable
thereto which may be produced from or allocated to the Mortgaged Property.  The
Security Instruments further provide in general for the application of such
proceeds to the satisfaction of the Indebtedness and other obligations described
therein and secured thereby.  Notwithstanding the assignment contained in such
Security Instruments, until the occurrence of an Event of Default, (a) the
Administrative Agent and the Lenders agree that they will neither notify the
purchaser or purchasers of such production nor take any other action to cause
such proceeds to be remitted to the Administrative Agent or the Lenders, but the
Lenders will instead permit such proceeds to be paid to the Borrower and its
Subsidiaries and (b) the Lenders hereby authorize the Administrative Agent to
take such actions as may be necessary to cause such proceeds to be paid to the
Borrower and/or such Subsidiaries.
 
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ARTICLE V
Increased Costs; Break Funding Payments; Taxes
 
Section 5.01 Increased Costs.
 
(a) Eurodollar Changes in Law.  If any Change in Law shall:
 
(i) impose, modify or deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of, or credit
extended by, any Lender (except any such reserve requirement reflected in the
Adjusted LIBO Rate); or
 
(ii) impose on any Lender or the London interbank market any other condition
affecting this Agreement or Eurodollar Loans made by such Lender;
 
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to reduce the amount of any sum received or
receivable by such Lender (whether of principal, interest or otherwise), then
the Borrower will pay to such Lender such additional amount or amounts as will
compensate such Lender for such additional costs incurred or reduction suffered.
 
(b) Capital Requirements.  If any Lender determines that any Change in Law
regarding capital requirements has or would have the effect of reducing the rate
of return on such Lender’s capital or on the capital of such Lender’s holding
company, if any, as a consequence of this Agreement or the Loans made by such
Lender to a level below that which such Lender or such Lender’s holding company
could have achieved but for such Change in Law (taking into consideration such
Lender’s policies and the policies of such Lender’s holding company with respect
to capital adequacy), then from time to time the Borrower will pay to such
Lender such additional amount or amounts as will compensate such Lender or such
Lender’s holding company for any such reduction suffered.
 
(c) Certificates.  A certificate of a Lender setting forth the amount or amounts
necessary to compensate such Lender or its holding company, as the case may be,
as specified in Section 5.01(a) or (b) shall be delivered to the Borrower and
shall be conclusive absent manifest error.  The Borrower shall pay such Lender
the amount shown as due on any such certificate within 10 days after receipt
thereof.
 
(d) Effect of Failure or Delay in Requesting Compensation.  Failure or delay on
the part of any Lender to demand compensation pursuant to this Section 5.01
shall not constitute a waiver of such Lender’s right to demand such
compensation; provided that the Borrower shall not be required to compensate a
Lender pursuant to this Section 5.01 for any increased costs or reductions
incurred more than 180 days prior to the date that such Lender notifies the
Borrower of the Change in Law giving rise to such increased costs or reductions
and of such Lender’s intention to claim compensation therefor; provided further
that, if the Change in Law giving rise to such increased costs or reductions is
retroactive, then the 180-day period referred to above shall be extended to
include the period of retroactive effect thereof.
 
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Section 5.02 Break Funding Payments.  In the event of (a) the payment of any
principal of any Eurodollar Loan other than on the last day of an Interest
Period applicable thereto (including as a result of an Event of Default), (b)
the conversion of any Eurodollar Loan into an ABR Loan other than on the last
day of the Interest Period applicable thereto, or (c) the failure to borrow,
convert, continue or prepay any Eurodollar Loan on the date specified in any
notice delivered pursuant hereto, then, in any such event, the Borrower shall
compensate each Lender for the loss, cost and expense attributable to such
event.  In the case of a Eurodollar Loan, such loss, cost or expense to any
Lender shall be deemed to include an amount determined by such Lender to be the
excess, if any, of (i) the amount of interest which would have accrued on the
principal amount of such Loan had such event not occurred, at the Adjusted LIBO
Rate that would have been applicable to such Loan, for the period from the date
of such event to the last day of the then current Interest Period therefor (or,
in the case of a failure to borrow, convert or continue, for the period that
would have been the Interest Period for such Loan), over (ii) the amount of
interest which would accrue on such principal amount for such period at the
interest rate which such Lender would bid were it to bid, at the commencement of
such period, for dollar deposits of a comparable amount and period from other
banks in the Eurodollar market.
 
A certificate of any Lender setting forth any amount or amounts that such Lender
is entitled to receive pursuant to this Section 5.02 shall be delivered to the
Borrower and shall be conclusive absent manifest error.  The Borrower shall pay
such Lender the amount shown as due on any such certificate within 10 days after
receipt thereof.
 
Section 5.03 Taxes.
 
(a) Payments Free of Taxes.  Any and all payments by or on account of any
obligation of the Borrower or any Guarantor under any Loan Document shall be
made free and clear of and without deduction for any Indemnified Taxes or Other
Taxes; provided that if the Borrower or any Guarantor shall be required to
deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum
payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 5.03(a)), the Administrative Agent or the Lender, as the case may
be, receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower or such Guarantor shall make such
deductions and (iii) the Borrower or such Guarantor shall pay the full amount
deducted to the relevant Governmental Authority in accordance with applicable
law.
 
(b) Payment of Other Taxes by the Borrower.  The Borrower shall pay any Other
Taxes to the relevant Governmental Authority in accordance with applicable law.
 
(c) Indemnification by the Borrower.  The Borrower shall indemnify the
Administrative Agent and each Lender, within 10 days after written demand
therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by
the Administrative Agent or such Lender, as the case may be, on or with respect
to any payment by or on account of any obligation of the Borrower hereunder
(including Indemnified Taxes or Other Taxes imposed or asserted on or
attributable to amounts payable under this Section 5.03) and any penalties,
interest and reasonable expenses arising therefrom or with respect thereto,
whether or not such Indemnified Taxes or Other Taxes were correctly or legally
imposed or asserted by the relevant Governmental Authority.  A certificate of
the Administrative Agent or a Lender as to the amount of such payment or
liability under this Section 5.03 shall be delivered to the Borrower and shall
be conclusive absent manifest error.
 
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(d) Evidence of Payments.  As soon as practicable after any payment of
Indemnified Taxes or Other Taxes by the Borrower or a Guarantor to a
Governmental Authority, the Borrower shall deliver to the Administrative Agent
the original or a certified copy of a receipt issued by such Governmental
Authority evidencing such payment, a copy of the return reporting such payment
or other evidence of such payment reasonably satisfactory to the Administrative
Agent.
 
(e) Foreign Lenders.  Any Foreign Lender that is entitled to an exemption from
or reduction of withholding tax under the law of the jurisdiction in which the
Borrower is located, or any treaty to which such jurisdiction is a party, with
respect to payments under this Agreement or any other Loan Document shall
deliver to the Borrower (with a copy to the Administrative Agent), at the time
or times prescribed by applicable law, such properly completed and executed
documentation prescribed by applicable law or reasonably requested by the
Borrower as will permit such payments to be made without withholding or at a
reduced rate.
 
Section 5.04 Designation of Different Lending Office.  If any Lender requests
compensation under Section 5.01, or if the Borrower is required to pay any
additional amount to any Lender or any Governmental Authority for the account of
any Lender pursuant to Section 5.03, then such Lender shall use reasonable
efforts to designate a different lending office for funding or booking its Loan
hereunder or to assign its rights and obligations hereunder to another of its
offices, branches or affiliates, if, in the judgment of such Lender, such
designation or assignment (i) would eliminate or reduce amounts payable pursuant
to Section 5.01 or Section 5.03, as the case may be, in the future and (ii)
would not subject such Lender to any unreimbursed cost or expense and would not
otherwise be disadvantageous to such Lender.  The Borrower hereby agrees to pay
all reasonable costs and expenses incurred by any Lender in connection with any
such designation or assignment.
 
ARTICLE VI
Conditions Precedent
 
Section 6.01 Effective Date.  The obligations of each Lender to fund its Loan
hereunder shall not become effective until the date on which each of the
following conditions is satisfied (or waived in accordance with Section 12.02):
 
(a) The Administrative Agent, the Arranger and the Lenders shall have received
all facility and agency fees, including those set forth in the Fee Letter, and
all other fees and amounts due and payable on or prior to the Effective Date,
including, to the extent invoiced, reimbursement or payment of all out-of-pocket
expenses required to be reimbursed or paid by the Borrower hereunder (including,
without limitation, the reasonable fees and expenses of Vinson & Elkins L.L.P.,
counsel to the administrative agent under the Senior Revolving Credit
Agreement).
 
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(b) The Administrative Agent shall have received a certificate of the
Responsible Officer of the Borrower and each Guarantor setting forth (i)
resolutions of its board of directors with respect to the authorization of the
Borrower or such Guarantor to execute and deliver the Loan Documents to which it
is a party and to enter into the transactions contemplated in those documents,
(ii) the officers of the Borrower or such Guarantor (A) who are authorized to
sign the Loan Documents to which the Borrower or such Guarantor is a party and
(B) who will, until replaced by another officer or officers duly authorized for
that purpose, act as its representative for the purposes of signing documents
and giving notices and other communications in connection with this Agreement
and the transactions contemplated hereby, (iii) specimen signatures of such
authorized officers, and (iv) the Organizational Documents of the Borrower and
such Guarantor, certified as being true and complete.  The Administrative Agent
and the Lenders may conclusively rely on such certificate until the
Administrative Agent receives notice in writing from the Borrower or such
Guarantor, as applicable, to the contrary.
 
(c) The Administrative Agent shall have received certificates of the appropriate
State agencies with respect to the existence, qualification and good standing of
the Borrower and each Guarantor.
 
(d) The Administrative Agent shall have received a compliance certificate which
shall be substantially in the form of Exhibit D, duly and properly executed by a
Responsible Officer and dated as of the date of Effective Date.
 
(e) The Administrative Agent shall have received from each party hereto
counterparts (in such number as may be requested by the Administrative Agent) of
this Agreement signed on behalf of such party.
 
(f) The Administrative Agent shall have received duly executed Notes payable to
the order of each Lender in a principal amount equal to its Commitment dated as
of the date hereof.
 
(g) The Administrative Agent shall have received from each party thereto duly
executed counterparts (in such number as may be requested by the Administrative
Agent) of the Security Instruments, including the Guaranty Agreement and the
other Security Instruments described on Exhibit F, except for such documents to
be delivered after the Effective Date pursuant to Section 8.18.  In connection
with the execution and delivery of the Security Instruments, the Administrative
Agent shall:
 
(i) be reasonably satisfied that the Security Instruments create first priority,
perfected Liens (subject only to Liens created by the Senior Revolving Credit
Agreement and Excepted Liens identified in clauses (a) to (d) and (f) of the
definition thereof, but subject to the provisos at the end of such definition)
on at least 80% of the Total Reserve Value of the Oil and Gas Properties
evaluated in the Initial Reserve Report;
 
(ii) be reasonably satisfied that the administrative agent under the Senior
Revolving Credit Agreement has received certificates, together with undated,
blank stock powers for each such certificate, representing all of the issued and
outstanding Equity Interests of each of the Guarantors, which is directly owned
by either the Borrower or a Subsidiary and is holding such pursuant to the
Intercreditor Agreement as bailee for the Administrative Agent; and
 
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(iii) be reasonably satisfied that all Property constituting security for the
Senior Revolving Credit Agreement is subject to a first priority, perfected Lien
(subject to Liens created under the Senior Revolving Credit Agreement) in favor
of the Administrative Agent under the Security Instruments.
 
(h) The Administrative Agent shall have received an opinion of Bracewell &
Giuliani LLP, special counsel to the Borrower, in form and substance
satisfactory to the Administrative Agent.
 
(i) The Administrative Agent shall have received a certificate of insurance
coverage of the Borrower evidencing that the Borrower is carrying insurance in
accordance with Section 7.12.
 
(j) The Administrative Agent shall have received title information as the
Administrative Agent may reasonably require satisfactory to the Administrative
Agent setting forth the status of title to at least 80% of the Total Reserve
Value of the Oil and Gas Properties evaluated in the Initial Reserve Report.
 
(k) The Administrative Agent shall be reasonably satisfied with the
environmental condition of the Oil and Gas Properties of the Borrower and its
Subsidiaries.
 
(l) The Administrative Agent shall have received a certificate of a Responsible
Officer of the Borrower certifying that the Borrower has received all consents
and approvals required by Section 7.03.
 
(m) The Administrative Agent shall have received the financial statements
referred to in Section 7.04(a) and the Initial Reserve Report accompanied by a
certificate covering the matters described in Section 8.11(c).
 
(n) The Administrative Agent shall have received appropriate UCC search
certificates reflecting no prior Liens encumbering the Properties of the
Borrower and the Subsidiaries for each of the following
jurisdictions:  Delaware, North Dakota, Texas and any other jurisdiction
requested by the Administrative Agent; other than those being assigned or
released on or prior to the Effective Date or Liens permitted by Section 9.03.
 
(o) The Borrower and the Lenders shall have agreed upon the Development Plan,
which shall be reasonably satisfactory to the Lenders.
 
(p) The Administrative Agent shall be satisfied with the terms of the payoff
letter from D.B. Zwirn Special Opportunities Fund, L.P., evidencing payment in
full of the loans under the Existing Credit Agreement, and have received
executed copies of the same.
 
(q) The Administrative Agent shall have received evidence that the Borrower is
using the proceeds from the Loans to repay all Debt under the Existing Credit
Agreement and the Liens associated with such Debt, if any, are being released
contemporaneously with the funding under this Agreement.
 
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(r) The Administrative Agent shall be satisfied that there is no litigation
seeking to enjoin or prevent the financing contemplated hereby or by the Senior
Revolving Credit Agreement.
 
(s) The Senior Revolving Credit Documents and the Intercreditor Agreement shall
have been duly executed and delivered.
 
(t) The Administrative Agent shall be reasonably satisfied that there is unused
availability under the Senior Revolving Credit Agreement of at least $10,000,000
as of the Effective Date after giving effect to the loans made thereunder.
 
(u) The Administrative Agent shall have received a duly executed account control
agreement between Operating Account Bank, Borrower and the Administrative Agent,
the terms and conditions for which shall be satisfactory to the Administrative
Agent.
 
(v) The Administrative Agent shall have received such other documents as the
Administrative Agent or special counsel to the Administrative Agent may
reasonably request.
 
The Administrative Agent shall notify the Borrower and the Lenders of the
Effective Date, and such notice shall be conclusive and
binding.  Notwithstanding the foregoing, the obligations of the Lenders to fund
its Loans hereunder shall not become effective unless each of the foregoing
conditions is satisfied (or waived pursuant to Section 12.02) at or prior to
2:00 p.m., New York City time, on September 30, 2008 (and, in the event such
conditions are not so satisfied or waived, the Commitments shall terminate at
such time).
 
Section 6.02 Additional Conditions.  The obligation of each Lender to fund its
Loan on the Effective Date is subject to the satisfaction of the following
conditions:
 
(a) At the time of and immediately after giving effect to the funding of such
Loans, no Default shall have occurred and be continuing.
 
(b) The representations and warranties of the Borrower and the Guarantors set
forth in this Agreement and in the other Loan Documents shall be true and
correct on and as of the Effective Date, except to the extent any such
representations and warranties are expressly limited to an earlier date, in
which case, on and as of the Effective Date, such representations and warranties
shall continue to be true and correct as of such specified earlier date.
 
(c) The receipt by the Administrative Agent of a Loan Notice in accordance with
Section 2.03.
 
ARTICLE VII
Representations and Warranties
 
The Borrower represents and warrants to the Lenders that:
 
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Section 7.01 Organization; Powers.  Each of the Borrower and the Subsidiaries is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, has all requisite power and authority, and has
all material governmental licenses, authorizations, consents and approvals
necessary, to own its assets and to carry on its business as now conducted, and
is qualified to do business in, and is in good standing in, every jurisdiction
where such qualification is required, except where failure to have such power,
authority, licenses, authorizations, consents, approvals and qualifications
could not reasonably be expected to have a Material Adverse Effect.
 
Section 7.02 Authority; Enforceability.  The Transactions are within the
Borrower’s and each Guarantor’s corporate powers and have been duly authorized
by all necessary corporate and, if required, stockholder action (including,
without limitation, any action required to be taken by any class of directors of
the Borrower or any other Person, whether interested or disinterested, in order
to ensure the due authorization of the Transactions).  Each Loan Document to
which the Borrower and each Guarantor is a party has been duly executed and
delivered by the Borrower and such Guarantor and constitutes a legal, valid and
binding obligation of the Borrower and such Guarantor, as applicable,
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors’ rights
generally and subject to general principles of equity, regardless of whether
considered in a proceeding in equity or at law.
 
Section 7.03 Approvals; No Conflicts.  The Transactions (a) do not require any
consent or approval of, registration or filing with, or any other action by, any
Governmental Authority or any other third Person (including shareholders or any
class of directors, whether interested or disinterested, of the Borrower or any
other Person), nor is any such consent, approval, registration, filing or other
action necessary for the validity or enforceability of any Loan Document or the
consummation of the transactions contemplated thereby, except such as have been
obtained or made and are in full force and effect other than (i) the recording
and filing of the Security Instruments as required by this Agreement and (ii)
those third party approvals or consents which, if not made or obtained, would
not cause a Default hereunder, could not reasonably be expected to have a
Material Adverse Effect or do not have an adverse effect on the enforceability
of the Loan Documents, (b) will not violate any applicable law or regulation or
any Organizational Document of the Borrower or any Subsidiary or any order of
any Governmental Authority, (c) will not violate or result in a default under
any indenture or other material agreement or instrument binding upon the
Borrower or any Subsidiary or its Properties, or give rise to a right thereunder
to require any payment to be made by the Borrower or such Subsidiary and (d)
will not result in the creation or imposition of any Lien on any Property of the
Borrower or any Subsidiary (other than the Liens created by the Loan Documents).
 
Section 7.04 Financial Condition; No Material Adverse Change.
 
(a) The Borrower has heretofore furnished to the Lenders its audited or
unaudited, as applicable, consolidated balance sheet and statements of income,
stockholders equity and cash flows (i) as of and for the fiscal year ended
December 31, 2007, reported on by Malone & Bailey PC, independent public
accountants, and (ii) as of and for the fiscal quarter and the portion of the
fiscal year ended March 31, 2008, certified by a Financial Officer.  Such
financial statements present fairly, in all material respects, the financial
position and results of operations and cash flows of the Borrower and its
Consolidated Subsidiaries as of such dates and for such periods in accordance
with GAAP, subject to year-end audit adjustments and the absence of footnotes in
the case of the unaudited quarterly financial statements.
 
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(b) Since December 31, 2007, (i) there has been no event, development or
circumstance that has had or could reasonably be expected to have a Material
Adverse Effect and (ii) the business of the Borrower and its Subsidiaries has
been conducted only in the ordinary course consistent with past business
practices.
 
(c) Except as set forth in Schedule 7.04, neither the Borrower nor any
Subsidiary has on the date hereof any material Debt (including Disqualified
Capital Stock) or any contingent liabilities, off-balance sheet liabilities or
partnerships, liabilities for taxes, unusual forward or long-term commitments or
unrealized or anticipated losses from any unfavorable commitments, except as
referred to or reflected or provided for in the Financial Statements.
 
Section 7.05 Litigation.
 
(a) Except as set forth on Schedule 7.05, there are no actions, suits,
investigations or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of the Borrower, threatened
against or affecting the Borrower or any Subsidiary (i) as to which there is a
reasonable possibility of an adverse determination that, if adversely
determined, could reasonably be expected, individually or in the aggregate, to
result in a Material Adverse Effect or (ii) that involve any Loan Document or
the Transactions.
 
(b) Since the date of this Agreement, there has been no change in the status of
the matters disclosed in Schedule 7.05 that, individually or in the aggregate,
has resulted in, or materially increased the likelihood of, a Material Adverse
Effect.
 
Section 7.06 Environmental Matters.  Except for such matters that, individually
or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect on the Borrower:
 
(a) the Borrower and the Subsidiaries and each of their respective Properties
and operations thereon are, and within all applicable statute of limitation
periods have been, in compliance with all applicable Environmental Laws.
 
(b) the Borrower and the Subsidiaries have obtained all Environmental Permits
required for their respective operations and each of their Properties, with all
such Environmental Permits being currently in full force and effect, and none of
Borrower or the Subsidiaries has received any written notice or otherwise has
knowledge that any such existing Environmental Permit will be revoked or that
any application for any new Environmental Permit or renewal of any existing
Environmental Permit will be protested or denied.
 
(c) there are no claims, demands, suits, orders, inquiries, or proceedings
concerning any violation of, or any liability (including as a potentially
responsible party) under, any applicable Environmental Laws that is pending or,
to Borrower’s knowledge, threatened against the Borrower or any Subsidiary or
any of their respective Properties or as a result of any operations at such
Properties.
 
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(d) none of the Properties of the Borrower or any Subsidiary contain or have
contained any:  (i) underground storage tanks; (ii) asbestos-containing
materials; (iii) landfills or dumps; (iv) hazardous waste management units as
defined pursuant to RCRA or any comparable state law; or (v) sites on or
nominated for the National Priority List promulgated pursuant to CERCLA or any
state remedial priority list promulgated or published pursuant to any comparable
state law.
 
(e) there has been no Release or, to the Borrower’s knowledge, threatened
Release, of Hazardous Materials at, on, under or from the Borrower’s or any
Subsidiary’s Properties, there are no investigations, remediations, abatements,
removals, or monitorings of Hazardous Materials required under applicable
Environmental Laws at such Properties and, to the knowledge of the Borrower,
none of such Properties are adversely affected by any Release or threatened
Release of a Hazardous Material originating or emanating from any other real
property.
 
(f) neither the Borrower nor any Subsidiary has received any written notice
asserting an alleged liability or obligation under any applicable Environmental
Laws with respect to the investigation, remediation, abatement, removal, or
monitoring of any Hazardous Materials at, under, or Released or threatened to be
Released from any real properties offsite the Borrower’s or any Subsidiary’s
Properties and, to the Borrower’s knowledge, there are no conditions or
circumstances that could reasonably be expected to result in the receipt of such
written notice.
 
(g) there has been no exposure of any Person or Property to any Hazardous
Materials as a result of or in connection with the operations and businesses of
any of the Borrower’s or the Subsidiaries’ Properties that could reasonably be
expected to form the basis for a claim for damages or compensation.
 
(h) the Borrower and the Subsidiaries have provided to the Lenders complete and
correct copies of all environmental site assessment reports, investigations,
studies, analyses, and correspondence on environmental matters (including
matters relating to any alleged non-compliance with or liability under
Environmental Laws) that are in any of the Borrower’s or its Subsidiaries’
possession or control and relating to their respective Properties or operations
thereon.
 
Section 7.07 Compliance with the Laws and Agreements; No Defaults.
 
(a) Each of the Borrower and each Subsidiary is in compliance with all
Governmental Requirements applicable to it or its Property and all agreements
and other instruments binding upon it or its Property, and possesses all
licenses, permits, franchises, exemptions, approvals and other authorizations
granted by Governmental Authorities necessary for the ownership of its Property
and the conduct of its business, except where the failure to do so, individually
or in the aggregate, could not reasonably be expected to result in a Material
Adverse Effect.
 
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(b) Neither the Borrower nor any of its Subsidiaries is in default nor has any
event or circumstance occurred which, but for the expiration of any applicable
grace period or the giving of notice, or both, would constitute a default or
would require the Borrower or a Subsidiary to Redeem or make any offer to Redeem
under any indenture, note, credit agreement or instrument pursuant to which any
Material Indebtedness is outstanding or by which the Borrower or any of its
Subsidiaries or any of their Properties is bound.
 
(c) No Default has occurred and is continuing.
 
Section 7.08 Investment Company Act.  Neither the Borrower nor any of its
Subsidiaries is an “investment company” or a company “controlled” by an
“investment company,” within the meaning of, or subject to regulation under, the
Investment Company Act of 1940, as amended.
 
Section 7.09 Taxes.  Each of the Borrower and its Subsidiaries has timely filed
or caused to be filed all Tax returns and reports required to have been filed
and has paid or caused to be paid all Taxes required to have been paid by it,
except (a) Taxes that are being contested in good faith by appropriate
proceedings and for which the Borrower or such Subsidiary, as applicable, has
set aside on its books adequate reserves in accordance with GAAP or (b) to the
extent that the failure to do so could not reasonably be expected to result in a
Material Adverse Effect.  The charges, accruals and reserves on the books of the
Borrower and its Subsidiaries in respect of Taxes and other governmental charges
are, in the reasonable opinion of the Borrower, adequate.  No Tax Lien has been
filed and, to the knowledge of the Borrower, no claim is being asserted with
respect to any such Tax or other such governmental charge.
 
Section 7.10 ERISA.
 
(a) The Borrower, the Subsidiaries and each ERISA Affiliate have complied in all
material respects with ERISA and, where applicable, the Code regarding each
Plan.
 
(b) Each Plan is, and has been, established and maintained in substantial
compliance with its terms, ERISA and, where applicable, the Code.
 
(c) No act, omission or transaction has occurred which could result in
imposition on the Borrower, any Subsidiary or any ERISA Affiliate (whether
directly or indirectly) of (i) either a civil penalty assessed pursuant to
subsections (c), (i), (l) or (m) of section 502 of ERISA or a tax imposed
pursuant to Chapter 43 of Subtitle D of the Code or (ii) breach of fiduciary
duty liability damages under section 409 of ERISA.
 
(d) Full payment when due has been made of all amounts which the Borrower, the
Subsidiaries or any ERISA Affiliate is required under the terms of each Plan or
applicable law to have paid as contributions to such Plan as of the date hereof.
 
(e) Neither the Borrower, the Subsidiaries nor any ERISA Affiliate sponsors,
maintains, or contributes to an employee welfare benefit plan, as defined in
section 3(1) of ERISA, including, without limitation, any such plan maintained
to provide benefits to former employees of such entities, that may not be
terminated by the Borrower, a Subsidiary or any ERISA Affiliate in its sole
discretion at any time without any material liability.
 
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(f) Neither the Borrower, the Subsidiaries nor any ERISA Affiliate sponsors,
maintains or contributes to, or has at any time in the six-year period preceding
the date hereof sponsored, maintained or contributed to, any employee pension
benefit plan, as defined in section 3(2) of ERISA, that is subject to Title IV
of ERISA, section 302 of ERISA or section 412 of the Code.
 
Section 7.11 Disclosure; No Material Misstatements.  The Borrower has disclosed
to the Administrative Agent and the Lenders all agreements, instruments and
corporate or other restrictions to which it or any of its Subsidiaries is
subject, and all other matters known to it, that, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse
Effect.  None of the other reports, financial statements, certificates or other
information furnished by or on behalf of the Borrower or any Subsidiary to the
Administrative Agent or any Lender or any of their Affiliates in connection with
the negotiation of this Agreement or any other Loan Document or delivered
hereunder or under any other Loan Document (as modified or supplemented by other
information so furnished) contains any material misstatement of fact or omits to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided that,
with respect to projected financial information, the Borrower represents only
that such information was prepared in good faith based upon assumptions believed
to be reasonable at the time.  There is no fact peculiar to the Borrower or any
Subsidiary which could reasonably be expected to have a Material Adverse Effect
or in the future is reasonably likely to have a Material Adverse Effect and
which has not been set forth in this Agreement or the Loan Documents or the
other documents, certificates and statements furnished to the Administrative
Agent or the Lenders by or on behalf of the Borrower or any Subsidiary prior to,
or on, the date hereof in connection with the transactions contemplated
hereby.  There are no statements or conclusions in any Reserve Report which are
based upon or include misleading information or fail to take into account
material information regarding the matters reported therein.
 
Section 7.12 Insurance.  The Borrower has, and has caused all of its
Subsidiaries to have, (a) all insurance policies sufficient for the compliance
by each of them with all material Governmental Requirements and all material
agreements and (b) insurance coverage in at least amounts and against such risk
(including, without limitation, public liability) that are usually insured
against by companies similarly situated and engaged in the same or a similar
business for the assets and operations of the Borrower and its
Subsidiaries.  The Administrative Agent and the Lenders have been named as
additional insureds in respect of such liability insurance policies and the
Administrative Agent has been named as loss payee with respect to Property loss
insurance.
 
Section 7.13 Restriction on Liens.  Neither the Borrower nor any of the
Subsidiaries is a party to any material agreement or arrangement (other than
Capital Leases and other agreements creating Liens permitted by Section 9.03(c)
and (d), but then only on the Property subject of such Capital Lease or
agreement), or subject to any order, judgment, writ or decree, which either
restricts or purports to restrict its ability to grant Liens to the
Administrative Agent and the Lenders on or in respect of their Properties to
secure the Indebtedness and the Loan Documents.
 
Section 7.14 Subsidiaries.  Except as set forth on Schedule 7.14 or as disclosed
in writing to the Administrative Agent (which shall promptly furnish a copy to
the Lenders), which shall be a supplement to Schedule 7.14, the Borrower has no
Subsidiaries and the Borrower has no Foreign Subsidiaries.
 
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Section 7.15 Location of Business and Offices.  The Borrower’s jurisdiction of
organization is Delaware; the name of the Borrower as listed in the public
records of its jurisdiction of organization is Petro Resources Corporation; and
the organizational identification number of the Borrower in its jurisdiction of
organization is 2758331 (or, in each case, as set forth in a notice delivered to
the Administrative Agent pursuant to Section 8.01(k) in accordance with Section
12.01).  The Borrower’s principal place of business and chief executive offices
are located at the address specified in Section 12.01 (or as set forth in a
notice delivered pursuant to Section 8.01(k) and Section 12.01(c)).  Each
Subsidiary’s jurisdiction of organization, name as listed in the public records
of its jurisdiction of organization, organizational identification number in its
jurisdiction of organization, and the location of its principal place of
business and chief executive office is stated on Schedule 7.15 (or as set forth
in a notice delivered pursuant to Section 8.01(k)).
 
Section 7.16 Properties; Titles, Etc.
 
(a) Each of the Borrower and its Subsidiaries has good and defensible title to
the Oil and Gas Properties evaluated in the most recently delivered Reserve
Report and good title to all its personal Properties, in each case, free and
clear of all Liens except Liens permitted by Section 9.03.  After giving full
effect to the Excepted Liens and any Liens created pursuant to the Senior
Revolving Credit Documents, the Borrower or the Subsidiary specified as the
owner owns at least the net interests in production attributable to the
Hydrocarbon Interests as reflected in the most recently delivered Reserve
Report, and the ownership of such Properties shall not in any material respect
obligate the Borrower or such Subsidiary to bear the costs and expenses relating
to the maintenance, development and operations of each such Property in an
amount in excess of the working interest of each Property set forth in the most
recently delivered Reserve Report that is not offset by a corresponding
proportionate increase in the Borrower’s or such Subsidiary’s net revenue
interest in such Property.
 
(b) All material leases and agreements necessary for the conduct of the business
of the Borrower and its Subsidiaries are valid and subsisting, in full force and
effect, and there exists no default or event or circumstance which with the
giving of notice or the passage of time or both would give rise to a default
under any such lease or leases, which could reasonably be expected to have a
Material Adverse Effect.
 
(c) The rights and Properties presently owned, leased or licensed by the
Borrower and the Subsidiaries including, without limitation, all easements and
rights of way, include all rights and Properties necessary to permit the
Borrower and the Subsidiaries to conduct their business in all material respects
in the same manner as its business has been conducted prior to the date hereof.
 
(d) All of the Properties of the Borrower and the Subsidiaries which are
reasonably necessary for the operation of their businesses are in good working
condition and are maintained in accordance with prudent business standards.
 
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(e) The Borrower and each Subsidiary owns, or is licensed to use, all
trademarks, tradenames, copyrights, patents and other intellectual Property
material to its business, and the use thereof by the Borrower and such
Subsidiary does not and will not infringe upon the rights of any other Person,
except for any such infringements that, individually or in the aggregate, could
not reasonably be expected to result in a Material Adverse Effect.  The Borrower
and its Subsidiaries either own or have valid licenses or other rights to use
all databases, geological data, geophysical data, engineering data, seismic
data, maps, interpretations and other technical information used in their
businesses as presently conducted, subject to the limitations contained in the
agreements governing the use of the same, which limitations are customary for
companies engaged in the business of the exploration and production of
Hydrocarbons, with such exceptions as could not reasonably be expected to have a
Material Adverse Effect.
 
Section 7.17 Maintenance of Properties.  Except for such acts or failures to act
as could not be reasonably expected to have a Material Adverse Effect, the Oil
and Gas Properties (and Properties unitized therewith) of the Borrower and its
Subsidiaries have been maintained, operated and developed in a good and
workmanlike manner and in conformity with all Governmental Requirements and in
conformity with the provisions of all leases, subleases or other contracts
comprising a part of the Hydrocarbon Interests and other contracts and
agreements forming a part of the Oil and Gas Properties of the Borrower and its
Subsidiaries.  Specifically in connection with the foregoing, except for those
as could not be reasonably expected to have a Material Adverse Effect, (i) no
Oil and Gas Property of the Borrower or any Subsidiary is subject to having
allowable production reduced below the full and regular allowable (including the
maximum permissible tolerance) because of any overproduction (whether or not the
same was permissible at the time) and (ii) none of the wells comprising a part
of the Oil and Gas Properties (or Properties unitized therewith) of the Borrower
or any Subsidiary is deviated from the vertical more than the maximum permitted
by Governmental Requirements, and such wells are, in fact, bottomed under and
are producing from, and the well bores are wholly within, the Oil and Gas
Properties (or in the case of wells located on Properties unitized therewith,
such unitized Properties) of the Borrower or such Subsidiary.  All pipelines,
wells, gas processing plants, platforms and other material improvements,
fixtures and equipment owned in whole or in part by the Borrower or any of its
Subsidiaries that are necessary to conduct normal operations are being
maintained in a state adequate to conduct normal operations, and with respect to
such of the foregoing which are operated by the Borrower or any of its
Subsidiaries, in a manner consistent with the Borrower’s or its Subsidiaries’
past practices (other than those the failure of which to maintain in accordance
with this Section 7.17 could not reasonably be expected to have a Material
Adverse Effect).
 
Section 7.18 Gas Imbalances, Prepayments.  Except as set forth on Schedule 7.18
or on the most recent certificate delivered pursuant to Section 8.11(c), on a
net basis there are no gas imbalances, take or pay or other prepayments which
would require the Borrower or any of its Subsidiaries to deliver Hydrocarbons
produced from the Oil and Gas Properties at some future time without then or
thereafter receiving full payment therefor exceeding two percent (2%) of the
Borrower’s and its Subsidiaries’ Proved Reserves of natural gas (on an mcf
equivalent basis) in the aggregate.
 
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Section 7.19 Marketing of Production.  Except for contracts listed and in effect
on the date hereof on Schedule 7.19, and thereafter either disclosed in writing
to the Administrative Agent or included in the most recently delivered Reserve
Report (with respect to all of which contracts the Borrower represents that it
or its Subsidiaries are receiving a price for all production sold thereunder
which is computed substantially in accordance with the terms of the relevant
contract and are not having deliveries curtailed substantially below the subject
Property’s delivery capacity), no material agreements exist which are not
cancelable on 60 days notice or less without penalty or detriment for the sale
of production from the Borrower’s or its Subsidiaries’ Hydrocarbons (including,
without limitation, calls on or other rights to purchase, production, whether or
not the same are currently being exercised) that (a) pertain to the sale of
production at a fixed price and (b) have a maturity or expiry date of longer
than six (6) months from the date hereof.
 
Section 7.20 Swap Agreements.  Schedule 7.20, as of the date hereof, and after
the date hereof, each report required to be delivered by the Borrower pursuant
to Section 8.01(d), sets forth, a true and complete list of all Swap Agreements
of the Borrower and each Subsidiary, the material terms thereof (including the
type, term, effective date, termination date and notional amounts or volumes),
the net mark to market value thereof, all credit support agreements relating
thereto (including any margin required or supplied) and the counterparty to each
such agreement.
 
Section 7.21 Use of Loans.  The proceeds of the Loans shall be used to provide
working capital for exploration and production operations as set forth in the
Development Plan, to refinance Debt under the Existing Credit Agreement, and for
general corporate purposes, including, without limitation, to redeem the
Touradji Preferred Equity.  The Borrower and its Subsidiaries are not engaged
principally, or as one of its or their important activities, in the business of
extending credit for the purpose, whether immediate, incidental or ultimate, of
buying or carrying margin stock (within the meaning of Regulation T, U or X of
the Board).  No part of the proceeds of any Loan will be used for any purpose
which violates the provisions of Regulations T, U or X of the Board.
 
Section 7.22 Solvency.  After giving effect to the transactions contemplated
hereby, (a) the aggregate assets (after giving effect to amounts that could
reasonably be received by reason of indemnity, offset, insurance or any similar
arrangement), at a fair valuation, of the Borrower and the Guarantors, taken as
a whole, will exceed the aggregate Debt of the Borrower and the Guarantors on a
consolidated basis, as the Debt becomes absolute and matures, (b) each of the
Borrower and the Guarantors has not incurred and does not intend to incur, and
does not believe that it will incur, Debt beyond its ability to pay such Debt
(after taking into account the timing and amounts of cash to be received by each
of the Borrower and the Guarantors and the amounts to be payable on or in
respect of its liabilities, and giving effect to amounts that could reasonably
be received by reason of indemnity, offset, insurance or any similar
arrangement) as such Debt becomes absolute and matures and (c) each of the
Borrower and the Guarantors will not have (and will have no reason to believe
that it will have thereafter) unreasonably small capital for the conduct of its
business.
 
Section 7.23 Casualty Events.  Since December 31, 2007, neither the business nor
any Properties of the Borrower have been materially and adversely affected as a
result of any fire, explosion, earthquake, flood, drought, windstorm, accident,
strike or other labor disturbance, embargo, requisition or taking of Property or
cancellation of contracts, permits or concessions by any domestic or foreign
Governmental Authority, riot, activities or armed forces or acts of God or of
any public enemy.
 
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Section 7.24 Material Agreements.  Set forth on Schedule 7.24 hereto is a
complete and correct list of all material agreements and other instruments
currently maintained by the Borrower setting forth each counterparty thereto
(other than the Loan Documents) relating to the purchase, transportation by
pipeline, gas processing, marketing, development, sale and supply of
Hydrocarbons, farmout arrangements, joint operating agreements, contract
operating agreements or other material contracts (excluding oil and gas leases
of the Borrower) to which the Borrower is a party on or after the Effective Date
or by which its Properties is bound on or after the Effective Date (collectively
“Material Agreements”) and copies of such documents have been provided to the
Administrative Agent.  All such agreements are in full force and effect and the
Borrower is not in default thereunder, nor is there any uncured default by any
Affiliate predecessor in interest to the Borrower or, to the Borrower’s
knowledge, by any predecessor in interest to the Borrower (other than an
Affiliate predecessor) or counterparty thereto, except, in each case, defaults
which could not reasonably be expected to cause a Material Adverse Effect, nor
has the Borrower altered any material item of such agreements since the
Effective Date without the prior written consent of the Lenders
 
Section 7.25 No Brokers.  No Person, other than Canaccord Adams Inc., is
entitled to any brokerage fee or finders fee or similar fee or commission in
connection with arranging the Loans contemplated by this Agreement.
 
Section 7.26 Reliance.  In connection with the negotiation of and the entering
into this Agreement, the Borrower acknowledges and represents that none of the
Lenders, the Administrative Agent, the Arranger, or any representative of any of
the foregoing is acting as a fiduciary or financial or investment advisor for
it; it is not relying upon any representations (whether written or oral) of such
Persons; it has consulted with its own legal, regulatory, tax, business
investment, financial and accounting advisors to the extent it has deemed
necessary, and it has made its own investment, hedging, and trading decisions
based upon its own judgment and upon any advice from such advisors as it has
deemed necessary and not upon any view expressed by any Lender, the
Administrative Agent, the Arranger, or any representative of any of the
foregoing; it has not been given by any Lender, the Administrative Agent, the
Arranger, or any representative of any of the foregoing (directly or indirectly
through any other Person) any advice, counsel, assurance, guarantee, or
representation whatsoever as to the expected or projected success,
profitability, return, performance, result, effect, consequence, or benefit
(either legal, regulatory, tax, financial, accounting, or otherwise) of this
Agreement or the transactions contemplated hereby; and it is entering into this
Agreement and the other Loan Documents with a full understanding of all of the
risks hereof and thereof (economic and otherwise), and it is capable of assuming
and willing to assume (financially and otherwise) those risks.
 
Section 7.27 Payments by Purchasers of Production.  All proceeds from the sale
of the Borrower’s interests in Hydrocarbons from its Oil and Gas Properties are
currently being paid in full to the Borrower by the purchaser thereof on a
timely basis and at prices and terms comparable to market prices and terms
generally available at the time such prices and terms were negotiated for oil
and gas production from producing areas situated near such Oil and Gas
Properties, and none of such proceeds are currently being held in suspense by
such purchaser or any other Person.
 
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Section 7.28 Existing Accounts Payable.  Set forth on Schedule 7.28 hereto is a
complete and correct list of all existing accounts payable of the Borrower that
are more than 90 days past due as of the Effective Date.
 
Section 7.29 Development Plan.
 
(a) The Administrative Agent has been provided with a true and correct copy of
the initial Development Plan, which is attached hereto as Exhibit E.
 
(b) The Borrower has obtained all consents from Governmental Authorities
necessary to implement and complete in all material respects the Development
Plan as in effect on the Effective Date.
 
(c) The Development Plan covers all work reasonably necessary (i) to drill and
complete all wells scheduled to be drilled thereunder, (ii) to construct,
install and commence operations of the production facilities related thereto and
(iii) to complete and operate all injection wells as contemplated in connection
therewith.  The budget (including the budget for capital costs described
therein) for the Development Plan has been prepared by the Borrower in good
faith and represents the total costs and expenses anticipated by the
Borrower.  The development schedule in the Development Plan is realistic and
feasible.
 
ARTICLE VIII
Affirmative Covenants
 
Until the principal of and interest on each Loan and all fees payable hereunder
and all other amounts payable under the Loan Documents shall have been paid in
full, the Borrower covenants and agrees with the Lenders that:
 
Section 8.01 Financial Statements; Ratings Change; Other Information.  The
Borrower will furnish to the Administrative Agent and each Lender:
 
(a) Annual Financial Statements.  As soon as available, but in any event in
accordance with then applicable law and not later than ninety (90) days after
the end of each fiscal year of the Borrower, its audited consolidated balance
sheet and related statements of operations, stockholders’ equity and cash flows
as of the end of and for such year, setting forth in each case in comparative
form the figures for the previous fiscal year, all reported on by independent
public accountants reasonably acceptable to the Administrative Agent (without a
“going concern” or like qualification or exception and without any qualification
or exception as to the scope of such audit) to the effect that such consolidated
financial statements present fairly in all material respects the financial
condition and results of operations of the Borrower and its Consolidated
Subsidiaries on a consolidated basis in accordance with GAAP consistently
applied.
 
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(b) Quarterly Financial Statements.  As soon as available, but in any event in
accordance with then applicable law and not later than forty-five (45) days
after the end of each of the first three fiscal quarters of each fiscal year of
the Borrower, its consolidated balance sheet and related statements of
operations, stockholders’ equity and cash flows as of the end of and for such
fiscal quarter and the then elapsed portion of the fiscal year, setting forth in
each case in comparative form the figures for the corresponding period or
periods of (or, in the case of the balance sheet, as of the end of) the previous
fiscal year, all certified by a Financial Officer as presenting fairly in all
material respects the financial condition and results of operations of the
Borrower and its Consolidated Subsidiaries on a consolidated basis in accordance
with GAAP consistently applied, subject to normal year-end audit adjustments and
the absence of footnotes.
 
(c) Certificate of Financial Officer -- Compliance.  Concurrently with any
delivery of financial statements under Section 8.01(a) or Section 8.01(b), a
certificate of a Financial Officer in substantially the form of Exhibit D hereto
(i) certifying as to whether a Default has occurred and, if a Default has
occurred, specifying the details thereof and any action taken or proposed to be
taken with respect thereto, (ii) setting forth reasonably detailed calculations
demonstrating compliance with Section 8.12(b) and Section 9.01, (iii) stating
whether any change in GAAP or in the application thereof has occurred since the
date of the audited financial statements referred to in Section 7.04 and, if any
such change has occurred, specifying the effect of such change on the financial
statements accompanying such certificate, and (iv) if, at any time, all the
Consolidated Subsidiaries of the Borrower are not Consolidated Subsidiaries,
setting forth consolidating spreadsheets that show all Consolidated Subsidiaries
and the eliminating entries, in such form as would be presentable to the
auditors of the Borrower.
 
(d) Certificate of Financial Officer – Swap Agreements.  Concurrently with any
delivery of financial statements under Section 8.01(a) and Section 8.01(b), a
certificate of a Financial Officer, in form and substance satisfactory to the
Administrative Agent, setting forth as of the last Business Day of such fiscal
quarter or fiscal year, a true and complete list of all Swap Agreements of the
Borrower and each Subsidiary, the material terms thereof (including the type,
term, effective date, termination date and notional amounts or volumes), the net
mark-to-market value therefor, any new credit support agreements relating
thereto not listed on Schedule 7.20, any margin required or supplied under any
credit support document, and the counterparty to each such agreement.
 
(e) Certificate of Insurer -- Insurance Coverage.  Upon change or renewal, a
certificate of insurance coverage from each insurer with respect to the
insurance required by Section 8.06, in form and substance satisfactory to the
Administrative Agent, and, if requested by the Administrative Agent or any
Lender, all copies of the applicable policies.
 
(f) Other Accounting Reports.  Promptly upon receipt thereof, a copy of each
other report or letter submitted to the Borrower or any of its Subsidiaries by
independent accountants in connection with any annual, interim or special audit
made by them of the books of the Borrower or any such Subsidiary, and a copy of
any response by the Borrower or any such Subsidiary, or the Board of Directors
of the Borrower or any such Subsidiary, to such letter or report.
 
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(g) Notices Under Material Instruments.  Promptly after the furnishing thereof,
copies of any financial statement, report or notice furnished to or by any
Person pursuant to the terms of any preferred stock designation, indenture, loan
or credit or other similar agreement, other than this Agreement and not
otherwise required to be furnished to the Lenders pursuant to any other
provision of this Section 8.01.
 
(h) Lists of Purchasers.  Concurrently with the delivery of any Reserve Report
to the Administrative Agent pursuant to Section 8.11, a list of all Persons
purchasing Hydrocarbons from the Borrower or any Subsidiary.
 
(i) Notice of Sales of Oil and Gas Properties.  In the event the Borrower or any
Subsidiary intends to sell, transfer, assign or otherwise dispose of any Oil or
Gas Properties or any Equity Interests in any Subsidiary in accordance with
Section 9.12, prior written notice of such disposition, the price thereof and
the anticipated date of closing and any other details thereof requested by the
Administrative Agent or any Lender.
 
(j) Notice of Litigation/Casualty Events.  Prompt written notice, and in any
event within three Business Days, of the delivery of any demand letter, or the
filing of any lawsuit or arbitration proceeding or the occurrence of any
Casualty Event or the commencement of any action or proceeding that could
reasonably be expected to result in a demand notice, lawsuit, arbitration
proceeding or Casualty Event.
 
(k) Information Regarding Borrower and Guarantors.  Prompt written notice (and
in any event within fifteen (15) days prior thereto) of any change (i) in the
Borrower or any Guarantor’s corporate name or in any trade name used to identify
such Person in the conduct of its business or in the ownership of its
Properties, (ii) in the location of the Borrower or any Guarantor’s chief
executive office or principal place of business, (iii) in the Borrower or any
Guarantor’s identity or corporate structure or in the jurisdiction in which such
Person is incorporated or formed, (iv) in the Borrower or any Guarantor’s
jurisdiction of organization or such Person’s organizational identification
number in such jurisdiction of organization, and (v) in the Borrower or any
Guarantor’s federal taxpayer identification number.
 
(l) Other Reports.  The Borrower shall prepare and provide the Lenders and
Administrative Agent the following reports:
 
(i) on a monthly basis by the 30th of each month after the end of each calendar
month, a report setting forth, for the immediately preceding calendar month, the
volume of production and sales attributable to production (and the prices at
which such sales were made and the revenues derived from such sales) for each
such calendar month from the Oil and Gas Properties described in the most recent
Reserve Report, and setting forth the related ad valorem, severance and
production taxes and lease operating expenses attributable thereto and incurred
for each such calendar month;
 
(ii) on a quarterly basis by the 30th of each month after the end of each
calendar quarter, an updated report setting forth the Borrower’s forecasted
Development Plan for the following twelve (12) month period; and
 
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(iii) such other information as the Administrative Agent may reasonably request.
 
(m) Notices of Certain Changes.  Promptly, but in any event within ten (10)
Business Days after the execution thereof, copies of any amendment, modification
or supplement to the Organizational Documents, any preferred stock designation
or any other organic document of the Borrower or any Subsidiary.
 
(n) Other Requested Information.  Promptly following any request therefor, such
other information regarding the operations, business affairs and financial
condition of the Borrower or any Subsidiary (including, without limitation, any
Plan or Multiemployer Plan and any reports or other information required to be
filed under ERISA), or compliance with the terms of this Agreement or any other
Loan Document, in each case, as the Administrative Agent or any Lender may
reasonably request.
 
Section 8.02 Notices of Material Events.  The Borrower will furnish to the
Administrative Agent and each Lender prompt written notice of the following:
 
(a) the occurrence of any Default;
 
(b) the filing or commencement of, or the threat in writing of, any action,
suit, proceeding, investigation or arbitration by or before any arbitrator or
Governmental Authority against or affecting the Borrower or any Affiliate
thereof not previously disclosed in writing to the Lenders or any material
adverse development in any action, suit, proceeding, investigation or
arbitration (whether or not previously disclosed to the Lenders) that, in either
case, if adversely determined, could reasonably be expected to result in a
Material Adverse Effect; and
 
(c) any other development that results in, or could reasonably be expected to
result in, a Material Adverse Effect.
 
Each notice delivered under this Section 8.02 shall be accompanied by a
statement of a Responsible Officer setting forth the details of the event or
development requiring such notice and any action taken or proposed to be taken
with respect thereto.
 
Section 8.03 Existence; Conduct of Business.  The Borrower will, and will cause
each Subsidiary to, do or cause to be done all things necessary to preserve,
renew and keep in full force and effect its legal existence and the rights,
licenses, permits, privileges and franchises material to the conduct of its
business and maintain, if necessary, its qualification to do business in each
jurisdiction in which its Oil and Gas Properties is located or the ownership of
its Properties requires such qualification, except where the failure to so
qualify could not reasonably be expected to have a Material Adverse Effect;
provided that the foregoing shall not prohibit any merger, consolidation,
liquidation or dissolution permitted under Section 9.11.
 
Section 8.04 Payment of Obligations.  The Borrower will, and will cause each
Subsidiary to, pay its obligations, including Tax liabilities of the Borrower
and all of its Subsidiaries before the same shall become delinquent or in
default, except where (a) the validity or amount thereof is being contested in
good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has
set aside on its books adequate reserves with respect thereto in accordance with
GAAP and (c) the failure to make payment pending such contest could not
reasonably be expected to result in a Material Adverse Effect or result in the
seizure or levy of any Property of the Borrower or any Subsidiary.
 
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Section 8.05 Operation and Maintenance of Properties.  The Borrower, at its own
expense, will, and will cause each Subsidiary to:
 
(a) operate its Oil and Gas Properties and other material Properties or cause
such Oil and Gas Properties and other material Properties to be operated in a
careful and efficient manner in accordance with the practices of the industry
and in compliance with all applicable contracts and agreements and in compliance
with all Governmental Requirements, including, without limitation, applicable
proration requirements and Environmental Laws, and all applicable laws, rules
and regulations of every other Governmental Authority from time to time
constituted to regulate the development and operation of its Oil and Gas
Properties and the production and sale of Hydrocarbons and other minerals
therefrom, except, in each case, where the failure to comply could not
reasonably be expected to have a Material Adverse Effect;
 
(b) keep, preserve and maintain all Property material to the conduct of its
business in good working order and condition, ordinary wear and tear excepted,
and preserve, maintain and keep in good repair, working order and efficiency
(ordinary wear and tear excepted) all of its material Oil and Gas Properties and
other material Properties, including, without limitation, all equipment,
machinery and facilities, except where the failure to do so could not be
reasonably be expected to have a Material Adverse Effect;
 
(c) promptly pay and discharge, or make reasonable and customary efforts to
cause to be paid and discharged, all delay rentals, royalties, expenses and
indebtedness accruing under the leases or other agreements affecting or
pertaining to its Oil and Gas Properties and will do all other things necessary
to keep unimpaired their rights with respect thereto and prevent any forfeiture
thereof or default thereunder, provided that, the Borrower and its Subsidiaries
may pay any such items into suspense if such action is taken in good faith in
the ordinary course of business;
 
(d) promptly perform or make reasonable and customary efforts to cause to be
performed, in accordance with industry standards, the obligations required by
each and all of the assignments, deeds, leases, sub-leases, contracts and
agreements affecting its interests in its Oil and Gas Properties and other
material Properties, except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect; and
 
(e) to the extent the Borrower is not the operator of any Property, the Borrower
shall use reasonable efforts to cause the operator to comply with this Section
8.05.
 
Section 8.06 Insurance.  The Borrower will, and will cause each Subsidiary to,
maintain, with financially sound and reputable insurance companies, insurance in
such amounts and against such risks as are customarily maintained by companies
engaged in the same or similar businesses operating in the same or similar
locations.  The loss payable clauses or provisions in said insurance policy or
policies insuring any of the collateral for the Loans shall be endorsed in favor
of and made payable to the Administrative Agent as its interests may appear and
such policies shall name the Administrative Agent and the Lenders as “additional
insureds” and provide that the insurer will endeavor to give at least 30 days
prior notice of any cancellation to the Administrative Agent.
 
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Section 8.07 Books and Records; Inspection Rights.  The Borrower will, and will
cause each Subsidiary to, keep proper books of record and account in which full,
true and correct entries are made of all dealings and transactions in relation
to its business and activities.  The Borrower will, and will cause each
Subsidiary to, permit any representatives designated by the Administrative Agent
or any Lender, upon reasonable prior notice, to visit and inspect its
Properties, to examine and make extracts from its books and records, undertake
appraisals of such Properties and to discuss its affairs, finances and condition
with its officers and independent accountants, all at such reasonable times and
as often as reasonably requested.
 
Section 8.08 Compliance with Laws.  The Borrower will, and will cause each
Subsidiary to, comply with all laws, rules, regulations and orders of any
Governmental Authority applicable to it or its Property, except (a) where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect or (b) in such instances in
which such law, rule, regulation or order is being contested in good faith by
appropriate proceedings diligently conducted.
 
Section 8.09 Environmental Matters.
 
(a) The Borrower shall at its sole expense: (i) comply, and shall cause its
Properties and operations and each Subsidiary and each Subsidiary’s Properties
and operations to comply, with all applicable Environmental Laws, the breach of
which could be reasonably expected to have a Material Adverse Effect; (ii) not
Release or threaten to Release, and shall cause each Subsidiary not to Release
or threaten to Release, any Hazardous Material on, under, about or from any of
the Borrower’s or its Subsidiaries’ Properties or any other property offsite the
Property to the extent caused by the Borrower’s or any of its Subsidiaries’
operations except in compliance with applicable Environmental Laws, the Release
or threatened Release of which could reasonably be expected to have a Material
Adverse Effect; (iii) timely obtain or file, and shall cause each Subsidiary to
timely obtain or file, all Environmental Permits, if any, required under
applicable Environmental Laws to be obtained or filed in connection with the
operation or use of the Borrower’s or its Subsidiaries’ Properties, which
failure to obtain or file could reasonably be expected to have a Material
Adverse Effect; (iv) promptly commence and diligently prosecute to completion,
and shall cause each Subsidiary to promptly commence and diligently prosecute to
completion, any assessment, evaluation, investigation, monitoring, containment,
cleanup, removal, repair, restoration, remediation or other remedial obligations
(collectively, the “Remedial Work”) in the event any Remedial Work is required
or reasonably necessary under applicable Environmental Laws because of or in
connection with the actual or suspected past, present or future Release or
threatened Release of any Hazardous Material on, under, about or from any of the
Borrower’s or its Subsidiaries’ Properties, which failure to commence and
diligently prosecute to completion could reasonably be expected to have a
Material Adverse Effect; (v) conduct, and cause its Subsidiaries to conduct,
their respective operations and businesses in a manner that will not expose any
Property or Person to Hazardous Materials that could reasonably be expected to
form the basis for a claim for damages or compensation; and (vi) establish and
implement, and shall cause each Subsidiary to establish and implement, such
procedures as may be necessary to continuously determine and assure that the
Borrower’s and its Subsidiaries’ obligations under this Section 8.09(a) are
timely and fully satisfied, which failure to establish and implement could
reasonably be expected to have a Material Adverse Effect.
 
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(b) The Borrower will promptly, but in no event later than five days of the
occurrence of a triggering event, notify the Administrative Agent and the
Lenders in writing of any threatened action, investigation or inquiry by any
Governmental Authority or any threatened demand or lawsuit by any Person against
the Borrower or its Subsidiaries or their Properties of which the Borrower has
knowledge in connection with any Environmental Laws if the Borrower could
reasonably anticipate that such action will result in liability (whether
individually or in the aggregate) in excess of $250,000, not fully covered by
insurance, subject to normal deductibles.
 
Section 8.10 Further Assurances.
 
(a) The Borrower at its sole expense will, and will cause each Subsidiary to,
promptly execute and deliver to the Administrative Agent all such other
documents, agreements and instruments reasonably requested by the Administrative
Agent to comply with, cure any defects or accomplish the conditions precedent,
covenants and agreements of the Borrower or any Subsidiary, as the case may be,
in the Loan Documents, including the Notes, or to further evidence and more
fully describe the collateral intended as security for the Indebtedness, or to
correct any omissions in this Agreement or the Security Instruments, or to state
more fully the obligations secured therein, or to perfect, protect or preserve
any Liens created pursuant to this Agreement or any of the Security Instruments
or the priority thereof, or to make any recordings, file any notices or obtain
any consents, all as may be reasonably necessary or appropriate, in the sole
discretion of the Administrative Agent, in connection therewith.
 
(b) The Borrower hereby authorizes the Administrative Agent to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Mortgaged Property without the signature of the Borrower or any
other Guarantor where permitted by law.  A carbon, photographic or other
reproduction of the Security Instruments or any financing statement covering the
Mortgaged Property or any part thereof shall be sufficient as a financing
statement where permitted by law.
 
Section 8.11 Reserve Reports.
 
(a) On or before April 1st and October 1st of each year, commencing April 1,
2009, the Borrower shall furnish to the Administrative Agent and the Lenders a
Reserve Report evaluating the Oil and Gas Properties of the Borrower and its
Subsidiaries as of the immediately preceding January 1st and July 1st.  The
Reserve Report as of January 1 of each year shall be prepared by one or more
Approved Petroleum Engineers, and the July 1 Reserve Report of each year shall
be prepared by or under the supervision of the chief reserve engineer of the
Borrower who shall certify such Reserve Report to be true and accurate and to
have been prepared in accordance with the procedures used in the immediately
preceding January 1 Reserve Report.  The Administrative Agent shall provide the
Borrower economic assumptions consistent with its lending requirements 30 days
prior to the date such Reserve Report is due.
 
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(b) In the event any party elects a Total Reserve Value redetermination pursuant
to Section 2.06, the Borrower shall (i) furnish to the Administrative Agent and
the Lenders a Reserve Report prepared by or under the supervision of the chief
reserve engineer of the Borrower who shall certify such Reserve Report to be
true and accurate and to have been prepared in accordance with the procedures
used in the immediately preceding January 1 Reserve Report and (ii) provide such
Reserve Report with an “as of” date as required by the Administrative Agent as
soon as possible, but in any event no later than thirty (30) days following the
receipt of such request.
 
(c) With the delivery of each Reserve Report, the Borrower shall provide to the
Administrative Agent and the Lenders a certificate from a Responsible Officer
certifying that in all material respects: (i) the information contained in the
Reserve Report and any other information delivered in connection therewith is
true and correct, provided, however, that the Borrower does not warrant to such
projections concerning volumes, production and cost estimates contained in each
Reserve Report by any Approved Petroleum Engineer that are necessarily based
upon such Approved Petroleum Engineer’s professional opinions, estimates and
projections, (ii) the Borrower or its Subsidiaries owns good and defensible
title to the Oil and Gas Properties evaluated in such Reserve Report and such
Properties are free of all Liens except for Liens permitted by Section 9.03,
(iii) except as set forth on an exhibit to the certificate, on a net basis there
are no gas imbalances, take or pay or other prepayments in excess of the volume
specified in Section 7.18 with respect to its Oil and Gas Properties evaluated
in such Reserve Report which would require the Borrower or any Subsidiary to
deliver Hydrocarbons either generally or produced from such Oil and Gas
Properties at some future time without then or thereafter receiving full payment
therefor, (iv) none of their Oil and Gas Properties have been sold since the
date of the last Total Reserve Value determination except as set forth on an
exhibit to the certificate, which certificate shall list all of its Oil and Gas
Properties sold and in such detail as reasonably required by the Administrative
Agent, (v) attached to the certificate is a list of all marketing agreements
entered into subsequent to the later of the date hereof or the most recently
delivered Reserve Report which the Borrower could reasonably be expected to have
been obligated to list on Schedule 7.19 had such agreement been in effect on the
date hereof and (vi) attached thereto is a schedule of the Oil and Gas
Properties evaluated by such Reserve Report that are Mortgaged Properties and
demonstrating the percentage of the Total Reserve Value of the Oil and Gas
Properties that the value of such Mortgaged Properties represent in compliance
with Section 8.13(a).
 
Section 8.12 Title Information.
 
(a) On or before the delivery to the Administrative Agent and the Lenders of
each Reserve Report required by Section 8.11(a), the Borrower will deliver title
information in form and substance acceptable to the Administrative Agent
covering enough of the Oil and Gas Properties evaluated by such Reserve Report
that were not included in the immediately preceding Reserve Report, so that the
Administrative Agent shall have received together with title information
previously delivered to the Administrative Agent, satisfactory title information
on at least 80% of the Total Reserve Value of the Oil and Gas Properties
evaluated by such Reserve Report.
 
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(b) If the Borrower has provided title information for additional Properties
under Section 8.12(a), the Borrower shall, within 60 days of notice from the
Administrative Agent that title defects or exceptions exist with respect to such
additional Properties, either (i) cure any such title defects or exceptions
(including defects or exceptions as to priority) which are not permitted by
Section 9.03 raised by such information, (ii) substitute acceptable Mortgaged
Properties with no title defects or exceptions except for Excepted Liens (other
than Excepted Liens described in clauses (e), (g) and (h) of such definition)
having an equivalent value or (iii) deliver title information in form and
substance acceptable to the Administrative Agent so that the Administrative
Agent shall have received, together with title information previously delivered
to the Administrative Agent, satisfactory title information on at least 80% of
the Total Reserve Value of the Oil and Gas Properties evaluated by such Reserve
Report.
 
(c) If the Borrower is unable to cure any title defect requested by the
Administrative Agent or the Lenders to be cured within the 60-day period or the
Borrower does not comply with the requirements to provide acceptable title
information covering 80% of the Total Reserve Value of the Oil and Gas
Properties evaluated in the most recent Reserve Report, such default shall not
be a Default, but instead the Administrative Agent and/or the Majority Lenders
shall have the right to exercise the following remedy in their sole discretion
from time to time, and any failure to so exercise this remedy at any time shall
not be a waiver as to future exercise of the remedy by the Administrative Agent
or the Lenders.  To the extent that the Administrative Agent or the Majority
Lenders are not satisfied with title to any Mortgaged Property after the 60-day
period has elapsed, such unacceptable Mortgaged Property shall not count towards
the 80% requirement, and the Administrative Agent may send a notice to the
Borrower and the Lenders that the then outstanding Total Reserve Value shall be
reduced by an amount as determined by the Majority Lenders to cause the Borrower
to be in compliance with the requirement to provide acceptable title information
on 80% of the Total Reserve Value of the Oil and Gas Properties.  This new Total
Reserve Value shall become effective immediately after receipt of such notice.
 
Section 8.13 Additional Collateral; Additional Guarantors.
 
(a) Within three (3) Business Days of the Effective Date, the Borrower shall
deliver to the Administrative Agent an opinion by its local counsel in the State
of North Dakota, in form and substance reasonably satisfactory to the
Administrative Agent.
 
(b) In connection with each redetermination of the Total Reserve Value, the
Borrower shall review the Reserve Report and the list of current Mortgaged
Properties (as described in Section 8.11(c)) to ascertain whether the Mortgaged
Properties represent at least 80% of the Total Reserve Value of the Oil and Gas
Properties evaluated in the most recently completed Reserve Report after giving
effect to exploration and production activities, acquisitions, dispositions and
production.  In the event that the Mortgaged Properties do not represent at
least 80% of such Total Reserve Value, then the Borrower shall, and shall cause
its Subsidiaries to, grant, within thirty (30) days of delivery of the
certificate required under Section 8.11(c), to the Administrative Agent as
security for the Indebtedness a first-priority Lien interest (provided that (i)
Liens under the Senior Revolving Credit Documents, (ii) Excepted Liens of the
type described in clauses (a) to (d) and (f) of the definition thereof may
exist, but subject to the provisos at the end of such definition and (iii) Liens
permitted by Section 9.03 may exist) on additional Oil and Gas Properties not
already subject to a Lien of the Security Instruments such that after giving
effect thereto, the Mortgaged Properties will represent at least 80% of such
Total Reserve Value.  All such Liens will be created and perfected by and in
accordance with the provisions of deeds of trust, security agreements and
financing statements or other Security Instruments, all in form and substance
reasonably satisfactory to the Administrative Agent and in sufficient executed
(and acknowledged where necessary or appropriate) counterparts for recording
purposes.  
 
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(c) In the event that the Borrower forms or acquires any Subsidiary, the
Borrower shall promptly cause such Subsidiary to guarantee the Indebtedness
pursuant to the Guaranty Agreement.  In connection with any such guaranty, the
Borrower shall, or shall cause such Subsidiary to, (i) execute and deliver a
supplement to the Guaranty Agreement executed by such Subsidiary, (ii) pledge
all of the Equity Interests of such new Subsidiary (including, without
limitation, delivery of original stock certificates evidencing the Equity
Interests of such Subsidiary, together with an appropriate undated stock powers
for each certificate duly executed in blank by the registered owner thereof) and
(iii) execute and deliver such other additional closing documents, certificates
and legal opinions as shall reasonably be requested by the Administrative Agent.
 
(d) The Borrower agrees that it will not, and will not permit any Subsidiary to,
grant a Lien on any Property to secure the Senior Revolving Notes without first
(i) giving ten (10) days’ prior written notice to the Administrative Agent
thereof and (ii) granting to the Administrative Agent to secure the Indebtedness
a first-priority, perfected Lien (subject only to a Lien under the Senior
Revolving Credit Documents) on this same Property pursuant to Security
Instruments in form and substance satisfactory to the Administrative Agent.  In
connection therewith, the Borrower shall, or shall cause its Subsidiaries to,
execute and deliver such other additional closing documents, certificates and
legal opinions as shall reasonably be requested by the Administrative Agent.
 
Section 8.14 ERISA Compliance.  The Borrower will promptly furnish and will
cause the Subsidiaries and any ERISA Affiliate to promptly furnish to the
Administrative Agent (i) promptly after the filing thereof with the United
States Secretary of Labor or the Internal Revenue Service, copies of each annual
and other report with respect to each Plan or any trust created thereunder, and
(ii) immediately upon becoming aware of the occurrence of any “prohibited
transaction,” as described in section 406 of ERISA or in section 4975 of the
Code, in connection with any Plan or any trust created thereunder, a written
notice signed by the President or the principal Financial Officer, the
Subsidiary or the ERISA Affiliate, as the case may be, specifying the nature
thereof, what action the Borrower, the Subsidiary or the ERISA Affiliate is
taking or proposes to take with respect thereto, and, when known, any action
taken or proposed by the Internal Revenue Service or the Department of Labor
with respect thereto.
 
Section 8.15 Swap Agreements.  The Borrower shall from time to time enter into
Swap Agreements in respect of commodities so that the notional volumes of all
Swap Agreements, in the aggregate, are more than 50% of the reasonably
anticipated projected production from the Borrower’s Proved Developed Producing
Reserves for each month until December 31, 2012.  Notwithstanding anything to
the contrary in this Agreement, the Borrower shall not assign, terminate or
unwind any Swap Agreement entered into on or before the Effective Date.
 
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Section 8.16 Marketing Activities.  The Borrower will not, and will not permit
any of its Subsidiaries to, engage in marketing activities for any Hydrocarbons
or enter into any contracts related thereto other than (i) the Nexen Contract,
(ii) contracts for the sale of Hydrocarbons scheduled or reasonably estimated to
be produced from their proved Oil and Gas Properties during the period of such
contract, (iii) contracts for the sale of Hydrocarbons scheduled or reasonably
estimated to be produced from proved Oil and Gas Properties of third parties
during the period of such contract associated with the Oil and Gas Properties of
the Borrower and its Subsidiaries that the Borrower or one of its Subsidiaries
has the right to market pursuant to joint operating agreements, unitization
agreements or other similar contracts that are usual and customary in the oil
and gas business and (iv) other contracts for the purchase and/or sale of
Hydrocarbons of third parties (A) which have generally offsetting provisions
(i.e. corresponding pricing mechanics, delivery dates and points and volumes)
such that no “position” is taken and (B) for which appropriate credit support
has been taken to alleviate the material credit risks of the counterparty
thereto.
 
Section 8.17 Modifications to Development Plan.  Promptly following any
modification of the Development Plan which is permitted by the terms of Section
9.19, the Borrower shall provide the Administrative Agent a true and correct
copy of such modification.
 
Section 8.18 Operating Account, Deposit Accounts and Securities Accounts.
 
(a) The Borrower agrees to deliver, and cause its Subsidiaries to deliver,
within 60 days of the Effective Date, duly executed account control agreements,
in form and substance satisfactory to the Administrative Agent, from the
Operating Account Bank holding the Operating Account and each institution
holding any other deposit accounts or securities accounts of the Borrower or its
Subsidiaries, including without limitation, the accounts listed on Schedule 8 of
the Guaranty Agreement, pursuant to which each of the Operating Account Bank and
such other institution recognizes the Administrative Agent’s Lien in the
Operating Account and such other accounts and, upon the occurrence and during
the continuance of an Event of Default, agrees to transfer collected balances in
the Operating Account and such other accounts to the Administrative Agent
pursuant to its instructions from time to time.
 
(b) All Cash Receipts to be received by the Borrower shall be deposited, and the
Borrower shall direct (and hereby agrees to direct) each payor of any Cash
Receipts existing now and in the future to make payment to the Operating
Account.  Following the occurrence of any Event of Default, the Administrative
Agent shall send notice to the Borrower that the Administrative Agent is sending
or has sent a notice to the Operating Account Bank that the Administrative Agent
is exercising its right to take control of the Operating Account.  With respect
to the Operating Account, the Administrative Agent shall receive copies of the
Borrower’s bank account statements, statement of expenses for the preceding
month and such other supporting information as shall from time to time be
requested by the Administrative Agent.
 
(c) Upon the request of the Administrative Agent, the Borrower shall (i) close
the Operating Account and (ii) establish and maintain, at the Borrower’s
expense, a new operating account with a bank reasonably acceptable to the
Administrative Agent.
 
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(d)  Upon the payment in full in cash of all Indebtedness under this Agreement
and termination of all of the Commitments hereunder, the Administrative Agent
shall notify the Operating Account Bank to terminate the account control
agreement. Otherwise, the account control agreement shall remain and continue in
full force and effect.
 
Section 8.19 Performance of Obligations under Loan Documents.  The Borrower will
pay the Notes according to the reading, tenor and effect thereof, and the
Borrower will, and will cause each Subsidiary to, do and perform every act and
discharge all of the obligations to be performed and discharged by them under
the Loan Documents, including, without limitation, this Agreement, at the time
or times and in the manner specified.
 
ARTICLE IX
Negative Covenants
 
Until the principal of and interest on each Loan and all fees payable hereunder
and all other amounts payable under the Loan Documents have been paid in full,
the Borrower covenants and agrees with the Lenders that:
 
Section 9.01 Financial Covenants.
 
(a) Total Reserve Value to Debt ratio.  The Borrower will not, as of any date of
determination, at any time, permit its ratio of (i) Total Reserve Value as in
effect on such date of determination to (ii) Debt as of such date of
determination to be less than 1.75 to 1.0.
 
(b) Ratio of Net Debt to EBITDAX.  Commencing December 31, 2008, the Borrower
will not, at any time, permit its ratio of Net Debt as of such time to EBITDAX
to be greater than (i) 4.5 to 1.0 the fiscal quarters ending December 31, 2008,
March 31, 2009, June 30, 2009 and September 30, 2009, and (ii) 4.0 to 1.0 for
all fiscal quarters ending thereafter.
 
(c) Capital Expenditures.  The Borrower will not and will not permit its
Subsidiaries to either make or commit or agree to make any Capital Expenditure
(by purchase or Capital Lease or incur costs associated with the exploration and
development of Borrower’s or its Subsidiaries’ Oil and Gas Properties) except
(i) Capital Expenditures made in compliance with the Development Plan and (ii)
additional Capital Expenditures made outside the Development Plan, after the
Effective Date, in an aggregate amount not to exceed $500,000 during any fiscal
year.  Notwithstanding the foregoing, to the extent any Capital Expenditures
described in clause (ii) are subsequently approved as part of the Development
Plan, such Capital Expenditures shall be deemed to constitute Capital
Expenditures under clause (i) and shall not be included for purposes of
calculating Capital Expenditures under clause (ii).
 
Section 9.02 Debt.  The Borrower will not, and will not permit any Subsidiary
to, incur, create, assume or suffer to exist any Debt, except:
 
(a) the Notes or other Indebtedness arising under the Loan Documents or any
guaranty of or suretyship arrangement for the Notes or other Indebtedness
arising under the Loan Documents;
 
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(b) accounts payable and accrued expenses, liabilities or other obligations to
pay the deferred purchase price of Property or services, from time to time
incurred in the ordinary course of business which are not greater than ninety
(90) days past the date of invoice or delinquent or which are being contested in
good faith by appropriate action and for which adequate reserves have been
maintained in accordance with GAAP;
 
(c) Debt secured by the Liens permitted under subsection (c) or (d) of Section
9.03 in an aggregate principal amount not to exceed $250,000 at any one time
outstanding;
 
(d) Debt associated with bonds or surety obligations required by Governmental
Requirements in connection with the operation of the Oil and Gas Properties;
 
(e) intercompany Debt between the Borrower and any Subsidiary or between
Subsidiaries to the extent permitted by Section 9.05(f); provided that such Debt
is not held, assigned, transferred, negotiated or pledged to any Person other
than the Borrower or one of its Subsidiaries, and, provided further, that any
such Debt owed by either the Borrower or a Guarantor shall be subordinated to
the Indebtedness on terms set forth in the Guaranty Agreement;
 
(f) Debt under the Senior Revolving Credit Notes; and
 
(g) other Debt not to exceed $250,000 in the aggregate at any one time
outstanding.
 
Section 9.03 Liens.  The Borrower will not, and will not permit any Subsidiary
to, create, incur, assume or permit to exist any Lien on any of its Properties
(now owned or hereafter acquired), except:
 
(a) Liens securing the payment of any Indebtedness;
 
(b) Excepted Liens;
 
(c) Liens securing Capital Leases; provided such Liens secure Debt that (i) is
secured only by the Property leased under such Capital Leases and not any other
Properties of the Borrower or any of its Subsidiaries and (ii) is not increased
in amount;
 
(d) purchase money Liens or purchase money security interests upon or in any
equipment acquired or held by the Borrower or any of its Subsidiaries in the
ordinary course of business created prior to or at the time of the Borrower's or
such Subsidiary's acquisition of such equipment; provided that such Liens secure
Debt that (i) was incurred solely for the purpose of financing the acquisition
of such equipment, and does not exceed the aggregate purchase price of such
equipment, (ii) is secured only by such equipment and not by any other
Properties of the Borrower or its Subsidiaries, and (iii) is not increased in
amount;
 
(e) Liens on Property securing the Senior Revolving Credit Notes and any
guaranties thereof as permitted by Section 9.02(f); provided, however, that such
Property is subject to a Lien in favor of the Administrative Agent which secures
the Indebtedness, this Agreement, the other Loan Documents pursuant to the
Intercreditor Agreement and Security Instruments satisfactory to the
Administrative Agent;
 
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(f) Obligations of PRC Williston LLC under the PetroBridge Participation
Agreement; and
 
(g) other Liens securing Debt permitted under Section 6.02 in an aggregate
principal amount not to exceed $250,000 at any one time outstanding.
 
Section 9.04 Dividends, Distributions and Redemptions.  The Borrower will not,
and will not permit any of its Subsidiaries to, declare or make, or agree to pay
or make, directly or indirectly, any Restricted Payment, return any capital to
its stockholders or make any distribution of its Property to its Equity Interest
holders, except (a) the Borrower may declare and pay dividends with respect to
its Equity Interests payable solely in additional shares of its Equity Interests
(other than Disqualified Capital Stock), (b) Subsidiaries may declare and pay
dividends to the Borrower ratably with respect to their Equity Interests, (c)
PRC Williston LLC may make any distributions pursuant to the requirements of the
PetroBridge Participation Agreement, (d) the Borrower may make Restricted
Payments pursuant to and in accordance with stock option plans or other benefit
plans for management or employees of the Borrower and its Subsidiaries, (e) so
long as no Default or Event of Default or Borrowing Base Deficiency shall have
occurred or would occur after giving effect thereto, the Borrower may redeem the
Touradji Preferred Equity, and (f) PRC Williston LLC may redeem any Working
Interest Election (as such term is defined in the PetroBridge Participation
Agreement) so long as (1) no Default has occurred and is continuing or would
result therefrom and (2) after giving effect thereto, the Borrower possesses at
least $3,000,000 of cash, cash equivalents or availability under a credit
facility.
 
Section 9.05 Investments, Loans and Advances.  The Borrower will not, and will
not permit any Subsidiary to, make or permit to remain outstanding any
Investments in or to any Person, except that the foregoing restriction shall not
apply to:
 
(a) accounts receivable arising in the ordinary course of business;
 
(b) direct obligations of the United States or any agency thereof, or
obligations guaranteed by the United States or any agency thereof, in each case
maturing within one year from the date of creation thereof;
 
(c) commercial paper maturing within one year from the date of creation thereof
rated in the highest grade by S&P or Moody’s;
 
(d) deposits maturing within one year from the date of creation thereof with,
including certificates of deposit issued by, any Lender or any office located in
the United States of any other bank or trust company which is organized under
the laws of the United States or any state thereof, has capital, surplus and
undivided profits aggregating at least $100,000,000 (as of the date of such bank
or trust company’s most recent financial reports) and has a short term deposit
rating of no lower than A2 or P2, as such rating is set forth from time to time,
by S&P or Moody’s, respectively;
 
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(e) deposits in money market funds investing exclusively in Investments
described in Section 9.05(b), Section 9.05(c) or Section 9.05(d);
 
(f) Investments (i) made by the Borrower in or to the Guarantors, (ii) made by
any Subsidiary in or to the Borrower or any Guarantor;
 
(g)  Investments in direct ownership interests in additional Oil and Gas
Properties and gas gathering systems related thereto or related to farm-out,
farm-in, joint operating, joint venture or area of mutual interest agreements,
gathering systems, pipelines or other similar arrangements which are usual and
customary in the oil and gas exploration and production business located within
the geographic boundaries of the United States of America and Canada;
 
(h) Investments in stock, obligations or securities received in settlement of
debts arising from Investments permitted under this Section 9.05 owing to the
Borrower or any Subsidiary as a result of a bankruptcy or other insolvency
proceeding of the obligor in respect of such debts or upon the enforcement of
any Lien in favor of the Borrower or any of its Subsidiaries; provided that the
Borrower shall give the Administrative Agent prompt written notice in the event
that the aggregate amount of all Investments held at any one time under this
Section 9.05(h) exceeds $100,000;
 
(i) The creation of any additional Subsidiaries in compliance with Section 9.15;
 
(j) Swap Agreements entered into in compliance with Section 9.18;
 
(k) other Investments in an aggregate amount not to exceed $200,000 at any time;
and
 
(l) Hall Houston Minority Investment made by the Borrower (i) existing on the
Effective Date of Hall Houston and (ii) in an amount not to exceed $1,000,000
after the Effective Date;
 
Section 9.06 Nature of Business.  The Borrower will not, and will not permit any
Subsidiary to, allow any material change to be made in the character of its
business as an independent oil and gas exploration and production company.  From
and after the date hereof, the Borrower and its Subsidiaries will not acquire or
make any other expenditure (whether such expenditure is capital, operating or
otherwise) in or related to, any Oil and Gas Properties not located within the
geographical boundaries of the United States of America and Canada.
 
Section 9.07 Limitation on Leases.  The Borrower will not, and will not permit
any Subsidiary to, create, incur, assume or suffer to exist any obligation for
the payment of rent or hire of Property of any kind whatsoever (real or personal
but excluding Capital Leases and leases of Hydrocarbon Interests), under leases
or lease agreements which would cause the aggregate amount of all payments made
by the Borrower and the Subsidiaries pursuant to all such leases or lease
agreements, including, without limitation, any residual payments at the end of
any lease, to exceed $150,000 in any period of twelve consecutive calendar
months during the life of such leases without the approval of the Lenders.
 
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Section 9.08 Proceeds of Notes.  The Borrower will not permit the proceeds of
the Notes to be used for any purpose other than those permitted by Section
7.21.  Neither the Borrower nor any Person acting on behalf of the Borrower has
taken or will take any action which might cause any of the Loan Documents to
violate Regulations T, U or X or any other regulation of the Board or to violate
Section 7 of the Securities Exchange Act of 1934 or any rule or regulation
thereunder, in each case as now in effect or as the same may hereinafter be in
effect.  If requested by the Administrative Agent, the Borrower will furnish to
the Administrative Agent and each Lender a statement to the foregoing effect in
conformity with the requirements of FR Form U-1 or such other form referred to
in Regulation U, Regulation T or Regulation X of the Board, as the case may be.
 
Section 9.09 ERISA Compliance.  The Borrower will not, and will not permit any
Subsidiary to, at any time:
 
(a) engage in, or permit any ERISA Affiliate to engage in, any transaction in
connection with which the Borrower, a Subsidiary or any ERISA Affiliate could be
subjected to either a civil penalty assessed pursuant to subsections (c), (i),
(l) or (m) of section 502 of ERISA or a tax imposed by Chapter 43 of Subtitle D
of the Code.
 
(b) fail to make, or permit any ERISA Affiliate to fail to make, full payment
when due of all amounts which, under the provisions of any Plan, agreement
relating thereto or applicable law, the Borrower, a Subsidiary or any ERISA
Affiliate is required to pay as contributions thereto.
 
(c) contribute to or assume an obligation to contribute to, or permit any ERISA
Affiliate to contribute to or assume an obligation to contribute to (i) any
employee welfare benefit plan, as defined in section 3(1) of ERISA, including,
without limitation, any such plan maintained to provide benefits to former
employees of such entities, that may not be terminated by such entities in their
sole discretion at any time without any material liability, or (ii) any employee
pension benefit plan, as defined in section 3(2) of ERISA, that is subject to
Title IV of ERISA, section 302 of ERISA or section 412 of the Code.
 
Section 9.10 Sale or Discount of Receivables.  Except for receivables obtained
by the Borrower or any Subsidiary out of the ordinary course of business or the
settlement of joint interest billing accounts in the ordinary course of business
or discounts granted to settle collection of accounts receivable or the sale of
defaulted accounts arising in the ordinary course of business in connection with
the compromise or collection thereof and not in connection with any financing
transaction, the Borrower will not, and will not permit any Subsidiary to,
discount or sell (with or without recourse) any of its notes receivable or
accounts receivable.
 
Section 9.11 Mergers, Etc.  The Borrower will not, and will not permit any
Subsidiary to, merge into or with or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (whether in one transaction or in a series of
transactions) all or substantially all of its Property to any other Person
(whether now owned or hereafter acquired) (any such transaction, a
“consolidation”), or liquidate or dissolve; provided that any Subsidiary may
participate in a consolidation with the Borrower (provided that the Borrower
shall be the continuing or surviving entity) or any other Subsidiary provided
that if one of such Subsidiaries is a wholly-owned Subsidiary, then the
surviving Person shall be a wholly-owned Subsidiary.
 
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Section 9.12 Sale of Properties.  Subject to the Intercreditor Agreement, the
Borrower will not, and will not permit any Subsidiary to, sell, assign,
farm-out, convey or otherwise transfer (including through the sale of a
production payment or overriding royalty interest) any Property except for (a)
the sale of Hydrocarbons in the ordinary course of business; (b) farmouts of
undeveloped acreage and assignments in connection with such farmouts with such
Persons who are not Related Parties of the Borrower or its Affiliates, or
relatives of such Related Parties; (c) the sale or transfer of equipment that is
no longer necessary for the business of the Borrower or such Subsidiary or is
replaced by equipment of at least comparable value and use; (d) the sale or
other disposition (including Casualty Events) of any Oil and Gas Property or any
interest therein or any Subsidiary owning Oil and Gas Properties; provided that
(i) 100% of the consideration received in respect of such sale or other
disposition shall be cash, (ii) the consideration received in respect of such
sale or other disposition shall be equal to or greater than the fair market
value of the Oil and Gas Property, interest therein or the Subsidiary subject of
such sale or other disposition (as reasonably determined by the board of
directors of the Borrower and, if requested by the Administrative Agent, the
Borrower shall deliver a certificate of a Responsible Officer of the Borrower
certifying to that effect), (iii) if such sale or other disposition of Oil and
Gas Property or Subsidiary owning Oil and Gas Properties included in the most
recently delivered Reserve Report during any period has a fair market value in
excess of $250,000 (as determined by the Majority Lenders, individually or in
the aggregate, the Total Reserve Value shall be reduced, effective immediately
upon such sale or disposition, by an amount equal to the value, if any, assigned
such Property in the most recently delivered Reserve Report used in the most
recent determination of Total Reserve Value, (iv) an amount equal to 100% of the
Net Cash Proceeds received from such sale, lease or other disposition shall be
used to (1) reinvest in Property, plant and equipment, or any business entity,
(2) repay Debt under the Senior Revolving Credit Agreement or (3) prepay the
Loans in accordance with Section 3.04(c) and (v) if any such sale or other
disposition is of a Subsidiary owning Oil and Gas Properties, such sale or other
disposition shall include all the Equity Interests of such Subsidiary; (e) the
sale of the Hall Houston Minority Investment for a purchase price paid in cash
in an amount at least equal to the fair market value thereof; (f) any Working
Interest Election (as defined in the PetroBridge Participation Agreement)
pursuant to the PetroBridge Participation Agreement; (g) the assignment of
overriding royalty interest in and to the Oil & Gas Properties identified on
Schedule 9.12 pursuant to the Existing Credit Agreement and (h) sales and other
dispositions of Properties not regulated by Section 9.12(a) to (d) having a fair
market value not to exceed $250,000 during any 12-month period.
 
Section 9.13 Environmental Matters.  The Borrower will not, and will not permit
any Subsidiary to, cause or permit any of its Property to be in violation of, or
do anything or permit anything to be done which will subject any such Property
to a Release or threatened Release of Hazardous Materials, exposure to any
Hazardous Materials, or to any Remedial Work under any Environmental Laws,
assuming disclosure to the applicable Governmental Authority of all relevant
facts, conditions and circumstances, if any, pertaining to such Property where
such violations, Release or threatened Release, exposure, or Remedial work could
reasonably be expected to have a Material Adverse Effect.
 
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Section 9.14 Transactions with Affiliates.  The Borrower will not, and will not
permit any Subsidiary to, enter into any transaction, including, without
limitation, any purchase, sale, lease or exchange of Property or the rendering
of any service, with any Affiliate (other than the Guarantors and wholly-owned
Subsidiaries of the Borrower) unless such transactions are otherwise permitted
under this Agreement and are upon fair and reasonable terms no less favorable to
it than it would obtain in a comparable arm’s length transaction with a Person
not an Affiliate.
 
Section 9.15 Subsidiaries.  The Borrower will not, and will not permit any
Subsidiary to, create or acquire any additional Subsidiary unless the Borrower
gives written notice to the Administrative Agent of such creation or acquisition
and complies with Section 8.13(c).  The Borrower shall not, and shall not permit
any Subsidiary to, sell, assign or otherwise dispose of any Equity Interests in
any Subsidiary except (a) pursuant to a transaction permitted by Section 9.11 or
Section 9.12 or (b) the dissolution of Subsidiaries that the Borrower determines
in good faith are no longer necessary to the operations of the Borrower’s
business and such dissolution could not reasonably be expected to have a
Material Adverse Effect.  The Borrower or any Subsidiary shall only have
Subsidiaries organized in a jurisdiction within the United States of America or
Canada.
 
Section 9.16 Negative Pledge Agreements; Dividend Restrictions.  The Borrower
will not, and will not permit any Subsidiary to, create, incur, assume or suffer
to exist any contract, agreement or understanding (other than this Agreement,
the Senior Revolving Credit Agreement, the Security Instruments or Capital
Leases or agreements creating Liens permitted by Section 9.03(c) and Section
9.03(d)) which in any way prohibits or restricts the granting, conveying,
creation or imposition of any Lien on any of its Property in favor of the
Administrative Agent and the Lenders or restricts any Subsidiary from paying
dividends or making distributions to the Borrower or any Guarantor, or which
requires the consent of or notice to other Persons in connection therewith.
 
Section 9.17 Gas Imbalances, Take-or-Pay or Other Prepayments.  The Borrower
will not, and will not permit any Subsidiary to, allow gas imbalances,
take-or-pay or other prepayments with respect to the Oil and Gas Properties of
the Borrower or any Subsidiary that would require the Borrower or such
Subsidiary to deliver Hydrocarbons at some future time without then or
thereafter receiving full payment therefor to exceed two percent (2%) of
Borrower’s and its Subsidiaries’ Proved Reserves of natural gas (on an mcf
equivalent basis) in the aggregate.
 
Section 9.18 Swap Agreements.  The Borrower will not, and will not permit any
Subsidiary to, enter into any Swap Agreements with any Person other than (a)
Swap Agreements in respect of commodities (i) with an Approved Counterparty and
(ii) the notional volumes for which (when aggregated with other commodity Swap
Agreements then in effect other than basis differential swaps on volumes already
hedged pursuant to other Swap Agreements) do not exceed, as of the date such
Swap Agreement is executed, 85% of the reasonably anticipated projected
production from Proved Developed Producing Reserves for each month during the
period during which such Swap Agreement is in effect for each of crude oil and
natural gas, calculated separately, (b) Swap Agreements in respect of interest
rates with an Approved Counterparty, as follows:  (i) Swap Agreements
effectively converting interest rates from fixed to floating, the notional
amounts of which (when aggregated with all other Swap Agreements of the Borrower
and its Subsidiaries then in effect effectively converting interest rates from
fixed to floating) do not exceed 50% of the then outstanding principal amount of
the Borrower’s Debt for borrowed money which bears interest at a fixed rate and
(ii) Swap Agreements effectively converting interest rates from floating to
fixed, the notional amounts of which (when aggregated with all other Swap
Agreements of the Borrower and its Subsidiaries then in effect effectively
converting interest rates from floating to fixed) do not exceed 75% of the then
outstanding principal amount of the Borrower’s Debt for borrowed money which
bears interest at a floating rate.  In no event shall any Swap Agreement contain
any requirement, agreement or covenant for the Borrower or any Subsidiary to
post collateral or margin to secure their obligations under such Swap Agreement
or to cover market exposures.
 
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Section 9.19 Development Plan.  Without the prior written consent of the
Majority Lenders, the Borrower shall not (i) amend, modify or supplement any
term of the Development Plan if the effect of such amendment, modification,
supplement or waiver would be to materially and adversely affect the commercial
terms of the Development Plan or the schedule of the Development Plan and (ii)
cancel, terminate or abandon the Development Plan.
 
ARTICLE X
Events of Default; Remedies
 
Section 10.01 Events of Default.  One or more of the following events shall
constitute an “Event of Default”:
 
(a) the Borrower shall fail to pay any principal of any Loan when and as the
same shall become due and payable, whether at the due date thereof or at a date
fixed for prepayment thereof, by acceleration or otherwise.
 
(b) the Borrower shall fail to pay any interest on any Loan or any fee or any
other amount (other than an amount referred to in Section 10.01(a)) payable
under any Loan Document, when and as the same shall become due and payable, and
such failure shall continue unremedied for a period of three Business Days.
 
(c) any representation or warranty made or deemed made by or on behalf of the
Borrower or any Subsidiary in or in connection with any Loan Document or any
amendment or modification of any Loan Document or waiver under such Loan
Document, or in any report, certificate, financial statement or other document
furnished pursuant to or in connection with any Loan Document or any amendment
or modification thereof or waiver thereunder, shall prove to have been incorrect
when made or deemed made.
 
(d) the Borrower or any Subsidiary shall fail to observe or perform any
covenant, condition or agreement contained in Section 8.01(g), Section 8.01(k),
Section 8.02, Section 8.03, Section 8.13, Section 8.14 or in Article IX.
 
(e) the Borrower or any Subsidiary shall fail to observe or perform any
covenant, condition or agreement contained in this Agreement (other than those
specified in Section 10.01(a), Section 10.01(b) or Section 10.01(d)) or any
other Loan Document, and such failure shall continue unremedied for a period of
thirty (30) days after the earlier to occur of (A) notice thereof from the
Administrative Agent to the Borrower (which notice will be given at the request
of any Lender) or (B) a Responsible Officer of the Borrower or such Subsidiary
otherwise becoming aware of such default.
 
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(f) the Borrower or any Subsidiary shall fail to make any payment (whether of
principal or interest and regardless of amount) in respect of any Material
Indebtedness, when and as the same shall become due and payable.
 
(g) any event or condition occurs that results in any Material Indebtedness
becoming due prior to its scheduled maturity.
 
(h) an involuntary proceeding shall be commenced or an involuntary petition
shall be filed seeking (i) liquidation, reorganization or other relief in
respect of the Borrower or any Subsidiary or its debts, or of a substantial part
of its assets, under any  Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect or (ii) the appointment
of a receiver, trustee, custodian, sequestrator, conservator or similar official
for the Borrower or any Subsidiary or for a substantial part of its assets, and,
in any such case, such proceeding or petition shall continue undismissed for 60
days or an order or decree approving or ordering any of the foregoing shall be
entered.
 
(i) the Borrower or any Subsidiary shall (i) voluntarily commence any proceeding
or file any petition seeking liquidation, reorganization or other relief under
any Federal, state or foreign bankruptcy, insolvency, receivership or similar
law now or hereafter in effect, (ii) consent to the institution of, or fail to
contest in a timely and appropriate manner, any proceeding or petition described
in Section 10.01(h), (iii) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official for
the Borrower or any Subsidiary or for a substantial part of its assets, (iv)
file an answer admitting the material allegations of a petition filed against it
in any such proceeding, (v) make a general assignment for the benefit of
creditors or (vi) take any action for the purpose of effecting any of the
foregoing; or any stockholder of the Borrower shall make any request or take any
action for the purpose of calling a meeting of the stockholders of the Borrower
to consider a resolution to dissolve and wind-up the Borrower’s affairs.
 
(j) the Borrower or any Subsidiary shall become unable, admit in writing its
inability or fail generally to pay its debts as they become due.
 
(k) (i) one or more judgments for the payment of money in an aggregate amount in
excess of $250,000 (to the extent not covered by independent third party
insurance provided by insurers of the highest claims paying rating or financial
strength as to which the insurer does not dispute coverage and is not subject to
an insolvency proceeding) or (ii) any one or more non-monetary judgments that
have, or could reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect, shall be rendered against the Borrower, any
Subsidiary or any combination thereof and the same shall remain undischarged for
a period of 30 consecutive days during which execution shall not be effectively
stayed, or any action shall be legally taken by a judgment creditor to attach or
levy upon any assets of the Borrower or any Subsidiary to enforce any such
judgment.
 
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(l) the Loan Documents after delivery thereof shall for any reason, except to
the extent permitted by the terms thereof, cease to be in full force and effect
and valid, binding and enforceable in accordance with their terms against the
Borrower or a Guarantor party thereto or shall be repudiated by any of them, or
cease to create a valid and perfected Lien of the priority required thereby on
any of the collateral purported to be covered thereby, except to the extent
permitted by the terms of this Agreement, or the Borrower or any Subsidiary or
any of their Affiliates shall so state in writing.
 
(m) a Change in Control shall occur.
 
(n) an event, development or circumstance shall have occurred or shall exist
that has resulted in a Material Adverse Effect.
 
(o) the Intercreditor Agreement, after delivery thereof shall for any reason,
except to the extent permitted by the terms thereof, cease to be in full force
and effect and valid, binding and enforceable in accordance with its terms
against the Borrower or any party thereto or holder of the Lien subordinated
thereby or shall be repudiated by any of them.
 
Section 10.02 Remedies.
 
(a) In the case of an Event of Default other than one described in Section
10.01(h), Section 10.01(i), or Section 10.01(j), at any time thereafter during
the continuance of such Event of Default, the Administrative Agent may, and at
the request of the Majority Lenders, shall, by notice to the Borrower declare
the Notes and the Loans then outstanding to be due and payable in whole (or in
part, in which case any principal not so declared to be due and payable may
thereafter be declared to be due and payable), and thereupon the principal of
the Loans so declared to be due and payable, together with accrued interest
thereon and all fees and other obligations of the Borrower and the Guarantors
accrued hereunder and under the Notes and the other Loan Documents, shall become
due and payable immediately, without presentment, demand, protest, notice of
intent to accelerate, notice of acceleration or other notice of any kind, all of
which are hereby waived by the Borrower and each Guarantor; and in case of an
Event of Default described in Section 10.01(h), Section 10.01(i), or Section
10.01(j), the Notes and the principal of such Loans then outstanding, together
with accrued interest thereon and all fees and the other obligations of the
Borrower and the Guarantors accrued hereunder and under such Notes and the other
Loan Documents, shall automatically become due and payable, without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower and each Guarantor.
 
(b) In the case of the occurrence and continuance of an Event of Default, the
Administrative Agent and the Lenders will have all other rights and remedies
available at law and equity.
 
(c) Subject to the Intercreditor Agreement, all proceeds realized from the
liquidation or other disposition of collateral or otherwise received after
maturity of the Notes, whether by acceleration or otherwise, shall be applied:
 
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(i) first, to payment or reimbursement of that portion of the Indebtedness
constituting fees, expenses and indemnities payable to the Administrative Agent
in its capacity as such;
 
(ii) second, pro rata to payment or reimbursement of that portion of the
Indebtedness constituting fees, expenses and indemnities payable to the Lenders;
 
(iii) third, pro rata to payment of accrued interest on the Loans;
 
(iv) fourth, pro rata to payment of principal outstanding on the Loans owing to
a Lender or an Affiliate of a Lender;
 
(v) fifth, pro rata to any other Indebtedness;
 
(vi) sixth, any excess, after all of the Indebtedness shall have been
indefeasibly paid in full in cash, shall be paid to the Borrower or as otherwise
required by any Governmental Requirement.
 

 
ARTICLE XI
The Administrative Agent
 
Section 11.01 Appointment; Powers.  Each of the Lenders hereby irrevocably
appoints the Administrative Agent as its agent and authorizes the Administrative
Agent to take such actions on its behalf and to exercise such powers as are
delegated to the Administrative Agent by the terms hereof and the other Loan
Documents, together with such actions and powers as are reasonably incidental
thereto.
 
Section 11.02 Duties and Obligations of Administrative Agent.  The
Administrative Agent shall not have any duties or obligations except those
expressly set forth in the Loan Documents.  Without limiting the generality of
the foregoing, (a) the Administrative Agent shall not be subject to any
fiduciary or other implied duties, regardless of whether a Default has occurred
and is continuing (the use of the term “agent” herein and in the other Loan
Documents with reference to the Administrative Agent is not intended to connote
any fiduciary or other implied (or express) obligations arising under agency
doctrine of any applicable law; rather, such term is used merely as a matter of
market custom, and is intended to create or reflect only an administrative
relationship between independent contracting parties), (b) the Administrative
Agent shall have no duty to take any discretionary action or exercise any
discretionary powers, except as provided in Section 11.03, and (c) except as
expressly set forth herein, the Administrative Agent shall not have any duty to
disclose, and shall not be liable for the failure to disclose, any information
relating to the Borrower or any of its Subsidiaries that is communicated to or
obtained by the bank serving as Administrative Agent or any of its Affiliates in
any capacity.  The Administrative Agent shall be deemed not to have knowledge of
any Default unless and until written notice thereof is given to the
Administrative Agent by the Borrower or a Lender, and shall not be responsible
for or have any duty to ascertain or inquire into (i) any statement, warranty or
representation made in or in connection with this Agreement or any other Loan
Document, (ii) the contents of any certificate, report or other document
 
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delivered hereunder or under any other Loan Document or in connection herewith
or therewith, (iii) the performance or observance of any of the covenants,
agreements or other terms or conditions set forth herein or in any other Loan
Document, (iv) the validity, enforceability, effectiveness or genuineness of
this Agreement, any other Loan Document or any other agreement, instrument or
document, (v) the satisfaction of any condition set forth in Article VI or
elsewhere herein, other than to confirm receipt of items expressly required to
be delivered to the Administrative Agent or as to those conditions precedent
expressly required to be to the Administrative Agent’s satisfaction, (vi) the
existence, value, perfection or priority of any collateral security or the
financial or other condition of the Borrower and its Subsidiaries or any other
obligor or guarantor, or (vii) any failure by the Borrower or any other Person
(other than itself) to perform any of its obligations hereunder or under any
other Loan Document or the performance or observance of any covenants,
agreements or other terms or conditions set forth herein or therein.  For
purposes of determining compliance with the conditions specified in Article VI,
each Lender shall be deemed to have consented to, approved or accepted or to be
satisfied with, each document or other matter required thereunder to be
consented to or approved by or acceptable or satisfactory to a Lender unless the
Administrative Agent shall have received written notice from such Lender prior
to the proposed Effective Date specifying its objection thereto.
 
Section 11.03 Action by Administrative Agent.  The Administrative Agent shall
have no duty to take any discretionary action or exercise any discretionary
powers, except discretionary rights and powers expressly contemplated hereby or
by the other Loan Documents that the Administrative Agent is required to
exercise in writing as directed by the Majority Lenders (or such other number or
percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 12.02) and in all cases the Administrative Agent shall be
fully justified in failing or refusing to act hereunder or under any other Loan
Documents unless it shall (a) receive written instructions from the Majority
Lenders or the Lenders, as applicable, (or such other number or percentage of
the Lenders as shall be necessary under the circumstances as provided in Section
12.02) specifying the action to be taken and (b) be indemnified to its
satisfaction by the Lenders against any and all liability and expenses which may
be incurred by it by reason of taking or continuing to take any such
action.  The instructions as aforesaid and any action taken or failure to act
pursuant thereto by the Administrative Agent shall be binding on all of the
Lenders.  If a Default has occurred and is continuing, then the Administrative
Agent shall take such action with respect to such Default as shall be directed
by the requisite Lenders in the written instructions (with indemnities)
described in this Section 11.03, provided that, unless and until the
Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default as it shall deem advisable in
the best interests of the Lenders.  In no event, however, shall the
Administrative Agent be required to take any action which exposes the
Administrative Agent to personal liability or which is contrary to this
Agreement, the Loan Documents or applicable law.  The Administrative Agent shall
not be liable for any action taken or not taken by it with the consent or at the
request of the Majority Lenders or the Lenders (or such other number or
percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 12.02), and otherwise the Administrative Agent shall not be
liable for any action taken or not taken by it hereunder or under any other Loan
Document or under any other document or instrument referred to or provided for
herein or therein or in connection herewith or therewith INCLUDING ITS OWN
ORDINARY NEGLIGENCE, except for its own gross negligence or willful misconduct.
 
 
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Section 11.04 Reliance by Administrative Agent.  The Administrative Agent shall
be entitled to rely upon, and shall not incur any liability for relying upon,
any notice, request, certificate, consent, statement, instrument, document or
other writing believed by it to be genuine and to have been signed or sent by
the proper Person.  The Administrative Agent also may rely upon any statement
made to it orally or by telephone and believed by it to be made by the proper
Person, and shall not incur any liability for relying thereon and each of the
Borrower and the Lenders hereby waives the right to dispute the Administrative
Agent’s record of such statement, except in the case of gross negligence or
willful misconduct by the Administrative Agent.  The Administrative Agent may
consult with legal counsel (who may be counsel for the Borrower), independent
accountants and other experts selected by it, and shall not be liable for any
action taken or not taken by it in accordance with the advice of any such
counsel, accountants or experts.  The Administrative Agent may deem and treat
the payee of any Note as the holder thereof for all purposes hereof unless and
until a written notice of the assignment or transfer thereof permitted hereunder
shall have been filed with the Administrative Agent.
 
Section 11.05 Subagents.  The Administrative Agent may perform any and all its
duties and exercise its rights and powers by or through any one or more
sub-agents appointed by the Administrative Agent.  The Administrative Agent and
any such sub-agent may perform any and all its duties and exercise its rights
and powers through their respective Related Parties.  The exculpatory provisions
of the preceding Sections of this Article XI shall apply to any such sub-agent
and to the Related Parties of the Administrative Agent and any such sub-agent,
and shall apply to their respective activities in connection with the
syndication of the credit facilities provided for herein as well as activities
as Administrative Agent.
 
Section 11.06 Resignation or Removal of Administrative Agent.  Subject to the
appointment and acceptance of a successor Administrative Agent as provided in
this Section 11.06, the Administrative Agent may resign at any time by notifying
the Lenders and the Borrower, and the Administrative Agent may be removed at any
time with or without cause by the Majority Lenders.  Upon any such resignation
or removal, the Majority Lenders shall have the right, in consultation with the
Borrower, to appoint a successor.  If no successor shall have been so appointed
by the Majority Lenders and shall have accepted such appointment within 30 days
after the retiring Administrative Agent gives notice of its resignation or
removal of the retiring Administrative Agent, then the retiring Administrative
Agent may, on behalf of the Lenders, appoint a successor Administrative Agent
which shall be a bank with an office in New York, New York, or an Affiliate of
any such bank.  Upon the acceptance of its appointment as Administrative Agent
hereunder by a successor, such successor shall succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Administrative
Agent, and the retiring Administrative Agent shall be discharged from its duties
and obligations hereunder.  The fees payable by the Borrower to a successor
Administrative Agent shall be the same as those payable to its predecessor
unless otherwise agreed between the Borrower and such successor.  After the
Administrative Agent’s resignation hereunder, the provisions of this Article XI
and Section 12.03 shall continue in effect for the benefit of such retiring
Administrative Agent, its sub-agents and their respective Related Parties in
respect of any actions taken or omitted to be taken by any of them while it was
acting as Administrative Agent.
 
 
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Section 11.07 Administrative Agent as Lender.  Each Person serving as an
Administrative Agent hereunder shall have the same rights and powers in its
capacity as a Lender as any other Lender and may exercise the same as though it
were not an Administrative Agent, and such bank and its Affiliates may accept
deposits from, lend money to and generally engage in any kind of business with
the Borrower or any Subsidiary or other Affiliate thereof as if it were not an
Administrative Agent hereunder.
 
Section 11.08 No Reliance.
 
(a) Each Lender acknowledges that it has, independently and without reliance
upon the Administrative Agent or any other Lender and based on such documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement and each other Loan Document to which it
is a party.  Each Lender also acknowledges that it will, independently and
without reliance upon the Administrative Agent, any other Agent or any other
Lender and based on such documents and information as it shall from time to time
deem appropriate, continue to make its own decisions in taking or not taking
action under or based upon this Agreement, any other Loan Document, any related
agreement or any document furnished hereunder or thereunder.  The Administrative
Agent shall not be required to keep itself informed as to the performance or
observance by the Borrower or any of its Subsidiaries of this Agreement, the
Loan Documents or any other document referred to or provided for herein or to
inspect the Properties or books of the Borrower or its Subsidiaries.  Except for
notices, reports and other documents and information expressly required to be
furnished to the Lenders by the Administrative Agent hereunder, neither the
Administrative Agent nor the Arranger shall have any duty or responsibility to
provide any Lender with any credit or other information concerning the affairs,
financial condition or business of the Borrower (or any of its Affiliates) which
may come into the possession of such Agent or any of its Affiliates.  In this
regard, each Lender acknowledges that Vinson & Elkins L.L.P. is acting in this
transaction as special counsel to the administrative agent under the Senior
Revolving Credit Documents only, except to the extent otherwise expressly stated
in any legal opinion or any Loan Document.  Each other party hereto will consult
with its own legal counsel to the extent that it deems necessary in connection
with the Loan Documents and the matters contemplated therein.
 
(b) The Lenders acknowledge that the Administrative Agent and the Arranger are
acting solely in administrative capacities with respect to the structuring and
syndication of this facility and have no duties, responsibilities or liabilities
under this Agreement and the other Loan Documents other than their
administrative duties, responsibilities and liabilities specifically as set
forth in the Loan Documents and in their capacity as Lenders hereunder.  In
structuring, arranging or syndicating this facility, each Lender acknowledges
that the Administrative Agent and/or Arranger may be an agent or lender under
these Notes, the Senior Revolving Credit Notes, other loans or other securities
and waives any existing or future conflicts of interest associated with the
their role in such other debt instruments.  If in its administration of this
facility or any other debt instrument, the Administrative Agent determines (or
is given written notice by any Lender that a conflict exists), then it shall
eliminate such conflict within ninety (90) days or resign pursuant to Section
11.06 and shall have no liability for action taken or not taken while such
conflict existed.
 
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Section 11.09 Administrative Agent May File Proofs of Claim.  In case of the
pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relative to the Borrower or any of its Subsidiaries, the
Administrative Agent (irrespective of whether the principal of any Loan shall
then be due and payable as herein expressed or by declaration or otherwise and
irrespective of whether the Administrative Agent shall have made any demand on
the Borrower) shall be entitled and empowered, by intervention in such
proceeding or otherwise:
 
(a) to file and prove a claim for the whole amount of the principal and interest
owing and unpaid in respect of the Loans and all other Indebtedness that are
owing and unpaid and to file such other documents as may be necessary or
advisable in order to have the claims of the Lenders and the Administrative
Agent (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Lenders and the Administrative Agent and their
respective agents and counsel and all other amounts due the Lenders and the
Administrative Agent under Section 12.03) allowed in such judicial proceeding;
and
 
(b) to collect and receive any monies or other property payable or deliverable
on any such claims and to distribute the same;
 
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Lender to make such payments to the Administrative Agent and, in the event
that the Administrative Agent shall consent to the making of such payments
directly to the Lenders, to pay to the Administrative Agent any amount due for
the reasonable compensation, expenses, disbursements and advances of the
Administrative Agent and its agents and counsel, and any other amounts due the
Administrative Agent under Section 12.03.
 
Nothing contained herein shall be deemed to authorize the Administrative Agent
to authorize or consent to or accept or adopt on behalf of any Lender any plan
of reorganization, arrangement, adjustment or composition affecting the
Indebtedness or the rights of any Lender or to authorize the Administrative
Agent to vote in respect of the claim of any Lender in any such proceeding.
 
Section 11.10 Authority of Administrative Agent to Release Collateral and
Liens.  Each Lender hereby authorizes the Administrative Agent to release any
collateral that is permitted to be sold or released pursuant to the terms of the
Loan Documents.  Each Lender hereby authorizes the Administrative Agent to
execute and deliver to the Borrower, at the Borrower’s sole cost and expense,
any and all releases of Liens, termination statements, assignments or other
documents reasonably requested by the Borrower in connection with any sale or
other disposition of Property to the extent such sale or other disposition is
permitted by the terms of Section 9.12 or is otherwise authorized by the terms
of the Loan Documents.
 
Section 11.11 The Arranger.  The Arranger shall have no duties, responsibilities
or liabilities under this Agreement and the other Loan Documents other than its
duties, responsibilities and liabilities in its capacity as a Lender hereunder.
 
ARTICLE XII
Miscellaneous
 
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Section 12.01 Notices.
 
(a) Except in the case of notices and other communications expressly permitted
to be given by telephone (and subject to Section 12.01(b)), all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
 
(i) if to the Borrower, to it at 777 Post Oak Blvd., Suite 910, Houston, TX
77056, Attention of Harry Stout (Telecopy No. (832) 369-6992);
 
(ii) if to the Administrative Agent and related to amendments, consents,
waivers, financial statements, operating reports, reserve reports, etc, to it at
505 Fifth Avenue, 10th Floor, New York, NY 10017, attention of Marc Theisinger
(Telecopy No. (212) 771-9675) with a copy to 700 Louisiana Street, Suite 5200,
Houston, TX 77002, attention of David Bornstein (Telecopy No. (713) 237-8156);
and
 
(iii) if to the Administrative Agent and related to rate sets, drawdown
requests, paydowns, interest, fees, etc., to it at 11 West 42nd Street, New
York, NY 10036, attention of Maria McClung (Telecopy No. (212) 461-5344) with a
copy to 700 Louisiana Street, Suite 5200, Houston, TX 77002, attention of David
Bornstein (Telecopy No. (713) 237-8156).
 
(b) Notices and other communications to the Lenders hereunder may be delivered
or furnished by electronic communications pursuant to procedures approved by the
Administrative Agent; provided that the foregoing shall not apply to notices
pursuant to Article II, Article III, Article IV and Article V unless otherwise
agreed by the Administrative Agent and the applicable Lender.  The
Administrative Agent or the Borrower may, in its discretion, agree to accept
notices and other communications to it hereunder by electronic communications
pursuant to procedures approved by it; provided that approval of such procedures
may be limited to particular notices or communications.
 
(c) Any party hereto may change its address or telecopy number for notices and
other communications hereunder by notice to the other parties hereto.  All
notices and other communications given to any party hereto in accordance with
the provisions of this Agreement shall be deemed to have been given on the date
of receipt.
 
Section 12.02 Waivers; Amendments.
 
(a) No failure on the part of the Administrative Agent, the Issuing Bank, the
Arranger or any Lender to exercise and no delay in exercising, and no course of
dealing with respect to, any right, power or privilege, or any abandonment or
discontinuance of steps to enforce such right, power or privilege, under any of
the Loan Documents shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege under any of the Loan
Documents preclude any other or further exercise thereof or the exercise of any
other right, power or privilege.  The rights and remedies of the Administrative
Agent, the Issuing Bank, the Arranger and the Lenders hereunder and under the
other Loan Documents are cumulative and are not exclusive of any rights or
remedies that they would otherwise have.  No waiver of any provision of this
Agreement or any other Loan Document or consent to any departure by the Borrower
therefrom shall in any event be effective unless the same shall be permitted by
Section 12.02(b), and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given.  Without limiting the
generality of the foregoing, the making of a Loan or issuance of a Letter of
Credit shall not be construed as a waiver of any Default, regardless of whether
the Administrative Agent, the Issuing Bank, the Arranger or any Lender may have
had notice or knowledge of such Default at the time.
 
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(b) Neither this Agreement nor any provision hereof nor any Security Instrument
nor any provision thereof may be waived, amended or modified except pursuant to
an agreement or agreements in writing entered into by the Borrower and the
Majority Lenders or by the Borrower and the Administrative Agent with the
consent of the Majority Lenders; provided that no such agreement shall (i)
increase the Commitment of any Lender without the written consent of such
Lender, (ii) reduce the principal amount of any Loan or reduce the rate of
interest thereon, or reduce any fees payable hereunder, or reduce any other
Indebtedness hereunder or under any other Loan Document, without the written
consent of each Lender affected thereby, (iii) postpone the scheduled date of
payment or prepayment of the principal amount of any Loan, or any interest
thereon, or any fees payable hereunder, or any other Indebtedness hereunder or
under any other Loan Document, or reduce the amount of, waive or excuse any such
payment, or postpone or extend the Termination Date without the written consent
of each Lender affected thereby, (iv) change Section 4.01(b) or Section 4.01(c)
in a manner that would alter the pro rata sharing of payments required thereby,
without the written consent of each Lender, (v) waive or amend Section 3.04(c),
Section 6.01, Section 8.13, or Section 10.02(c) or change the definition of the
terms “Foreign Subsidiary” or “Subsidiary”, without the written consent of each
Lender, (vi) release any Guarantor (except as set forth in the Guaranty
Agreement), release any of the collateral (other than as provided in Section
11.10), or reduce the percentage set forth in Section 8.13(a) to less than 80%,
without the written consent of each Lender, or (vii) change any of the
provisions of this Section 12.02(b) or the definitions of “Majority Lenders” or
any other provision hereof specifying the number or percentage of Lenders
required to waive, amend or modify any rights hereunder or under any other Loan
Documents or make any determination or grant any consent hereunder or any other
Loan Documents, without the written consent of each Lender; provided further
that no such agreement shall amend, modify or otherwise affect the rights or
duties of the Administrative Agent hereunder or under any other Loan Document
without the prior written consent of the Administrative Agent.  Notwithstanding
the foregoing, any supplement to Schedule 7.14 (Subsidiaries) shall be effective
simply by delivering to the Administrative Agent a supplemental schedule clearly
marked as such and, upon receipt, the Administrative Agent will promptly deliver
a copy thereof to the Lenders.
 
Section 12.03 Expenses, Indemnity; Damage Waiver.
 
(a) The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by
the Administrative Agent and its Affiliates, including, without limitation, the
reasonable fees, charges and disbursements of counsel and other outside
consultants for the Administrative Agent, the reasonable travel, photocopy,
mailing, courier, telephone and other similar expenses, and the cost of
environmental audits and surveys and appraisals, in connection with the
syndication of the credit facilities provided for herein, the preparation,
negotiation, execution, delivery and administration (both before and after the
execution hereof and including advice of counsel to the Administrative Agent as
to the rights and duties of the Administrative Agent and
 
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the Lenders with respect thereto) of this Agreement and the other Loan Documents
and any amendments, modifications or waivers of or consents related to the
provisions hereof or thereof (whether or not the transactions contemplated
hereby or thereby shall be consummated), (ii) all reasonable costs, expenses,
Taxes, assessments and other charges incurred by the Administrative Agent or any
Lender in connection with any filing, registration, recording or perfection of
any security interest contemplated by this Agreement or any Security Instrument
or any other document referred to therein, (iii) all out of pocket expenses
incurred by any Administrative Agent, the Issuing Bank or any Lender, including
the fees, charges and disbursements of any counsel for the Administrative Agent
or any Lender, in connection with the enforcement or protection of its rights in
connection with this Agreement or any other Loan Document, including its rights
under this Section 12.03, or in connection with the Loans made hereunder,
including, without limitation, all such out-of-pocket expenses incurred during
any workout, restructuring or negotiations in respect of such Loans.
 
(b) THE BORROWER SHALL INDEMNIFY THE ADMINISTRATIVE AGENT, THE ARRANGER AND EACH
LENDER, AND EACH RELATED PARTY OF ANY OF THE FOREGOING PERSONS (EACH SUCH PERSON
BEING CALLED AN “INDEMNITEE”) AGAINST, AND HOLD EACH INDEMNITEE HARMLESS FROM,
ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES AND RELATED EXPENSES, INCLUDING
THE FEES, CHARGES AND DISBURSEMENTS OF ANY COUNSEL FOR ANY INDEMNITEE, INCURRED
BY OR ASSERTED AGAINST ANY INDEMNITEE ARISING OUT OF, IN CONNECTION WITH, OR AS
A RESULT OF (i) THE EXECUTION OR DELIVERY OF THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, THE
PERFORMANCE BY THE PARTIES HERETO OR THE PARTIES TO ANY OTHER LOAN DOCUMENT OF
THEIR RESPECTIVE OBLIGATIONS HEREUNDER OR THEREUNDER OR THE CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED HEREBY OR BY ANY OTHER LOAN DOCUMENT, (ii) THE FAILURE
OF THE BORROWER OR ANY SUBSIDIARY TO COMPLY WITH THE TERMS OF ANY LOAN DOCUMENT,
INCLUDING THIS AGREEMENT, OR WITH ANY GOVERNMENTAL REQUIREMENT, (iii) ANY
INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY WARRANTY OR COVENANT OF
THE BORROWER OR ANY GUARANTOR SET FORTH IN ANY OF THE LOAN DOCUMENTS OR ANY
INSTRUMENTS, DOCUMENTS OR CERTIFICATIONS DELIVERED IN CONNECTION THEREWITH, (iv)
ANY LOAN OR THE USE OF THE PROCEEDS THEREFROM, (v) ANY OTHER ASPECT OF THE LOAN
DOCUMENTS, (vi) THE OPERATIONS OF THE BUSINESS OF THE BORROWER AND ITS
SUBSIDIARIES BY THE BORROWER AND ITS SUBSIDIARIES, (vii) ANY ASSERTION THAT THE
LENDERS WERE NOT ENTITLED TO RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THE
SECURITY INSTRUMENTS, (viii) ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR
ANY SUBSIDIARY OR ANY OF THEIR PROPERTIES, INCLUDING WITHOUT LIMITATION, THE
PRESENCE, GENERATION, STORAGE, RELEASE, THREATENED RELEASE, USE, TRANSPORT,
DISPOSAL, ARRANGEMENT OF DISPOSAL OR TREATMENT OF OIL, OIL AND GAS WASTES, SOLID
WASTES OR HAZARDOUS MATERIALS ON ANY OF THEIR PROPERTIES, (ix) THE BREACH OR
NON-COMPLIANCE BY THE BORROWER OR ANY SUBSIDIARY WITH ANY ENVIRONMENTAL LAW
APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY, (x) THE PAST OWNERSHIP BY THE
BORROWER
 
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OR ANY SUBSIDIARY OF ANY OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR
PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT
IN PRESENT LIABILITY, (xi) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT,
DISPOSAL, GENERATION, THREATENED RELEASE, TRANSPORT, ARRANGEMENT FOR TRANSPORT
OR ARRANGEMENT FOR DISPOSAL OF OIL, OIL AND GAS WASTES, SOLID WASTES OR
HAZARDOUS MATERIALS ON ANY OF THE PROPERTIES OWNED OR OPERATED BY THE BORROWER
OR ANY SUBSIDIARY OR ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS
MATERIALS ON OR FROM ANY PROPERTY OWNED OR OPERATED BY THE BORROWER OR ANY OF
ITS SUBSIDIARIES, (xii) ANY ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO THE
BORROWER OR ANY OF ITS SUBSIDIARIES, OR (xiii) ANY OTHER ENVIRONMENTAL, HEALTH
OR SAFETY CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS, OR (xiv) ANY ACTUAL
OR PROSPECTIVE CLAIM, LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO ANY OF
THE FOREGOING, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY AND
REGARDLESS OF WHETHER ANY INDEMNITEE IS A PARTY THERETO, AND SUCH INDEMNITY
SHALL EXTEND TO EACH INDEMNITEE NOTWITHSTANDING THE SOLE OR CONCURRENT
NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE,
WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL
TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF
ONE OR MORE OF THE INDEMNITEES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT
FAULT ON ANY ONE OR MORE OF THE INDEMNITEES; PROVIDED THAT SUCH INDEMNITY SHALL
NOT, AS TO ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS,
DAMAGES, LIABILITIES OR RELATED EXPENSES ARE DETERMINED BY A COURT OF COMPETENT
JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE.
 
(c) To the extent that the Borrower fails to pay any amount required to be paid
by it to the Administrative Agent or the Arranger under Section 12.03(a) or (b),
each Lender severally agrees to pay to the Administrative Agent or the Arranger,
as the case may be, such Lender’s Applicable Percentage (determined as of the
time that the applicable unreimbursed expense or indemnity payment is sought) of
such unpaid amount; provided that the unreimbursed expense or indemnified loss,
claim, damage, liability or related expense, as the case may be, was incurred by
or asserted against the Administrative Agent or the Arranger in its capacity as
such.
 
(d) To the extent permitted by applicable law, the Borrower shall not assert,
and hereby waives, any claim against any Indemnitee, on any theory of liability,
for special, indirect, consequential or punitive damages (as opposed to direct
or actual damages) arising out of, in connection with, or as a result of, this
Agreement, any other Loan Document or any agreement or instrument contemplated
hereby or thereby, the Transactions, any Loan or Letter of Credit or the use of
the proceeds thereof.
 
(e) All amounts due under this Section 12.03 shall be payable promptly after
written demand therefor.
 
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Section 12.04 Successors and Assigns.
 
(a) The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns
permitted hereby, except that (i) the Borrower may not assign or otherwise
transfer any of its rights or obligations hereunder without the prior written
consent of each Lender (and any attempted assignment or transfer by the Borrower
without such consent shall be null and void) and (ii) no Lender may assign or
otherwise transfer its rights or obligations hereunder except in accordance with
this Section 12.04.  Nothing in this Agreement, expressed or implied, shall be
construed to confer upon any Person (other than the parties hereto, their
respective successors and assigns permitted hereby, Participants (to the extent
provided in Section 12.04(c)) and, to the extent expressly contemplated hereby,
the Related Parties of each of the Administrative Agent and the Lenders) any
legal or equitable right, remedy or claim under or by reason of this Agreement.
 
(b) (i) Subject to the conditions set forth in Section 12.04(b)(ii), any Lender
may assign to one or more assignees all or a portion of its rights and
obligations under this Agreement (including all or a portion of its Commitment
and the Loans at the time owing to it) with the prior written consent (such
consent not to be unreasonably withheld) of:
 
(A) the Borrower, provided that no consent of the Borrower shall be required if
such assignment is to a Lender, an Affiliate of a Lender, an Approved Fund or,
if an Event of Default has occurred and is continuing, is to any other assignee;
and
 
(B) the Administrative Agent, provided that no consent of the Administrative
Agent shall be required for an assignment to an assignee that is a Lender
immediately prior to giving effect to such assignment.
 
(ii) Assignments shall be subject to the following additional conditions:
 
(A) except in the case of an assignment to a Lender or an Affiliate of a Lender
or an assignment of the entire remaining amount of the assigning Lender’s
Commitment or Loans, the amount of the Commitment or Loans of the assigning
Lender subject to each such assignment (determined as of the date the Assignment
and Assumption with respect to such assignment is delivered to the
Administrative Agent) shall not be less than $1,000,000 unless each of the
Borrower and the Administrative Agent otherwise consent, provided that no such
consent of the Borrower shall be required if an Event of Default has occurred
and is continuing;
 
(B) each partial assignment shall be made as an assignment of a proportionate
part of all the assigning Lender’s rights and obligations under this Agreement;
 
(C) the parties to each assignment shall execute and deliver to the
Administrative Agent an Assignment and Assumption, together with a processing
and recordation fee of $3,500; and
 
(D) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent any information reasonably requested by the Administrative
Agent.
 
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(iii) Subject to Section 12.04(b)(iv) and the acceptance and recording thereof,
from and after the effective date specified in each Assignment and Assumption
the assignee thereunder shall be a party hereto and, to the extent of the
interest assigned by such Assignment and Assumption, have the rights and
obligations of a Lender under this Agreement, and the assigning Lender
thereunder shall, to the extent of the interest assigned by such Assignment and
Assumption, be released from its obligations under this Agreement (and, in the
case of an Assignment and Assumption covering all of the assigning Lender’s
rights and obligations under this Agreement, such Lender shall cease to be a
party hereto but shall continue to be entitled to the benefits of Section 5.01,
Section 5.02, Section 5.03 and Section 12.03).  Any assignment or transfer by a
Lender of rights or obligations under this Agreement that does not comply with
this Section 12.04 shall be treated for purposes of this Agreement as a sale by
such Lender of a participation in such rights and obligations in accordance with
Section 12.04(c).
 
(iv) The Administrative Agent, acting for this purpose as an agent of the
Borrower, shall maintain at one of its offices a copy of each Assignment and
Assumption delivered to it and a register for the recordation of the names and
addresses of the Lenders, and the Commitment of, and principal amount of the
Loans owing to, each Lender pursuant to the terms hereof from time to time (the
“Register”).  The entries in the Register shall be conclusive, and the Borrower,
the Administrative Agent and the Lenders may treat each Person whose name is
recorded in the Register pursuant to the terms hereof as a Lender hereunder for
all purposes of this Agreement, notwithstanding notice to the contrary.  The
Register shall be available for inspection by the Borrower and any Lender, at
any reasonable time and from time to time upon reasonable prior notice.  In
connection with any changes to the Register, if necessary, the Administrative
Agent will reflect the revisions on Annex I and forward a copy of such revised
Annex I to the Borrower and each Lender.
 
(v) Upon its receipt of a duly completed Assignment and Assumption executed by
an assigning Lender and an assignee, the assignee’s providing any information
reasonably requested by the Administrative Agent (unless the assignee shall
already be a Lender hereunder), the processing and recordation fee referred to
in this Section 12.04(b) and any written consent to such assignment required by
Section 12.04(a), the Administrative Agent shall accept such Assignment and
Assumption and record the information contained therein in the Register.  No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this Section 12.04(b).
 
(c) 
 
(i) Any Lender may, without the consent of the Borrower or the Administrative
Agent, sell participations to one or more banks or other entities (a
“Participant”) in all or a portion of such Lender’s rights and obligations under
this Agreement (including all or a portion of its Commitment and the Loans owing
to it); provided that (A) such Lender’s obligations under this Agreement shall
remain unchanged, (B) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations and (C) the Borrower, the
Administrative Agent and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender’s rights and
obligations under this Agreement.  Any agreement or instrument pursuant to which
a Lender sells such a participation shall provide that such Lender shall retain
the sole right to enforce this Agreement and to approve any amendment,
modification or waiver of any provision of this Agreement; provided that such
agreement or instrument may provide that such Lender will not, without the
consent of the Participant, agree to any amendment, modification or waiver
described in the proviso to Section 12.02 that affects such Participant.  In
addition such agreement must provide that the Participant be bound by the
provisions of Section 12.03.  Subject to Section 12.04(c)(ii), the Borrower
agrees that each Participant shall be entitled to the benefits of Section 5.01,
Section 5.02 and Section 5.03 to the same extent as if it were a Lender and had
acquired its interest by assignment pursuant to Section 12.04.  To the extent
permitted by law, each Participant also shall be entitled to the benefits of
Section 12.08 as though it were a Lender, provided such Participant agrees to be
subject to Section 4.01(c) as though it were a Lender.
 
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(ii) A Participant shall not be entitled to receive any greater payment under
Section 5.01 or Section 5.03 than the applicable Lender would have been entitled
to receive with respect to the participation sold to such Participant, unless
the sale of the participation to such Participant is made with the Borrower’s
prior written consent.  A Participant that would be a Foreign Lender if it were
a Lender shall not be entitled to the benefits of Section 5.03 unless the
Borrower is notified of the participation sold to such Participant and such
Participant agrees, for the benefit of the Borrower, to comply with Section
5.03(e) as though it were a Lender.
 
(d) Any Lender may at any time pledge or assign a security interest in all or
any portion of its rights under this Agreement to secure obligations of such
Lender, including, without limitation, any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this Section 12.04(d) shall not apply
to any such pledge or assignment of a security interest; provided that no such
pledge or assignment of a security interest shall release a Lender from any of
its obligations hereunder or substitute any such pledgee or assignee for such
Lender as a party hereto.
 
(e) Notwithstanding any other provisions of this Section 12.04, no transfer or
assignment of the interests or obligations of any Lender or any grant of
participations therein shall be permitted if such transfer, assignment or grant
would require the Borrower and the Guarantors to file a registration statement
with the SEC or to qualify the Loans under the “Blue Sky” laws of any state.
 
Section 12.05 Survival; Revival; Reinstatement.
 
(a) All covenants, agreements, representations and warranties made by the
Borrower herein and in the certificates or other instruments delivered in
connection with or pursuant to this Agreement or any other Loan Document shall
be considered to have been relied upon by the other parties hereto and shall
survive the execution and delivery of this Agreement and the making of any
Loans, regardless of any investigation made by any such other party or on its
behalf and notwithstanding that the Administrative Agent or any Lender may have
had notice or knowledge of any Default or incorrect representation or warranty
at the time any Loan is made hereunder, and shall continue in full force and
effect as long as the principal of or any accrued interest on any Loan or any
fee or any other amount payable under this Agreement is outstanding and
unpaid.  The provisions of Section 5.01, Section 5.02, Section 5.03 and Section
12.03 and Article XI shall survive and remain in full force and effect
regardless of the consummation of the transactions contemplated hereby, the
repayment of the Loans, or the termination of this Agreement, any other Loan
Document or any provision hereof or thereof.
 
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(b) To the extent that any payments on the Indebtedness or proceeds of any
collateral are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or other Person under any bankruptcy law, common law or
equitable cause, then to such extent, the Indebtedness so satisfied shall be
revived and continue as if such payment or proceeds had not been received and
the Administrative Agent’s and the Lenders’ Liens, security interests, rights,
powers and remedies under this Agreement and each Loan Document shall continue
in full force and effect.  In such event, each Loan Document shall be
automatically reinstated and the Borrower shall take such action as may be
reasonably requested by the Administrative Agent and the Lenders to effect such
reinstatement.
 
Section 12.06 Counterparts; Integration; Effectiveness.
 
(a) This Agreement may be executed in counterparts (and by different parties
hereto on different counterparts), each of which shall constitute an original,
but all of which when taken together shall constitute a single contract.
 
(b) This Agreement, the other Loan Documents and any separate letter agreements
with respect to fees payable to the Administrative Agent constitute the entire
contract among the parties relating to the subject matter hereof and thereof and
supersede any and all previous agreements and understandings, oral or written,
relating to the subject matter hereof and thereof.  THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES HERETO AND
THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
 
(c) Except as provided in Section 6.01, this Agreement shall become effective
when it shall have been executed by the Administrative Agent and when the
Administrative Agent shall have received counterparts hereof which, when taken
together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns.  Delivery of an executed
counterpart of a signature page of this Agreement by telecopy shall be effective
as delivery of a manually executed counterpart of this Agreement.
 
Section 12.07 Severability.  Any provision of this Agreement or any other Loan
Document held to be invalid, illegal or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such invalidity,
illegality or unenforceability without affecting the validity, legality and
enforceability of the remaining provisions hereof or thereof; and the invalidity
of a particular provision in a particular jurisdiction shall not invalidate such
provision in any other jurisdiction.
 
Section 12.08 Right of Setoff.  If an Event of Default shall have occurred and
be continuing, each Lender and each of its Affiliates is hereby authorized at
any time and from time
 
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 to time, to the fullest extent permitted by law, to set off and apply any and
all deposits (general or special, time or demand, provisional or final) at any
time held and other obligations (of whatsoever kind, including, without
limitations obligations under Swap Agreements) at any time owing by such Lender
or Affiliate to or for the credit or the account of the Borrower or any
Subsidiary against any of and all the obligations of the Borrower or any
Subsidiary owed to such Lender now or hereafter existing under this Agreement or
any other Loan Document, irrespective of whether or not such Lender shall have
made any demand under this Agreement or any other Loan Document and although
such obligations may be unmatured.  The rights of each Lender under this Section
12.08 are in addition to other rights and remedies (including other rights of
setoff) which such Lender or its Affiliates may have.
 
Section 12.09 GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS.
 
(a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT THAT UNITED
STATES FEDERAL LAW PERMITS ANY LENDER TO CONTRACT FOR, CHARGE, RECEIVE, RESERVE
OR TAKE INTEREST AT THE RATE ALLOWED BY THE LAWS OF THE STATE WHERE SUCH LENDER
IS LOCATED.  CHAPTER 346 OF THE TEXAS FINANCE CODE (WHICH REGULATES CERTAIN
REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRI-PARTY ACCOUNTS) SHALL NOT APPLY
TO THIS AGREEMENT OR THE NOTES.
 
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS SHALL BE
BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES OF AMERICA
FOR THE SOUTHERN DISTRICT OF TEXAS, AND, BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH PARTY HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED BY
LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION
OF THE AFORESAID COURTS.  EACH PARTY HEREBY IRREVOCABLY WAIVES ANY OBJECTION,
INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE
JURISDICTIONS.  THIS SUBMISSION TO JURISDICTION IS NON-EXCLUSIVE AND DOES NOT
PRECLUDE A PARTY FROM OBTAINING JURISDICTION OVER ANOTHER PARTY IN ANY COURT
OTHERWISE HAVING JURISDICTION.
 
(c) EACH PARTY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT THE ADDRESS
SPECIFIED IN SECTION 12.01 OR SUCH OTHER ADDRESS AS IS SPECIFIED PURSUANT TO
SECTION 12.01 (OR ITS ASSIGNMENT AND ASSUMPTION), SUCH SERVICE TO BECOME
EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING.  NOTHING HEREIN SHALL AFFECT THE
RIGHT OF A PARTY OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
ANOTHER PARTY IN ANY OTHER JURISDICTION.
 
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(d) EACH PARTY HEREBY (i) IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM
THEREIN; (ii) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW,
ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL,
EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN
ADDITION TO, ACTUAL DAMAGES; (iii) CERTIFIES THAT NO PARTY HERETO NOR ANY
REPRESENTATIVE, AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION,
SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (iv) ACKNOWLEDGES THAT IT HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT, THE LOAN DOCUMENTS AND THE TRANSACTIONS
CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS CONTAINED IN THIS SECTION 12.09.
 
Section 12.10 Headings.  Article and Section headings and the Table of Contents
used herein are for convenience of reference only, are not part of this
Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
 
Section 12.11 Confidentiality.  Each of the Administrative Agent and the Lenders
agrees to maintain the confidentiality of the Information (as defined below),
except that Information may be disclosed (a) to its and its Affiliates’
directors, officers, employees and agents, including accountants, legal counsel
and other advisors (it being understood that the Persons to whom such disclosure
is made will be informed of the confidential nature of such Information and
instructed to keep such Information confidential), (b) to the extent requested
by any regulatory authority purporting to have jurisdiction over it, (c) to the
extent required by applicable laws or regulations or by any subpoena or similar
legal process, (d) to any other party to this Agreement or any other Loan
Document, (e) in connection with the exercise of any remedies hereunder or under
any other Loan Document or any suit, action or proceeding relating to this
Agreement or any other Loan Document or the enforcement of rights hereunder or
thereunder, (f) subject to an agreement containing provisions substantially the
same as those of this Section 12.11, to (i) any assignee of or Participant in,
or any prospective assignee of or Participant in, any of its rights or
obligations under this Agreement or (ii) any actual or prospective counterparty
(or its advisors) to any Swap Agreement relating to the Borrower and its
obligations, (g) with the consent of the Borrower or (h) to the extent such
Information (i) becomes publicly available other than as a result of a breach of
this Section 12.11 or (ii) becomes available to the Administrative Agent or any
Lender on a non-confidential basis from a source other than the Borrower.  For
the purposes of this Section 12.11, “Information” means all information received
from the Borrower or any Subsidiary relating to the Borrower or any Subsidiary
and their businesses, other than any such information that is available to the
Administrative Agent or any Lender on a non-confidential basis prior to
disclosure by the Borrower or a Subsidiary; provided that, in the case of
information received from the Borrower or any Subsidiary after the date hereof,
such information is clearly identified at the time of delivery as
confidential.  Any Person required to maintain the confidentiality of
Information as provided in this Section 12.11 shall be considered to have
complied with its obligation to do so if such Person has exercised the same
degree of care to maintain the confidentiality of such Information as such
Person would accord to its own confidential information.
 
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Section 12.12 Interest Rate Limitation.  It is the intention of the parties
hereto that each Lender shall conform strictly to usury laws applicable to
it.  Accordingly, if the transactions contemplated hereby would be usurious as
to any Lender under laws applicable to it (including the laws of the United
States of America and the State of Texas or any other jurisdiction whose laws
may be mandatorily applicable to such Lender notwithstanding the other
provisions of this Agreement), then, in that event, notwithstanding anything to
the contrary in any of the Loan Documents or any agreement entered into in
connection with or as security for the Notes, it is agreed as follows:  (i) the
aggregate of all consideration which constitutes interest under law applicable
to any Lender that is contracted for, taken, reserved, charged or received by
such Lender under any of the Loan Documents or agreements or otherwise in
connection with the Notes shall under no circumstances exceed the maximum amount
allowed by such applicable law, and any excess shall be canceled automatically
and if theretofore paid shall be credited by such Lender on the principal amount
of the Indebtedness (or, to the extent that the principal amount of the
Indebtedness shall have been or would thereby be paid in full, refunded by such
Lender to the Borrower); and (ii) in the event that the maturity of the Notes is
accelerated by reason of an election of the holder thereof resulting from any
Event of Default under this Agreement or otherwise, or in the event of any
required or permitted prepayment, then such consideration that constitutes
interest under law applicable to any Lender may never include more than the
maximum amount allowed by such applicable law, and excess interest, if any,
provided for in this Agreement or otherwise shall be canceled automatically by
such Lender as of the date of such acceleration or prepayment and, if
theretofore paid, shall be credited by such Lender on the principal amount of
the Indebtedness (or, to the extent that the principal amount of the
Indebtedness shall have been or would thereby be paid in full, refunded by such
Lender to the Borrower).  All sums paid or agreed to be paid to any Lender for
the use, forbearance or detention of sums due hereunder shall, to the extent
permitted by law applicable to such Lender, be amortized, prorated, allocated
and spread throughout the stated term of the Loans evidenced by the Notes until
payment in full so that the rate or amount of interest on account of any Loans
hereunder does not exceed the maximum amount allowed by such applicable law.  If
at any time and from time to time (i) the amount of interest payable to any
Lender on any date shall be computed at the Highest Lawful Rate applicable to
such Lender pursuant to this Section 12.12 and (ii) in respect of any subsequent
interest computation period the amount of interest otherwise payable to such
Lender would be less than the amount of interest payable to such Lender computed
at the Highest Lawful Rate applicable to such Lender, then the amount of
interest payable to such Lender in respect of such subsequent interest
computation period shall continue to be computed at the Highest Lawful Rate
applicable to such Lender until the total amount of interest payable to such
Lender shall equal the total amount of interest which would have been payable to
such Lender if the total amount of interest had been computed without giving
effect to this Section 12.12.  To the extent that Chapter 303 of the Texas
Finance Code is relevant for the purpose of determining the Highest Lawful Rate
applicable to a Lender, such Lender elects to determine the applicable rate
ceiling under such Chapter by the weekly ceiling from time to time in
effect.  Chapter 346 of the Texas Finance Code does not apply to the Borrower’s
obligations hereunder.
 
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Section 12.13 EXCULPATION PROVISIONS.  EACH OF THE PARTIES HERETO SPECIFICALLY
AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS; THAT IT HAS IN FACT READ THIS AGREEMENT
AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS, CONDITIONS
AND EFFECTS OF THIS AGREEMENT; THAT IT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL
COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND HAS RECEIVED THE ADVICE OF ITS
ATTORNEY IN ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND THAT
IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF
THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH
LIABILITY.  EACH PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE
VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS ON THE BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE
OF SUCH PROVISION OR THAT THE PROVISION IS NOT “CONSPICUOUS.”
 
Section 12.14 No Third Party Beneficiaries.  This Agreement, the other Loan
Documents, and the agreement of the Lenders to make Loans hereunder are solely
for the benefit of the Borrower, and no other Person (including, without
limitation, any Subsidiary of the Borrower, any obligor, contractor,
subcontractor, supplier or materialsman) shall have any rights, claims, remedies
or privileges hereunder or under any other Loan Document against the
Administrative Agent or any Lender for any reason whatsoever.  There are no
third party beneficiaries.
 
Section 12.15 USA Patriot Act Notice.  Each Lender hereby notifies the Borrower
that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L.
107-56 (signed into law October 26, 2001)) (the “Patriot Act”), it is required
to obtain, verify and record information that identifies the Borrower, which
information includes the name and address of the Borrower and other information
that will allow such Lender to identify the Borrower in accordance with the
Patriot Act.
 
[SIGNATURES BEGIN NEXT PAGE]
 
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The parties hereto have caused this Agreement to be duly executed as of the day
and year first above written.
 
 

BORROWER: Petro Resources Corporation          
 
By:
/s/ Wayne Hall       Name: Wayne Hall        Title: CEO           

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ADMINISTRATIVE AGENT:
CIT Capital USA Inc.
as Administrative Agent
         
 
By:
/s/ George McKean       Name: George McKean       Title: Vice President        
 

 
 

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LENDERS:
CIT Capital USA Inc.
         
 
By:
/s/ George McKean       Name: George McKean       Title: Vice President        
 

 
 
 
 
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