Exhibit 10.1

EXECUTION VERSION

CREDIT AGREEMENT

by and among

BASELINE OIL & GAS CORP.

as Borrower,

and

THE LENDERS THAT ARE SIGNATORIES HERETO

as the Lenders,

and

WELLS FARGO FOOTHILLS, INC.

as the Arranger and Administrative Agent

Dated as of October 1, 2007

--------------------------------------------------------------------------------

TABLE OF CONTENTS

 

             Page 1.   DEFINITIONS AND CONSTRUCTION    1   1.1.   Definitions   
1   1.2.   Accounting Terms    1   1.3.   Code    1   1.4.   Construction    1  
1.5.   Schedules and Exhibits.    1 2.   LOAN AND TERMS OF PAYMENT    2   2.1.  
Revolver Advances    2   2.2.   Intentionally Omitted    2   2.3.   Borrowing
Procedures and Settlements    2   2.4.   Payments    6   2.5.   Overadvances   
9   2.6.   Interest Rates and Letter of Credit Fee: Rates, Payments, and
Calculations    9   2.7.   Cash Management    10   2.8.   Crediting Payments   
11   2.9.   Designated Account    11   2.10.   Maintenance of Loan Account;
Statements of Obligations    11   2.11.   Fees    11   2.12.   Letters of Credit
   11   2.13.   LIBOR Option    14   2.14.   Capital Requirements    16 3.  
CONDITIONS; TERM OF AGREEMENT    16   3.1.   Conditions Precedent to the Initial
Extension of Credit    16   3.2.   Conditions Precedent to all Extensions of
Credit    16   3.3.   Term    17   3.4.   Effect of Termination    17   3.5.  
Early Termination by Borrower    17   3.6.   Conditions Subsequent to the
Initial Extension of Credit    17 4.   REPRESENTATIONS AND WARRANTIES    18  
4.1.   No Encumbrances    18

 

-i-

--------------------------------------------------------------------------------

TABLE OF CONTENTS

(continued)

 

             Page   4.2.   Intentionally Omitted    18   4.3.   Intentionally
Omitted    18   4.4.   Intentionally Omitted    18   4.5.   Intentionally
Omitted    18   4.6.   Intentionally Omitted    18   4.7.   Jurisdiction of
Organization; Location of Chief Executive Office; Organizational Identification
Number; Commercial Tort Claims    18   4.8.   Due Organization and
Qualification; Subsidiaries    19   4.9.   Due Authorization; No Conflict    19
  4.10.   Litigation    20   4.11.   No Material Adverse Change    20   4.12.  
Fraudulent Transfer    20   4.13.   Employee Benefits    20   4.14.  
Environmental Condition    20   4.15.   Intellectual Property    21   4.16.  
Leases    21   4.17.   Deposit Accounts and Securities Accounts    21   4.18.  
Complete Disclosure    21   4.19.   Indebtedness    21   4.20.   Margin Stock   
21   4.21.   Permits, Etc    22   4.22.   Material Contracts    22   4.23.  
Employee and Labor Matters    22   4.24.   Customers and Suppliers    22   4.25.
  Taxes    22   4.26.   Insurance    23   4.27.   Investment Company Act    23  
4.28.   Brokerage Fees    23   4.29.   Junior Secured Debt Documents    25  
4.30.   Compliance with the Law    23

 

-ii-

--------------------------------------------------------------------------------

TABLE OF CONTENTS

(continued)

 

             Page   4.31.   Oil and Gas Imbalances    24   4.32.   Hedge
Agreements    24   4.33.   Location of Real Property and Leased Premises    24  
4.34.   Bonds and Insurance    25   4.35.   Royalties.    25   4.36.   DSX
Acquisition    25   4.37.   DSX Acquisition Documents    25   4.38.   Nature of
Business    26   4.39.   Seismic Licenses.    26   4.40.   Marketing of
Production.    26 5.   AFFIRMATIVE COVENANTS    27   5.1.   Accounting System   
27   5.2.   Collateral Reporting    27   5.3.   Financial Statements, Reports,
Certificates    27   5.4.   Intentionally Omitted    27   5.5.   Inspection   
27   5.6.   Maintenance of Properties    27   5.7.   Taxes    28   5.8.  
Insurance    28   5.9.   Intentionally Omitted    29   5.10.   Compliance with
Laws    29   5.11.   Leases    29   5.12.   Existence    29   5.13.  
Environmental    29   5.14.   Disclosure Updates    29   5.15.   Control
Agreements    30   5.16.   Formation of Subsidiaries    30   5.17.   Further
Assurances    30   5.18.   Organizational ID Number; Commercial Tort Claims   
30   5.19.   Material Contracts    30

 

-iii-

--------------------------------------------------------------------------------

TABLE OF CONTENTS

(continued)

 

             Page   5.20.   Obtaining Permits, Etc    30   5.21.   After
Acquired Properties    30   5.22.   Hedging Agreements    31 6.   NEGATIVE
COVENANTS    31   6.1.   Indebtedness    31   6.2.   Liens    32   6.3.  
Restrictions on Fundamental Changes    32   6.4.   Disposal of Assets    32  
6.5.   Change Name    32   6.6.   Nature of Business    32   6.7.   Prepayments
and Amendments    32   6.8.   Change of Control    33   6.9.   Intentionally
Omitted    33   6.10.   Distributions    33   6.11.   Accounting Methods    33  
6.12.   Investments    33   6.13.   Transactions with Affiliates    34   6.14.  
Use of Proceeds    34   6.15.   Intentionally Omitted    34   6.16.   Financial
Covenants    34   6.17.   Forward Sales    34   6.18.   Oil and Gas Imbalances
   35   6.19.   Environmental    35   6.20.   Marketing Activities.    35 7.  
EVENTS OF DEFAULT    35 8.   THE LENDER GROUP’S RIGHTS AND REMEDIES    37   8.1.
  Rights and Remedies    37   8.2.   Remedies Cumulative    37 9.   TAXES AND
EXPENSES    38 10.   WAIVERS; INDEMNIFICATION    38

 

-iv-

--------------------------------------------------------------------------------

TABLE OF CONTENTS

(continued)

 

             Page   10.1.   Demand; Protest; etc    38   10.2.   The Lender
Group’s Liability for Collateral    38   10.3.   Indemnification    38 11.  
NOTICES    39 12.   CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER    40 13.  
ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS    40   13.1.   Assignments and
Participations    40   13.2.   Successors    42 14.   AMENDMENTS; WAIVERS    43
  14.1.   Amendments and Waivers    43   14.2.   Replacement of Holdout Lender
   43   14.3.   No Waivers; Cumulative Remedies    44 15.   AGENT; THE LENDER
GROUP    44   15.1.   Appointment and Authorization of Agent    44   15.2.  
Delegation of Duties    45   15.3.   Liability of Agent    45   15.4.   Reliance
by Agent    45   15.5.   Notice of Default or Event of Default    45   15.6.  
Credit Decision    46   15.7.   Costs and Expenses; Indemnification    46  
15.8.   Agent in Individual Capacity    47   15.9.   Successor Agent    47  
15.10.   Lender in Individual Capacity    47   15.11.   Collateral Matters    47
  15.12.   Restrictions on Actions by Lenders; Sharing of Payments    48  
15.13.   Agency for Perfection    48   15.14.   Payments by Agent to the Lenders
   49   15.15.   Concerning the Collateral and Related Loan Documents    49  
15.16.   Field Audits and Examination Reports; Confidentiality; Disclaimers by
Lenders; Other Reports and Information    49   15.17.   Several Obligations; No
Liability    50

 

-v-

--------------------------------------------------------------------------------

TABLE OF CONTENTS

(continued)

 

             Page 16.   WITHHOLDING TAXES.    53 17.   INTENTIONALY OMITTED   
57 18.   GENERAL PROVISIONS    52   18.1.   Effectiveness    52   18.2.  
Section Headings    52   18.3.   Interpretation    52   18.4.   Severability of
Provisions    52   18.5.   Bank Product Providers.    52   18.6.  
Lender-Creditor Relationship. .    52   18.7.   Counterparts; Electronic
Execution    52   18.8.   Revival and Reinstatement of Obligations    52   18.9.
  Confidentiality    53   18.10.   Lender Group Expenses    53   18.11.   USA
PATRIOT Act    53   18.12.   Integration    53

 

-vi-

--------------------------------------------------------------------------------

CREDIT AGREEMENT

THIS CREDIT AGREEMENT (this “Agreement”), is entered into as of October 1, 2007,
by and among the lenders identified on the signature pages hereof (such lenders,
together with their respective successors and permitted assigns, are referred to
hereinafter each individually as a “Lender” and collectively as the “Lenders”),
WELLS FARGO FOOTHILLS, INC., a California corporation, as the arranger and
administrative agent for the Lenders (in such capacity, together with its
successors and assigns in such capacity, “Agent”), and Baseline Oil & Gas Corp.,
a Nevada corporation (“Borrower”).

The parties agree as follows:

1. DEFINITIONS AND CONSTRUCTION.

1.1. Definitions. Capitalized terms used in this Agreement shall have the
meanings specified therefor on Schedule 1.1.

1.2. Accounting Terms. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP. When used herein, the term
“financial statements” shall include the notes and schedules thereto.

1.3. Code. Any terms used in this Agreement that are defined in the Code shall
be construed and defined as set forth in the Code unless otherwise defined
herein; provided, however, that to the extent that the Code is used to define
any term herein and such term is defined differently in different Articles of
the Code, the definition of such term contained in Article 9 of the Code shall
govern.

1.4. Construction. Unless the context of this Agreement or any other Loan
Document clearly requires otherwise, references to the plural include the
singular, references to the singular include the plural, the terms “includes”
and “including” are not limiting, and the term “or” has, except where otherwise
indicated, the inclusive meaning represented by the phrase “and/or.” The words
“hereof,” “herein,” “hereby,” “hereunder,” and similar terms in this Agreement
or any other Loan Document refer to this Agreement or such other Loan Document,
as the case may be, as a whole and not to any particular provision of this
Agreement or such other Loan Document, as the case may be. Section, subsection,
clause, schedule, and exhibit references herein are to this Agreement unless
otherwise specified. Any reference in this Agreement or in any other Loan
Document to any agreement, instrument, or document shall include all
alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, joinders, and supplements, thereto and thereof, as
applicable (subject to any restrictions on such alterations, amendments,
changes, extensions, modifications, renewals, replacements, substitutions,
joinders, and supplements set forth herein). Any reference herein or in any
other Loan Document to the satisfaction or repayment in full of the Obligations
shall mean the repayment in full in cash (or, in the case of Letters of Credit
or Bank Products, the cash collateralization or support by a standby letter of
credit in accordance with the terms hereof) of all Obligations other than
unasserted contingent indemnification Obligations and other than any Bank
Product Obligations that, at such time, are allowed by the applicable Bank
Product Provider to remain outstanding and that are not required by the
provisions of this Agreement to be repaid or cash collateralized. Any reference
herein to any Person shall be construed to include such Person’s successors and
assigns. Any requirement of a writing contained herein or in any other Loan
Document shall be satisfied by the transmission of a Record and any Record so
transmitted shall constitute a representation and warranty as to the accuracy
and completeness of the information contained therein.

1.5. Schedules and Exhibits. All of the schedules and exhibits attached to this
Agreement shall be deemed incorporated herein by reference.

 

- 1 -

--------------------------------------------------------------------------------

2. LOAN AND TERMS OF PAYMENT.

2.1. Revolver Advances.

(a) Subject to the terms and conditions of this Agreement, and during the term
of this Agreement, each Lender with a Revolver Commitment agrees (severally, not
jointly or jointly and severally) to make advances (“Advances”) to Borrower in
an amount at any one time outstanding not to exceed such Lender’s Pro Rata Share
of an amount equal to the lesser of (i) the Maximum Revolver Amount less the
Letter of Credit Usage at such time less the sum of (x) the Bank Product Reserve
and (y) the aggregate amount of reserves, if any, established by Agent under
Section 2.1(b), and (ii) the Borrowing Base at such time less the Letter of
Credit Usage at such time.

(b) Anything to the contrary in this Section 2.1 notwithstanding, Agent shall
have the right to (x) establish reserves against the Borrowing Base or the
Maximum Revolver Amount or (y) reduce one or more of the percentages set forth
in the Borrowing Base with respect to the stated categories of oil and gas
reserves (in either case, without declaring an Event of Default) in such
amounts, and with respect to such matters, as Agent determines in its Permitted
Discretion (in each case, an “Agent Reserve”, and collectively, the “Agent
Reserves”). Without limiting the generality of the foregoing, Agent Reserves may
include (but are not limited to) reserves with respect to (i) sums that Borrower
is required to pay under any Section of this Agreement or any other Loan
Document (such as taxes, assessments, insurance premiums, or, in the case of
leased assets, rents or other amounts payable under such leases) and have failed
to pay, (ii) amounts owing by Borrower to any Person to the extent secured by a
Lien on, or trust over, any of the Collateral (including proceeds thereof or
collections from the sale of Hydrocarbons which may from time to time come into
the possession of any of the Lenders or their agent(s) (other than a Permitted
Lien), which Lien or trust, in the Permitted Discretion of Agent likely would
have a priority superior to the Agent’s Liens (such as Liens or trusts in favor
of landlords, warehousemen, carriers, mechanics, materialmen, laborers, or
suppliers, or Liens or trusts for ad valorem, excise, sales, or other taxes
where given priority under applicable law) in and to such item of the
Collateral, and (iii) amounts that may payable in respect of the Convertible
Notes.

(c) Amounts borrowed pursuant to this Section 2.1 may be repaid and, subject to
the terms and conditions of this Agreement, reborrowed at any time during the
term of this Agreement. The outstanding principal amount of the Advances,
together with interest accrued thereon, shall be due and payable on the Maturity
Date or, if earlier, on the date on which they are declared due and payable
pursuant to the terms of this Agreement.

2.2. Intentionally Omitted.

2.3. Borrowing Procedures and Settlements.

(a) Procedure for Borrowing. Each Borrowing shall be made by an irrevocable
written request by an Authorized Person delivered to Agent. Unless Swing Lender
is not obligated to make a Swing Loan pursuant to Section 2.3(b) below, such
notice must be received by Agent no later than 1:00 p.m. (Georgia time) on the
Business Day that is the requested Funding Date specifying (i) the amount of
such Borrowing, and (ii) the requested Funding Date, which shall be a Business
Day; provided, however, that if Swing Lender is not obligated to make a Swing
Loan as to a requested Borrowing, such notice must be received by Agent no later
than 1:00 p.m. (Georgia time) on the Business Day prior to the date that is the
requested Funding Date. At Agent’s election, in lieu of delivering the
above-described written request, any Authorized Person may give Agent telephonic
notice of such request by the required time. In such circumstances, Borrower
agrees that any such telephonic notice will be confirmed in writing within 24
hours of the giving of such telephonic notice, but the failure to provide such
written confirmation shall not affect the validity of the request.

(b) Making of Swing Loans. In the case of a request for an Advance and so long
as either (i) the aggregate amount of Swing Loans made since the last Settlement
Date, minus the amount of

 

- 2 -

--------------------------------------------------------------------------------

Collections or payments applied to Swing Loans since the last Settlement Date,
plus the amount of the requested Advance does not exceed $5,000,000, or
(ii) Swing Lender, in its sole discretion, shall agree to make a Swing Loan
notwithstanding the foregoing limitation, Swing Lender shall make an Advance in
the amount of such Borrowing (any such Advance made solely by Swing Lender
pursuant to this Section 2.3(b) being referred to as a “Swing Loan” and such
Advances being referred to collectively as “Swing Loans”) available to Borrower
on the Funding Date applicable thereto by transferring immediately available
funds to Borrower’s Designated Account. Each Swing Loan shall be deemed to be an
Advance hereunder and shall be subject to all the terms and conditions
applicable to other Advances, except that all payments on any Swing Loan shall
be payable to Swing Lender solely for its own account. Subject to the provisions
of Section 2.3(d)(ii), Swing Lender shall not make and shall not be obligated to
make any Swing Loan if Swing Lender has actual knowledge that (i) one or more of
the applicable conditions precedent set forth in Section 3 will not be satisfied
on the requested Funding Date for the applicable Borrowing, or (ii) the
requested Borrowing would exceed the Availability on such Funding Date. Swing
Lender shall not otherwise be required to determine whether the applicable
conditions precedent set forth in Section 3 have been satisfied on the Funding
Date applicable thereto prior to making any Swing Loan. The Swing Loans shall be
secured by the Agent’s Liens, constitute Obligations hereunder, and bear
interest at the rate applicable from time to time to Advances that are Base Rate
Loans.

(c) Making of Loans.

(i) In the event that Swing Lender is not obligated to make a Swing Loan, then
promptly after receipt of a request for a Borrowing pursuant to Section 2.3(a),
Agent shall notify the Lenders, not later than 4:00 p.m. (Georgia time) on the
Business Day immediately preceding the Funding Date applicable thereto, by
telecopy, telephone, or other similar form of transmission, of the requested
Borrowing. Each Lender shall make the amount of such Lender’s Pro Rata Share of
the requested Borrowing available to Agent in immediately available funds, to
Agent’s Account, not later than 1:00 p.m. (Georgia time) on the Funding Date
applicable thereto. After Agent’s receipt of the proceeds of such Advances,
Agent shall make the proceeds thereof available to Borrower on the applicable
Funding Date by transferring immediately available funds equal to such proceeds
received by Agent to Borrower’s Designated Account; provided, however, that,
subject to the provisions of Section 2.3(d)(ii), Agent shall not request any
Lender to make, and no Lender shall have the obligation to make, any Advance if
Agent shall have actual knowledge that (1) one or more of the applicable
conditions precedent set forth in Section 3 will not be satisfied on the
requested Funding Date for the applicable Borrowing unless such condition has
been waived, or (2) the requested Borrowing would exceed the Availability on
such Funding Date.

(ii) Unless Agent receives notice from a Lender prior to 12:00 noon (Georgia
time) on the date of a Borrowing, that such Lender will not make available as
and when required hereunder to Agent for the account of Borrower the amount of
that Lender’s Pro Rata Share of the Borrowing, Agent may assume that each Lender
has made or will make such amount available to Agent in immediately available
funds on the Funding Date and Agent may (but shall not be so required), in
reliance upon such assumption, make available to Borrower on such date a
corresponding amount. If and to the extent any Lender shall not have made its
full amount available to Agent in immediately available funds and Agent in such
circumstances has made available to Borrower such amount, that Lender shall on
the Business Day following such Funding Date make such amount available to
Agent, together with interest at the Defaulting Lender Rate for each day during
such period. A notice submitted by Agent to any Lender with respect to amounts
owing under this subsection shall be conclusive, absent manifest error. If such
amount is so made available, such payment to Agent shall constitute such
Lender’s Advance on the date of Borrowing for all purposes of this Agreement. If
such amount is not made available to Agent on the Business Day following the
Funding Date, Agent will notify Borrower of such failure to fund and, upon
demand by Agent, Borrower shall pay such amount to Agent for Agent’s account,
together with interest thereon for each day elapsed since the date of such
Borrowing, at a rate per annum equal to the interest rate applicable at the time
to the Advances composing such Borrowing. The failure of any Lender to make any
Advance on any Funding Date shall not relieve any other Lender of any obligation
hereunder to make an Advance on such Funding Date, but no Lender shall be
responsible for the failure of any other Lender to make the Advance to be made
by such other Lender on any Funding Date.

 

- 3 -

--------------------------------------------------------------------------------

(iii) Agent shall not be obligated to transfer to a Defaulting Lender any
payments made by Borrower to Agent for the Defaulting Lender’s benefit, and, in
the absence of such transfer to the Defaulting Lender, Agent shall transfer any
such payments to each other non-Defaulting Lender member of the Lender Group
ratably in accordance with their Commitments (but only to the extent that such
Defaulting Lender’s Advance was funded by the other members of the Lender Group)
or, if so directed by Borrower and if no Default or Event of Default had
occurred and is continuing (and to the extent such Defaulting Lender’s Advance
was not funded by the Lender Group), retain same to be re-advanced to Borrower
as if such Defaulting Lender had made Advances to Borrower. Subject to the
foregoing, Agent may hold and, in its Permitted Discretion, re-lend to Borrower
for the account of such Defaulting Lender the amount of all such payments
received and retained by Agent for the account of such Defaulting Lender. Solely
for the purposes of voting or consenting to matters with respect to the Loan
Documents, such Defaulting Lender shall be deemed not to be a “Lender” and such
Lender’s Commitment shall be deemed to be zero. This Section shall remain
effective with respect to such Lender until (x) the Obligations under this
Agreement shall have been declared or shall have become immediately due and
payable, (y) the non-Defaulting Lenders, Agent, and Borrower shall have waived
such Defaulting Lender’s default in writing, or (z) the Defaulting Lender makes
its Pro Rata Share of the applicable Advance and pays to Agent all amounts owing
by Defaulting Lender in respect thereof. The operation of this Section shall not
be construed to increase or otherwise affect the Commitment of any Lender, to
relieve or excuse the performance by such Defaulting Lender or any other Lender
of its duties and obligations hereunder, or to relieve or excuse the performance
by Borrower of its duties and obligations hereunder to Agent or to the Lenders
other than such Defaulting Lender. Any such failure to fund by any Defaulting
Lender shall constitute a material breach by such Defaulting Lender of this
Agreement and shall entitle Borrower at its option, upon written notice to
Agent, to arrange for a substitute Lender to assume the Commitment of such
Defaulting Lender, such substitute Lender to be acceptable to Agent. In
connection with the arrangement of such a substitute Lender, the Defaulting
Lender shall have no right to refuse to be replaced hereunder, and agrees to
execute and deliver a completed form of Assignment and Acceptance in favor of
the substitute Lender (and agrees that it shall be deemed to have executed and
delivered such document if it fails to do so) subject only to being repaid its
share of the outstanding Obligations (other than Bank Product Obligations, but
including an assumption of its Pro Rata Share of the Risk Participation
Liability) without any premium or penalty of any kind whatsoever; provided
however, that any such assumption of the Commitment of such Defaulting Lender
shall not be deemed to constitute a waiver of any of the Lender Groups’ or
Borrower’s rights or remedies against any such Defaulting Lender arising out of
or in relation to such failure to fund.

(d) Protective Advances and Optional Overadvances.

(i) Agent hereby is authorized by Borrower and the Lenders, from time to time in
Agent’s sole discretion, (A) after the occurrence and during the continuance of
a Default or an Event of Default, or (B) at any time that any of the other
applicable conditions precedent set forth in Section 3 are not satisfied, to
make Advances to Borrower on behalf of the Lenders that Agent, in its Permitted
Discretion deems necessary or desirable (1) to preserve or protect the
Collateral, or any portion thereof, (2) to enhance the likelihood of repayment
of the Obligations (other than the Bank Product Obligations), or (3) to pay any
other amount chargeable to Borrower pursuant to the terms of this Agreement,
including Lender Group Expenses and the costs, fees, and expenses described in
Section 9 (any of the Advances described in this Section 2.3(d)(i) shall be
referred to as “Protective Advances”).

(ii) Any contrary provision of this Agreement notwithstanding, the Lenders
hereby authorize Agent or Swing Lender, as applicable, and either Agent or Swing
Lender, as applicable, may, but is not obligated to, knowingly and
intentionally, continue to make Advances (including Swing Loans) to Borrower
notwithstanding that an Overadvance exists or thereby would be created, so long
as (A) after giving effect to such Advances, the outstanding Revolver Usage does
not exceed the Borrowing Base by more than

 

- 4 -

--------------------------------------------------------------------------------

$1,500,000, and (B) after giving effect to such Advances, the outstanding
Revolver Usage (except for and excluding amounts charged to the Loan Account for
interest, fees, or Lender Group Expenses) does not exceed the Maximum Revolver
Amount. In the event Agent obtains actual knowledge that the Revolver Usage
exceeds the amounts permitted by the immediately foregoing provisions,
regardless of the amount of, or reason for, such excess, Agent shall notify the
Lenders as soon as practicable (and prior to making any (or any additional)
intentional Overadvances (except for and excluding amounts charged to the Loan
Account for interest, fees, or Lender Group Expenses) unless Agent determines
that prior notice would result in imminent harm to the Collateral or its value),
and the Lenders with Revolver Commitments thereupon shall, together with Agent,
jointly determine the terms of arrangements that shall be implemented with
Borrower intended to reduce, within a reasonable time, the outstanding principal
amount of the Advances to Borrower to an amount permitted by the preceding
sentence. In such circumstances, if any Lender with a Revolver Commitment
objects to the proposed terms of reduction or repayment of any Overadvance, the
terms of reduction or repayment thereof shall be implemented according to the
determination of the Required Lenders. Each Lender with a Revolver Commitment
shall be obligated to settle with Agent as provided in Section 2.3(e) for the
amount of such Lender’s Pro Rata Share of any unintentional Overadvances by
Agent reported to such Lender, any intentional Overadvances made as permitted
under this Section 2.3(d)(ii), and any Overadvances resulting from the charging
to the Loan Account of interest, fees, or Lender Group Expenses.

(iii) Each Protective Advance and each Overadvance shall be deemed to be an
Advance hereunder, except that no Protective Advance or Overadvance shall be
eligible to be a LIBOR Rate Loan and, prior to Settlement therefor, all payments
on the Protective Advances shall be payable to Agent solely for its own account.
The Protective Advances and Overadvances shall be repayable on demand, secured
by the Agent’s Liens, constitute Obligations hereunder, and bear interest at the
rate applicable from time to time to Advances that are Base Rate Loans. The
provisions of this Section 2.3(d) are for the exclusive benefit of Agent, Swing
Lender, and the Lenders and are not intended to benefit Borrower in any way.

(e) Settlement. It is agreed that each Lender’s funded portion of the Advances
is intended by the Lenders to equal, at all times, such Lender’s Pro Rata Share
of the outstanding Advances. Such agreement notwithstanding, Agent, Swing
Lender, and the other Lenders agree (which agreement shall not be for the
benefit of Borrower) that in order to facilitate the administration of this
Agreement and the other Loan Documents, settlement among the Lenders as to the
Advances, the Swing Loans, and the Protective Advances shall take place on a
periodic basis in accordance with the following provisions:

(i) Agent shall request settlement (“Settlement”) with the Lenders on a weekly
basis, or on a more frequent basis if so determined by Agent (1) on behalf of
Swing Lender, with respect to the outstanding Swing Loans, (2) for itself, with
respect to the outstanding Protective Advances, and (3) with respect to
Borrower’s Collections or payments received, as to each by notifying the Lenders
by telecopy, telephone, or other similar form of transmission, of such requested
Settlement, no later than 5:00 p.m. (Georgia time) on the Business Day
immediately prior to the date of such requested Settlement (the date of such
requested Settlement being the “Settlement Date”). Such notice of a Settlement
Date shall include a summary statement of the amount of outstanding Advances,
Swing Loans, and Protective Advances for the period since the prior Settlement
Date. Subject to the terms and conditions contained herein (including
Section 2.3(c)(iii)): (y) if a Lender’s balance of the Advances (including Swing
Loans and Protective Advances) exceeds such Lender’s Pro Rata Share of the
Advances (including Swing Loans and Protective Advances) as of a Settlement
Date, then Agent shall, by no later than 3:00 p.m. (Georgia time) on the
Settlement Date, transfer in immediately available funds to a Deposit Account of
such Lender (as such Lender may designate), an amount such that each such Lender
shall, upon receipt of such amount, have as of the Settlement Date, its Pro Rata
Share of the Advances (including Swing Loans and Protective Advances), and
(z) if a Lender’s balance of the Advances (including Swing Loans and Protective
Advances) is less than such Lender’s Pro Rata Share of the Advances (including
Swing Loans and Protective Advances) as of a Settlement Date, such Lender shall
no later than 3:00 p.m. (Georgia time) on the Settlement Date transfer in
immediately available funds to the Agent’s Account, an amount such that each
such Lender shall, upon transfer of such amount, have as of the Settlement Date,
its Pro Rata Share of the Advances (including Swing Loans and Protective
Advances). Such

 

- 5 -

--------------------------------------------------------------------------------

amounts made available to Agent under clause (z) of the immediately preceding
sentence shall be applied against the amounts of the applicable Swing Loans or
Protective Advances and, together with the portion of such Swing Loans or
Protective Advances representing Swing Lender’s Pro Rata Share thereof, shall
constitute Advances of such Lenders. If any such amount is not made available to
Agent by any Lender on the Settlement Date applicable thereto to the extent
required by the terms hereof, Agent shall be entitled to recover for its account
such amount on demand from such Lender together with interest thereon at the
Defaulting Lender Rate.

(ii) In determining whether a Lender’s balance of the Advances, Swing Loans, and
Protective Advances is less than, equal to, or greater than such Lender’s Pro
Rata Share of the Advances, Swing Loans, and Protective Advances as of a
Settlement Date, Agent shall, as part of the relevant Settlement, apply to such
balance the portion of payments actually received in good funds by Agent with
respect to principal, interest, fees payable by Borrower and allocable to the
Lenders hereunder, and proceeds of Collateral. To the extent that a net amount
is owed to any such Lender after such application, such net amount shall be
distributed by Agent to that Lender as part of such next Settlement.

(iii) Between Settlement Dates, Agent, to the extent Protective Advances or
Swing Loans are outstanding, may pay over to Agent or Swing Lender, as
applicable, any Collections or payments received by Agent, that in accordance
with the terms of this Agreement would be applied to the reduction of the
Advances, for application to the Protective Advances or Swing Loans. Between
Settlement Dates, Agent, to the extent no Protective Advances or Swing Loans are
outstanding, may pay over to Swing Lender any payments received by Agent, that
in accordance with the terms of this Agreement would be applied to the reduction
of the Advances, for application to Swing Lender’s Pro Rata Share of the
Advances. If, as of any Settlement Date, Collections of Borrower received since
the then immediately preceding Settlement Date have been applied to Swing
Lender’s Pro Rata Share of the Advances other than to Swing Loans, as provided
for in the previous sentence, Swing Lender shall pay to Agent for the accounts
of the Lenders, and Agent shall pay to the Lenders, to be applied to the
outstanding Advances of such Lenders, an amount such that each Lender shall,
upon receipt of such amount, have, as of such Settlement Date, its Pro Rata
Share of the Advances. During the period between Settlement Dates, Swing Lender
with respect to Swing Loans, Agent with respect to Protective Advances, and each
Lender (subject to the effect of agreements between Agent and individual
Lenders) with respect to the Advances other than Swing Loans and Protective
Advances, shall be entitled to interest at the applicable rate or rates payable
under this Agreement on the daily amount of funds employed by Swing Lender,
Agent, or the Lenders, as applicable.

(f) Notation. Agent shall record on its books the principal amount of the
Advances owing to each Lender, including the Swing Loans owing to Swing Lender,
and Protective Advances owing to Agent, and the interests therein of each
Lender, from time to time and such records shall, absent manifest error,
conclusively be presumed to be correct and accurate.

(g) Lenders’ Failure to Perform. All Advances (other than Swing Loans and
Protective Advances) shall be made by the Lenders contemporaneously and in
accordance with their Pro Rata Shares. It is understood that (i) no Lender shall
be responsible for any failure by any other Lender to perform its obligation to
make any Advance (or other extension of credit) hereunder, nor shall any
Commitment of any Lender be increased or decreased as a result of any failure by
any other Lender to perform its obligations hereunder, and (ii) no failure by
any Lender to perform its obligations hereunder shall excuse any other Lender
from its obligations hereunder.

2.4. Payments.

(a) Payments by Borrower.

(i) Except as otherwise expressly provided herein, all payments by Borrower
shall be made to Agent’s Account for the account of the Lender Group and shall
be made in immediately

 

- 6 -

--------------------------------------------------------------------------------

available funds, no later than 2:00 p.m. (Georgia time) on the date specified
herein. Any payment received by Agent later than 2:00 p.m. (Georgia time), shall
be deemed to have been received on the following Business Day and any applicable
interest or fee shall continue to accrue until such following Business Day.

(ii) Unless Agent receives notice from Borrower prior to the date on which any
payment is due to the Lenders that Borrower will not make such payment in full
as and when required, Agent may assume that Borrower has made (or will make)
such payment in full to Agent on such date in immediately available funds and
Agent may (but shall not be so required), in reliance upon such assumption,
distribute to each Lender on such due date an amount equal to the amount then
due such Lender. If and to the extent Borrower does not make such payment in
full to Agent on the date when due, each Lender severally shall repay to Agent
on demand such amount distributed to such Lender, together with interest thereon
at the Defaulting Lender Rate for each day from the date such amount is
distributed to such Lender until the date repaid.

(b) Apportionment and Application.

(i) So long as no Event of Default has occurred and is continuing and except as
otherwise provided with respect to Defaulting Lenders, all principal and
interest payments shall be apportioned ratably among the Lenders (according to
the unpaid principal balance of the Obligations to which such payments relate
held by each Lender) and all payments of fees and expenses (other than fees or
expenses that are for Agent’s separate account) shall be apportioned ratably
among the Lenders having a Pro Rata Share of the type of Commitment or
Obligation to which a particular fee or expense relates. Except as otherwise
specifically provided in Section 2.4(b)(iv) hereof or in Section 2.4(d) hereof,
all payments to be made hereunder by Borrower shall be remitted to Agent and all
(subject to Section 2.4(b)(iv) hereof) such payments, and all proceeds of
Collateral received by Agent, shall be applied, so long as no Event of Default
has occurred and is continuing, to reduce the balance of the Advances
outstanding and, thereafter, to Borrower (to be wired to the Designated Account)
or such other Person entitled thereto under applicable law.

(ii) At any time that an Event of Default has occurred and is continuing and
except as otherwise provided with respect to Defaulting Lenders, all payments
remitted to Agent and all proceeds of Collateral received by Agent shall be
applied as follows:

(A) first, to pay any Lender Group Expenses (including cost or expense
reimbursements) or indemnities then due to Agent under the Loan Documents, until
paid in full,

(B) second, to pay any fees or premiums then due to Agent under the Loan
Documents until paid in full,

(C) third, to pay interest due in respect of all Protective Advances until paid
in full,

(D) fourth, to pay the principal of all Protective Advances until paid in full,

(E) fifth, ratably to pay any Lender Group Expenses (including cost or expense
reimbursements) or indemnities then due to any of the Lenders under the Loan
Documents, until paid in full,

(F) sixth, ratably to pay any fees or premiums then due to any of the Lenders
under the Loan Documents until paid in full,

 

- 7 -

--------------------------------------------------------------------------------

(G) seventh, ratably to pay interest due in respect of the Advances (other than
Protective Advances), and the Swing Loans until paid in full,

(H) eighth, ratably (i) to pay the principal of all Swing Loans until paid in
full, (ii) to pay the principal of all Advances until paid in full, (iii) to
Agent, to be held by Agent, for the ratable benefit of Issuing Lender and those
Lenders having a Revolver Commitment, as cash collateral in an amount up to 105%
of the Letter of Credit Usage, and (iv) to Agent, to be held by Agent, for the
benefit of the Bank Product Providers, as cash collateral in an amount up to the
amount of the Bank Product Reserve established prior to the occurrence of, and
not in contemplation of, the subject Event of Default,

(I) ninth, to pay any other Obligations (including the provision of amounts to
Agent, to be held by Agent, for the benefit of the Bank Product Providers, as
cash collateral in an amount up to the amount determined by Agent in its
Permitted Discretion as the amount necessary to secure Borrower’s obligations in
respect of Bank Products), and

(J) tenth, to Borrower (to be wired to the Designated Account) or such other
Person entitled thereto under applicable law.

(iii) Agent promptly shall distribute to each Lender, pursuant to the applicable
wire instructions received from each Lender in writing, such funds as it may be
entitled to receive, subject to a Settlement delay as provided in
Section 2.3(e).

(iv) In each instance, so long as no Event of Default has occurred and is
continuing, Section 2.4(b)(i) shall not apply to any payment made by Borrower to
Agent and specified by Borrower to be for the payment of specific Obligations
then due and payable (or prepayable) under any provision of this Agreement.

(v) For purposes of foregoing, “paid in full” means payment of all amounts owing
under the Loan Documents according to the terms thereof, including loan fees,
service fees, professional fees, interest (and specifically including interest
accrued after the commencement of any Insolvency Proceeding), default interest,
interest on interest, and expense reimbursements, whether or not any of the
foregoing would be or is allowed or disallowed in whole or in part in any
Insolvency Proceeding.

(vi) In the event of a direct conflict between the priority provisions of this
Section 2.4 and any other provision contained in any other Loan Document, it is
the intention of the parties hereto that such provisions be read together and
construed, to the fullest extent possible, to be in concert with each other. In
the event of any actual, irreconcilable conflict that cannot be resolved as
aforesaid, the terms and provisions of this Section 2.4 shall control and
govern.

(c) Mandatory Prepayments.

(i) If at any time the sum of the aggregate principal amount of the outstanding
Advances and the outstanding Letter of Credit Usage exceeds the lesser of
(x) the Borrowing Base and (y) the Maximum Revolver Amount, Borrower shall
prepay the Obligations in an amount equal to such excess which prepayments shall
be applied in the manner set forth in Section 2.4(d).

(d) Application of Payments.

(i) Each prepayment pursuant to Section 2.4(c) shall, (A) so long as no Event of
Default shall have occurred and be continuing, be applied, first, to the
outstanding principal amount of the Advances until paid in full, and second, to
cash collateralize Letters of Credit in an amount equal to 105% of the then
extent Letter of Credit Usage, and (B) if an Event of Default shall have
occurred and be continuing, be applied in the manner set forth in
Section 2.4(b)(ii).

 

- 8 -

--------------------------------------------------------------------------------

2.5. Overadvances. If, at any time or for any reason, the amount of Obligations
owed by Borrower to the Lender Group pursuant to Section 2.1 or Section 2.12 is
greater than any of the limitations set forth in Section 2.1 or Section 2.12, as
applicable (an “Overadvance”), Borrower immediately shall pay to Agent, in cash,
the amount of such excess, which amount shall be used by Agent to reduce the
Obligations in accordance with the priorities set forth in Section 2.4(b).
Borrower promises to pay the Obligations (including principal, interest, fees,
costs, and expenses) in Dollars in full on the Maturity Date or, if earlier, on
the date on which the Obligations are declared due and payable pursuant to the
terms of this Agreement.

2.6. Interest Rates and Letter of Credit Fee: Rates, Payments, and Calculations.

(a) Interest Rates. Except as provided in Section 2.6(c), all Obligations
(except for undrawn Letters of Credit and except for Bank Product Obligations)
that have been charged to the Loan Account pursuant to the terms hereof shall
bear interest on the Daily Balance thereof as follows (i) if the relevant
Obligation is an Advance that is a LIBOR Rate Loan, at a per annum rate equal to
the LIBOR Rate plus the Applicable Margin, (ii) if the relevant Obligation is an
Advance that is a Base Rate Loan, at a per annum rate equal to the Base Rate
plus the Applicable Margin, and (iii) otherwise, at a per annum rate equal to
the Base Rate plus the Applicable Margin.

(b) Letter of Credit Fee. Borrower shall pay Agent (for the ratable benefit of
the Lenders with a Revolver Commitment, subject to any agreements between Agent
and individual Lenders), a Letter of Credit fee (in addition to the charges,
commissions, fees, and costs set forth in Section 2.12(e)) which shall accrue at
a rate equal to 3 percentage points per annum times the Daily Balance of the
undrawn amount of all outstanding Letters of Credit.

(c) Default Rate. Upon the occurrence and during the continuation of an Event of
Default (and at the election of Agent or the Required Lenders),

(i) all Obligations (except for undrawn Letters of Credit and except for Bank
Product Obligations) whether or not charged to the Loan Account pursuant to the
terms hereof shall bear interest on the Daily Balance thereof at a per annum
rate equal to 2 percentage points above the per annum rate otherwise applicable
hereunder, and

(ii) the Letter of Credit fee provided for in Section 2.6(b) shall be increased
to 2 percentage points above the per annum rate otherwise applicable hereunder.

(d) Payment. Except as provided to the contrary in Section 2.11 or
Section 2.13(a), interest, Letter of Credit fees, and all other fees payable
hereunder shall be due and payable, in arrears, on the first day of each month
at any time that Obligations or Commitments are outstanding. Borrower hereby
authorizes Agent, from time to time, without prior notice to Borrower, to charge
all interest and fees (when due and payable), all Lender Group Expenses (as and
when incurred), all charges, commissions, fees, and costs provided for in
Section 2.12(e) (as and when accrued or incurred), all fees and costs provided
for in Section 2.11 (as and when accrued or incurred), and all other payments as
and when due and payable under any Loan Document (including any amounts due and
payable to the Bank Product Providers in respect of Bank Products up to the
amount of the Bank Product Reserve) to Borrower’s Loan Account, which amounts
thereafter shall constitute Advances hereunder and shall accrue interest at the
rate then applicable to Advances that are Base Rate Loans. Any interest not paid
when due shall be compounded by being charged to the Loan Account and shall
thereafter constitute Advances hereunder and shall accrue interest at the rate
then applicable to Advances that are Base Rate Loans.

 

- 9 -

--------------------------------------------------------------------------------

(e) Computation. All interest and fees chargeable under the Loan Documents shall
be computed on the basis of a 360 day year for the actual number of days
elapsed. In the event the Base Rate is changed from time to time hereafter, the
rates of interest hereunder based upon the Base Rate automatically and
immediately shall be increased or decreased by an amount equal to such change in
the Base Rate.

(f) Intent to Limit Charges to Maximum Lawful Rate. In no event shall the
interest rate or rates payable under this Agreement, plus any other amounts paid
in connection herewith, exceed the highest rate permissible under any law that a
court of competent jurisdiction shall, in a final determination, deem
applicable. Borrower and the Lender Group, in executing and delivering this
Agreement, intend legally to agree upon the rate or rates of interest and manner
of payment stated within it; provided, however, that, anything contained herein
to the contrary notwithstanding, if said rate or rates of interest or manner of
payment exceeds the maximum allowable under applicable law, then, ipso facto, as
of the date of this Agreement, Borrower is and shall be liable only for the
payment of such maximum as allowed by law, and payment received from Borrower in
excess of such legal maximum, whenever received, shall be applied to reduce the
principal balance of the Obligations to the extent of such excess.

2.7. Cash Management.

(a) Borrower shall (i) establish and maintain cash management services of a type
and on terms satisfactory to Agent at one or more of the banks set forth on
Schedule 2.7(a) (each a “Cash Management Bank”), and shall request in writing
and otherwise take such reasonable steps to ensure that all of its Account
Debtors forward payment of the amounts owed by them directly to such Cash
Management Bank, and (ii) deposit or cause to be deposited promptly all of their
Collections (including those sent directly by their Account Debtors to Borrower)
into a bank account in Borrower’s name (a “Cash Management Account”) at one of
the Cash Management Banks.

(b) Each Cash Management Bank shall establish and maintain Cash Management
Agreements with Agent and Borrower. Each such Cash Management Agreement shall
provide, among other things, that (i) the Cash Management Bank will comply with
any instructions originated by Agent (an “Activation Instruction”) directing the
disposition of the funds in such Cash Management Account without further consent
by Borrower, and Agent agrees not to issue an Activation Instruction with
respect to the Cash Management Accounts unless an Application Event has occurred
and is continuing at the time such Activation Instruction is issued, (ii) the
Cash Management Bank has no rights of setoff or recoupment or any other claim
against the applicable Cash Management Account, other than for payment of its
service fees and other charges directly related to the administration of such
Cash Management Account and for returned checks or other items of payment, and
(iii) upon the issuance of an Activation Instruction, it will forward by daily
sweep all amounts in the applicable Cash Management Account to the Agent’s
Account. Agent agrees not to issue an Activation Instruction with respect to the
Cash Management Accounts unless an Application Event has occurred and is
continuing at the time such Activation Instruction is issued. Agent agrees to
use commercially reasonable efforts to rescind an Activation Instruction (the
“Rescission”) if: (x) the Application Event upon which such Activation
Instruction was issued has been waived in writing in accordance with the terms
of this Agreement, and (y) no additional Event of Default has occurred and is
continuing prior to the date of the Rescission or is reasonably expected to
occur on or immediately after the date of the Rescission.

(c) So long as no Default or Event of Default has occurred and is continuing,
Borrower may amend Schedule 2.7(a) to add or replace a Cash Management Bank or
Cash Management Account; provided, however, that (i) such prospective Cash
Management Bank shall be reasonably satisfactory to Agent, and (ii) prior to the
time of the opening of such Cash Management Account, Borrower and such
prospective Cash Management Bank shall have executed and delivered to Agent a
Cash Management Agreement. Borrower shall close any of its Cash Management
Accounts (and establish replacement cash management accounts in accordance with
the foregoing sentence) promptly and in any event within 30 days of notice from
Agent that the creditworthiness of any Cash Management Bank is no longer
acceptable in Agent’s reasonable judgment, or as promptly as practicable and in
any event within 60 days of notice from Agent that the

 

- 10 -

--------------------------------------------------------------------------------

operating performance, funds transfer, or availability procedures or performance
of the Cash Management Bank with respect to Cash Management Accounts or Agent’s
liability under any Cash Management Agreement with such Cash Management Bank is
no longer acceptable in Agent’s reasonable judgment.

(d) Each Cash Management Account shall be a cash collateral account subject to a
Control Agreement.

2.8. Crediting Payments. The receipt of any payment item by Agent (whether from
transfers to Agent by the Cash Management Banks pursuant to the Cash Management
Agreements or otherwise) shall not be considered a payment on account unless
such payment item is a wire transfer of immediately available federal funds made
to the Agent’s Account or unless and until such payment item is honored when
presented for payment. Should any payment item not be honored when presented for
payment, then Borrower shall be deemed not to have made such payment and
interest shall be calculated accordingly. Anything to the contrary contained
herein notwithstanding, any payment item shall be deemed received by Agent only
if it is received into the Agent’s Account on a Business Day on or before 2:00
p.m. (Georgia time). If any payment item is received into the Agent’s Account on
a non-Business Day or after 2:00 p.m. (Georgia time) on a Business Day, it shall
be deemed to have been received by Agent as of the opening of business on the
immediately following Business Day.

2.9. Designated Account. Agent is authorized to make the Advances, and Issuing
Lender is authorized to issue the Letters of Credit, under this Agreement based
upon telephonic or other instructions received from anyone purporting to be an
Authorized Person or, without instructions, if pursuant to Section 2.6(d).
Borrower agrees to establish and maintain the Designated Account with the
Designated Account Bank for the purpose of receiving the proceeds of the
Advances requested by Borrower and made by Agent or the Lenders hereunder.
Unless otherwise agreed by Agent and Borrower, any Advance, Protective Advance,
or Swing Loan requested by Borrower and made by Agent or the Lenders hereunder
shall be made to the Designated Account.

2.10. Maintenance of Loan Account; Statements of Obligations. Agent shall
maintain an account on its books in the name of Borrower (the “Loan Account”) on
which Borrower will be charged with all Advances (including Protective Advances
and Swing Loans) made by Agent, Swing Lender, or the Lenders to Borrower or for
Borrower’s account, the Letters of Credit issued by Issuing Lender for
Borrower’s account, and with all other payment Obligations hereunder or under
the other Loan Documents (except for Bank Product Obligations), including,
accrued interest, fees and expenses, and Lender Group Expenses. In accordance
with Section 2.8, the Loan Account will be credited with all payments received
by Agent from Borrower or for Borrower’s account, including all amounts received
in the Agent’s Account from any Cash Management Bank. Agent shall render
statements regarding the Loan Account to Borrower, including principal,
interest, and fees, and including an itemization of all charges and expenses
constituting Lender Group Expenses owing, and such statements, absent manifest
error, shall be conclusively presumed to be correct and accurate and constitute
an account stated between Borrower and the Lender Group unless, within 30 days
after receipt thereof by Borrower, Borrower shall deliver to Agent written
objection thereto describing the error or errors contained in any such
statements.

2.11. Fees. Borrower shall pay to Agent, as and when due and payable under the
terms of the Fee Letter, the fees set forth in the Fee Letter.

2.12. Letters of Credit.

(a) Subject to the terms and conditions of this Agreement, the Issuing Lender
agrees to issue letters of credit for the account of Borrower (each, an “L/C”)
or to purchase participations or execute indemnities or reimbursement
obligations (each such undertaking, an “L/C Undertaking”) with respect to
letters of credit issued by an Underlying Issuer (as of the Closing Date, the
prospective Underlying Issuer is to be Wells Fargo) for the account of Borrower.
Each request for the issuance of a Letter of Credit or the

 

- 11 -

--------------------------------------------------------------------------------

amendment, renewal, or extension of any outstanding Letter of Credit, shall be
made in writing by an Authorized Person and delivered to the Issuing Lender and
Agent via hand delivery, telefacsimile, or other electronic method of
transmission reasonably in advance of the requested date of issuance, amendment,
renewal, or extension. Each such request shall be in form and substance
satisfactory to the Issuing Lender in its Permitted Discretion and shall specify
(i) the amount of such Letter of Credit, (ii) the date of issuance, amendment,
renewal, or extension of such Letter of Credit, (iii) the expiration date of
such Letter of Credit, (iv) the name and address of the beneficiary thereof (or
the beneficiary of the Underlying Letter of Credit, as applicable), and (v) such
other information (including, in the case of an amendment, renewal, or
extension, identification of the outstanding Letter of Credit to be so amended,
renewed, or extended) as shall be necessary to prepare, amend, renew, or extend
such Letter of Credit. If requested by the Issuing Lender, Borrower also shall
be an applicant under the application with respect to any Underlying Letter of
Credit that is to be the subject of an L/C Undertaking. The Issuing Lender shall
have no obligation to issue a Letter of Credit if any of the following would
result after giving effect to the issuance of such requested Letter of Credit:

(i) the Letter of Credit Usage would exceed the Borrowing Base less the
outstanding amount of Advances, or

(ii) the Letter of Credit Usage would exceed $10,000,000, or

(iii) the Letter of Credit Usage would exceed the Maximum Revolver Amount less
the outstanding amount of Advances.

Borrower and the Lender Group acknowledge and agree that certain Underlying
Letters of Credit may be issued to support letters of credit that already are
outstanding as of the Closing Date. Each Letter of Credit (and corresponding
Underlying Letter of Credit) shall be in form and substance acceptable to the
Issuing Lender (in the exercise of its Permitted Discretion), including the
requirement that the amounts payable thereunder must be payable in Dollars. If
Issuing Lender is obligated to advance funds under a Letter of Credit, Borrower
immediately shall reimburse such L/C Disbursement to Issuing Lender by paying to
Agent an amount equal to such L/C Disbursement not later than 2:00 p.m., Georgia
time, on the date that such L/C Disbursement is made, if Borrower shall have
received written or telephonic notice of such L/C Disbursement prior to 1:00
p.m., Georgia time, on such date, or, if such notice has not been received by
Borrower prior to such time on such date, then not later than 2:00 p.m., Georgia
time, on the Business Day that Borrower receives such notice, if such notice is
received prior to 1:00 p.m., Georgia time, on the date of receipt, and, in the
absence of such reimbursement, the L/C Disbursement immediately and
automatically shall be deemed to be an Advance hereunder and, initially, shall
bear interest at the rate then applicable to Advances that are Base Rate Loans.
To the extent an L/C Disbursement is deemed to be an Advance hereunder,
Borrower’s obligation to reimburse such L/C Disbursement shall be discharged and
replaced by the resulting Advance. Promptly following receipt by Agent of any
payment from Borrower pursuant to this paragraph, Agent shall distribute such
payment to the Issuing Lender or, to the extent that Lenders have made payments
pursuant to Section 2.12(b) to reimburse the Issuing Lender, then to such
Lenders and the Issuing Lender as their interests may appear.

(b) Promptly following receipt of a notice of L/C Disbursement pursuant to
Section 2.12(a), each Lender with a Revolver Commitment agrees to fund its Pro
Rata Share of any Advance deemed made pursuant to the foregoing subsection on
the same terms and conditions as if Borrower had requested such Advance and
Agent shall promptly pay to Issuing Lender the amounts so received by it from
the Lenders. By the issuance of a Letter of Credit (or an amendment to a Letter
of Credit increasing the amount thereof) and without any further action on the
part of the Issuing Lender or the Lenders with Revolver Commitments, the Issuing
Lender shall be deemed to have granted to each Lender with a Revolver
Commitment, and each Lender with a Revolver Commitment shall be deemed to have
purchased, a participation in each Letter of Credit, in an amount equal to its
Pro Rata Share of the Risk Participation Liability of such Letter of Credit, and
each such Lender agrees to pay to Agent, for the account of the Issuing Lender,
such Lender’s Pro Rata Share of any payments made by the Issuing Lender under
such Letter of Credit. In consideration and in furtherance of the

 

- 12 -

--------------------------------------------------------------------------------

foregoing, each Lender with a Revolver Commitment hereby absolutely and
unconditionally agrees to pay to Agent, for the account of the Issuing Lender,
such Lender’s Pro Rata Share of each L/C Disbursement made by the Issuing Lender
and not reimbursed by Borrower on the date due as provided in Section 2.12(a),
or of any reimbursement payment required to be refunded to Borrower for any
reason. Each Lender with a Revolver Commitment acknowledges and agrees that its
obligation to deliver to Agent, for the account of the Issuing Lender, an amount
equal to its respective Pro Rata Share of each L/C Disbursement made by the
Issuing Lender pursuant to this Section 2.12(b) shall be absolute and
unconditional and such remittance shall be made notwithstanding the occurrence
or continuation of an Event of Default or Default or the failure to satisfy any
condition set forth in Section 3. If any such Lender fails to make available to
Agent the amount of such Lender’s Pro Rata Share of each L/C Disbursement made
by the Issuing Lender in respect of such Letter of Credit as provided in this
Section, such Lender shall be deemed to be a Defaulting Lender and Agent (for
the account of the Issuing Lender) shall be entitled to recover such amount on
demand from such Lender together with interest thereon at the Defaulting Lender
Rate until paid in full.

(c) Borrower hereby agrees to indemnify, save, defend, and hold the Lender Group
harmless from any loss, cost, expense, or liability, and reasonable attorneys
fees incurred by the Lender Group arising out of or in connection with any
Letter of Credit; provided, however, that no Borrower shall be obligated
hereunder to indemnify for any loss, cost, expense, or liability to the extent
that it is caused by the gross negligence or willful misconduct of the Issuing
Lender or any other member of the Lender Group. Borrower agrees to be bound by
the Underlying Issuer’s regulations and interpretations of any Underlying Letter
of Credit or by Issuing Lender’s interpretations of any L/C issued by Issuing
Lender to or for such Borrower’s account, even though this interpretation may be
different from such Borrower’s own, and Borrower understands and agrees that the
Lender Group shall not be liable for any error, negligence, or mistake, whether
of omission or commission, in following Borrower’s instructions or those
contained in the Letter of Credit or any modifications, amendments, or
supplements thereto. Borrower understands that the L/C Undertakings may require
Issuing Lender to indemnify the Underlying Issuer for certain costs or
liabilities arising out of claims by Borrower against such Underlying Issuer.
Borrower hereby agrees to indemnify, save, defend, and hold the Lender Group
harmless with respect to any loss, cost, expense (including reasonable attorneys
fees), or liability incurred by the Lender Group under any L/C Undertaking as a
result of the Lender Group’s indemnification of any Underlying Issuer; provided,
however, that Borrower shall not be obligated hereunder to indemnify for any
loss, cost, expense, or liability to the extent that it is caused by the gross
negligence or willful misconduct of the Issuing Lender or any other member of
the Lender Group. Borrower hereby acknowledges and agrees that neither the
Lender Group nor the Issuing Lender shall be responsible for delays, errors, or
omissions resulting from the malfunction of equipment in connection with any
Letter of Credit.

(d) Borrower hereby authorizes and directs any Underlying Issuer to deliver to
the Issuing Lender all instruments, documents, and other writings and property
received by such Underlying Issuer pursuant to such Underlying Letter of Credit
and to accept and rely upon the Issuing Lender’s instructions with respect to
all matters arising in connection with such Underlying Letter of Credit and the
related application.

(e) Any and all issuance charges, commissions, fees, and costs incurred by the
Issuing Lender relating to Underlying Letters of Credit shall be Lender Group
Expenses for purposes of this Agreement and immediately shall be reimbursable by
Borrower to Agent for the account of the Issuing Lender; it being acknowledged
and agreed by Borrower that, as of the Closing Date, the issuance charge imposed
by the prospective Underlying Issuer is .825% per annum times the undrawn amount
of each Underlying Letter of Credit, that such issuance charge may be changed
from time to time, and that the Underlying Issuer also imposes a schedule of
charges for amendments, extensions, drawings, and renewals.

(f) If by reason of (i) any change after the Closing Date in any applicable law,
treaty, rule, or regulation or any change in the interpretation or application
thereof by any Governmental Authority, or (ii) compliance by the Underlying
Issuer or the Lender Group with any direction, request, or requirement
(irrespective of whether having the force of law) of any Governmental Authority
or monetary authority including, Regulation D of the Federal Reserve Board as
from time to time in effect (and any successor thereto):

(i) any reserve, deposit, or similar requirement is or shall be imposed or
modified in respect of any Letter of Credit issued hereunder, or

 

- 13 -

--------------------------------------------------------------------------------

(ii) there shall be imposed on the Underlying Issuer or the Lender Group any
other condition regarding any Underlying Letter of Credit or any Letter of
Credit issued pursuant hereto;

and the result of the foregoing is to increase, directly or indirectly, the cost
to the Lender Group of issuing, making, guaranteeing, or maintaining any Letter
of Credit or to reduce the amount receivable in respect thereof by the Lender
Group, then, and in any such case, Agent may, at any time within a reasonable
period after the additional cost is incurred or the amount received is reduced,
notify Borrower, and Borrower shall pay on demand such amounts as Agent may
specify to be necessary to compensate the Lender Group for such additional cost
or reduced receipt, together with interest on such amount from the date of such
demand until payment in full thereof at the rate then applicable to Base Rate
Loans hereunder. The determination by Agent of any amount due pursuant to this
Section, as set forth in a certificate setting forth the calculation thereof in
reasonable detail, shall, in the absence of manifest or demonstrable error, be
final and conclusive and binding on all of the parties hereto.

2.13. LIBOR Option.

(a) Interest and Interest Payment Dates. In lieu of having interest charged at
the rate based upon the Base Rate, Borrower shall have the option (the “LIBOR
Option”) to have interest on all or a portion of the Advances be charged
(whether at the time when made (unless otherwise provided herein), upon
conversion from a Base Rate Loan to a LIBOR Rate Loan, or upon continuation of a
LIBOR Rate Loan as a LIBOR Rate Loan) at a rate of interest based upon the LIBOR
Rate. Interest on LIBOR Rate Loans shall be payable on the earliest of (i) the
last day of the Interest Period applicable thereto, (ii) the date on which all
or any portion of the Obligations are accelerated pursuant to the terms hereof,
or (iii) the date on which this Agreement is terminated pursuant to the terms
hereof. On the last day of each applicable Interest Period, unless Borrower
properly has exercised the LIBOR Option with respect thereto, the interest rate
applicable to such LIBOR Rate Loan automatically shall convert to the rate of
interest then applicable to Base Rate Loans of the same type hereunder. At any
time that an Event of Default has occurred and is continuing, Borrower no longer
shall have the option to request that Advances bear interest at a rate based
upon the LIBOR Rate and Agent shall have the right to convert the interest rate
on all outstanding LIBOR Rate Loans to the rate then applicable to Base Rate
Loans hereunder.

(b) LIBOR Election.

(i) Borrower may, at any time and from time to time, so long as no Event of
Default has occurred and is continuing, elect to exercise the LIBOR Option by
notifying Agent prior to 2:00 p.m. (Georgia time) at least 3 Business Days prior
to the commencement of the proposed Interest Period (the “LIBOR Deadline”).
Notice of Borrower’s election of the LIBOR Option for a permitted portion of the
Advances and an Interest Period pursuant to this Section shall be made by
delivery to Agent of a LIBOR Notice received by Agent before the LIBOR Deadline,
or by telephonic notice received by Agent before the LIBOR Deadline (to be
confirmed by delivery to Agent of a LIBOR Notice received by Agent prior to 5:00
p.m. (Georgia time) on the same day). Promptly upon its receipt of each such
LIBOR Notice, Agent shall provide a copy thereof to each of the affected
Lenders.

(ii) Each LIBOR Notice shall be irrevocable and binding on Borrower. In
connection with each LIBOR Rate Loan, Borrower shall indemnify, defend, and hold
Agent and the Lenders harmless against any loss, cost, or expense incurred by
Agent or any Lender as a result of (A) the payment of any principal of any LIBOR
Rate Loan other than on the last day of an Interest Period applicable thereto

 

- 14 -

--------------------------------------------------------------------------------

(including as a result of an Event of Default), (B) the conversion of any LIBOR
Rate Loan other than on the last day of the Interest Period applicable thereto,
or (C) the failure to borrow, convert, continue or prepay any LIBOR Rate Loan on
the date specified in any LIBOR Notice delivered pursuant hereto (such losses,
costs, or expenses, “Funding Losses”). Funding Losses shall, with respect to
Agent or any Lender, be deemed to equal the amount determined by Agent or such
Lender to be the excess, if any, of (1) the amount of interest that would have
accrued on the principal amount of such LIBOR Rate Loan had such event not
occurred, at the LIBOR Rate that would have been applicable thereto, 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 therefor), minus (2) the
amount of interest that would accrue on such principal amount for such period at
the interest rate which Agent or such Lender would be offered were it to be
offered, at the commencement of such period, Dollar deposits of a comparable
amount and period in the London interbank market. A certificate of Agent or a
Lender delivered to Borrower setting forth any amount or amounts that Agent or
such Lender is entitled to receive pursuant to this Section 2.13 shall be
conclusive absent manifest error.

(iii) Borrower shall have not more than 5 LIBOR Rate Loans in effect at any
given time. Borrower only may exercise the LIBOR Option for LIBOR Rate Loans of
at least $1,000,000.

(c) Conversion. Borrower may convert LIBOR Rate Loans to Base Rate Loans at any
time; provided, however, that in the event that LIBOR Rate Loans are converted
or prepaid on any date that is not the last day of the Interest Period
applicable thereto, including as a result of any automatic prepayment through
the required application by Agent of proceeds of Borrower’s Collections in
accordance with Section 2.4(b) or for any other reason, including early
termination of the term of this Agreement or acceleration of all or any portion
of the Obligations pursuant to the terms hereof, Borrower shall indemnify,
defend, and hold Agent and the Lenders and their Participants harmless against
any and all Funding Losses in accordance with Section 2.13 (b)(ii) above.

(d) Special Provisions Applicable to LIBOR Rate.

(i) The LIBOR Rate may be adjusted by Agent with respect to any Lender on a
prospective basis to take into account any additional or increased costs to such
Lender of maintaining or obtaining any eurodollar deposits or increased costs,
in each case, due to changes in applicable law occurring subsequent to the
commencement of the then applicable Interest Period, including changes in tax
laws (except changes of general applicability in corporate income tax laws) and
changes in the reserve requirements imposed by the Board of Governors of the
Federal Reserve System (or any successor), excluding the Reserve Percentage,
which additional or increased costs would increase the cost of funding or
maintaining loans bearing interest at the LIBOR Rate. In any such event, the
affected Lender shall give Borrower and Agent notice of such a determination and
adjustment and Agent promptly shall transmit the notice to each other Lender
and, upon its receipt of the notice from the affected Lender, Borrower may, by
notice to such affected Lender (y) require such Lender to furnish to Borrower a
statement setting forth the basis for adjusting such LIBOR Rate and the method
for determining the amount of such adjustment, or (z) repay the LIBOR Rate Loans
with respect to which such adjustment is made (together with any amounts due
under Section 2.13(b)(ii)).

(ii) In the event that any change in market conditions or any law, regulation,
treaty, or directive, or any change therein or in the interpretation of
application thereof, shall at any time after the date hereof, in the reasonable
opinion of any Lender, make it unlawful or impractical for such Lender to fund
or maintain LIBOR Rate Loans or to continue such funding or maintaining, or to
determine or charge interest rates at the LIBOR Rate, such Lender shall give
notice of such changed circumstances to Agent and Borrower and Agent promptly
shall transmit the notice to each other Lender and (y) in the case of any LIBOR
Rate Loans of such Lender that are outstanding, the date specified in such
Lender’s notice shall be deemed to be the last day of the Interest Period of
such LIBOR Rate Loans, and interest upon the LIBOR Rate Loans of such Lender
thereafter shall accrue interest at the rate then applicable to Base Rate Loans,
and (z) Borrower shall not be entitled to elect the LIBOR Option until such
Lender determines that it would no longer be unlawful or impractical to do so.

 

- 15 -

--------------------------------------------------------------------------------

(e) No Requirement of Matched Funding. Anything to the contrary contained herein
notwithstanding, neither Agent, nor any Lender, nor any of their Participants,
is required actually to acquire eurodollar deposits to fund or otherwise match
fund any Obligation as to which interest accrues at the LIBOR Rate. The
provisions of this Section shall apply as if each Lender or its Participants had
match funded any Obligation as to which interest is accruing at the LIBOR Rate
by acquiring eurodollar deposits for each Interest Period in the amount of the
LIBOR Rate Loans.

2.14. Capital Requirements. If, after the date hereof, any Lender determines
that (i) the adoption of or change in any law, rule, regulation or guideline
regarding capital requirements for banks or bank holding companies, or any
change in the interpretation or application thereof by any Governmental
Authority charged with the administration thereof, or (ii) compliance by such
Lender or its parent bank holding company with any guideline, request or
directive of any such entity regarding capital adequacy (whether or not having
the force of law), has the effect of reducing the return on such Lender’s or
such holding company’s capital as a consequence of such Lender’s Commitments
hereunder to a level below that which such Lender or such holding company could
have achieved but for such adoption, change, or compliance (taking into
consideration such Lender’s or such holding company’s then existing policies
with respect to capital adequacy and assuming the full utilization of such
entity’s capital) by any amount deemed by such Lender to be material, then such
Lender may notify Borrower and Agent thereof. Following receipt of such notice,
Borrower agrees to pay such Lender on demand the amount of such reduction of
return of capital as and when such reduction is determined, payable within 90
days after presentation by such Lender of a statement in the amount and setting
forth in reasonable detail such Lender’s calculation thereof and the assumptions
upon which such calculation was based (which statement shall be deemed true and
correct absent manifest error). In determining such amount, such Lender may use
any reasonable averaging and attribution methods.

3. CONDITIONS; TERM OF AGREEMENT.

3.1. Conditions Precedent to the Initial Extension of Credit. The obligation of
each Lender to make its initial extension of credit provided for hereunder, is
subject to the fulfillment, to the satisfaction of Agent and each Lender of each
of the conditions precedent set forth on Schedule 3.1 (the making of such
initial extension of credit by a Lender being conclusively deemed to be its
satisfaction or waiver of the conditions precedent).

3.2. Conditions Precedent to all Extensions of Credit. The obligation of the
Lender Group (or any member thereof) to make any Advances hereunder (or to
extend any other credit hereunder) at any time shall be subject to the following
conditions precedent:

(a) the representations and warranties of Borrower contained in this Agreement
or in the other Loan Documents shall be true and correct in all material
respects (except that such materiality qualifier shall not be applicable to any
representations and warranties that already are qualified or modified by
materiality in the text thereof) on and as of the date of such extension of
credit, as though made on and as of such date (except to the extent that such
representations and warranties relate solely to an earlier date);

(b) no Default or Event of Default shall have occurred and be continuing on the
date of such extension of credit, nor shall either result from the making
thereof;

(c) no injunction, writ, restraining order, or other order of any nature
restricting or prohibiting, directly or indirectly, the extending of such credit
shall have been issued and remain in force by any Governmental Authority against
Borrower, Agent, or any Lender; and

(d) no Material Adverse Change shall have occurred since December 31, 2006.

 

- 16 -

--------------------------------------------------------------------------------

3.3. Term. This Agreement shall continue in full force and effect for a term
ending on the earlier of (a) October 1, 2010, and (b) the date that is 90 days
prior to the earliest date on which any principal amount of the Second Secured
Notes is scheduled to become due and payable or is required to be prepaid or
redeemed, in each case in accordance with their terms of the terms of the Second
Secured Note Indenture (such earlier date, the “Maturity Date”). The foregoing
notwithstanding, the Lender Group, upon the election of the Required Lenders,
shall have the right to terminate its obligations under this Agreement
immediately and without notice upon the occurrence and during the continuation
of an Event of Default.

3.4. Effect of Termination. On the date of termination of this Agreement, all
Obligations (including contingent reimbursement obligations of Borrower with
respect to outstanding Letters of Credit and including all Bank Product
Obligations) immediately shall become due and payable without notice or demand
(including the requirement that Borrower provides (a) Letter of Credit
Collateralization and (b) Bank Product Collateralization). No termination of
this Agreement, however, shall relieve or discharge Borrower of its duties,
Obligations, or covenants hereunder or under any other Loan Document and the
Agent’s Liens in the Collateral shall remain in effect until all Obligations
have been paid in full and the Lender Group’s obligations to provide additional
credit hereunder have been terminated. When this Agreement has been terminated
and all of the Obligations have been paid in full and the Lender Group’s
obligations to provide additional credit under the Loan Documents have been
terminated irrevocably, Agent will, at Borrower’s sole expense, without
recourse, representation or warranty, execute and deliver any termination
statements, lien releases, mortgage releases, re-assignments of trademarks,
discharges of security interests, and other similar discharge or release
documents (and, if applicable, in recordable form) as are reasonably necessary
to release, as of record, the Agent’s Liens and all notices of security
interests and liens previously filed by Agent with respect to the Obligations.

3.5. Early Termination by Borrower. Borrower has the option, at any time upon 30
days prior written notice to Agent, to terminate this Agreement and terminate
the Commitments hereunder by paying to Agent, in cash, the Obligations
(including (a) providing Letter of Credit Collateralization with respect to the
then existing Letter of Credit Usage and (b) providing Bank Product
Collateralization with respect to the then existing Bank Products), in full. If
Borrower has sent a notice of termination pursuant to the provisions of this
Section, then the Commitments shall terminate and Borrower shall be obligated to
repay the Obligations (including (a) providing Letter of Credit
Collateralization with respect to the then existing Letter of Credit Usage and
(b) providing Bank Product Collateralization with respect to the then existing
Bank Products), in full, on the date set forth as the date of termination of
this Agreement in such notice.

3.6. Conditions Subsequent to the Initial Extension of Credit. The obligation of
the Lender Group (or any member thereof) to continue to make Advances hereunder
(or to extend any other credit hereunder) is subject to the fulfillment, on or
before the date applicable thereto, of each of the conditions subsequent set
forth below (the failure by Borrower to so perform or cause to be performed
constituting an Event of Default):

(a) Within 120 days after the Closing Date, Borrower shall have used
commercially reasonable efforts to deliver to Agent Collateral Access Agreements
with respect to the Borrower’s chief executive office;

(b) Within 30 days after the Closing Date, Borrower shall deliver to Agent duly
executed Cash Management Agreements and Control Agreements, for Borrower’s
accounts set forth on Schedule 4.17, in each case in form and substance
satisfactory to Agent;

(c) Within 30 days after the Closing Date, Agent shall have received copies of
all insurance policies, together with endorsements thereto (including loss
payable endorsements), as are required by Section 5.8, the form and substance of
which shall be satisfactory to Agent; and

 

- 17 -

--------------------------------------------------------------------------------

(d) Within 60 days after the Closing Date, Agent shall have conducted a takeover
audit, which will include, among other things, a verification that all of
Borrower’s production taxes and royalty payments are current, verification of
Borrower’s cash balances (including the sources of such cash), a calculation of
the Borrowing Base after updating the two-year NYMEX Strip Price and rolling
forward production volumes of Borrower shall have been completed, the results of
which shall be satisfactory to Agent.

(e) Within 15 Business Days after the Closing Date, Agent shall have received
evidence that Borrower shall have entered into Acceptable Commodity Hedging
Agreements with respect to their Hydrocarbon production, with the aggregate
notional volumes of Hydrocarbons covered by such Acceptable Commodity Hedging
Agreements constituting not less than 50% and not more than 80% of the aggregate
amount of Borrower’s estimated Hydrocarbon production volumes on an mcf
equivalent basis (where one barrel of oil is equal to six mcf of gas) for the
succeeding twenty-four calendar months after the Closing Date from Oil and Gas
Properties classified as Proved Developed Producing Reserves in the Initial
Reserve Report plus such additions to Proved Developed Producing Reserves as
Borrower estimates to have been made as a result of drilling activity by
Borrower occurring after the most recent Reserve Report.

(f) Within 30 days after the Closing Date, Agent shall have received
environmental site assessment reports and a reliance letter from the
environmental consultants and surveyors retained for such environmental site
assessment reports in respect of Borrower’s Oil and Gas Properties in Matagorda
County and Stephens County; in form and substance satisfactory to Agent.

4. REPRESENTATIONS AND WARRANTIES.

In order to induce the Lender Group to enter into this Agreement, Borrower makes
the following representations and warranties to the Lender Group which shall be
true, correct, and complete, in all material respects, as of the date hereof,
and shall be true, correct, and complete, in all material respects, as of the
Closing Date, and at and as of the date of the making of each Advance (or other
extension of credit) made thereafter, as though made on and as of the date of
such Advance (or other extension of credit) (except to the extent that such
representations and warranties relate solely to an earlier date) and such
representations and warranties shall survive the execution and delivery of this
Agreement:

4.1. No Encumbrances. After giving effect to the Transactions, Borrower has good
and indefeasible title to their personal property assets and good and marketable
title to its Real Property (other than Oil and Gas Properties constituting Real
Property) and good and defensible title to Oil and Gas Properties constituting
Real Property, in each case, free and clear of Liens except for Permitted Liens.

4.2. Intentionally Omitted.

4.3. Intentionally Omitted.

4.4. Intentionally Omitted.

4.5. Intentionally Omitted.

4.6. Intentionally Omitted.

4.7. Jurisdiction of Organization; Location of Chief Executive Office;
Organizational Identification Number; Commercial Tort Claims.

(a) The name of (within the meaning of Section 9-503 of the Code) and
jurisdiction of organization of Borrower is set forth on Schedule 4.7(a) (as
such Schedule may be updated from time to time to reflect changes permitted to
be made under Section 6.5 and new Subsidiaries formed in accordance with
Section 5.16).

 

- 18 -

--------------------------------------------------------------------------------

(b) After giving effect to the Transactions, the chief executive office of
Borrower is located at the address indicated on Schedule 4.7(b) (as such
Schedule may be updated from time to time to reflect changes permitted to be
made under Section 5.9 and new Subsidiaries formed, if any, in accordance with
Section 5.16).

(c) After giving effect to the Transactions, Borrower’s tax identification
numbers and organizational identification numbers, if any, are identified on
Schedule 4.7(c) (as such Schedule may be updated from time to time to reflect
changes permitted to be made under Section 6.5 and new Subsidiaries formed in
accordance with Section 5.16).

(d) After giving effect to the Transactions, as of the Closing Date, Borrower
does not hold any commercial tort claims, except as set forth on Schedule
4.7(d).

4.8. Due Organization and Qualification; Subsidiaries.

(a) Borrower is duly incorporated or organized, as the case may be, and existing
and in good standing under the laws of the jurisdiction of its incorporation or
organization, as the case may be, and qualified to do business in any state
where the failure to be so qualified reasonably could be expected to result in a
Material Adverse Change.

(b) After giving effect to the Transactions, set forth on Schedule 4.8(b) (as
such Schedule may be updated from time to time to reflect changes permitted to
be made under Section 5.16), is a complete and accurate description of the
authorized capital Stock of Borrower, by class, and, as of the Closing Date, a
description of the number of shares of each such class that are issued and
outstanding. Other than as described on Schedule 4.8(b), there are no
subscriptions, options, warrants, or calls relating to any shares of Borrower’s
capital Stock, including any right of conversion or exchange under any
outstanding security or other instrument. Borrower is not subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital Stock or any security convertible into or
exchangeable for any of its capital Stock.

(c) After giving effect to the Transactions, set forth on Schedule 4.8(c) (as
such Schedule may be updated from time to time to reflect changes permitted to
be made under Section 5.16), is a complete and accurate list of Borrower’s
direct and indirect Subsidiaries, showing: (i) the jurisdiction of their
organization, (ii) the number of shares of each class of common and preferred
Stock authorized for each of such Subsidiaries, and (iii) the number and the
percentage of the outstanding shares of each such class owned directly or
indirectly by the applicable Subsidiary. All of the outstanding capital Stock of
each such Subsidiary has been validly issued and is fully paid and
non-assessable. As of the Closing Date, Borrower has no Subsidiaries.

4.9. Due Authorization; No Conflict.

(a) The execution, delivery, and performance by Borrower of this Agreement and
the Loan Documents and the agreements, documents and instruments related to the
Transactions to which it is a party have been duly authorized by all necessary
action on the part of Borrower.

(b) The execution, delivery, and performance by Borrower of this Agreement and
the other Loan Documents and the agreements, documents and instruments related
to the Transactions to which it is a party do not and will not (i) violate any
provision of federal, state, or local law or regulation applicable to Borrower,
the Governing Documents of Borrower, or any order, judgment, or decree of any
court or other Governmental Authority binding on Borrower, (ii) conflict with,
result in a breach of, or constitute (with due notice or lapse of time or both)
a default under any Material Contract of Borrower, (iii) result in or require
the creation or imposition of any Lien of any nature whatsoever upon any
properties or assets of Borrower, other than Liens in favor of Agent for the
benefit of Lenders, or (iv) require any approval of Borrower’s interestholders
or any approval or consent of any Person under any Material Contract of
Borrower, other than consents or approvals that have been obtained and that are
still in force and effect.

 

- 19 -

--------------------------------------------------------------------------------

(c) Other than the filing of financing statements, the recordation of the
Mortgages, and other filings or actions necessary to perfect Liens granted to
Agent in the Collateral, the execution, delivery, and performance by Borrower of
this Agreement and the other Loan Documents to which Borrower is a party do not
and will not require any registration with, consent, or approval of, or notice
to, or other action with or by, any Governmental Authority, other than consents
or approvals that have been obtained and that are still in force and effect.

(d) This Agreement and the other Loan Documents and the agreements, documents
and instruments related to the Transactions to which Borrower is a party, and
all other documents contemplated hereby and thereby, and the agreements,
documents and instruments related to the Transactions, when executed and
delivered by Borrower will be the legally valid and binding obligations of
Borrower, enforceable against Borrower in accordance with their respective
terms, except as enforcement may be limited by equitable principles or by
bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to
or limiting creditors’ rights generally.

(e) The Agent’s Liens are validly created, perfected (other than (i) in respect
of motor vehicles and (ii) any Deposit Accounts and Securities Accounts not
subject to a Control Agreement as permitted by Section 6.12, and subject only to
the filing of financing statements and the recordation of the Mortgages), and
first priority Liens, subject only to Permitted Liens.

4.10. Litigation. Other than those matters disclosed on Schedule 4.10 and other
than matters arising after the Closing Date that reasonably could not be
expected to result in a Material Adverse Change, there are no actions, suits, or
proceedings pending or, to the best knowledge of Borrower, threatened against
Borrower. There are no actions, suits or proceedings, pending, or to the best
knowledge of Borrower, threatened, that relate to this Agreement or any other
Loan Document, the DSX Acquisition Documents or any transaction contemplated
hereby or thereby.

4.11. No Material Adverse Change. All financial statements relating to Borrower
that have been delivered by Borrower to the Lender Group have been prepared in
accordance with GAAP (except, in the case of unaudited financial statements, for
the lack of footnotes and being subject to year-end audit adjustments) and
present fairly in all material respects, Borrower’s financial condition as of
the date thereof and results of operations for the period then ended. There has
not been a Material Adverse Change with respect to Borrower since December 31,
2006.

4.12. Fraudulent Transfer.

(a) After giving effect to the Transactions and the financing transactions
contemplated by this Agreement, Borrower is Solvent.

(b) No transfer of property is being made by Borrower and no obligation is being
incurred by Borrower in connection with the Transactions or the transactions
contemplated by this Agreement or the other Loan Documents with the intent to
hinder, delay, or defraud either present or future creditors of Borrower.

4.13. Employee Benefits. None of Borrower, or any of its ERISA Affiliates
maintains or contributes to any Benefit Plan.

4.14. Environmental Condition. Except as set forth on Schedule 4.14, (a) to
Borrower’s knowledge, none of Borrower’s properties or assets has ever been used
by Borrower, or by previous owners or operators in the disposal of, or to
produce, store, handle, treat, release, or transport, any Hazardous Materials,

 

- 20 -

--------------------------------------------------------------------------------

where such use, production, storage, handling, treatment, release or transport
was in violation, in any material respect, of any applicable Environmental Law,
(b) to Borrower’s knowledge, none of Borrower’s properties or assets has ever
been designated or identified in any manner pursuant to any environmental
protection statute as a Hazardous Materials disposal site, (c) Borrower has not
received notice that a Lien arising under any Environmental Law has attached to
any revenues or to any Real Property owned or operated by Borrower, and
(d) Borrower has not received a summons, citation, notice, or directive from the
United States Environmental Protection Agency or any other federal or state
governmental agency concerning any action or omission by Borrower resulting in
the releasing or disposing of Hazardous Materials into the environment.

4.15. Intellectual Property. Borrower owns, or holds licenses in, all
trademarks, trade names, copyrights, patents, patent rights, and licenses that
are necessary to the conduct of its business as currently conducted, and
attached hereto as Schedule 4.15 (as updated from time to time) is a true,
correct, and complete listing of all material patents, patent applications,
trademarks, trademark applications, copyrights, and copyright registrations as
to which Borrower is the owner or is an exclusive licensee; provided, however,
that Borrower may amend Schedule 4.15 to add additional property so long as such
amendment occurs by written notice to Agent not less than 10 days before the
date on which Borrower acquires any such property after the Closing Date.

4.16. Leases. Borrower enjoys peaceful and undisturbed possession under all
leases material to their business and to which they are parties or under which
they are operating and all of such material leases are valid and subsisting and
no material default by Borrower exists under any of them. There are no leases,
subleases, contracts or other operating agreements that allocate operating
expenses to Borrower in excess of its working interest of record in the
particular Oil and Gas Property subject to such lease, the sublease, contract or
other operating agreement.

4.17. Deposit Accounts and Securities Accounts. Set forth on Schedule 4.17 is a
listing of all of Borrower’s Deposit Accounts and Securities Accounts,
including, with respect to each bank or securities intermediary (a) the name and
address of such Person, and (b) the account numbers of the Deposit Accounts or
Securities Accounts maintained with such Person.

4.18. Complete Disclosure. All factual information (taken as a whole) furnished
by or on behalf of Borrower in writing to Agent or any Lender (including all
information contained in the Schedules hereto or in the other Loan Documents)
for purposes of or in connection with any of the Transactions or this Agreement,
the other Loan Documents, or any transaction contemplated herein or therein is,
and all other such factual information (taken as a whole) hereafter furnished by
or on behalf of Borrower in writing to Agent or any Lender will be, true and
accurate in all material respects on the date as of which such information is
dated or certified and not incomplete by omitting to state any fact necessary to
make such information (taken as a whole) not misleading in any material respect
at such time in light of the circumstances under which such information was
provided. On the Closing Date, the Closing Date Projections represent, and as of
the date on which any other Projections are delivered to Agent, such additional
Projections represent Borrower’s good faith estimate of its future performance
for the periods covered thereby based upon assumptions believed by Borrower to
be reasonable at the time of the delivery thereof to Agent (it being understood
that such projections and forecasts are subject to uncertainties and
contingencies, many of which are beyond the control of Borrower and no
assurances can be given that such projections or forecasts will be realized).

4.19. Indebtedness. After giving effect to the Transactions, set forth on
Schedule 4.19 is a true and complete list of all Indebtedness of Borrower
outstanding immediately prior to the Closing Date that is to remain outstanding
after the Closing Date and such Schedule accurately sets forth the aggregate
principal amount of such Indebtedness and the principal terms thereof.

4.20. Margin Stock. Borrower is not, nor will be engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulations T, U or X of the Board of Governors of the Federal
Reserve System), and no proceeds of any Advance will be used to purchase or
carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock.

 

- 21 -

--------------------------------------------------------------------------------

4.21. Permits, Etc. Before and after giving effect to the Transactions, Borrower
has, and is in compliance with, all permits, licenses, authorizations,
approvals, entitlements and accreditations required for such Person lawfully to
own, lease, manage or operate, or to acquire, each business and the Real
Property currently owned, leased, managed or operated, or to be acquired, by
such Person, except for such permits, licenses, authorizations, approvals,
entitlements and accreditations the absence of which could not reasonably be
expected to result in a Material Adverse Change. No condition exists or event
has occurred which, in itself or with the giving of notice or lapse of time or
both, would result in the suspension, revocation, impairment, forfeiture or
non-renewal of any such permit, license, authorization, approval, entitlement or
accreditation, and to Borrower’s knowledge, there is no claim that any thereof
is not in full force and effect.

4.22. Material Contracts. Set forth on Schedule 4.22 is a description of all
Material Contracts of Borrower, showing the parties and principal subject matter
thereof and amendments and modifications thereto; provided, however, that
Borrower may amend Schedule 4.22 to add additional Material Contracts so long as
such amendment occurs by written notice to Agent not less than 5 days after the
date on which Borrower enters into such Material Contract after the Closing
Date. Except for matters which, either individually or in the aggregate, could
not reasonably be expected to result in a Material Adverse Change, each Material
Contract (other than those that have expired at the end of their normal terms)
(a) is in full force and effect and is binding upon and enforceable against
Borrower and, to the best of Borrower’s knowledge, each other Person that is a
party thereto in accordance with its terms, (b) has not been otherwise amended
or modified (other than amendments or modifications permitted by
Section 6.7(d)), and (c) is not in default due to the action or inaction of
Borrower.

4.23. Employee and Labor Matters. Except as set forth on Schedule 4.23, there is
(a) no unfair labor practice complaint pending or, to Borrower’s knowledge,
threatened against Borrower before any Governmental Authority and no grievance
or arbitration proceeding pending or threatened against Borrower which arises
out of or under any collective bargaining agreement, (b) no strike, labor
dispute, slowdown, stoppage or similar action or grievance pending or, to the
best knowledge of Borrower, threatened against Borrower and (c) no union
representation question existing with respect to the employees of Borrower and
no union organizing activity taking place with respect to any of the employees
of any of them. Neither Borrower, nor any ERISA Affiliate of Borrower has
incurred any liability or obligation under the Worker Adjustment and Retraining
Notification Act (“WARN”) or similar state law, which remains unpaid or
unsatisfied. The hours worked and payments made to employees of Borrower have
not been in violation of the Fair Labor Standards Act or any other applicable
legal requirements. All material payments due from Borrower on account of
workers compensation, wages and employee health and welfare insurance and other
benefits have been paid or accrued as a liability on the books of Borrower.

4.24. Customers and Suppliers. There exists no actual or threatened termination,
cancellation or limitation of, or modification to or change in, the business
relationship between (i) Borrower, on the one hand, and any customer or any
group thereof, on the other hand, whose agreements with Borrower are
individually or in the aggregate material to the business or operations of
Borrower, or (ii) Borrower, on the one hand, and any material supplier thereof,
on the other hand; and there exists no present state of facts or circumstances
that could give rise to or result in any such termination, cancellation,
limitation, modification or change.

4.25. Taxes. Borrower, and each Person which has tax liabilities for which
Borrower is liable (each, a “Tax Party”) have filed, or caused to be filed, and
will continue to file in a timely manner all foreign, federal, state and other
material tax returns and reports required to be filed, and have paid, and will
continue to pay, all foreign, federal, state and other material taxes,
assessments, fees and other governmental charges levied or imposed upon them or
their properties, income or assets otherwise due and payable. All information in
such tax returns, reports and declarations is complete and accurate in all
material respects. Each Tax Party has paid or caused to be paid all taxes due
and payable or claimed due and payable in any assessment received

 

- 22 -

--------------------------------------------------------------------------------

by it, and has collected, deposited and remitted in accordance with all
applicable laws, all sales, use and similar taxes applicable to the conduct of
its business, except, in each case, to the extent that the validity of such
assessment or tax is the subject of a Permitted Protest. There are no Liens on
any properties or assets of Borrower imposed or arising as a result of the
delinquent payment or the nonpayment of any tax, assessment, fee or other
governmental charge.

4.26. Insurance. Borrower keeps its property adequately insured and maintains
(a) insurance to such extent and against such risks, including fire, as is
customary with companies in the same or similar businesses, (b) workers’
compensation insurance in the amount required by applicable law, (c) public
liability insurance, which shall include product liability insurance, in the
amount customary with companies in the same or similar business against claims
for personal injury or death on properties owned, occupied or controlled by it,
and (d) such other insurance as may be required by law or as may be reasonably
required by Agent (including, without limitation, against larceny, embezzlement
or other criminal misappropriation). Schedule 4.26 sets forth a list of all
insurance maintained by Borrower on the Closing Date.

4.27. Investment Company Act. Borrower is not an “investment company” or an
“affiliated person” or “promoter” of, or “principal underwriter” of or for, an
“investment company”, as such terms are defined in the Investment Company Act of
1940, as amended.

4.28. Brokerage Fees. Borrower has not utilized the services of any broker or
finder in connection with obtaining financing from the Lender Group under this
Agreement and no brokerage commission or finders fee is payable by Borrower in
connection herewith.

4.29. Junior Secured Debt Documents. (a) As of the Closing Date, the outstanding
principal balance of the Second Secured Notes is $115,000,000 and all
agreements, instruments and documents executed or delivered pursuant to or in
connection with the Second Secured Notes are described on Schedule 4.29 hereto.
All Obligations are and will be incurred in full compliance with the Second
Secured Indenture. This Agreement and the other Loan Documents are the “Credit
Agreement” as defined in the Second Secured Indenture. All Obligations, up to
the full amount of the Total Commitments, are incurred pursuant to
Section 4.12(a) of the Second Secured Note Indenture. All Liens securing the
Second Secured Debt are subordinate and junior in priority to all Liens in favor
of Agent, for the benefit of the Lenders, securing the Obligations under the
Intercreditor Agreement. No Liens securing the Second Secured Debt exist on any
Collateral of Borrower on which Agent does not have an enforceable, perfected
Lien under the Loan Documents securing the Obligations. No event of default or
event or condition which would become an event of default with notice or lapse
of time or both, exists under the Second Secured Documents and each of the
Second Secured Debt Documents is in full force and effect.

(b) As of the Closing Date, the outstanding principal balance of the Third
Secured Notes is $50,000,000, and all agreements, instruments and documents
executed or delivered pursuant to or in connection with the Third Secured Notes
are described on Schedule 4.30 hereto. All Obligations are and will be incurred
in full compliance with the Third Secured Indenture. This Agreement and the
other Loan Documents are the “Credit Agreement” as defined in the Third Secured
Indenture. All Obligations, up to the full amount of the Total Commitments, are
incurred pursuant to Section 4.12(a) of the Third Secured Note Indenture. All
Liens securing the Third Secured Debt are subordinate and junior in priority to
all Liens in favor of Agent, for the benefit of the Lenders, securing the
Obligations under the Intercreditor Agreement. No Liens securing the Third
Secured Debt exist on any Collateral of Borrower on which Agent does not have an
enforceable, perfected Lien under the Loan Documents securing the Obligations.
No event of default or event or condition which would become an event of default
with notice or lapse of time or both, exists under the Third Secured Documents
and each of the Third Secured Debt Documents is in full force and effect.

4.30. Compliance with the Law. After giving effect to the Transactions, Borrower
has not violated any laws or failed to obtain any material license, permit,
franchise or other authorization from any Governmental Authority necessary for
the ownership of any of its Oil and Gas Properties or the conduct of its

 

- 23 -

--------------------------------------------------------------------------------

business. The Oil and Gas Properties of Borrower (and assets and properties
utilized therewith) have been maintained, operated and developed in a good and
workmanlike manner and in substantial conformity with all applicable laws and
all rules, regulations and orders of all Governmental Authorities having
jurisdiction and in substantial 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 such Oil and Gas Properties;
specifically in this connection, (i) after the Closing Date and after giving
effect to the Transactions, no Oil and Gas Property of Borrower is subject to
having allowable production reduced below the full and regular allowable
production (including the maximum permissible tolerance) because of any
overproduction (whether or not the same was permissible at the time) prior to
the Closing Date and (ii) none of the wells comprising a part of such Oil and
Gas Properties (or assets and properties utilized therewith) is deviated from
the vertical by more than the maximum permitted by applicable laws, regulations,
rules and orders of any Governmental Authority, and such wells are, in fact,
bottomed under and are producing from, and the well bores are wholly within,
such Oil and Gas Properties (or in the case of wells located on Real Property
utilized therewith, such utilized Real Property) covered by the leases.

4.31. Oil and Gas Imbalances. Except as set forth on Schedule 4.31, on a net
basis there are no gas imbalances, take-or-pay oil and gas or other prepayments
with respect to Borrower’s Oil and Gas Properties which would require such
Person either to make cash settlements for such production or deliver
Hydrocarbons produced from such Oil and Gas Properties at some future time
without then or thereafter receiving full payments therefor exceeding two
percent (2%) of the current monthly production of oil and gas from the Oil and
Gas Properties of the Borrower in the aggregate.

4.32. Hedge Agreements. Schedule 4.32 sets forth, as of the Closing Date, a true
and complete list of all Hedge Agreements (including any commodity price swap
agreements, forward agreements or contracts of sale which provide for prepayment
for deferred shipment or delivery of Hydrocarbons or other commodities) of the
Borrower, the material terms thereof (including the type, term, effective date,
termination date and notional amounts or volumes), all credit support agreements
relating thereto (including any margin required or supplied), and the
counterparty to each such agreement.

4.33. Location of Real Property and Leased Premises.

(a) Before and after giving effect to the Transactions, Schedule 4.33 lists
completely and correctly as of the Closing Date all Oil and Gas Properties that
are Real Property whether leased or owned by Borrower and the respective
addresses (if any), counties and states thereof.

(b) Borrower has good and defensible title to all of its Oil and Gas Properties
set forth on Schedule 4.33 which constitute Real Property and good and
indefeasible title to all of its Oil and Gas Properties which constitute
personal property, except for (i) such imperfections of title which do not in
the aggregate materially detract from the value thereof to, or the use thereof
in, the business of such Borrower and (ii) Permitted Liens. The quantum and
nature of the interest of Borrower in and to the Oil and Gas Properties as set
forth in the Initial Reserve Report or the most recent Reserve Report, as the
case may be, includes the entire interest of Borrower in such Oil and Gas
Properties as of the date of the Initial Reserve Report or such applicable
Reserve Report delivered by Borrower to Agent pursuant to Section 5.2, as the
case may be, and are complete and accurate in all material respects as of the
date of the Initial Reserve Report or such applicable Reserve Report, as the
case may be; and there are no “back-in” or “reversionary” interests held by
third parties which could materially reduce the interest of Borrower in such Oil
and Gas Properties except as expressly set forth in the Initial Reserve Report
or the most recent Reserve Report, as the case may be. The ownership of the Oil
and Gas Properties by Borrower shall not in any material respect obligate
Borrower to bear the costs and expenses relating to the maintenance, development
or operations of each such Oil and Gas Property in an amount in excess of the
working interest of record of Borrower in each Oil and Gas Property set forth in
the Initial Reserve Report or the most recent Reserve Report, as the case may
be.

 

- 24 -

--------------------------------------------------------------------------------

(c) Borrower’s marketing, gathering, transportation, processing and treating
facilities and equipment, together with any marketing, gathering,
transportation, processing and treating contracts in effect between and/or among
Borrower and any other Person, are sufficient to gather, transport, process
and/or treat, reasonably anticipated volumes of production of Hydrocarbons from
the Oil and Gas Properties of Borrower.

4.34. Bonds and Insurance. Schedule 4.34 attached hereto contains an accurate
and complete description of all performance bonds related to operations on or
pertaining to the Oil and Gas Properties of the Borrower, and all material
policies of insurance owned or held by Borrower. Except as set forth on Schedule
4.34, all such policies are in full force and effect, all premiums with respect
thereto covering all periods up to and including the Closing Date have been
paid, and no notice of cancellation or termination has been received with
respect to any such policy. Such bonds and policies are sufficient for
compliance with all requirements of law and of all agreements to which Borrower
is a party; are valid, outstanding and enforceable policies; provide adequate
coverage in at least such amounts and against at least such risks (but including
in any event public liability) as are required by Governmental Authorities
and/or usually insured or bonded against in the same general area by companies
engaged in the same or a similar business for the assets and operations of
Borrower; will remain in full force and effect through the respective dates set
forth in Schedule 4.34 without the payment of additional premiums except as set
forth on Schedule 4.34; and will not in any way be affected by, or terminate or
lapse by reason of, the transactions contemplated by this Agreement. Borrower
has not been refused any bonds or insurance with respect to its assets or
operations, nor has its coverage been limited below usual and customary bond or
policy limits, by any bonding company or insurance carrier to which it has
applied for any such bond or insurance or with which it has carried insurance
during the last three years.

4.35. Royalties. Except as set forth on Schedule 4.35, all royalties, overriding
royalties, compensatory royalties and other payments due from or in respect of
Hydrocarbon production from or allocable to the Oil and Gas Properties have been
properly paid or provided for in all material respects in accordance with the
terms of the applicable Material Contracts and applicable law.

4.36. DSX Acquisition. The DSX Acquisition has been effected in accordance with
the terms of the DSX Acquisition Documents and all applicable law. At the time
of consummation of the DSX Acquisition, (a) all consents and approvals of, and
filings and registrations with, and all other actions in respect of, all
Governmental Authorities required in order to consummate the DSX Acquisition
(including Hart Scott Rodino) have been obtained, given, filed or taken and are
in full force and effect and (b) there does not exist any judgment, order or
injunction prohibiting or imposing any material adverse condition upon the
consummation thereof.

4.37. DSX Acquisition Documents. (a) Borrower has delivered to Agent a true,
complete and correct copy, as of the Closing Date, of each DSX Acquisition
Document, including all schedules and exhibits thereto and all agreements,
instruments or other documents evidencing or governing any Stock issued in
connection with any DSX Acquisition Document; (b) each DSX Acquisition Document
sets forth the entire agreement and understanding of the parties thereto
relating to the subject matter thereof, and there are no other agreements,
arrangements or understandings, written or oral, relating to the matters covered
thereby; (c) the execution, delivery and performance of each DSX Acquisition
Document has been duly authorized by all necessary action (including, without
limitation, the obtaining of any consent of stockholders or other holders of
Stock required by law or by any applicable corporate or other organizational
documents) on the part of Borrower that is a party thereto and, to the best
knowledge of Borrower, each other Person that is a party thereto; (d) no
authorization or approval or other action by, and no notice to filing with or
license from, any Governmental Authority or any other Person is required for
such execution, delivery and performance, other than such as have been obtained
on or prior to the Closing Date (including Hart Scott Rodino); (e) each DSX
Acquisition Document is the legal, valid and binding obligation of Borrower that
is a party thereto and, to the best knowledge of Borrower, each other Person
that is a party thereto, enforceable against Borrower that is a party thereto
and, to the best knowledge of Borrower, each other Person that is a party
thereto, in each case in

 

- 25 -

--------------------------------------------------------------------------------

accordance with its terms except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws; (f) Borrower is
not in default of any of its obligations under any DSX Acquisition Document to
which it is a party, and, to the best knowledge of Borrower, neither DSX or any
other party to any DSX Acquisition Document is in default thereunder; (g) all
representations and warranties made by Borrower in the DSX Acquisition Documents
and in the certificates delivered in connection therewith are true and correct
in all material respects as of the date hereof and, to the best knowledge of
Borrower, all representations and warranties made in the DSX Acquisition
Documents by or on behalf of DSX, or any other party thereto other than
Borrower, are true and correct in all material respects as of the date hereof;
(h) all information with respect to Borrower and the DSX Acquisition, and, to
the best knowledge of Borrower, the business and the assets and properties
acquired in connection with the DSX Acquisition, furnished to Agent by, or on
behalf of Borrower, was, at the time the same was so furnished, complete and
correct in all material respects, or has been subsequently supplemented by other
written information, to the extent necessary to give Agent a true and accurate
knowledge of the subject matter thereof in relation to Borrower, the DSX
Acquisition, and the business and the assets and properties acquired in
connection with the DSX Acquisition; (i) no representation, warranty or
statement made by Borrower or, to the best knowledge of Borrower, DSX or any
other party thereto other than Borrower, at the time it was made in any DSX
Acquisition Document, or any agreement, certificate, statement or document
required to be delivered pursuant to any DSX Acquisition Document contains any
untrue statement of material fact or omits to state a material fact necessary in
order to make the statements contained in the DSX Acquisition Documents (taken
as a whole) not misleading in any material respect at such time in light of the
circumstances in which they were made; and (j) in connection with the DSX
Acquisition, Borrower has acquired the properties contemplated under the DSX
Acquisition Agreement and, on the Closing Date, prior to the extension of credit
on the Closing Date, by the DSX Acquisition Agreement and by the other DSX
Acquisition Documents, will have good title to all of the properties
contemplated under the DSX Acquisition Agreement, free and clear of all Liens.

4.38. Nature of Business. After giving effect to the Transactions, Borrower is
not engaged in any business other than the Oil and Gas Business within the
continental United States.

4.39. Seismic Licenses. To the extent not prohibited by the terms thereof, or
any confidentiality agreement, Schedule 4.39 identifies all of the license
agreements relating to the performance of seismic exploration on the Oil and Gas
Properties (“Seismic Licenses”) to which Borrower is a party. With respect to
the Seismic Licenses: (i) all Seismic Licenses are in effect and have not
expired or terminated; (ii) Borrower is not in material breach or material
default, and there has occurred no event, fact, or circumstance, that, with the
lapse of time or the giving of notice, or both, would constitute such a material
breach or material default by Borrower, with respect to the terms of any Seismic
License; and (iv) neither Loan Borrower nor, to the knowledge of Borrower, any
other party to any Seismic License has given written notice of any action to
terminate, cancel, rescind, or procure a judicial reformation of any Seismic
License or any provision thereof. To the extent not prohibited by the terms of
the Seismic Licenses or any confidential agreement, all of the transfer fees or
similar amounts payable by Borrower under the terms of the Seismic Licenses upon
the consummation of the transactions contemplated herein, or the method of
calculating same, are set forth in Schedule 4.39.

4.40. Marketing of Production. Except for contracts listed and in effect on the
date hereof on Schedule 4.40, and thereafter either disclosed in writing to
Agent or included in the most recently delivered Reserve Report and approved by
Agent (with respect to all of which contracts Borrower represent that it is
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 Oil and Gas
Property’s delivery capacity), no material agreements exist that are not
cancelable on 60 days notice or less without payment or detriment for the sale
of production from of Borrower’s Hydrocarbons (including, without limitation,
currently being exercised) that (a) pertains to the sale of production from any
calls on or other rights to purchase, production at a fixed price and (b) have a
maturity or expiry date of longer than six (6) months from the date hereof. All
proceeds from the sale of Borrower’s Hydrocarbon Interests from their Oil and
Gas Properties will be paid in full to the applicable party by the purchaser
thereof on a timely

 

- 26 -

--------------------------------------------------------------------------------

basis, and none of such proceeds are currently being held in suspense by such
purchaser or any other Person. Except as set forth in Schedule 4.40, none of the
Oil and Gas Properties of Borrower are subject to any contractual or other
arrangement whereby payment for production therefrom is to be deferred for a
substantial period of time after the month in which such production is delivered
(i.e., in the case of oil, not in excess of 60 days, and in the case of gas, not
in excess of 90 days).

5. AFFIRMATIVE COVENANTS.

Borrower covenants and agrees that, until termination of all of the Commitments
and payment in full of the Obligations, Borrower shall do all of the following:

5.1. Accounting System. Maintain a system of accounting that enables Borrower to
produce financial statements in accordance with GAAP and maintain records
pertaining to the Collateral that contain information as from time to time
reasonably may be requested by Agent. Borrower also shall keep a reporting
system that shows all additions, sales, claims, returns, and allowances with
respect to its sales. Borrower shall also maintain their billing
systems/practices as approved by Agent prior to the Closing Date and shall only
make material modifications thereto with notice to, and consent of, Agent.

5.2. Collateral Reporting. Provide Agent (and if so requested by Agent, with
copies for each Lender) with each of the reports set forth on Schedule 5.2 at
the times specified therein.

5.3. Financial Statements, Reports, Certificates. Deliver to Agent, with copies
to each Lender, each of the financial statements, reports, or other items set
forth on Schedule 5.3 at the times specified therein. In addition, Borrower
aggress that no Subsidiary of Borrower will have a fiscal year different from
that of Borrower.

5.4. Intentionally Omitted.

5.5. Inspection. Permit Agent, each Lender, and each of their duly authorized
representatives or agents to visit any of its properties and inspect any of its
assets or books and records, to examine and make copies of its books and
records, and to discuss its affairs, finances, and accounts with, and to be
advised as to the same by, its officers and employees at such reasonable times
and intervals as Agent or any such Lender may designate and, so long as no
Default or Event of Default exists, with reasonable prior notice to Borrower.

5.6. Maintenance of Properties. (a) Maintain and preserve all of its properties
which are necessary or useful in the proper conduct of their business in good
working order and condition, ordinary wear, tear, and casualty excepted (and
except where the failure to do so could not be expected to result in a Material
Adverse Change), and comply at all times with the provisions of all material
leases to which it is a party as lessee, so as to prevent any loss or forfeiture
thereof or thereunder.

(b) Cause to be done all things necessary to preserve and keep in good repair,
working order and efficiency all the Oil and Gas Properties of Borrower and
other material assets including, without limitation, all equipment, machinery,
facilities, and marketing, gathering, transportation and processing assets and,
from time to time, will make all the reasonably necessary repairs, renewals and
replacements so that at all times the state and conditions of such Oil and Gas
Properties and other material assets will be fully preserved and maintained,
except to the extent a portion of such assets is no longer capable of producing
Hydrocarbons in economically reasonable amounts.

(c) Promptly: (i) pay and/or discharge or cause to be paid and/or discharged,
all rentals, royalties, expenses, taxes and Indebtedness accruing under the
lease or other agreements affecting or pertaining to the Oil and Gas Properties
of Borrower and do all other things necessary to keep unimpaired its rights with
respect thereto and prevent forfeiture thereof or default thereunder,
(ii) perform, observe and comply or make reasonable and customary efforts to
cause to be performed, observed and complied with, in

 

- 27 -

--------------------------------------------------------------------------------

accordance with usual and customary industry standards, the obligations required
by each and all of the assignments, deeds, leases, sub-leases, contracts and
agreements affecting its interests in such Oil and Gas Properties and the
accompanying elements therefrom and other material properties so long as such
properties are capable of producing Hydrocarbons and the accompanying elements
in quantities and at prices providing for continued efficient and profitable
operations of business and (iii) do all other things necessary to keep
unimpaired, except for Permitted Liens, its rights with respect thereto and
prevent any forfeiture thereof or a default thereunder, except to the extent a
portion of such properties is no longer capable of producing Hydrocarbons in
economically reasonable amounts.

(d) Operate its Oil and Gas Properties and other material properties or cause or
make reasonable and customary efforts to cause such Oil and Gas Properties and
other material properties to be operated on a continuous basis for the
production of Hydrocarbons and in a careful and efficient manner in accordance
with the usual and customary practices of the industry and in substantial
compliance with all applicable contracts and agreements and in compliance in all
material respects with all material laws.

(e) Prudently operate and produce with respect to the Oil and Gas Properties of
Borrower in accordance with good engineering practices.

5.7. Taxes. Cause all assessments and taxes, whether real, personal, or
otherwise, due or payable by, or imposed, levied, or assessed against Borrower,
or any of its respective assets to be paid in full, before delinquency or before
the expiration of any extension period, except to the extent that the validity
of such assessment or tax shall be the subject of a Permitted Protest. Borrower
shall make timely payment or deposit of all tax payments and withholding taxes
required of them by applicable laws, including those laws concerning F.I.C.A.,
F.U.T.A., state disability, and local, state, and federal income taxes, and
will, upon request, furnish Agent with proof satisfactory to Agent indicating
that Borrower has made such payments or deposits.

5.8. Insurance.

(a) At Borrower’s expense, maintain insurance respecting its assets wherever
located, covering loss or damage by fire, theft, explosion, and all other
hazards and risks as ordinarily are insured against by other Persons engaged in
the same or similar businesses, provided that, the Borrower shall not be
required to maintain business interruption insurance. Borrower also shall
maintain public liability and product liability insurance. All such policies of
insurance shall be in such amounts and with such insurance companies as are
reasonably satisfactory to Agent. Borrower shall deliver copies of all such
policies to Agent with an endorsement naming Agent as the sole loss payee (under
a satisfactory lender’s loss payable endorsement) or additional insured, as
appropriate. Each policy of insurance or endorsement shall contain a clause
requiring the insurer to give not less than 30 days prior written notice to
Agent in the event of cancellation of the policy for any reason whatsoever.
During the period of the drilling of wells and the construction of any other
improvements comprising a part of the Oil and Gas Properties of Borrower,
Borrower shall, cause its contractors or subcontractors to, obtain and maintain
well control insurance (including coverage for costs and redrilling) and
builder’s risk insurance, as applicable, in such form and amounts as is
customary in the industry and worker’s compensation insurance covering all
Persons employed by Borrower or its agents or subcontractors of any tier in
connection with any construction affecting such Oil and Gas Properties,
including, without limitation, all agents and employees of Borrower and its
subcontractors with respect to whom death or bodily injury claims could be
asserted against Borrower.

(b) Borrower shall give Agent prompt notice of any loss exceeding $500,000
covered by such insurance. So long as no Event of Default has occurred and is
continuing, Borrower shall have the exclusive right to adjust any losses payable
under any such insurance policies which are less than $500,000. Following the
occurrence and during the continuation of an Event of Default, or in the case of
any losses payable under such insurance exceeding $500,000, Agent shall have the
exclusive right to adjust any losses payable under any such insurance policies,
without any liability to Borrower whatsoever in respect of such

 

- 28 -

--------------------------------------------------------------------------------

adjustments. Any monies received as payment for any loss under any insurance
policy mentioned above (other than liability insurance policies) or as payment
of any award or compensation for condemnation or taking by eminent domain, shall
be subject to the provisions of Section 2.4(c).

(c) Borrower will not, take out separate insurance concurrent in form or
contributing in the event of loss with that required to be maintained under this
Section 5.8, unless Agent is included thereon as an additional insured or loss
payee under a lender’s loss payable endorsement. Borrower shall notify Agent
promptly whenever such separate insurance is taken out, specifying the insurer
and the type and amount of insurance provided thereunder as to the policies
evidencing the same, and copies of such policies shall be provided to Agent
promptly after receipt by Borrower thereof.

5.9. Intentionally Omitted.

5.10. Compliance with Laws. Comply with the requirements of all applicable laws,
rules, regulations, and orders of any Governmental Authority, other than laws,
rules, regulations, and orders the non-compliance with which, individually or in
the aggregate, could not reasonably be expected to result in a Material Adverse
Change.

5.11. Leases. Pay when due all rents and other amounts payable under any
material leases to which Borrower is a party or by which any of Borrower’s
properties and assets are bound, unless such payments are the subject of a
Permitted Protest.

5.12. Existence. At all times preserve and keep in full force and effect
Borrower’s, (i) valid existence and good standing in the jurisdiction of its
organization (to the extent such concept applies to such entity), (ii) valid
existence and good standing in each jurisdiction in which the character of the
properties owned or leased by it or in which the transaction of business makes
such qualification necessary (to the extent such concept applies to such
entity), except to the extent that the failure to be so qualified could not
reasonably be expected to result in a Material Adverse Change, and (iii) except
as could not reasonably be expected to result in a Material Adverse Change, any
rights, franchises, permits, licenses, accreditations, authorizations, or other
approvals material to their businesses.

5.13. Environmental.

(a) Keep any property either owned or operated by Borrower free of any
Environmental Liens or post bonds or other financial assurances sufficient to
satisfy the obligations or liability evidenced by such Environmental Liens,
(b) comply, in all material respects, with Environmental Laws and provide to
Agent documentation of such compliance which Agent reasonably requests,
(c) promptly notify Agent of any release of a Hazardous Material in any
reportable quantity from or onto property owned or operated by Borrower and take
any Remedial Actions required to abate said release or otherwise to come into
compliance with applicable Environmental Law, and (d) promptly, but in any event
within 5 days of its receipt thereof, provide Agent with written notice of any
of the following: (i) notice that an Environmental Lien has been filed against
any of the real or personal property of Borrower, (ii) commencement of any
Environmental Action or notice that an Environmental Action will be filed
against Borrower, and (iii) notice of a violation, citation, or other
administrative order which reasonably could be expected to result in a Material
Adverse Change.

5.14. Disclosure Updates. Promptly and in no event later than 10 Business Days
after obtaining knowledge thereof, notify Agent if any written information,
exhibit, or report furnished to the Lender Group contained, at the time it was
furnished, any untrue statement of a material fact or omitted to state any
material fact necessary to make the statements contained therein not misleading
in light of the circumstances in which made. The foregoing to the contrary
notwithstanding, any notification pursuant to the foregoing provision will not
cure or remedy the effect of the prior untrue statement of a material fact or
omission of any material fact nor shall any such notification have the effect of
amending or modifying this Agreement or any of the Schedules hereto.

 

- 29 -

--------------------------------------------------------------------------------

5.15. Control Agreements. Take all reasonable steps in order for Agent to obtain
control in accordance with Sections 8-106, 9-104, 9-105, 9-106, and 9-107 of the
Code with respect to (subject to the proviso contained in Section 6.12) all of
its Securities Accounts, Deposit Accounts, electronic chattel paper, investment
property, and letter-of-credit rights.

5.16. Formation of Subsidiaries. At the time that Borrower forms any direct or
indirect Subsidiary or acquires any direct or indirect Subsidiary after the
Closing Date, Borrower shall (a) cause such new Subsidiary to provide to Agent a
guaranty and a joinder to the Security Agreement, together with such other
security documents (including Mortgages with respect to any Real Property of
such new Subsidiary), as well as appropriate financing statements (and with
respect to all property subject to a Mortgage, fixture filings), all in form and
substance satisfactory to Agent (including being sufficient to grant Agent a
first priority Lien (subject to Permitted Liens) in and to the assets of such
newly formed or acquired Subsidiary), (b) provide to Agent a pledge agreement
and appropriate certificates and powers or financing statements, hypothecating
all of the direct or beneficial ownership interest in such new Subsidiary, in
form and substance satisfactory to Agent, and (c) provide to Agent all other
documentation, including one or more opinions of counsel satisfactory to Agent,
which in its opinion is appropriate with respect to the execution and delivery
of the applicable documentation referred to above (including policies of title
insurance or other documentation with respect to all property subject to a
Mortgage). Any document, agreement, or instrument executed or issued pursuant to
this Section 5.16 shall be a Loan Document.

5.17. Further Assurances. At any time upon the request of Agent, Borrower shall
execute or deliver to Agent, any and all financing statements, fixture filings,
security agreements, pledges, assignments, endorsements of certificates of
title, mortgages, deeds of trust, opinions of counsel, and all other documents
(collectively, the “Additional Documents”) that Agent may reasonably request in
form and substance reasonably satisfactory to Agent, to create, perfect, and
continue perfected or to better perfect the Agent’s Liens in all of the
properties and assets of Borrower (whether now owned or hereafter arising or
acquired, tangible or intangible, real or personal), to create and perfect Liens
in favor of Agent in any Real Property acquired by Borrower after the Closing
Date, to create and perfect Liens in favor of Agent in any properties and assets
pledged by Borrower under the Second Secured Debt Documents and the Third
Secured Debt Documents after the Closing Date, and in order to fully consummate
all of the transactions contemplated hereby and under the other Loan Documents.
To the maximum extent permitted by applicable law, Borrower authorizes Agent to
execute any such Additional Documents in Borrower’s name, as applicable, and
authorizes Agent to file such executed Additional Documents in any appropriate
filing office.

5.18. Organizational ID Number; Commercial Tort Claims. As promptly as
practicable, but in any event within 5 days, (i) upon obtaining an
organizational identification number (to the extent that Borrower has not been
issued such number on or prior to the Closing Date), notify Agent in writing and
deliver an updated Schedule 4.7(c), and (ii) upon obtaining any commercial tort
claim that would have been required to be disclosed to Agent under this
Agreement and the other Loan Documents if it existed as of the Closing Date,
deliver an updated Schedule 4.7(d) and the other documents required under the
Security Agreement.

5.19. Material Contracts. Contemporaneously with the delivery of each Compliance
Certificate pursuant hereto, provide Agent with copies of (a) each Material
Contract entered into since the delivery of the previous Compliance Certificate
and (b) each amendment or modification of any Material Contract entered into
since the delivery of the previous Compliance Certificate.

5.20. Obtaining Permits, Etc. Obtain, maintain and preserve and take all
necessary action to timely renew, all permits, licenses, authorizations,
approvals, entitlements and accreditations that if not obtained, maintained or
preserved could reasonably be expected to result in a Material Adverse Change.

5.21. After Acquired Properties. With respect to any Oil and Gas Property
Borrower acquired after the Closing Date or any discovery and/or confirmation of
the existence of Hydrocarbons in any property owned or leased by Borrower,
promptly (and in any event upon the earliest of (x) 30 days after the
acquisition

 

- 30 -

--------------------------------------------------------------------------------

thereof, (y) the date of the discovery and/or confirmation of the existence of
Hydrocarbons and (z) Availability being less than $15,000,000): (a) execute and
deliver to Agent such amendments to the Mortgages or such other documents as
Agent shall deem necessary or advisable to grant to Agent, for the benefit of
the Lenders, a perfected first priority Lien on such Oil and Gas Property; and
(b) take all actions necessary or advisable to cause such Lien to be duly
perfected in accordance with all applicable law, including, without limitation,
the filing of Mortgages, or UCC financing statements in such jurisdictions as
may be requested by Agent.

5.22. Hedging Agreements. Within 15 Business Days after the Closing Date,
maintain in effect one or more Acceptable Commodity Hedging Agreements with
respect to its Hydrocarbon production, with the aggregate notional volumes of
Hydrocarbons covered by such Acceptable Commodities Hedging Agreements
constituting not less than 50% and not more than 80% of the aggregate amount of
Borrower’s estimated Hydrocarbon production volumes on an mcf equivalent basis
(where one barrel of oil is equal to six mcf of gas) for the succeeding
twenty-four calendar months on a rolling twenty-four month basis for such period
from Oil and Gas Properties classified as Proved Developed Producing Reserves in
the most recent Reserve Report delivered pursuant to Section 5.2 plus such
additions to Proved Developed Producing Reserves as Borrower estimates to have
been made as a result of drilling activity by Borrower occurring after the most
recent Reserve Report. Borrower shall use such Acceptable Commodity Hedging
Agreements solely as a part of their normal business operations as a risk
management strategy and/or hedge against changes resulting from market
conditions related to their oil and gas operations and not as a means to
speculate for investment purposes on trends and shifts in financial or
commodities markets.

6. NEGATIVE COVENANTS.

Borrower covenants and agrees that, until termination of all of the Commitments
and payment in full of the Obligations, Borrower will not do any of the
following:

6.1. Indebtedness. Create, incur, assume, suffer to exist, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:

(a) Indebtedness evidenced by this Agreement and the other Loan Documents,
together with Indebtedness owed to Underlying Issuers with respect to Underlying
Letters of Credit,

(b) Indebtedness set forth on Schedule 4.19 and any Refinancing Indebtedness in
respect of such Indebtedness; provided, that the Convertible Notes may not be
refinanced,

(c) Permitted Purchase Money Indebtedness and any Refinancing Indebtedness in
respect of such Indebtedness,

(d) endorsement of instruments or other payment items for deposit,

(e) Indebtedness composing Permitted Investments.

(f) unsecured Indebtedness of Borrower that is incurred on the date of the
consummation of a Permitted Non-Cash Acquisition solely for the purpose of
consummating such Permitted Non-Cash Acquisition so long as (i) no Event of
Default has occurred and is continuing or would result therefrom, (ii) such
unsecured Indebtedness is not incurred for working capital purposes, (iii) such
unsecured Indebtedness does not mature prior to the date that is 12 months after
the Maturity Date, (iv) such Indebtedness is subordinated in right of payment to
the Obligations on terms and conditions reasonably satisfactory to Agent, and
(v) the only interest that accrues with respect to such Indebtedness is payable
in kind;

(g) Subordinated Indebtedness,

 

- 31 -

--------------------------------------------------------------------------------

(h) the Second Secured Debt in an aggregate principal amount not to exceed
$115,000,000 owing by Borrower and any Refinancing Indebtedness in respect of
such Indebtedness,

(i) the Third Secured Debt Documents in an aggregate principal amount not to
exceed $50,000,000 owing by Borrower and any Refinancing Indebtedness in respect
of such Indebtedness,

(j) Indebtedness in respect of obligations under non-speculative Hedge
Agreements entered into in the ordinary course of business in accordance with
this Agreement and solely for hedging purposes;

(k) Indebtedness associated with plugging and abandonment, performance, bid and
surety bonds required by applicable law in connection with the operation of
Borrower’s Oil and Gas Properties;

(l) Indebtedness solely represented by premium financing or similar payment
obligations incurred with respect to insurance policies purchased in the
ordinary course of business and consistent with past practices; and

(m) unsecured Indebtedness of Borrower in addition to the Indebtedness set forth
in clauses (a) through (l) above in an aggregate principal amount not to exceed
$1,000,000 at any time outstanding.

6.2. Liens. Create, incur, assume, or suffer to exist, directly or indirectly,
any Lien on or with respect to any of its assets, of any kind, whether now owned
or hereafter acquired, or any income or profits therefrom, except for Permitted
Liens.

6.3. Restrictions on Fundamental Changes.

(a) Other than in order to consummate a Permitted Acquisition, enter into any
merger, consolidation, reorganization, or recapitalization, or reclassify its
Stock,

(b) Liquidate, wind up, or dissolve itself (or suffer any liquidation or
dissolution),

(c) Suspend or go out of a substantial portion of its business.

6.4. Disposal of Assets. Other than Permitted Dispositions, convey, sell, lease,
license, assign, transfer, or otherwise dispose of (or enter into an agreement
to convey, sell, lease, license, assign, transfer, or otherwise dispose of) any
of the assets of Borrower.

6.5. Change Name. Change its name, organizational identification number, state
of organization or organizational identity; provided, however, that Borrower may
change its name upon at least 30 days prior written notice to Agent of such
change and so long as, at the time of such written notification, Borrower
provides any financing statements necessary to perfect and continue perfected
the Agent’s Liens, and promptly, and in any event within 3 Business Days, after
the effective date of such name change, Borrower delivers to Agent a certificate
of name change, certified by the appropriate officer of the jurisdiction of
organization and/or foreign qualification of Borrower.

6.6. Nature of Business. Make any change in the nature of their business as
described in Schedule 6.6 or acquire any properties or assets that are not
reasonably related to the conduct of such business activities.

6.7. Prepayments and Amendments. Except in connection with Refinancing
Indebtedness permitted by Section 6.1,

 

- 32 -

--------------------------------------------------------------------------------

(a) Except in connection with Refinancing Indebtedness permitted by Section 6.1,
optionally or mandatorily prepay, redeem, defease, purchase (including, without
limitation, any offer to repurchase or other payment based on excess cash flow
or any similar terms, whether optional or mandatory, it being acknowledged and
agreed that any such payment based on excess cash flow or any similar terms that
is mandatory may be prohibited by the terms of this Agreement), or otherwise
acquire any Subordinated Indebtedness, Second Secured Debt, Third Secured Debt,
the Indebtedness evidenced by the Convertible Notes or other Indebtedness of
Borrower, other than (i) the Obligations in accordance with this Agreement,
(ii) any optional payment, redemption or defeasance or open-market purchase of
any Subordinated Indebtedness, Second Secured Debt, Third Secured Debt or other
Indebtedness solely with the proceeds of common stock of Borrower or with
Subordinated Indebtedness of Borrower, (iii) so long as (A) the average amount
of Qualified Cash and Availability for the 30 day period prior to any such
optional payment, redemption or defeasance or open market purchase and the
amount of Qualified Cash and Availability immediately after giving effect to any
such optional payment, redemption or defeasance or open market purchase is not
less than $10,000,000, and (B) immediately before and after the making of such
purchase, redemption or defeasance, no Default or Event of Default shall have
occurred and be continuing, any optional payment, redemption or defeasance or
open market purchase of the Second Secured Notes, and (iv) the prepayment of the
Indebtedness evidenced by the Convertible Notes solely with the common stock of
Borrower in connection with a conversion exercised by the holders thereof in
accordance with the terms of the Convertible Note as in effect on the Closing
Date.

(b) Except in connection with Refinancing Indebtedness permitted by Section 6.1,
make any payment on account of Indebtedness that has been contractually
subordinated in right of payment to the Obligations if such payment is not
permitted at such time under the applicable subordination terms and conditions,

(c) Except in connection with Refinancing Indebtedness permitted by Section 6.1,
directly or indirectly, amend, modify, alter, increase, or change (other than
Permitted Changes) any of the terms or conditions of any agreement, instrument,
document, indenture, or other writing evidencing or concerning Indebtedness
permitted under Section 6.1(b), (c), (f), (g), (h), (i), (j) or (m), or

(d) (i) Amend, modify or otherwise change its Governing Documents, including,
without limitation, by the filing or modification of any certificate of
designation, or (ii) amend, modify or otherwise change any Material Contract,
except that such amendment, modification, alteration, increase, or change
pursuant to this paragraph (d) could not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Change.

6.8. Change of Control. Cause, permit, or suffer, directly or indirectly, any
Change of Control.

6.9. Intentionally Omitted.

6.10. Distributions. Other than Permitted Distributions, make any distribution
or declare or pay any dividends (in cash or other property, other than common
Stock) on, or purchase, acquire, redeem, or retire any of Borrower’s Stock, of
any class, whether now or hereafter outstanding.

6.11. Accounting Methods. Modify or change their fiscal year or their method of
accounting (other than as may be required to conform to GAAP).

6.12. Investments. Except for Permitted Investments, directly or indirectly,
make or acquire any Investment or incur any liabilities (including contingent
obligations) for or in connection with any Investment; provided, however, that
Borrower shall not have Permitted Investments (other than in the Cash Management
Accounts) in Deposit Accounts or Securities Accounts in an aggregate amount in
excess of $50,000 at any one time unless Borrower, and the applicable securities
intermediary or bank have entered into Control Agreements governing such
Permitted Investments in order to perfect (and further establish) the Agent’s
Liens in such Permitted Investments. Subject to the foregoing proviso, Borrower
shall not establish or maintain any Deposit Account or Securities Account unless
Agent shall have received a Control Agreement in respect of such Deposit Account
or Securities Account.

 

- 33 -

--------------------------------------------------------------------------------

6.13. Transactions with Affiliates. Directly or indirectly enter into or permit
to exist any transaction with any Affiliate of Borrower except for:

(a) transactions (other the payment of management, consulting, monitoring, or
advisory fees) between Borrower, on the one hand, and any Affiliate of Borrower,
on the other hand, so long as such transactions (i) are upon fair and reasonable
terms, (ii) are fully disclosed to Agent if they involve one or more payments by
Borrower in excess of $500,000 for any single transaction or series of
transactions, and (iii) are no less favorable to Borrower, as applicable, than
would be obtained in an arm’s length transaction with a non-Affiliate; and

(b) the payment of reasonable fees, compensation, or employee benefit
arrangements to, and any indemnity provided for the benefit of, outside
directors of Borrower in the ordinary course of business and consistent with
industry practice.

6.14. Use of Proceeds. Use the proceeds of the Advances for any purpose other
than (a) on the Closing Date, to pay transactional fees, costs, and expenses
incurred in connection with this Agreement, the other Loan Documents, and the
transactions contemplated hereby and thereby, and (b) thereafter, consistent
with the terms and conditions hereof, for working capital, Capital Expenditures,
general corporate needs of Borrower and for other lawful and permitted purposes.

6.15. Intentionally Omitted.

6.16. Financial Covenants.

(a) Minimum EBITDA. From and after the sum of (x) Qualified Cash and (y) Excess
Availability is less than $10,000,000 at any time during a quarter, fail to
achieve EBITDA for any quarter end thereafter of at least the required amount
set forth in the following table for the applicable period set forth opposite
thereto:

 

Applicable Amount   

Applicable Period

$5,000,000    For the 3 month period ending December 31, 2007 $12,500,000    For
the 6 month period ending March 31, 2008 $20,000,000    For the 9 month period
ending June 30, 2008 $27,500,000    For the 12 month period ending September 30,
2008 and each trailing twelve moth period measured quarterly thereafter

6.17. Forward Sales. Except in accordance with the ordinary course of the Oil
and Gas Business, enter into or permit to exist any advance payment agreement or
other arrangement pursuant to which Borrower, having received full or
substantial payment of the purchase price for a specified quantity of
Hydrocarbons upon entering such agreement or arrangement, is required to
deliver, in one or more installments subsequent to the date of such agreement or
arrangement, such quantity of Hydrocarbons pursuant to and during the terms of
such agreement or arrangement.

 

- 34 -

--------------------------------------------------------------------------------

6.18. Oil and Gas Imbalances. Enter into any contracts or agreements which
warrant production of Hydrocarbons (other than Hedge Agreements otherwise
permitted hereunder) and shall not hereafter allow gas imbalances, take-or-pay
or other prepayment with respect to its Oil and Gas Properties which would
require Borrower to deliver Hydrocarbons produced on Oil and Gas Properties at
some future time without then or thereafter receiving full payment therefor to
exceed, during any monthly period, two percent (2%) of the current aggregate
monthly gas production for such monthly period from the Oil and Gas Properties
of Borrower.

6.19. Environmental. Permit the use, handling, generation, storage, treatment,
Release or disposal of Hazardous Materials at any Real Property owned, operated
or leased by Borrower, except in compliance with all material Environmental
Laws.

6.20. Marketing Activities.

(a) Borrower will not engage in marketing activities for any Hydrocarbons or
enter into any contracts related thereto other than (i) contracts for the sale
of Hydrocarbons scheduled or reasonably estimated to be produced from their
proved Oil and Gas Properties during the period of such contract, (ii) contracts
for the sale of Hydrocarbons scheduled or reasonable 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 Borrower that Borrower
has the right to market pursuant to joint operating agreements, unitization
agreements or other similar contracts that are usual and customary in the oil
and gas business and (iii) other contracts for the purchase and/or sale of
Hydrocarbons of third parties (A) that 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.

(b) All Hydrocarbon produced from the Oil and Gas Properties of Borrower shall
be marketed on an arms length basis using one or more Persons that are not
Affiliates of Borrower.

7. EVENTS OF DEFAULT.

Any one or more of the following events shall constitute an event of default
(each, an “Event of Default”) under this Agreement:

7.1 If Borrower fails to pay when due and payable, or when declared due and
payable, (a) all or any portion of the Obligations consisting of interest, fees,
or charges due the Lender Group, reimbursement of Lender Group Expenses, or
other amounts (other than any portion thereof constituting principal)
constituting Obligations and such failure continues for a period of 3 Business
Days, or (b) all or any portion of the principal of the Obligations (in each
case, including any portion thereof that accrues after the commencement of an
Insolvency Proceeding, regardless of whether allowed or allowable in whole or in
part as a claim in any such Insolvency Proceeding);

7.2 If Borrower

(a) fails to perform or observe any term, provision, condition, covenant or
other agreement contained in any of Sections 2.7, 5.2, 5.3, 5.5, 5.8, 5.12,
5.14, 5.16, 5.17, 5.21, 5.22, and 6.1 through 6.16 of this Agreement or
Section 6 of the Security Agreement;

(b) fails to perform or observe any covenant or other agreement contained in any
of Sections 5.6, 5.7, 5.10, 5.11, 5.15, 5.18, 5.19 and 5.20, of this Agreement
and such failure continues for a period of 15 days after the earlier of (i) the
date on which such failure shall first become known to any officer of Borrower
or (ii) written notice thereof is given to Borrower by Agent; or

 

- 35 -

--------------------------------------------------------------------------------

(c) fails to perform or observe any covenant or other agreement contained in
this Agreement, or in any of the other Loan Documents, in each case, other than
any such covenant or agreement that is the subject of another provision of this
Section 7 (in which event such other provision of this Section 7 shall govern),
and such failure continues for a period of 30 days after the earlier of (i) the
date on which such failure shall first become known to any officer of Borrower
or (ii) written notice thereof is given to Borrower by Agent;

7.3 If any material portion of Borrower’s assets are attached, seized, subjected
to a writ or distress warrant, or is levied upon, or comes into the possession
of any third Person and the same is not discharged before the earlier of 30 days
after the date it first arises or 5 days prior to the date on which such
property or asset is subject to forfeiture by Borrower;

7.4 If an Insolvency Proceeding is commenced by Borrower;

7.5 If an Insolvency Proceeding is commenced against Borrower, and any of the
following events occur: (a) Borrower consents to the institution of such
Insolvency Proceeding against it, (b) the petition commencing the Insolvency
Proceeding is not timely controverted, (c) the petition commencing the
Insolvency Proceeding is not dismissed within 60 calendar days of the date of
the filing thereof, (d) an interim trustee is appointed to take possession of
all or any substantial portion of the properties or assets of, or to operate all
or any substantial portion of the business of, Borrower, or (e) an order for
relief shall have been issued or entered therein;

7.6 If Borrower is enjoined, restrained, or in any way prevented by court order
from continuing to conduct all or any material part of its business affairs;

7.7 If one or more judgments, orders, or awards involving an aggregate amount of
$1,000,000 or more (except to the extent fully covered by insurance pursuant to
which the insurer has accepted liability therefor in writing) shall be entered
or filed against Borrower or with respect to any of their respective assets, and
the same is not released, discharged, bonded against, or stayed pending appeal
before the earlier of 30 days after the date it first arises or 5 days prior to
the date on which such asset is subject to being forfeited by Borrower;

7.8 If there is a default in one or more agreements to which Borrower is a party
with one or more third Persons relative to Indebtedness of Borrower involving an
aggregate amount of $1,000,000 or more, and such default (i) occurs at the final
maturity of the obligations thereunder, or (ii) results in a right by such third
Person(s), irrespective of whether exercised, to accelerate the maturity of the
Borrower’s obligations thereunder;

7.9 If any warranty, representation, statement, or Record made herein or in any
other Loan Document or delivered to Agent or any Lender in connection with this
Agreement or any other Loan Document proves to be untrue in any material respect
(except that such materiality qualifier shall not be applicable to any
representations and warranties that already are qualified or modified by
materiality in the text thereof) as of the date of issuance or making or deemed
making thereof;

7.10 If the Security Agreement or any other Loan Document that purports to
create a Lien, shall, for any reason, fail or cease to create a valid and
perfected and, except to the extent permitted by the terms hereof or thereof,
first priority Lien on or security interest in the Collateral covered hereby or
thereby, except as a result of a disposition of the applicable Collateral in a
transaction permitted under this Agreement;

 

- 36 -

--------------------------------------------------------------------------------

7.11 Any provision of any Loan Document shall at any time for any reason be
declared to be null and void, or the validity or enforceability thereof shall be
contested by Borrower, or a proceeding shall be commenced by Borrower, or by any
Governmental Authority having jurisdiction over Borrower, seeking to establish
the invalidity or unenforceability thereof, or Borrower shall deny that it has
any liability or obligation purported to be created under any Loan Document;

7.12 The loss, suspension or revocation of, or failure to renew, any license or
permit now held or hereafter acquired by Borrower, if such loss, suspension,
revocation or failure to renew could reasonably be expected to result in a
Material Adverse Change; or

7.13 The indictment of Borrower under any criminal statute, or commencement of
criminal or civil proceedings against Borrower, pursuant to which statute or
proceedings the penalties or remedies sought or available include forfeiture to
any Governmental Authority of any portion of the property of such Person which
would result in a Material Adverse Change.

8. THE LENDER GROUP’S RIGHTS AND REMEDIES.

8.1. Rights and Remedies. Upon the occurrence, and during the continuation, of
an Event of Default, the Required Lenders (at their election but without notice
of their election and without demand) may authorize and instruct Agent to do any
one or more of the following on behalf of the Lender Group (and Agent, acting
upon the instructions of the Required Lenders, shall do the same on behalf of
the Lender Group), all of which are authorized by Borrower:

(a) Declare all or any portion of the Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable;

(b) Cease advancing money or extending credit to or for the benefit of Borrower
under this Agreement, under any of the Loan Documents, or under any other
agreement between Borrower and the Lender Group;

(c) Agent, on behalf of the Lender Group, may foreclose any or all of the
Mortgages and sell the Real Property Collateral or Oil and Gas Properties or
cause the Real Property Collateral or Oil and Gas Properties to be sold in
accordance with the provisions of the Mortgages and applicable law, and exercise
any and all other rights or remedies available to Agent, on behalf of the Lender
Group, under the Mortgages, any of the other Loan Documents, at law or in equity
with respect to the Collateral encumbered by the Mortgages;

(d) Terminate this Agreement and any of the other Loan Documents as to any
future liability or obligation of the Lender Group, but without affecting any of
the Agent’s Liens in the Collateral and without affecting the Obligations; and

(e) The Lender Group shall have all other rights and remedies available at law
or in equity or pursuant to any other Loan Document.

The foregoing to the contrary notwithstanding, upon the occurrence of any Event
of Default described in Section 7.4 or Section 7.5, in addition to the remedies
set forth above, without any notice to Borrower or any other Person or any act
by the Lender Group, the Commitments shall automatically terminate and the
Obligations then outstanding, together with all accrued and unpaid interest
thereon and all fees and all other amounts due under this Agreement and the
other Loan Documents, shall automatically and immediately become due and
payable, without presentment, demand, protest, or notice of any kind, all of
which are expressly waived by Borrower.

8.2. Remedies Cumulative. The rights and remedies of the Lender Group under this
Agreement, the other Loan Documents, and all other agreements shall be
cumulative. The Lender Group shall have all

 

- 37 -

--------------------------------------------------------------------------------

other rights and remedies not inconsistent herewith as provided under the Code,
by law, or in equity. No exercise by the Lender Group of one right or remedy
shall be deemed an election, and no waiver by the Lender Group of any Event of
Default shall be deemed a continuing waiver. No delay by the Lender Group shall
constitute a waiver, election, or acquiescence by it.

9. TAXES AND EXPENSES.

If Borrower fails to pay any monies (whether taxes, assessments, insurance
premiums, or, in the case of leased properties or assets, rents or other amounts
payable under such leases) due to third Persons, or fails to make any deposits
or furnish any required proof of payment or deposit, all as required under the
terms of this Agreement, then, Agent, in its sole discretion and without prior
notice to Borrower, may do any or all of the following: (a) make payment of the
same or any part thereof, (b) set up such reserves against the Borrowing Base or
the Maximum Revolver Amount as Agent deems necessary to protect the Lender Group
from the exposure created by such failure, or (c) in the case of the failure to
comply with Section 5.8 hereof, obtain and maintain insurance policies of the
type described in Section 5.8 and take any action with respect to such policies
as Agent deems prudent. Any such amounts paid by Agent shall constitute Lender
Group Expenses and any such payments shall not constitute an agreement by the
Lender Group to make similar payments in the future or a waiver by the Lender
Group of any Event of Default under this Agreement. Agent need not inquire as
to, or contest the validity of, any such expense, tax, or Lien and the receipt
of the usual official notice for the payment thereof shall be conclusive
evidence that the same was validly due and owing.

10. WAIVERS; INDEMNIFICATION.

10.1. Demand; Protest; etc. Borrower waives demand, protest, notice of protest,
notice of default or dishonor, notice of payment and nonpayment, nonpayment at
maturity, release, compromise, settlement, extension, or renewal of documents,
instruments, chattel paper, and guarantees at any time held by the Lender Group
on which Borrower may in any way be liable.

10.2. The Lender Group’s Liability for Collateral. Borrower hereby agrees that:
(a) so long as Agent complies with its obligations, if any, under the Code, the
Lender Group shall not in any way or manner be liable or responsible for:
(i) the safekeeping of the Collateral, (ii) any loss or damage thereto occurring
or arising in any manner or fashion from any cause, (iii) any diminution in the
value thereof, or (iv) any act or default of any carrier, warehouseman, bailee,
forwarding agency, or other Person, and (b) all risk of loss, damage, or
destruction of the Collateral shall be borne by Borrower.

10.3. Indemnification. Borrower shall pay, indemnify, defend, and hold the
Agent-Related Persons, the Lender-Related Persons, and each Participant (each,
an “Indemnified Person”) harmless (to the fullest extent permitted by law) from
and against any and all claims, demands, suits, actions, investigations,
proceedings, liabilities, fines, costs, penalties, and damages, and all
reasonable fees and disbursements of attorneys, experts, or consultants and all
other costs and expenses actually incurred in connection therewith or in
connection with the enforcement of this indemnification (as and when they are
incurred and irrespective of whether suit is brought), at any time asserted
against, imposed upon, or incurred by any of them (a) in connection with or as a
result of or related to the execution, delivery, enforcement, performance, or
administration (including any restructuring or workout with respect hereto) of
this Agreement, any of the other Loan Documents, or the transactions
contemplated hereby or thereby or the monitoring of Borrower’s compliance with
the terms of the Loan Documents, (b) with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event,
or circumstance in any manner related thereto, and (c) in connection with or
arising out of any presence or release of Hazardous Materials at, on, under, to
or from any assets or properties owned, leased or operated by Borrower or any
Environmental Actions, Environmental Liabilities and Costs or Remedial Actions
related in any way to any such assets or properties of Borrower (each and all of
the foregoing, the “Indemnified Liabilities”). The foregoing to the contrary
notwithstanding, Borrower shall have no obligation to any

 

- 38 -

--------------------------------------------------------------------------------

Indemnified Person under this Section 10.3 with respect to any Indemnified
Liability that a court of competent jurisdiction finally determines to have
resulted from the gross negligence or willful misconduct of such Indemnified
Person. This provision shall survive the termination of this Agreement and the
repayment of the Obligations. If any Indemnified Person makes any payment to any
other Indemnified Person with respect to an Indemnified Liability as to which
Borrower was required to indemnify the Indemnified Person receiving such
payment, the Indemnified Person making such payment is entitled to be
indemnified and reimbursed by Borrower with respect thereto. WITHOUT LIMITATION,
THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO
INDEMNIFIED LIABILITIES WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF
ANY NEGLIGENT ACT OR OMISSION OF SUCH INDEMNIFIED PERSON OR OF ANY OTHER PERSON.

11. NOTICES.

Unless otherwise provided in this Agreement, all notices or demands by Borrower
or Agent to the other relating to this Agreement or any other Loan Document
shall be in writing and (except for financial statements and other informational
documents which may be sent by first-class mail, postage prepaid) shall be
personally delivered or sent by registered or certified mail (postage prepaid,
return receipt requested), overnight courier, electronic mail (at such email
addresses as Borrower or Agent, as applicable, may designate to each other in
accordance herewith), or telefacsimile to Borrower or to Agent, as the case may
be, at its address set forth below:

 

If to Borrower:    Baseline Oil & Gas Corp.    1181 North Freeway I-45, Suite
200    Houston, Texas 77060    Attn: Chief Financial Officer    Fax No.:
(281)-445-5888 with copies to:    Eaton & Van Winkle LLP    3 Park Avenue, 16th
Floor    New York, New York 10016    Attn: Matthew S. Cohen, Esq.    Fax No.:
212-779-9928 with copies to:    Jackson Walker L.L.P.    1401 McKinney, Suite
1900    Houston, Texas 77010    Attn: Michael P. Pearson, Esq.    Fax No.:
713-752-4221 If to Agent:    WELLS FARGO FOOTHILLS, INC.    1100 Abernathy Road,
Suite 1600    Atlanta, Georgia 30328    Attn: Business Finance Manager    Fax
No.: 770-804-0785 with copies to:    SCHULTE ROTH & ZABEL LLP    919 Third
Avenue    New York, NY 10022    Attn: Kirby Chin, Esq.    Fax No.: (212)
593-5955

 

- 39 -

--------------------------------------------------------------------------------

Agent and Borrower may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other
party. All notices or demands sent in accordance with this Section 11, other
than notices by Agent in connection with enforcement rights against the
Collateral under the provisions of the Code, shall be deemed received on the
earlier of the date of actual receipt or 3 Business Days after the deposit
thereof in the mail. Borrower acknowledges and agrees that notices sent by the
Lender Group in connection with the exercise of enforcement rights against
Collateral under the provisions of the Code shall be deemed sent when deposited
in the mail or personally delivered, or, where permitted by law, transmitted by
telefacsimile or any other method set forth above.

12. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

(a) THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS
EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH
OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF
AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO
ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL
BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK.

(b) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN
THE STATE AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, FEDERAL COURTS LOCATED
IN THE COUNTY OF NEW YORK, STATE OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT
SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT
AGENT’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT ELECTS TO BRING
SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. BORROWER
AND EACH MEMBER OF THE LENDER GROUP WAIVES, TO THE EXTENT PERMITTED UNDER
APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON
CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
ACCORDANCE WITH THIS SECTION 12(b).

(c) BORROWER AND EACH MEMBER OF THE LENDER GROUP HEREBY WAIVES ITS RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. EACH LOAN PARTY AND EACH MEMBER OF THE LENDER
GROUP REPRESENTS THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.

13. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.

13.1. Assignments and Participations.

(a) Any Lender may assign and delegate to one or more assignees (each an
“Assignee”) that are Eligible Transferees all or any portion, of the
Obligations, the Commitments and the other rights and obligations of such Lender
hereunder and under the other Loan Documents, in a minimum amount (unless waived
by the Agent) of $5,000,000 (except such minimum amount shall not apply to
(x) an assignment or delegation by any Lender to any other Lender or an
Affiliate of any Lender or (y) a group of new Lenders,

 

- 40 -

--------------------------------------------------------------------------------

each of whom is an Affiliate of each other or a fund or account managed by any
such new Lender or an Affiliate of such new Lender to the extent that the
aggregate amount to be assigned to all such new Lenders is at least $5,000,000);
provided, however, that Borrower and Agent may continue to deal solely and
directly with such Lender in connection with the interest so assigned to an
Assignee until (i) written notice of such assignment, together with payment
instructions, addresses, and related information with respect to the Assignee,
have been given to Borrower and Agent by such Lender and the Assignee, (ii) such
Lender and its Assignee have delivered to Borrower and Agent an Assignment and
Acceptance and Agent has notified the assigning Lender of its receipt thereof in
accordance with Section 13.1(b), and (iii) unless waived by the Agent, the
assigning Lender or Assignee has paid to Agent for Agent’s separate account a
processing fee in the amount of $3,500. Anything contained herein to the
contrary notwithstanding, the payment of any fees shall not be required and the
Assignee need not be an Eligible Transferee if such assignment is in connection
with any merger, consolidation, sale, transfer, or other disposition of all or
any substantial portion of the business or loan portfolio of the assigning
Lender.

(b) From and after the date that Agent notifies the assigning Lender (with a
copy to Borrower) that it has received an executed Assignment and Acceptance
and, if applicable, payment of the required processing fee, (i) the Assignee
thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, shall have the rights and obligations of a Lender under the Loan
Documents, and (ii) the assigning Lender shall, to the extent that rights and
obligations hereunder and under the other Loan Documents have been assigned by
it pursuant to such Assignment and Acceptance, relinquish its rights (except
with respect to Section 10.3 hereof) and be released from any future obligations
under this Agreement (and in the case of an Assignment and Acceptance covering
all or the remaining portion of an assigning Lender’s rights and obligations
under this Agreement and the other Loan Documents, such Lender shall cease to be
a party hereto and thereto), and such assignment shall effect a novation among
Borrower, the assigning Lender, and the Assignee; provided, however, that
nothing contained herein shall release any assigning Lender from obligations
that survive the termination of this Agreement, including such assigning
Lender’s obligations under Section 15 and Section 18.9(a) of this Agreement.

(c) By executing and delivering an Assignment and Acceptance, the assigning
Lender thereunder and the Assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than as provided in
such Assignment and Acceptance, such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other Loan Document furnished pursuant hereto,
(ii) such assigning Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition of Borrower or the
performance or observance by Borrower of any of its obligations under this
Agreement or any other Loan Document furnished pursuant hereto, (iii) such
Assignee confirms that it has received a copy of this Agreement, together with
such other documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into such Assignment and Acceptance,
(iv) such Assignee will, independently and without reliance upon Agent, such
assigning Lender or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement, (v) such
Assignee appoints and authorizes Agent to take such actions and to exercise such
powers under this Agreement as are delegated to Agent, by the terms hereof,
together with such powers as are reasonably incidental thereto, and (vi) such
Assignee agrees that it will perform all of the obligations which by the terms
of this Agreement are required to be performed by it as a Lender.

(d) Immediately upon Agent’s receipt of the required processing fee, if
applicable, and delivery of notice to the assigning Lender pursuant to
Section 13.1(b), this Agreement shall be deemed to be amended to the extent, but
only to the extent, necessary to reflect the addition of the Assignee and the
resulting adjustment of the Commitments arising therefrom. The Commitment
allocated to each Assignee shall reduce such Commitments of the assigning Lender
pro tanto.

 

- 41 -

--------------------------------------------------------------------------------

(e) Any Lender may at any time sell to one or more commercial banks, financial
institutions, or other Persons (a “Participant”) participating interests in all
or any portion of its Obligations, its Commitment, and the other rights and
interests of that Lender (the “Originating Lender”) hereunder and under the
other Loan Documents; provided, however, that (i) the Originating Lender shall
remain a “Lender” for all purposes of this Agreement and the other Loan
Documents and the Participant receiving the participating interest in the
Obligations, the Commitments, and the other rights and interests of the
Originating Lender hereunder shall not constitute a “Lender” hereunder or under
the other Loan Documents and the Originating Lender’s obligations under this
Agreement shall remain unchanged, (ii) the Originating Lender shall remain
solely responsible for the performance of such obligations, (iii) Borrower,
Agent, and the Lenders shall continue to deal solely and directly with the
Originating Lender in connection with the Originating Lender’s rights and
obligations under this Agreement and the other Loan Documents, (iv) no Lender
shall transfer or grant any participating interest under which the Participant
has the right to approve any amendment to, or any consent or waiver with respect
to, this Agreement or any other Loan Document, except to the extent such
amendment to, or consent or waiver with respect to this Agreement or of any
other Loan Document would (A) extend the final maturity date of the Obligations
hereunder in which such Participant is participating, (B) reduce the interest
rate applicable to the Obligations hereunder in which such Participant is
participating, (C) release all or substantially all of the Collateral or
guaranties (except to the extent expressly provided herein or in any of the Loan
Documents) supporting the Obligations hereunder in which such Participant is
participating, (D) postpone the payment of, or reduce the amount of, the
interest or fees payable to such Participant through such Lender, or (E) change
the amount or due dates of scheduled principal repayments or prepayments or
premiums, and (v) all amounts payable by Borrower hereunder shall be determined
as if such Lender had not sold such participation, except that, if amounts
outstanding under this Agreement are due and unpaid, or shall have been declared
or shall have become due and payable upon the occurrence of an Event of Default,
each Participant shall be deemed to have the right of set off in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement. The rights of any Participant only shall be
derivative through the Originating Lender with whom such Participant
participates and no Participant shall have any rights under this Agreement or
the other Loan Documents or any direct rights as to the other Lenders, Agent,
Borrower, the Collections of Borrower, the Collateral, or otherwise in respect
of the Obligations. No Participant shall have the right to participate directly
in the making of decisions by the Lenders among themselves. The provisions of
this Section 13.1(e) are solely for the benefit of the Lender Group and Borrower
shall not have any rights as third party beneficiaries of any such provisions.

(f) In connection with any such assignment or participation or proposed
assignment or participation, a Lender may, subject to the provisions of
Section 18.9, disclose all documents and information which it now or hereafter
may have relating to Borrower and their respective businesses.

(g) Any other provision in this Agreement notwithstanding, any Lender may at any
time create a security interest in, or pledge, all or any portion of its rights
under and interest in this Agreement in favor of any Federal Reserve Bank in
accordance with Regulation A of the Federal Reserve Bank or U.S. Treasury
Regulation 31 CFR § 203.24, and such Federal Reserve Bank may enforce such
pledge or security interest in any manner permitted under applicable law.

13.2. Successors. This Agreement shall bind and inure to the benefit of the
respective successors and assigns of each of the parties; provided, however,
that Borrower may not assign this Agreement or any rights or duties hereunder
without the Lenders’ prior written consent and any prohibited assignment shall
be absolutely void ab initio. No consent to assignment by the Lenders shall
release Borrower from its Obligations. A Lender may assign this Agreement and
the other Loan Documents and its rights and duties hereunder and thereunder
pursuant to Section 13.1 hereof and, except as expressly required pursuant to
Section 13.1 hereof, no consent or approval by Borrower is required in
connection with any such assignment.

 

- 42 -

--------------------------------------------------------------------------------

14. AMENDMENTS; WAIVERS.

14.1. Amendments and Waivers. No amendment or waiver of any provision of this
Agreement or any other Loan Document (other than Bank Product Agreements or the
Fee Letter), and no consent with respect to any departure by Borrower therefrom,
shall be effective unless the same shall be in writing and signed by the
Required Lenders (or by Agent at the written request of the Required Lenders)
and Borrower and then any such waiver or consent shall be effective, but only in
the specific instance and for the specific purpose for which given; provided,
however, that no such waiver, amendment, or consent shall, unless in writing and
signed by all of the Lenders directly affected thereby and Borrower, do any of
the following:

(a) increase or extend any Commitment of any Lender,

(b) postpone or delay any date fixed by this Agreement or any other Loan
Document for any payment of principal, interest, fees, or other amounts due
hereunder or under any other Loan Document,

(c) reduce the principal of, or the rate of interest on, any loan or other
extension of credit hereunder, or reduce any fees or other amounts payable
hereunder or under any other Loan Document,

(d) change the Pro Rata Share that is required to take any action hereunder,

(e) amend or modify this Section or any provision of this Agreement providing
for consent or other action by all Lenders,

(f) other than as permitted by Section 15.11, release Agent’s Lien in and to any
of the Collateral,

(g) change the definition of “Required Lenders” or “Pro Rata Share”,

(h) contractually subordinate any of the Agent’s Liens,

(i) other than in connection with a merger, liquidation, dissolution or sale of
such Person expressly permitted by the terms hereof or the other Loan Documents,
release Borrower from any obligation for the payment of money,

(j) amend any of the provisions of Section 2.4(b)(i) or (ii),

(k) change the definition of Borrowing Base or the definitions of Base
Differential, Maximum Revolver Amount, NYMEX Strip Price, PV-10, Proved
Developed Producing Reserves, Proved Developed Non-Producing Reserves, and
Proved Reserves, or change Section 2.1(b), or

(l) amend any of the provisions of Section 15.

and, provided further, however, that no amendment, waiver or consent shall,
unless in writing and signed by Agent, Issuing Lender, or Swing Lender, as
applicable, affect the rights or duties of Agent, Issuing Lender, or Swing
Lender, as applicable, under this Agreement or any other Loan Document. The
foregoing notwithstanding, any amendment, modification, waiver, consent,
termination, or release of, or with respect to, any provision of this Agreement
or any other Loan Document that relates only to the relationship of the Lender
Group among themselves, and that does not affect the rights or obligations of
Borrower, shall not require consent by or the agreement of Borrower.

 

- 43 -

--------------------------------------------------------------------------------

14.2. Replacement of Holdout Lender.

(a) If any action to be taken by the Lender Group or Agent hereunder requires
the unanimous consent, authorization, or agreement of all Lenders, and a Lender
(“Holdout Lender”) fails to give its consent, authorization, or agreement, then
Agent, upon at least 5 Business Days prior irrevocable notice to the Holdout
Lender, may permanently replace the Holdout Lender with one or more substitute
Lenders (each, a “Replacement Lender”), and the Holdout Lender shall have no
right to refuse to be replaced hereunder. Such notice to replace the Holdout
Lender shall specify an effective date for such replacement, which date shall
not be later than 15 Business Days after the date such notice is given.

(b) Prior to the effective date of such replacement, the Holdout Lender and each
Replacement Lender shall execute and deliver an Assignment and Acceptance,
subject only to the Holdout Lender being repaid its share of the outstanding
Obligations (including an assumption of its Pro Rata Share of the Risk
Participation Liability) without any premium or penalty of any kind whatsoever.
If the Holdout Lender shall refuse or fail to execute and deliver any such
Assignment and Acceptance prior to the effective date of such replacement, the
Holdout Lender shall be deemed to have executed and delivered such Assignment
and Acceptance. The replacement of any Holdout Lender shall be made in
accordance with the terms of Section 13.1. Until such time as the Replacement
Lenders shall have acquired all of the Obligations, the Commitments, and the
other rights and obligations of the Holdout Lender hereunder and under the other
Loan Documents, the Holdout Lender shall remain obligated to make the Holdout
Lender’s Pro Rata Share of Advances and to purchase a participation in each
Letter of Credit, in an amount equal to its Pro Rata Share of the Risk
Participation Liability of such Letter of Credit.

14.3. No Waivers; Cumulative Remedies. No failure by Agent or any Lender to
exercise any right, remedy, or option under this Agreement or any other Loan
Document, or delay by Agent or any Lender in exercising the same, will operate
as a waiver thereof. No waiver by Agent or any Lender will be effective unless
it is in writing, and then only to the extent specifically stated. No waiver by
Agent or any Lender on any occasion shall affect or diminish Agent’s and each
Lender’s rights thereafter to require strict performance by Borrower of any
provision of this Agreement. Agent’s and each Lender’s rights under this
Agreement and the other Loan Documents will be cumulative and not exclusive of
any other right or remedy that Agent or any Lender may have.

15. AGENT; THE LENDER GROUP.

15.1. Appointment and Authorization of Agent. Each Lender hereby designates and
appoints WFF as its representative under this Agreement and the other Loan
Documents and each Lender hereby irrevocably authorizes Agent to execute and
deliver each of the other Loan Documents on its behalf and to take such other
action on its behalf under the provisions of this Agreement and each other Loan
Document and to exercise such powers and perform such duties as are expressly
delegated to Agent by the terms of this Agreement or any other Loan Document,
together with such powers as are reasonably incidental thereto. Agent agrees to
act as such on the express conditions contained in this Section 15. The
provisions of this Section 15 are solely for the benefit of Agent, and the
Lenders, and Borrower shall have no rights as a third party beneficiary of any
of the provisions contained herein. Any provision to the contrary contained
elsewhere in this Agreement or in any other Loan Document notwithstanding, Agent
shall not have any duties or responsibilities, except those expressly set forth
herein, nor shall Agent have or be deemed to have any fiduciary relationship
with any Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against Agent; it being expressly understood and
agreed that the use of the word “Agent” is for convenience only, that WFF is
merely the representative of the Lenders, and only has the contractual duties
set forth herein. Except as expressly otherwise provided in this Agreement,
Agent shall have and may use its sole discretion with respect to exercising or
refraining from exercising any discretionary rights or taking or refraining from
taking any actions that Agent expressly is entitled to take or assert under or
pursuant to this Agreement and the other Loan Documents. Without limiting the
generality of the foregoing, or of any other provision of the Loan Documents
that provides rights or powers to Agent, Lenders agree that Agent shall have the
right to exercise the following powers as long as this Agreement remains in
effect: (a) maintain, in accordance with its

 

- 44 -

--------------------------------------------------------------------------------

customary business practices, ledgers and records reflecting the status of the
Obligations, the Collateral, the Collections of Borrower, and related matters,
(b) execute or file any and all financing or similar statements or notices,
amendments, renewals, supplements, documents, instruments, proofs of claim,
notices and other written agreements with respect to the Loan Documents,
(c) make Advances, for itself or on behalf of Lenders as provided in the Loan
Documents, (d) exclusively receive, apply, and distribute the Collections of
Borrower as provided in the Loan Documents, (e) open and maintain such bank
accounts and cash management arrangements as Agent deems necessary and
appropriate in accordance with the Loan Documents for the foregoing purposes
with respect to the Collateral and the Collections of Borrower, (f) perform,
exercise, and enforce any and all other rights and remedies of the Lender Group
with respect to Borrower, the Obligations, the Collateral, the Collections of
Borrower, or otherwise related to any of same as provided in the Loan Documents,
and (g) incur and pay such Lender Group Expenses as Agent may deem necessary or
appropriate for the performance and fulfillment of its functions and powers
pursuant to the Loan Documents.

15.2. Delegation of Duties. Agent may execute any of its duties under this
Agreement or any other Loan Document by or through agents, employees or
attorneys in fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. Agent shall not be responsible for the
negligence or misconduct of any agent or attorney in fact that it selects as
long as such selection was made without gross negligence or willful misconduct.

15.3. Liability of Agent. None of the Agent Related Persons shall (a) be liable
for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Loan Document or the transactions
contemplated hereby (except for its own gross negligence or willful misconduct),
or (b) be responsible in any manner to any of the Lenders for any recital,
statement, representation or warranty made by Borrower or any of its Affiliates,
or any officer or director thereof, contained in this Agreement or in any other
Loan Document, or in any certificate, report, statement or other document
referred to or provided for in, or received by Agent under or in connection
with, this Agreement or any other Loan Document, or the validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document, or for any failure of Borrower or any other party to any Loan Document
to perform its obligations hereunder or thereunder. No Agent-Related Person
shall be under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement or any other Loan Document, or to inspect the books and
records or properties of Borrower.

15.4. Reliance by Agent. Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, telefacsimile or other electronic
method of transmission, telex or telephone message, statement or other document
or conversation believed by it to be genuine and correct and to have been
signed, sent, or made by the proper Person or Persons, and upon advice and
statements of legal counsel (including counsel to Borrower or counsel to any
Lender), independent accountants and other experts selected by Agent. Agent
shall be fully justified in failing or refusing to take any action under this
Agreement or any other Loan Document unless Agent shall first receive such
advice or concurrence of the Lenders as it deems appropriate and until such
instructions are received, Agent shall act, or refrain from acting, as it deems
advisable. If Agent so requests, it shall first be indemnified to its reasonable
satisfaction by the Lenders against any and all liability and expense that may
be incurred by it by reason of taking or continuing to take any such action.
Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement or any other Loan Document in accordance with a
request or consent of the requisite Lenders and such request and any action
taken or failure to act pursuant thereto shall be binding upon all of the
Lenders.

15.5. Notice of Default or Event of Default. Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default, except
with respect to defaults in the payment of principal, interest, fees, and
expenses required to be paid to Agent for the account of the Lenders and, except
with respect to Events of Default of which Agent has actual knowledge, unless
Agent shall have received written notice from a Lender or Borrower referring to
this Agreement, describing such Default or Event of Default, and stating that
such notice is a “notice of default.” Agent promptly will notify the Lenders of
its

 

- 45 -

--------------------------------------------------------------------------------

receipt of any such notice or of any Event of Default of which Agent has actual
knowledge. If any Lender obtains actual knowledge of any Event of Default, such
Lender promptly shall notify the other Lenders and Agent of such Event of
Default. Each Lender shall be solely responsible for giving any notices to its
Participants, if any. Subject to Section 15.4, Agent shall take such action with
respect to such Default or Event of Default as may be requested by the Required
Lenders in accordance with Section 8; provided, however, that unless and until
Agent has received any such request, Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable.

15.6. Credit Decision. Each Lender acknowledges that none of the Agent Related
Persons has made any representation or warranty to it, and that no act by Agent
hereinafter taken, including any review of the affairs of Borrower and its
Affiliates, shall be deemed to constitute any representation or warranty by any
Agent-Related Person to any Lender. Each Lender represents to Agent that it has,
independently and without reliance upon any Agent-Related Person and based on
such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, prospects, operations,
property, financial and other condition and creditworthiness of Borrower or any
other Person party to a Loan Document, and all applicable bank regulatory laws
relating to the transactions contemplated hereby, and made its own decision to
enter into this Agreement and to extend credit to Borrower. Each Lender also
represents that it will, independently and without reliance upon any
Agent-Related Person and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigations as it deems necessary
to inform itself as to the business, prospects, operations, property, financial
and other condition and creditworthiness of Borrower or any other Person party
to a Loan Document. Except for notices, reports, and other documents expressly
herein required to be furnished to the Lenders by Agent, Agent shall not have
any duty or responsibility to provide any Lender with any credit or other
information concerning the business, prospects, operations, property, financial
and other condition or creditworthiness of Borrower or any other Person party to
a Loan Document that may come into the possession of any of the Agent Related
Persons.

15.7. Costs and Expenses; Indemnification. Agent may incur and pay Lender Group
Expenses to the extent Agent reasonably deems necessary or appropriate for the
performance and fulfillment of its functions, powers, and obligations pursuant
to the Loan Documents, including court costs, attorneys fees and expenses, fees
and expenses of financial accountants, advisors, consultants, and appraisers,
costs of collection by outside collection agencies, auctioneer fees and
expenses, and costs of security guards or insurance premiums paid to maintain
the Collateral, whether or not Borrower is obligated to reimburse Agent or
Lenders for such expenses pursuant to this Agreement or otherwise. Agent is
authorized and directed to deduct and retain sufficient amounts from the
Collections of Borrower received by Agent to reimburse Agent for such
out-of-pocket costs and expenses prior to the distribution of any amounts to
Lenders. In the event Agent is not reimbursed for such costs and expenses by
Borrower, each Lender hereby agrees that it is and shall be obligated to pay to
Agent such Lender’s Pro Rata Share thereof. Whether or not the transactions
contemplated hereby are consummated, the Lenders shall indemnify upon demand the
Agent-Related Persons (to the extent not reimbursed by or on behalf of Borrower
and without limiting the obligation of Borrower to do so), according to their
Pro Rata Shares, from and against any and all Indemnified Liabilities; provided,
however, that no Lender shall be liable for the payment to any Agent-Related
Person of any portion of such Indemnified Liabilities resulting solely from such
Person’s gross negligence or willful misconduct nor shall any Lender be liable
for the obligations of any Defaulting Lender in failing to make an Advance or
other extension of credit hereunder. Without limitation of the foregoing, each
Lender shall reimburse Agent upon demand for such Lender’s Pro Rata Share of any
costs or out of pocket expenses (including attorneys, accountants, advisors, and
consultants fees and expenses) incurred by Agent in connection with the
preparation, execution, delivery, administration, modification, amendment, or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement,
any other Loan Document, or any document contemplated by or referred to herein,
to the extent that Agent is not reimbursed for such expenses by or on behalf of
Borrower. The undertaking in this Section shall survive the payment of all
Obligations hereunder and the resignation or replacement of Agent.

 

- 46 -

--------------------------------------------------------------------------------

15.8. Agent in Individual Capacity. WFF and its Affiliates may make loans to,
issue letters of credit for the account of, accept deposits from, acquire equity
interests in, and generally engage in any kind of banking, trust, financial
advisory, underwriting, or other business with Borrower and its Affiliates and
any other Person party to any Loan Documents as though WFF were not Agent
hereunder, and, in each case, without notice to or consent of the other members
of the Lender Group. The other members of the Lender Group acknowledge that,
pursuant to such activities, WFF or its Affiliates may receive information
regarding Borrower or its Affiliates or any other Person party to any Loan
Documents that is subject to confidentiality obligations in favor of Borrower or
such other Person and that prohibit the disclosure of such information to the
Lenders, and the Lenders acknowledge that, in such circumstances (and in the
absence of a waiver of such confidentiality obligations, which waiver Agent will
use its reasonable best efforts to obtain), Agent shall not be under any
obligation to provide such information to them. The terms “Lender” and “Lenders”
include WFF in its individual capacity.

15.9. Successor Agent. Agent may resign as Agent upon 45 days notice to the
Lenders (unless such notice is waived by the Required Lenders). If Agent resigns
under this Agreement, the Required Lenders shall appoint a successor Agent for
the Lenders. If no successor Agent is appointed prior to the effective date of
the resignation of Agent, Agent may appoint, after consulting with the Lenders,
a successor Agent. If Agent has materially breached or failed to perform any
material provision of this Agreement or of applicable law, the Required Lenders
may agree in writing to remove and replace Agent with a successor Agent from
among the Lenders. In any such event, upon the acceptance of its appointment as
successor Agent hereunder, such successor Agent shall succeed to all the rights,
powers, and duties of the retiring Agent and the term “Agent” shall mean such
successor Agent and the retiring Agent’s appointment, powers, and duties as
Agent shall be terminated. After any retiring Agent’s resignation hereunder as
Agent, the provisions of this Section 15 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement. If no successor Agent has accepted appointment as Agent by the date
which is 45 days following a retiring Agent’s notice of resignation, the
retiring Agent’s resignation shall nevertheless thereupon become effective and
the Lenders shall perform all of the duties of Agent hereunder until such time,
if any, as the Lenders appoint a successor Agent as provided for above.

15.10. Lender in Individual Capacity. Any Lender and its respective Affiliates
may make loans to, issue letters of credit for the account of, accept deposits
from, acquire equity interests in and generally engage in any kind of banking,
trust, financial advisory, underwriting, or other business with Borrower and its
Affiliates and any other Person party to any Loan Documents as though such
Lender were not a Lender hereunder without notice to or consent of the other
members of the Lender Group. The other members of the Lender Group acknowledge
that, pursuant to such activities, such Lender and its respective Affiliates may
receive information regarding Borrower or its Affiliates or any other Person
party to any Loan Documents that is subject to confidentiality obligations in
favor of Borrower or such other Person and that prohibit the disclosure of such
information to the Lenders, and the Lenders acknowledge that, in such
circumstances (and in the absence of a waiver of such confidentiality
obligations, which waiver such Lender will use its reasonable best efforts to
obtain), such Lender shall not be under any obligation to provide such
information to them.

15.11. Collateral Matters.

(a) The Lenders hereby irrevocably authorize Agent, at its option and in its
sole discretion, to release any Lien on any Collateral (i) upon the termination
of the Commitments and payment and satisfaction in full by Borrower of all
Obligations, (ii) constituting property being sold or disposed of if a release
is required or desirable in connection therewith and if Borrower certifies to
Agent that the sale or disposition is permitted under Section 6.4 of this
Agreement or the other Loan Documents (and Agent may rely conclusively on any
such certificate, without further inquiry), (iii) constituting property in which
Borrower did not own any interest at the time the Agent’s Lien was granted nor
at any time thereafter, or (iv) constituting

 

- 47 -

--------------------------------------------------------------------------------

property leased to Borrower under a lease that has expired or is terminated in a
transaction permitted under this Agreement. Except as provided above, Agent will
not execute and deliver a release of any Lien on any Collateral without the
prior written authorization of (y) if the release is of all or substantially all
of the Collateral, all of the Lenders, or (z) otherwise, the Required Lenders.
Upon request by Agent or Borrower at any time, the Lenders will confirm in
writing Agent’s authority to release any such Liens on particular types or items
of Collateral pursuant to this Section 15.11; provided, however, that (1) Agent
shall not be required to execute any document necessary to evidence such release
on terms that, in Agent’s opinion, would expose Agent to liability or create any
obligation or entail any consequence other than the release of such Lien without
recourse, representation, or warranty, and (2) such release shall not in any
manner discharge, affect, or impair the Obligations or any Liens (other than
those expressly being released) upon (or obligations of Borrower in respect of)
all interests retained by Borrower, including, the proceeds of any sale, all of
which shall continue to constitute part of the Collateral.

(b) Agent shall have no obligation whatsoever to any of the Lenders to assure
that the Collateral exists or is owned by Borrower or is cared for, protected,
or insured or has been encumbered, or that the Agent’s Liens have been properly
or sufficiently or lawfully created, perfected, protected, or enforced or are
entitled to any particular priority, or to exercise at all or in any particular
manner or under any duty of care, disclosure or fidelity, or to continue
exercising, any of the rights, authorities and powers granted or available to
Agent pursuant to any of the Loan Documents, it being understood and agreed that
in respect of the Collateral, or any act, omission, or event related thereto,
subject to the terms and conditions contained herein, Agent may act in any
manner it may deem appropriate, in its sole discretion given Agent’s own
interest in the Collateral in its capacity as one of the Lenders and that Agent
shall have no other duty or liability whatsoever to any Lender as to any of the
foregoing, except as otherwise provided herein.

15.12. Restrictions on Actions by Lenders; Sharing of Payments.

(a) Each of the Lenders agrees that it shall not, without the express written
consent of Agent, and that it shall, to the extent it is lawfully entitled to do
so, upon the written request of Agent, set off against the Obligations, any
amounts owing by such Lender to Borrower or any deposit accounts of Borrower now
or hereafter maintained with such Lender. Each of the Lenders further agrees
that it shall not, unless specifically requested to do so in writing by Agent,
take or cause to be taken any action, including, the commencement of any legal
or equitable proceedings to enforce any Loan Document against Borrower or to
foreclose any Lien on, or otherwise enforce any security interest in, any of the
Collateral.

(b) If, at any time or times any Lender shall receive (i) by payment,
foreclosure, setoff, or otherwise, any proceeds of Collateral or any payments
with respect to the Obligations, except for any such proceeds or payments
received by such Lender from Agent pursuant to the terms of this Agreement, or
(ii) payments from Agent in excess of such Lender’s Pro Rata Share of all such
distributions by Agent, such Lender promptly shall (A) turn the same over to
Agent, in kind, and with such endorsements as may be required to negotiate the
same to Agent, or in immediately available funds, as applicable, for the account
of all of the Lenders and for application to the Obligations in accordance with
the applicable provisions of this Agreement, or (B) purchase, without recourse
or warranty, an undivided interest and participation in the Obligations owed to
the other Lenders so that such excess payment received shall be applied ratably
as among the Lenders in accordance with their Pro Rata Shares; provided,
however, that to the extent that such excess payment received by the purchasing
party is thereafter recovered from it, those purchases of participations shall
be rescinded in whole or in part, as applicable, and the applicable portion of
the purchase price paid therefor shall be returned to such purchasing party, but
without interest except to the extent that such purchasing party is required to
pay interest in connection with the recovery of the excess payment.

15.13. Agency for Perfection. Agent hereby appoints each other Lender as its
agent (and each Lender hereby accepts such appointment) for the purpose of
perfecting the Agent’s Liens in assets which, in accordance with Article 8 or
Article 9, as applicable, of the Code can be perfected only by possession or
control. Should any Lender obtain possession or control of any such Collateral,
such Lender shall notify Agent thereof, and, promptly upon Agent’s request
therefor shall deliver possession or control of such Collateral to Agent or in
accordance with Agent’s instructions.

 

- 48 -

--------------------------------------------------------------------------------

15.14. Payments by Agent to the Lenders. All payments to be made by Agent to the
Lenders shall be made by bank wire transfer of immediately available funds
pursuant to such wire transfer instructions as each party may designate for
itself by written notice to Agent. Concurrently with each such payment, Agent
shall identify whether such payment (or any portion thereof) represents
principal, premium, fees, or interest of the Obligations.

15.15. Concerning the Collateral and Related Loan Documents. Each member of the
Lender Group authorizes and directs Agent to enter into this Agreement and the
other Loan Documents. Each member of the Lender Group agrees that any action
taken by Agent in accordance with the terms of this Agreement or the other Loan
Documents relating to the Collateral and the exercise by Agent of its powers set
forth therein or herein, together with such other powers that are reasonably
incidental thereto, shall be binding upon all of the Lenders.

15.16. Field Audits and Examination Reports; Confidentiality; Disclaimers by
Lenders; Other Reports and Information. By becoming a party to this Agreement,
each Lender:

(a) is deemed to have requested that Agent furnish such Lender, promptly after
it becomes available, a copy of each field audit or examination report
respecting Borrower (each a “Report” and collectively, “Reports”) prepared by or
at the request of Agent, and Agent shall so furnish each Lender with such
Reports,

(b) expressly agrees and acknowledges that Agent does not (i) make any
representation or warranty as to the accuracy of any Report, and (ii) shall not
be liable for any information contained in any Report,

(c) expressly agrees and acknowledges that the Reports are not comprehensive
audits or examinations, that Agent or other party performing any audit or
examination will inspect only specific information regarding Borrower and will
rely significantly upon Borrower’s books and records, as well as on
representations of Borrower’s personnel,

(d) agrees to keep all Reports and other material, non-public information
regarding Borrower and its operations, assets, and existing and contemplated
business plans in a confidential manner in accordance with Section 18.9, and

(e) without limiting the generality of any other indemnification provision
contained in this Agreement, agrees: (i) to hold Agent and any such other Lender
preparing a Report harmless from any action the indemnifying Lender may take or
fail to take or any conclusion the indemnifying Lender may reach or draw from
any Report in connection with any loans or other credit accommodations that the
indemnifying Lender has made or may make to Borrower, or the indemnifying
Lender’s participation in, or the indemnifying Lender’s purchase of, a loan or
loans of Borrower; and (ii) to pay and protect, and indemnify, defend and hold
Agent, and any such other Lender preparing a Report harmless from and against,
the claims, actions, proceedings, damages, costs, expenses, and other amounts
(including, attorneys fees and costs) incurred by Agent and any such other
Lender preparing a Report as the direct or indirect result of any third parties
who might obtain all or part of any Report through the indemnifying Lender.

In addition to the foregoing: (x) any Lender may from time to time request of
Agent in writing that Agent provide to such Lender a copy of any report or
document provided by Borrower to Agent that has not been contemporaneously
provided by Borrower to such Lender, and, upon receipt of such request, Agent
promptly shall provide a copy of same to such Lender, (y) to the extent that
Agent is entitled, under any provision of the Loan Documents, to request
additional reports or information from Borrower, any Lender may, from time to

 

- 49 -

--------------------------------------------------------------------------------

time, reasonably request Agent to exercise such right as specified in such
Lender’s notice to Agent, whereupon Agent promptly shall request of Borrower the
additional reports or information reasonably specified by such Lender, and, upon
receipt thereof from Borrower, Agent promptly shall provide a copy of same to
such Lender, and (z) any time that Agent renders to Borrower a statement
regarding the Loan Account, Agent shall send a copy of such statement to each
Lender.

15.17. Several Obligations; No Liability. Notwithstanding that certain of the
Loan Documents now or hereafter may have been or will be executed only by or in
favor of Agent in its capacity as such, and not by or in favor of the Lenders,
any and all obligations on the part of Agent (if any) to make any credit
available hereunder shall constitute the several (and not joint) obligations of
the respective Lenders on a ratable basis, according to their respective
Commitments, to make an amount of such credit not to exceed, in principal
amount, at any one time outstanding, the amount of their respective Commitments.
Nothing contained herein shall confer upon any Lender any interest in, or
subject any Lender to any liability for, or in respect of, the business, assets,
profits, losses, or liabilities of any other Lender. Each Lender shall be solely
responsible for notifying its Participants of any matters relating to the Loan
Documents to the extent any such notice may be required, and no Lender shall
have any obligation, duty, or liability to any Participant of any other Lender.
Except as provided in Section 15.7, no member of the Lender Group shall have any
liability for the acts of any other member of the Lender Group. No Lender shall
be responsible to Borrower or any other Person for any failure by any other
Lender to fulfill its obligations to make credit available hereunder, nor to
advance for it or on its behalf in connection with its Commitment, nor to take
any other action on its behalf hereunder or in connection with the financing
contemplated herein.

16. WITHHOLDING TAXES.

(a) All payments made by Borrower hereunder or under any note or other Loan
Document will be made without setoff, counterclaim, or other defense. In
addition, all such payments will be made free and clear of, and without
deduction or withholding for, any present or future Taxes, and in the event any
deduction or withholding of Taxes is required, Borrower shall comply with the
penultimate sentence of this Section 16(a). “Taxes” shall mean, any taxes,
levies, imposts, duties, fees, assessments or other charges of whatever nature
now or hereafter imposed by any jurisdiction or by any political subdivision or
taxing authority thereof or therein with respect to such payments (but excluding
any tax imposed by any jurisdiction or by any political subdivision or taxing
authority thereof or therein measured by or based on the net income or net
profits of any Lender) and all interest, penalties or similar liabilities with
respect thereto. If any Taxes are so levied or imposed, Borrower agrees to pay
the full amount of such Taxes and such additional amounts as may be necessary so
that every payment of all amounts due under this Agreement, any note, or Loan
Document, including any amount paid pursuant to this Section 16(a) after
withholding or deduction for or on account of any Taxes, will not be less than
the amount provided for herein; provided, however, that Borrower shall not be
required to increase any such amounts if the increase in such amount payable
results from Agent’s or such Lender’s own willful misconduct or gross negligence
(as finally determined by a court of competent jurisdiction). Borrower will
furnish to Agent as promptly as possible after the date the payment of any Tax
is due pursuant to applicable law certified copies of tax receipts evidencing
such payment by Borrower.

(b) If a Lender claims an exemption from United States withholding tax, Lender
agrees with and in favor of Agent and Borrower, to deliver to Agent:

(i) if such Lender claims an exemption from United States withholding tax
pursuant to its portfolio interest exception, (A) a statement of the Lender,
signed under penalty of perjury, that it is not a (I) a “bank” as described in
Section 881(c)(3)(A) of the IRC, (II) a 10% shareholder of Borrower (within the
meaning of Section 871(h)(3)(B) of the IRC), or (III) a controlled foreign
corporation related to Borrower within the meaning of Section 864(d)(4) of the
IRC, and (B) a properly completed and executed IRS Form W-8BEN, before receiving
its first payment under this Agreement and at any other time reasonably
requested by Agent or Borrower;

 

- 50 -

--------------------------------------------------------------------------------

(ii) if such Lender claims an exemption from, or a reduction of, withholding tax
under a United States tax treaty, properly completed and executed IRS Form
W-8BEN before receiving its first payment under this Agreement and at any other
time reasonably requested by Agent or Borrower;

(iii) if such Lender claims that interest paid under this Agreement is exempt
from United States withholding tax because it is effectively connected with a
United States trade or business of such Lender, two properly completed and
executed copies of IRS Form W-8ECI before receiving its first payment under this
Agreement and at any other time reasonably requested by Agent or Borrower; or

(iv) such other form or forms, including IRS Form W-9, as may be required under
the IRC or other laws of the United States as a condition to exemption from, or
reduction of, United States withholding or backup withholding tax before
receiving its first payment under this Agreement and at any other time
reasonably requested by Agent or Borrower.

Lender agrees promptly to notify Agent and Borrower of any change in
circumstances which would modify or render invalid any claimed exemption or
reduction.

(c) If a Lender claims an exemption from withholding tax in a jurisdiction other
than the United States, Lender agrees with and in favor of Agent and Borrower,
to deliver to Agent any such form or forms, as may be required under the laws of
such jurisdiction as a condition to exemption from, or reduction of, foreign
withholding or backup withholding tax before receiving its first payment under
this Agreement and at any other time reasonably requested by Agent or Borrower.

Lender agrees promptly to notify Agent and Borrower of any change in
circumstances which would modify or render invalid any claimed exemption or
reduction.

(d) If any Lender claims exemption from, or reduction of, withholding tax and
such Lender sells, assigns, grants a participation in, or otherwise transfers
all or part of the Obligations of Borrower to such Lender, such Lender agrees to
notify Agent and Borrower of the percentage amount in which it is no longer the
beneficial owner of Obligations of Borrower to such Lender. To the extent of
such percentage amount, Agent and Borrower will treat such Lender’s
documentation provided pursuant to Sections 16(b) or 16(c) as no longer valid.
With respect to such percentage amount, Lender may provide new documentation,
pursuant to Sections 16(b) or 16(c), if applicable.

(e) If any Lender is entitled to a reduction in the applicable withholding tax,
Agent may withhold from any interest payment to such Lender an amount equivalent
to the applicable withholding tax after taking into account such reduction. If
the forms or other documentation required by subsection (b) or (c) of this
Section 16 are not delivered to Agent, then Agent may withhold from any interest
payment to such Lender not providing such forms or other documentation an amount
equivalent to the applicable withholding tax.

(f) If the IRS or any other Governmental Authority of the United States or other
jurisdiction asserts a claim that Agent did not properly withhold tax from
amounts paid to or for the account of any Lender due to a failure on the part of
the Lender (because the appropriate form was not delivered, was not properly
executed, or because such Lender failed to notify Agent of a change in
circumstances which rendered the exemption from, or reduction of, withholding
tax ineffective, or for any other reason) such Lender shall indemnify and hold
Agent harmless for all amounts paid, directly or indirectly, by Agent, as tax or
otherwise, including penalties and interest, and including any taxes imposed by
any jurisdiction on the amounts payable to Agent under this Section 16, together
with all costs and expenses (including attorneys fees and expenses). The
obligation of the Lenders under this subsection shall survive the payment of all
Obligations and the resignation or replacement of Agent.

 

- 51 -

--------------------------------------------------------------------------------

17. INTENTIONALLY OMITTED

18. GENERAL PROVISIONS.

18.1. Effectiveness. This Agreement shall be binding and deemed effective when
executed by Borrower, Agent, and each Lender whose signature is provided for on
the signature pages hereof.

18.2. Section Headings. Headings and numbers have been set forth herein for
convenience only. Unless the contrary is compelled by the context, everything
contained in each Section applies equally to this entire Agreement.

18.3. Interpretation. Neither this Agreement nor any uncertainty or ambiguity
herein shall be construed against the Lender Group or Borrower, whether under
any rule of construction or otherwise. On the contrary, this Agreement has been
reviewed by all parties and shall be construed and interpreted according to the
ordinary meaning of the words used so as to accomplish fairly the purposes and
intentions of all parties hereto.

18.4. Severability of Provisions. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.

18.5. Bank Product Providers. Each Bank Product Provider shall be deemed a party
hereto for purposes of any reference in a Loan Document to the parties for whom
Agent is acting; it being understood and agreed that the rights and benefits of
such Bank Product Provider under the Loan Documents consist exclusively of such
Bank Product Provider’s right to share in payments and collections out of the
Collateral as more fully set forth herein. In connection with any such
distribution of payments and collections, Agent shall be entitled to assume no
amounts are due to any Bank Product Provider unless such Bank Product Provider
has notified Agent in writing of the amount of any such liability owed to it
prior to such distribution.

18.6. Lender-Creditor Relationship. The relationship between the Lenders and
Agent, on the one hand, and Borrower, on the other hand, is solely that of
creditor and debtor. No member of the Lender Group has (or shall be deemed to
have) any fiduciary relationship or duty to Borrower arising out of or in
connection with, and there is no agency or joint venture relationship between
the members of the Lender Group, on the one hand, and Borrower on the other
hand, by virtue of any Loan Document or any transaction contemplated therein.

18.7. Counterparts; Electronic Execution. This Agreement may be executed in any
number of counterparts and by different parties on separate counterparts, each
of which, when executed and delivered, shall be deemed to be an original, and
all of which, when taken together, shall constitute but one and the same
Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile or other electronic method of transmission shall be equally as
effective as delivery of an original executed counterpart of this Agreement. Any
party delivering an executed counterpart of this Agreement by telefacsimile or
other electronic method of transmission also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement. The foregoing shall apply to each other Loan Document mutatis
mutandis.

18.8. Revival and Reinstatement of Obligations. If the incurrence or payment of
the Obligations or the Guarantied Obligations by Borrower or the transfer to the
Lender Group of any property should for any reason subsequently be declared to
be void or voidable under any state or federal law relating to creditors’
rights, including provisions of the Bankruptcy Code relating to fraudulent
conveyances, preferences, or other voidable or recoverable payments of money or
transfers of property (each, a “Voidable Transfer”), and if the Lender Group is
required to repay or restore, in whole or in part, any such Voidable Transfer,
or elects to do so upon the reasonable advice of its counsel, then, as to any
such Voidable Transfer, or the amount thereof that

 

- 52 -

--------------------------------------------------------------------------------

the Lender Group is required or elects to repay or restore, and as to all
reasonable costs, expenses, and attorneys fees of the Lender Group related
thereto, the liability of Borrower automatically shall be revived, reinstated,
and restored and shall exist as though such Voidable Transfer had never been
made.

18.9. Confidentiality.

(a) Agent and Lenders each individually (and not jointly or jointly and
severally) agree that material, non-public information regarding Borrower, its
operations, assets, and existing and contemplated business plans shall be
treated by Agent and the Lenders in a confidential manner, and shall not be
disclosed by Agent and the Lenders to Persons who are not parties to this
Agreement, except: (i) to attorneys for and other advisors, accountants,
auditors, and consultants to any member of the Lender Group, (ii) to
Subsidiaries and Affiliates of any member of the Lender Group (including the
Bank Product Providers), provided that any such Subsidiary or Affiliate shall
have agreed to receive such information hereunder subject to the terms of this
Section 18.9, (iii) as may be required by statute, decision, or judicial or
administrative order, rule, or regulation, (iv) as may be agreed to in advance
by Borrower or as requested or required by any Governmental Authority pursuant
to any subpoena or other legal process, (v) as to any such information that is
or becomes generally available to the public (other than as a result of
prohibited disclosure by Agent or the Lenders), (vi) in connection with any
assignment, prospective assignment, sale, prospective sale, participation,
prospective participation or pledge or prospective pledge of any Lender’s
interest under this Agreement, provided that any such assignee, prospective
assignee, purchaser, prospective purchaser, participant, prospective
participant, pledge or prospective pledgee shall have agreed in writing to
receive such information hereunder subject to the terms of this Section, and
(vii) in connection with any litigation or other adversary proceeding involving
parties hereto which such litigation or adversary proceeding involves claims
related to the rights or duties of such parties under this Agreement or the
other Loan Documents. The provisions of this Section 18.9(a) shall survive for 2
years after the payment in full of the Obligations.

(b) Anything in this Agreement to the contrary notwithstanding, Agent may
provide information concerning the terms and conditions of this Agreement and
the other Loan Documents to loan syndication and pricing reporting services.

18.10. Lender Group Expenses. Borrower agrees to pay any and all Lender Group
Expenses promptly after demand therefor by Agent and agrees that their
obligations contained in this Section 18.10 shall survive payment or
satisfaction in full of all other Obligations.

18.11. USA PATRIOT Act. Each Lender that is subject to the requirements of the
USA Patriot Act (Title 111 of Pub. L. 107-56 (signed into law October 26, 2001))
(the “Act”) hereby notifies Borrower that pursuant to the requirements of the
Act, it is required to obtain, verify and record information that identifies
Borrower, which information includes the name and address of Borrower and other
information that will allow such Lender to identify Borrower in accordance with
the Act.

18.12. Integration. This Agreement, together with the other Loan Documents,
reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.

[Signature pages to follow.]

 

- 53 -

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
and delivered as of the date first above written.

 

BORROWER:

BASELINE OIL & GAS CORP.,

a Nevada corporation

By:

 

/s/ Thomas Kaetzer

Name:

  Thomas Kaetzer

Title:

  Chief Executive Officer

AGENT AND LENDER:

WELLS FARGO FOOTHILLS, INC.,

a California corporation, as Agent and as a Lender

By:

 

/s/ David A. Ernst

Name:

  David A. Ernst

Title:

  Vice President

 

- 1 -

--------------------------------------------------------------------------------

EXHIBITS AND SCHEDULES

 

Exhibit A-1    Form of Assignment and Acceptance Exhibit B-1    Form of
Borrowing Base Certificate Exhibit C-1    Form of Compliance Certificate
Exhibit L-1    Form of LIBOR Notice Schedule A-1    Agent’s Account Schedule A-2
   Authorized Persons Schedule C-1    Commitments Schedule D-1    Designated
Account Schedule M-1    Material Contracts Schedule P-1    Permitted Holders
Schedule P-2    Permitted Liens Schedule P-3    Permitted Investments
Schedule R-1    Real Property Collateral Schedule 1.1    Definitions
Schedule 2.7(a)    Cash Management Banks Schedule 3.1    Conditions Precedent
Schedule 3.1(w)    Oil and Gas Properties Schedule 4.7(a)    Jurisdictions of
Organization Schedule 4.7(b)    Chief Executive Offices Schedule 4.7(c)   
Organizational Identification Numbers Schedule 4.7(d)    Commercial Tort Claims
Schedule 4.8(b)    Capitalization of Borrower; Subscriptions, Options and
Warrants Schedule 4.8(c)    Capitalization of Borrower’s Subsidiaries
Schedule 4.10    Litigation Schedule 4.14    Environmental Matters Schedule 4.15
   Intellectual Property Schedule 4.17    Deposit Accounts and Securities
Accounts Schedule 4.19    Permitted Indebtedness Schedule 4.22    Material
Contracts Schedule 4.23    Employee and Labor Matters Schedule 4.26    Insurance
Schedule 4.29    Junior Secured Debt Documents Schedule.4.30    Oil and Gas
Imbalances Schedule 4.32    Hedge Agreements Schedule 4.33    Location of Real
Property and Leased Premises Schedule 4.34    Bonds and Insurance Schedule 4.35
   Royalties Schedule 4.36    Seismic Licenses Schedule 4.40    Marketing of
Production Schedule 5.2    Collateral Reporting Schedule 5.3    Financial
Statements, Reports, Certificates

--------------------------------------------------------------------------------

Schedule 1.1

As used in the Agreement, the following terms shall have the following
definitions:

“Acceptable Commodity Hedging Agreement” means a Commodity Hedging Agreement
(i) with a (x) Bank Product Provider or (y) a counterparty rated A3 or better by
Moody’s and A- or better by Standard & Poor’s, or the equivalent by a rating
agency acceptable to Agent, (ii) pursuant to an agreement the terms of which are
acceptable to Agent and (iii) which are otherwise reasonably acceptable to
Agent.

“Account” means an account (as that term is defined in the Code).

“Account Debtor” means any Person who is obligated on an Account, chattel paper,
or a general intangible.

“ACH Transactions” means any cash management or related services (including the
Automated Clearing House processing of electronic fund transfers through the
direct Federal Reserve Fedline system) provided by a Bank Product Provider for
the account of Borrower.

“Act” has the meaning specified therefor in Section 18.11.

“Activation Instruction” has the meaning specified therefor in Section 2.7(b).

“Additional Documents” has the meaning specified therefor in Section 5.17.

“Advances” has the meaning specified therefor in Section 2.1(a).

“Affiliate” means, as applied to any Person, any other Person who controls, is
controlled by, or is under common control with, such Person. For purposes of
this definition, “control” means the possession, directly or indirectly through
one or more intermediaries, of the power to direct the management and policies
of a Person, whether through the ownership of Stock, by contract, or otherwise;
provided, however, that, for purposes of Section 6.13 of the Agreement: (a) any
Person which owns directly or indirectly 10% or more of the Stock having
ordinary voting power for the election of directors or other members of the
governing body of a Person or 10% or more of the partnership or other ownership
interests of a Person (other than as a limited partner of such Person) shall be
deemed an Affiliate of such Person, (b) each director (or comparable manager) of
a Person shall be deemed to be an Affiliate of such Person, and (c) each
partnership in which a Person is a general partner shall be deemed an Affiliate
of such Person.

“Agent” has the meaning specified therefor in the preamble to the Agreement.

“Agent-Related Persons” means Agent, together with its Affiliates, officers,
directors, employees, attorneys, and agents.

“Agent’s Account” means the Deposit Account of Agent identified on Schedule A-1.

“Agent’s Liens” means the Liens granted by Borrower to Agent under the Loan
Documents.

“Agent Reserve” has the meaning set froth in Section 2.1(b).

“Agreement” means the Credit Agreement to which this Schedule 1.1 is attached.

--------------------------------------------------------------------------------

“Applicable Margin” means (i) 1.50% in the case of Base Rate Loans and
(ii) 3.00% in the case of LIBOR Rate Loans.

“Application Event” means the occurrence of a Default or an Event of Default.

“Asset Acquisition” means the purchase or other acquisition by a Person or its
Subsidiaries of all or substantially all of the assets of any other Person.

“Assignee” has the meaning specified therefor in Section 13.1(a).

“Assignment and Acceptance” means an Assignment and Acceptance Agreement
substantially in the form of Exhibit A-1.

“Authorized Person” means any one of the individuals identified on Schedule A-2.

“Availability” means, as of any date of determination, the amount that Borrower
is entitled to borrow as Advances under Section 2.1 of the Agreement (after
giving effect to all then outstanding Obligations (other than Bank Product
Obligations) and all sublimits and reserves then applicable hereunder).

“Bank Product” means any financial accommodation extended to Borrower by a Bank
Product Provider (other than pursuant to the Agreement) including: (a) credit
cards, (b) credit card processing services, (c) debit cards, (d) purchase cards,
(e) ACH Transactions, (f) cash management, including controlled disbursement,
accounts or services, or (g) transactions under Hedge Agreements.

“Bank Product Agreements” means those agreements entered into from time to time
by Borrower with a Bank Product Provider in connection with the obtaining of any
of the Bank Products.

“Bank Product Collateralization” means providing cash collateral (pursuant to
documentation reasonably satisfactory to Agent) to be held by Agent for the
benefit of the Bank Product Providers in an amount determined by Agent as
sufficient to satisfy the reasonably estimated credit exposure with respect to
the then existing Bank Products.

“Bank Product Obligations” means all obligations, liabilities, contingent
reimbursement obligations, fees, and expenses owing by Borrower to any Bank
Product Provider pursuant to or evidenced by the Bank Product Agreements and
irrespective of whether for the payment of money, whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising,
and including all such amounts that Borrower is obligated to reimburse to Agent
or any member of the Lender Group as a result of Agent or such member of the
Lender Group purchasing participations from, or executing indemnities or
reimbursement obligations to, a Bank Product Provider with respect to the Bank
Products provided by such Bank Product Provider to Borrower.

“Bank Product Provider” means Wells Fargo or any of its Affiliates.

“Bank Product Reserve” means, as of any date of determination, the amount of
reserves that Agent has established (based upon the Bank Product Providers’
reasonable determination of the credit exposure of Borrower in respect of Bank
Products) in respect of Bank Products then provided or outstanding, including,
without limitation, with respect to Bank Products constituting Hedge Agreements,
an amount equal to 125% of the marked-to-market exposure in respect thereof as
calculated by Agent.

“Bankruptcy Code” means title 11 of the United States Code, as in effect from
time to time.

--------------------------------------------------------------------------------

“Basis Differential” means, in the case of any Oil and Gas Property, the
difference between the NYMEX futures contract prices and the sales prices at the
delivery point where the oil or gas, as the case may be, produced by such Oil
and Gas Property, is sold.

“Base LIBOR Rate” means the rate per annum, determined by Agent in accordance
with its customary procedures, and utilizing such electronic or other quotation
sources as it considers appropriate, to be the rate at which Dollar deposits
(for delivery on the first day of the requested Interest Period) are offered to
major banks in the London interbank market 2 Business Days prior to the
commencement of the requested Interest Period, for a term and in an amount
comparable to the Interest Period and the amount of the LIBOR Rate Loan
requested (whether as an initial LIBOR Rate Loan or as a continuation of a LIBOR
Rate Loan or as a conversion of a Base Rate Loan to a LIBOR Rate Loan) by
Borrower in accordance with the Agreement, which determination shall be
conclusive in the absence of manifest error.

“Base Rate” means, the rate of interest announced, from time to time, within
Wells Fargo at its principal office in San Francisco as its “prime rate”, with
the understanding that the “prime rate” is one of Wells Fargo’s base rates (not
necessarily the lowest of such rates) and serves as the basis upon which
effective rates of interest are calculated for those loans making reference
thereto and is evidenced by the recording thereof after its announcement in such
internal publications as Wells Fargo may designate.

“Base Rate Loan” means the portion of the Advances that bears interest at a rate
determined by reference to the Base Rate.

“Benefit Plan” means a “defined benefit plan” (as defined in Section 3(35) of
ERISA) for which Borrower or any ERISA Affiliate of Borrower has been an
“employer” (as defined in Section 3(5) of ERISA) within the past six years.

“Board of Directors” means the board of directors (or comparable managers) of
Borrower or any committee thereof duly authorized to act on behalf of the board
of directors (or comparable managers).

“Borrower” has the respective meanings specified therefor in the preamble to the
Agreement.

“Borrowing” means a borrowing hereunder consisting of Advances made on the same
day by the Lenders (or Agent on behalf thereof), or by Swing Lender in the case
of a Swing Loan, or by Agent in the case of a Protective Advance, in each case,
to Borrower.

“Borrowing Base” means, as of any date of determination, the result of:

(a) 65% of the PV-10 of the Proved Developed Producing Reserves of Borrower
(i) that are subject to a Mortgage and UCC financing statements that in each
case creates a first priority perfected Lien in such Oil and Gas Properties in
favor of Agent for the benefit of Lenders, (ii) for which Agent shall have
received land records/and or title searches and abstracts of Oil and Gas
Properties of such Oil and Gas Properties, the form and substance of which shall
be satisfactory to Agent and (iii) for which Agent has received title opinions
or updated title opinions (together with reliance letters with respect to
previously issued title opinions) of such Oil and Gas Properties with respect to
the Hydrocarbon Interests therein, the form and substance of which shall be
satisfactory to Agent, plus

(b) the lesser of (x) 45% of the PV-10 of the Proved Developed Non-Producing
Reserves of Borrower (i) that are subject to a Mortgage and UCC financing
statements that in each case creates a first priority perfected Lien in such Oil
and Gas Properties in favor of Agent for the benefit of Lenders, (ii) for which
Agent shall have received land records/and or title searches and abstracts of
Oil and Gas Properties of such Oil and Gas Properties, the form and substance of
which shall be satisfactory to Agent and (iii) for which

--------------------------------------------------------------------------------

Agent has received title opinions or updated title opinions (together with
reliance letters with respect to previously issued title opinions) of such Oil
and Gas Properties with respect to the Hydrocarbon Interests therein, the form
and substance of which shall be satisfactory to Agent, and (y) an amount
calculated so that such amount attributable to this clause (b) will equal 25% of
the sum of clause (a) of this definition and this clause (b) (with the amount
attributable to clause (a) of this definition equal to 75% of such sum), minus

(c) the sum of (i) the Bank Product Reserve, and (ii) the aggregate amount of
reserves, if any, established by Agent under Section 2.1(b).

“Borrowing Base Certificate” means a certificate in the form of Exhibit B-1.

“Business Day” means any day that is not a Saturday, Sunday, or other day on
which banks are authorized or required to close in the state of New York or
Georgia, except that, if a determination of a Business Day shall relate to a
LIBOR Rate Loan, the term “Business Day” also shall exclude any day on which
banks are closed for dealings in Dollar deposits in the London interbank market.

“Capital Expenditures” means, with respect to any Person for any period, the
aggregate of all expenditures by such Person and its Subsidiaries during such
period that are capital expenditures as determined in accordance with GAAP,
whether such expenditures are paid in cash or financed.

“Capitalized Lease Obligation” means that portion of the obligations under a
Capital Lease that is required to be capitalized in accordance with GAAP.

“Capital Lease” means a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.

“Cash Equivalents” means (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within 1 year from the date of acquisition thereof, (b) marketable
direct obligations issued by any state of the United States or any political
subdivision of any such state or any public instrumentality thereof maturing
within 1 year from the date of acquisition thereof and, at the time of
acquisition, having one of the two highest ratings obtainable from either
Standard & Poor’s Rating Group (“S&P”) or Moody’s Investors Service, Inc.
(“Moody’s”), (c) commercial paper maturing no more than 270 days from the date
of creation thereof and, at the time of acquisition, having a rating of at least
A-1 from S&P or at least P-1 from Moody’s, (d) certificates of deposit or
bankers’ acceptances maturing within 1 year from the date of acquisition thereof
issued by any bank organized under the laws of the United States or any state
thereof having at the date of acquisition thereof combined capital and surplus
of not less than $250,000,000, (e) Deposit Accounts maintained with (i) any bank
that satisfies the criteria described in clause (d) above, or (ii) any other
bank organized under the laws of the United States or any state thereof so long
as the amount maintained with any such other bank is less than or equal to
$100,000 and is insured by the Federal Deposit Insurance Corporation, and
(f) Investments in money market funds substantially all of whose assets are
invested in the types of assets described in clauses (a) through (e) above.

“Cash Management Account” has the meaning specified therefor in Section 2.7(a).

“Cash Management Agreements” means those certain cash management agreements, in
form and substance satisfactory to Agent, each of which is among Borrower,
Agent, and one of the Cash Management Banks.

“Cash Management Bank” has the meaning specified therefor in Section 2.7(a).

--------------------------------------------------------------------------------

“Change of Control” means (a) that Permitted Holders fail to own and control
directly or indirectly, 51%, or more, of the Stock of Borrower having the right
to vote for the election of members of the Board of Directors, (b) that any
“person” or “group” (within the meaning of Sections 13(d) and 14(d) of the
Exchange Act), other than Permitted Holders, becomes the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 20%,
or more, of the Stock of Borrower having the right to vote for the election of
members of the Board of Directors, (c) that a majority of the members of the
Board of Directors do not constitute Continuing Directors, (d) any “Change of
Control” or similar term, as defined in the Second Secured Debt Documents, or
(e) any “Change of Control” or similar term, as defined in the Third Secured
Debt Documents.

“Closing Date” means the date of the making of the initial Advance (or other
extension of credit) hereunder.

“Code” means the New York Uniform Commercial Code, as in effect from time to
time.

“Collateral” means all assets and interests in assets and proceeds thereof now
owned or hereafter acquired by Borrower in or upon which a Lien is granted under
any of the Loan Documents.

“Collateral Access Agreement” means a landlord waiver, bailee letter, or
acknowledgement agreement of any lessor, warehouseman, processor, consignee, or
other Person in possession of, having a Lien upon, or having rights or interests
in Borrower’s books and records, Equipment, or Inventory, in each case, in form
and substance satisfactory to Agent.

“Collateral Assignment of Rights” means the Collateral Assignment of Asset
Purchase Agreement executed and delivered by Borrower in favor of Agent, in form
and substance satisfactory to Agent.

“Collections” means all cash, checks, notes, instruments, and other items of
payment (including insurance proceeds, proceeds of cash sales, rental proceeds,
and tax refunds).

“Commitment” means, with respect to each Lender, its Revolver Commitment or its
Total Commitment, as the context requires, and, with respect to all Lenders,
their Revolver Commitments or their Total Commitments, as the context requires,
in each case as such Dollar amounts are set forth beside such Lender’s name
under the applicable heading on Schedule C-1 or in the Assignment and Acceptance
pursuant to which such Lender became a Lender hereunder, as such amounts may be
reduced or increased from time to time pursuant to assignments made in
accordance with the provisions of Section 13.1.

“Commodity Hedging Agreement” means a commodity hedging or purchase agreement or
similar arrangement entered into with the intent of protecting against
fluctuations in commodity prices or the exchange of notional commodity
obligations, either generally or under specific contingencies.

“Compliance Certificate” means a certificate substantially in the form of
Exhibit C-1 delivered by the chief financial officer of Borrower to Agent.

“Continuing Director” means (a) any member of the Board of Directors who was a
director (or comparable manager) of Borrower on the Closing Date, and (b) any
individual who becomes a member of the Board of Directors after the Closing Date
if such individual was appointed or nominated for election to the Board of
Directors by a majority of the Continuing Directors, but excluding any such
individual originally proposed for election in opposition to the Board of
Directors in office at the Closing Date in an actual or threatened election
contest relating to the election of the directors (or comparable managers) of
Borrower and whose initial assumption of office resulted from such contest or
the settlement thereof.

--------------------------------------------------------------------------------

“Control Agreement” means a control agreement, in form and substance
satisfactory to Agent, executed and delivered by the Borrower, Agent, and the
applicable securities intermediary (with respect to a Securities Account) or
bank (with respect to a Deposit Account).

“Convertible Notes” means, collectively, the 10% convertible promissory notes
issued in November 2005 held by twenty-five Persons, in an aggregate outstanding
principal amount of $2,125,000 on the Closing Date.

“Daily Balance” means, as of any date of determination and with respect to any
Obligation, the amount of such Obligation owed at the end of such day.

“Default” means an event, condition, or default that, with the giving of notice,
the passage of time, or both, would be an Event of Default.

“Defaulting Lender” means any Lender that fails to make any Advance (or other
extension of credit) that it is required to make hereunder on the date that it
is required to do so hereunder.

“Defaulting Lender Rate” means (a) for the first 3 days from and after the date
the relevant payment is due, the Base Rate, and (b) thereafter, the interest
rate then applicable to Advances that are Base Rate Loans (inclusive of the Base
Rate Margin applicable thereto).

“Deposit Account” means any deposit account (as that term is defined in the
Code).

“Designated Account” means the Deposit Account of Borrower identified on
Schedule D-1.

“Designated Account Bank” has the meaning specified therefor in Schedule D-1.

“Development Plan” shall mean Borrower’s Plan of Development for the Oil and Gas
Properties and the related Hydrocarbon Interests, as the same may be amended
from time to time in accordance with the terms of this Agreement.

“Disbursement Letter” means an instructional letter executed and delivered by
Borrower to Agent and Lenders regarding the extensions of credit to be made on
the Closing Date, the form and substance of which is satisfactory to Agent.

“Dollars” or “$” means United States dollars.

“DSX Sellers” means DSX Energy Limited, LLP, Kebo Oil & Gas, Inc., Sanchez Oil &
Gas Corp., Sue Ann Operating, L.L.C. and certain other individuals, trusts and
companies.

“DSX Acquisition” means the purchase of certain oil and gas properties pursuant
to the terms of the DSX Acquisition Documents.

“DSX Acquisition Agreement” means the Asset Purchase and Sale Agreement, dated
as of August 7, 2007, among the Borrower, and DSX. Sellers.

“DSX Acquisition Documents” means each of the DSX Acquisition Agreement and all
other agreements , instruments, and other documents executed or delivered
pursuant to or in connection with the DSX Acquisition Agreement or the DSX
Acquisition.

--------------------------------------------------------------------------------

“EBITDA” means, with respect to any fiscal period, Borrower’s consolidated net
income (or loss), plus (i) interest expense, depreciation, depletion and
amortization of assets (including goodwill and other intangible assets);
federal, state, local and foreign taxes; costs and expenses for seismic,
geological, and geophysical services performed in the course of oil and gas
exploration; accretion of asset retirement expenses, proved property impairment,
share based compensation, oil and gas exploration expenses; gain on sale of oil
and gas properties, other non-cash items and extraordinary or non-recurring
items; restructuring costs (including employee relocation costs) and integration
expenses and charges that are identified at the time of closing of any
acquisition as resulting from such acquisition (including, without limitation,
cash severance payments and facility closures); any non-cash gains, losses or
charges on any hedging agreement resulting from the requirements of SFAS 133;
minus (ii) extraordinary gains, any income tax benefit, other income and
interest income. For the purposes of calculating EBITDA for any period of four
consecutive fiscal quarters (each, a “Reference Period”), if at any time during
such Reference Period (and after the Closing Date) Borrower shall have made a
Permitted Acquisition, EBITDA for such Reference Period shall be calculated
after giving pro forma effect thereto in accordance with Regulation S-X
promulgated under the Exchange Act or in such other manner acceptable to the
Agent as if the Permitted Acquisition occurred on the first day of such
Reference Period.

“Eligible Transferee” means (a) a commercial bank organized under the laws of
the United States, or any state thereof, and having total assets in excess of
$250,000,000, (b) a commercial bank organized under the laws of any other
country which is a member of the Organization for Economic Cooperation and
Development or a political subdivision of any such country and which has total
assets in excess of $250,000,000, provided that such bank is acting through a
branch or agency located in the United States, (c) a finance company, insurance
company, or other financial institution, or fund that is engaged in making,
purchasing, or otherwise investing in commercial loans in the ordinary course of
its business and having (together with its Affiliates) total assets in excess of
$250,000,000, (d) any Affiliate (other than individuals) of a Lender, (e) so
long as no Event of Default has occurred and is continuing, any other Person
approved by Agent and Borrower (which approval of Borrower shall not be
unreasonably withheld, delayed, or conditioned), and (f) during the continuation
of an Event of Default, any other Person approved by Agent.

“Environmental Actions” means any complaint, summons, citation, notice,
directive, order, claim, litigation, investigation, judicial or administrative
proceeding, judgment, letter, or other communication from any Governmental
Authority, or any third party involving violations of Environmental Laws or
releases of Hazardous Materials from (a) any assets, properties, or businesses
of Borrower, or any of its predecessors in interest, (b) from adjoining
properties or businesses, or (c) from or onto any facilities which received
Hazardous Materials generated by Borrower or any of its predecessors in
interest.

“Environmental Law” means any applicable federal, state, provincial, foreign or
local statute, law, rule, regulation, ordinance, code, binding and enforceable
guideline, binding and enforceable written policy, or rule of common law now or
hereafter in effect and in each case as amended, or any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, in each case, to the extent binding on
Borrower, relating to the environment, the effect of the environment on employee
health, or Hazardous Materials, in each case as amended from time to time.

“Environmental Liabilities” means all liabilities, monetary obligations, losses,
damages, punitive damages, consequential damages, treble damages, costs and
expenses (including all reasonable fees, disbursements and expenses of counsel,
experts, or consultants, and costs of investigation and feasibility studies),
fines, penalties, sanctions, and interest incurred as a result of any claim or
demand, or Remedial Action required, by any Governmental Authority or any third
party, and which relate to any Environmental Action.

--------------------------------------------------------------------------------

“Environmental Lien” means any Lien in favor of any Governmental Authority for
Environmental Liabilities.

“Equipment” means equipment (as that term is defined in the Code).

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
and any successor statute thereto.

“ERISA Affiliate” means (a) any Person subject to ERISA whose employees are
treated as employed by the same employer as the employees of Borrower under IRC
Section 414(b), (b) any trade or business subject to ERISA whose employees are
treated as employed by the same employer as the employees of Borrower under IRC
Section 414(c), (c) solely for purposes of Section 302 of ERISA and Section 412
of the IRC, any organization subject to ERISA that is a member of an affiliated
service group of which Borrower is a member under IRC Section 414(m), or
(d) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any
Person subject to ERISA that is a party to an arrangement with Borrower and
whose employees are aggregated with the employees of Borrower under IRC
Section 414(o).

“Event of Default” has the meaning specified therefor in Section 7.

“Excess Availability” means, as of any date of determination, the amount equal
to Availability minus the aggregate amount, if any, of all trade payables of
Borrower aged in excess of its historical levels with respect thereto and all
book overdrafts of Borrower in excess of its historical practices with respect
thereto, in each case as determined by Agent in its Permitted Discretion.

“Exchange Act” means the Securities Exchange Act of 1934, as in effect from time
to time.

“Existing Credit Agreements” means the $75,000,000 Credit Agreement, dated as of
April 12, 2007, among Borrower, the lenders party thereto, Drawbridge Special
Opportunities Fund, LP, as administrative agent, and Petrobridge Investment
Management, LLC, as sole lead arranger.

“Existing Lenders” means Drawbridge Special Opportunities Fund, LP, D.B. Zwirn
Special Opportunities Fund, L.P., and Bernard National Loan Investors, Ltd.

“Fee Letter” means that certain fee letter between Borrower and Agent, in form
and substance satisfactory to Agent.

“Funding Date” means the date on which a Borrowing occurs.

“Funding Losses” has the meaning specified therefor in Section 2.13(b)(ii).

“GAAP” means generally accepted accounting principles as in effect from time to
time in the United States, consistently applied.

“Governing Documents” means, with respect to any Person, the certificate or
articles of incorporation, by-laws, or other organizational documents of such
Person.

“Governmental Authority” means any federal, state, local, or other governmental
or administrative body, instrumentality, board, department, or agency or any
court, tribunal, administrative hearing body, arbitration panel, commission, or
other similar dispute-resolving panel or body.

--------------------------------------------------------------------------------

“Guarantied Obligations” means (a) the due and punctual payment of the principal
of, and interest (including any interest that, but for the commencement of an
Insolvency Proceeding, would have accrued) on, any and all premium on, and any
and all fees, costs, indemnities, and expenses incurred in connection with, the
Indebtedness owed by Borrower to any member of the Lender Group pursuant to the
terms of the Agreement or any other Loan Document and (b) the due and punctual
payment of all other present or future Indebtedness owing by Borrower to any
member of the Lender Group in connection with any Loan Document.

“Hazardous Materials” means (a) substances that are defined or listed in, or
otherwise classified pursuant to, any applicable laws or regulations as
“hazardous substances,” “hazardous materials,” “hazardous wastes,” “toxic
substances,” or any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or “EP
toxicity”, (b) Hydrocarbons, including, without limitation, oil, petroleum, or
petroleum derived substances, natural gas, natural gas liquids, synthetic gas,
drilling fluids, produced waters, and other wastes associated with the
exploration, development, or production of crude oil, natural gas, or geothermal
resources, (c) any flammable substances or explosives or any radioactive
materials, and (d) asbestos in any form or electrical equipment that contains
any oil or dielectric fluid containing levels of polychlorinated biphenyls in
excess of 50 parts per million.

“Hedge Agreement” means any and all agreements, or documents now existing or
hereafter entered into by Borrower that provide for an interest rate, credit,
commodity or equity swap, cap, floor, collar, forward foreign exchange
transaction, currency swap, cross currency rate swap, currency option, or any
combination of, or option with respect to, these or similar transactions, for
the purpose of hedging Borrower’s exposure to fluctuations in interest or
exchange rates, loan, credit exchange, security, or currency valuations or
commodity prices, including without limitation, any Commodity Hedging Agreement.

“Holdout Lender” has the meaning specified therefor in Section 14.2(a).

“Hydrocarbon Interests” means all rights, titles, interests and estates now
owned or hereafter acquired in and to oil and gas leases, oil, gas and mineral
leases, oil, gas and casinghead gas leases, or other liquid or gaseous
hydrocarbon leases, mineral fee or lease interests, farm-outs, overriding
royalty and royalty interests, net profit interests, oil payments, production
payment interests and similar mineral interests, including any reserved or
residual interest of whatever nature.

“Hydrocarbons” means, collectively, oil, gas, coal seam gas, casinghead gas,
condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons, all products
and byproducts refined, separated, settled and dehydrated therefrom and all
products and byproducts refined therefrom, including, without limitation,
kerosene, liquefied petroleum gas, refined lubricating oils, diesel fuel, drip
gasoline, natural gasoline, helium, sulfur, geothermal steam, water, carbon
dioxide, and all other minerals.

“Indebtedness” means (a) all obligations for borrowed money, (b) all obligations
evidenced by bonds, debentures, notes, or other similar instruments and all
reimbursement or other obligations in respect of letters of credit, bankers
acceptances, interest rate swaps, hedges, derivatives or other financial
products, (c) all obligations as a lessee under Capital Leases, (d) all
obligations or liabilities of others secured by a Lien on any asset of a Person
or its Subsidiaries, irrespective of whether such obligation or liability is
assumed, (e) all obligations to pay the deferred purchase price of assets (other
than trade payables incurred in the ordinary course of business and repayable in
accordance with customary trade practices), (f) all obligations owing under
Hedge Agreements, and (g) any obligation guaranteeing or intended to guarantee
(whether directly or indirectly guaranteed, endorsed, co-made, discounted, or
sold with recourse) any obligation of any other Person that constitutes
Indebtedness under any of clauses (a) through (f) above.

--------------------------------------------------------------------------------

“Indemnified Liabilities” has the meaning specified therefor in Section 10.3.

“Indemnified Person” has the meaning specified therefor in Section 10.3.

“Initial Reserve Report” means, the report of Cawley, Gillespie & Associates,
Inc. dated September 12, 2007, with respect to the Oil and Gas Properties of
Borrower, which includes Oil and Gas Properties acquired pursuant to the DSX
Acquisition Documents.

“Insolvency Proceeding” means any proceeding commenced by or against any Person
under any provision of the Bankruptcy Code or under any other state or federal
bankruptcy or insolvency law, assignments for the benefit of creditors, formal
or informal moratoria, compositions, extensions generally with creditors, or
proceedings seeking reorganization, arrangement, or other similar relief.

“Interest Period” means, with respect to each LIBOR Rate Loan, a period
commencing on the date of the making of such LIBOR Rate Loan (or the
continuation of a LIBOR Rate Loan or the conversion of a Base Rate Loan to a
LIBOR Rate Loan) and ending 1, 2, or 3 months thereafter; provided, however,
that (a) if any Interest Period would end on a day that is not a Business Day,
such Interest Period shall be extended (subject to clauses (c)-(e) below) to the
next succeeding Business Day, (b) interest shall accrue at the applicable rate
based upon the LIBOR Rate from and including the first day of each Interest
Period to, but excluding, the day on which any Interest Period expires, (c) any
Interest Period that would end on a day that is not a Business Day shall be
extended to the next succeeding Business Day unless such Business Day falls in
another calendar month, in which case such Interest Period shall end on the next
preceding Business Day, (d) with respect to an Interest Period that begins on
the last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such Interest
Period), the Interest Period shall end on the last Business Day of the calendar
month that is 1, 2, or 3 months after the date on which the Interest Period
began, as applicable, and (e) Borrower may not elect an Interest Period which
will end after the Maturity Date.

“Intercreditor Agreement” means the Intercreditor Agreement among Borrower,
Agent and the trustee for the holders of the Second Secured Debt and the trustee
for the holders of the Third Secured Debt, dated as of the date hereof, as
amended, supplemented or otherwise modified from time to time in accordance with
this Agreement.

“Inventory” means all of Borrower’s now owned or hereafter acquired right,
title, and interest with respect to inventory (as that term is defined in the
Code), including extracted Hydrocarbons, and other goods held for sale or lease
or to be furnished under a contract of service, goods that are leased by
Borrower as lessor, goods that are furnished by Borrower under a contract of
service, and raw materials, work in process, or materials used or consumed in
Borrower’s business.

“Investment” means, with respect to any Person, any investment by such Person in
any other Person (including Affiliates) in the form of loans, guarantees,
advances, or capital contributions (excluding (a) commission, travel, and
similar advances to officers and employees of such Person made in the ordinary
course of business, and (b) bona fide Accounts arising in the ordinary course of
business consistent with past practice), purchases or other acquisitions of
Indebtedness, Stock, or all or substantially all of the assets of such other
Person (or of any division or business line of such other Person), and any other
items that are or would be classified as investments on a balance sheet prepared
in accordance with GAAP.

“IRC” means the Internal Revenue Code of 1986, as in effect from time to time.

--------------------------------------------------------------------------------

“Issuing Lender” means WFF or any other Lender that, at the request of Borrower
and with the consent of Agent, agrees, in such Lender’s sole discretion, to
become an Issuing Lender for the purpose of issuing L/Cs or L/C Undertakings
pursuant to Section 2.12.

“L/C” has the meaning specified therefor in Section 2.12(a).

“L/C Disbursement” means a payment made by the Issuing Lender pursuant to a
Letter of Credit.

“L/C Undertaking” has the meaning specified therefor in Section 2.12(a).

“Lender” and “Lenders” have the respective meanings set forth in the preamble to
the Agreement, and shall include any other Person made a party to the Agreement
in accordance with the provisions of Section 13.1.

“Lender Group” means, individually and collectively, each of the Lenders
(including the Issuing Lender) and Agent.

“Lender Group Expenses” means all (a) costs or expenses (including taxes, and
insurance premiums) required to be paid by Borrower under any of the Loan
Documents that are paid, advanced, or incurred by the Lender Group, (b) fees or
charges paid or incurred by Agent in connection with the Lender Group’s
transactions with Borrower, including, fees or charges for photocopying,
notarization, couriers and messengers, telecommunication, public record searches
(including tax lien, litigation, and UCC searches and including searches with
the patent and trademark office, the copyright office, or the department of
motor vehicles), filing, recording, publication, appraisal (including periodic
collateral appraisals or business valuations to the extent of the fees and
charges (and up to the amount of any limitation) contained in the Agreement, the
Fee Letter or the other Loan Documents), real estate surveys, real estate title
policies and endorsements, and environmental audits, (c) costs and expenses
incurred by Agent in the disbursement of funds to Borrower or other members of
the Lender Group (by wire transfer or otherwise), (d) charges paid or incurred
by Agent resulting from the dishonor of checks, (e) reasonable costs and
expenses paid or incurred by the Lender Group to correct any default or enforce
any provision of the Loan Documents, or in gaining possession of, maintaining,
handling, preserving, storing, shipping, selling, preparing for sale, or
advertising to sell the Collateral, or any portion thereof, irrespective of
whether a sale is consummated, (f) audit fees and expenses (including travel,
meals and lodging) of Agent related to any inspections or audits to the extent
of the fees and charges (and up to the amount of any limitation) contained in
the Agreement or the Fee Letter, (g) reasonable costs and expenses of third
party claims or any other suit paid or incurred by the Lender Group in enforcing
or defending the Loan Documents or in connection with the transactions
contemplated by the Loan Documents or the Lender Group’s relationship with
Borrower, (h) Agent’s and each Lender’s reasonable costs and expenses (including
attorneys fees) incurred in advising, structuring, drafting, reviewing,
administering (including travel, meals and lodging), syndicating, or amending
the Loan Documents, and (i) Agent’s and each Lender’s reasonable costs and
expenses (including attorneys, accountants, consultants, and other advisors fees
and expenses) incurred in terminating, enforcing (including attorneys,
accountants, consultants, and other advisors fees and expenses incurred in
connection with a “workout,” a “restructuring,” or an Insolvency Proceeding
concerning Borrower or in exercising rights or remedies under the Loan
Documents), or defending the Loan Documents, irrespective of whether suit is
brought, or in taking any Remedial Action concerning the Collateral.

“Lender-Related Person” means, with respect to any Lender, such Lender, together
with such Lender’s Affiliates, officers, directors, employees, attorneys, and
agents.

“Letter of Credit” means an L/C or an L/C Undertaking, as the context requires.

--------------------------------------------------------------------------------

“Letter of Credit Collateralization” means either (a) providing cash collateral
(pursuant to documentation reasonably satisfactory to Agent, including
provisions that specify that the Letter of Credit fee set forth in the Agreement
will continue to accrue while the Letters of Credit are outstanding) to be held
by Agent for the benefit of those Lenders with a Revolver Commitment in an
amount equal to 105% of the then existing Letter of Credit Usage, (ii) causing
the Underlying Letters of Credit to be returned to the Issuing Lender, or
(iii) providing Agent with a standby letter of credit, in form and substance
reasonably satisfactory to Agent, from a commercial bank acceptable to the Agent
(in its sole discretion) in an equal to 105% of the then existing Letter of
Credit Usage (it being understood that the Letter of Credit fee set forth in the
Agreement will continue to accrue while the Letters of Credit are outstanding
and that any such fee that accrues must be an amount that can be drawn under any
such standby letter of credit).

“Letter of Credit Usage” means, as of any date of determination, the aggregate
undrawn amount of all outstanding Letters of Credit.

“LIBOR Deadline” has the meaning specified therefor in Section 2.13(b)(i).

“LIBOR Notice” means a written notice in the form of Exhibit L-1.

“LIBOR Option” has the meaning specified therefor in Section 2.13(a).

“LIBOR Rate” means, for each Interest Period for each LIBOR Rate Loan, the rate
per annum determined by Agent by dividing (a) the Base LIBOR Rate for such
Interest Period, by (b) 100% minus the Reserve Percentage. The LIBOR Rate shall
be adjusted on and as of the effective day of any change in the Reserve
Percentage.

“LIBOR Rate Loan” means each portion of an Advance that bears interest at a rate
determined by reference to the LIBOR Rate.

“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment,
charge, deposit arrangement, encumbrance, easement, lien (statutory or other),
security interest, or other security arrangement and any other preference,
priority, or preferential arrangement of any kind or nature whatsoever,
including any conditional sale contract or other title retention agreement, the
interest of a lessor under a Capital Lease and any synthetic or other financing
lease having substantially the same economic effect as any of the foregoing.

“Loan Account” has the meaning specified therefor in Section 2.10.

“Loan Documents” means the Agreement, the Bank Product Agreements, any Borrowing
Base Certificate, the Cash Management Agreements, the Collateral Assignment of
Rights, the Control Agreements, the Contribution Agreement, the Disbursement
Letter, the Fee Letter, the Letters of Credit, the Mortgages, the Security
Agreement, any note or notes executed by Borrower in connection with the
Agreement and payable to a member of the Lender Group, and any other agreement
entered into, now or in the future, by Borrower, and the Lender Group in
connection with the Agreement.

“Material Adverse Change” means (a) a material adverse change in the business,
prospects, operations, results of operations, assets, liabilities or condition
(financial or otherwise) of Borrower, taken as a whole, (b) a material
impairment of Borrower’s ability to perform its obligations under the Loan
Documents to which it is a party or of the Lender Group’s ability to enforce the
Obligations or realize upon the Collateral, or (c) a material impairment of the
enforceability or priority of the Agent’s Liens with respect to the Collateral
as a result of an action or failure to act on the part of Borrower.

--------------------------------------------------------------------------------

“Material Contract” means, with respect to any Person, (i) the Second Secured
Debt Documents, (ii) the Third Secured Debt Documents, (iii) each contract or
agreement listed on Schedule M-1, (iv) each contract or agreement to which such
Person or any of its Subsidiaries is a party involving aggregate consideration
payable to or by such Person or such Subsidiary of $5,000,000 or more (other
than purchase orders in the ordinary course of the business of such Person or
such Subsidiary and other than contracts that by their terms may be terminated
by such Person or Subsidiary in the ordinary course of its business upon less
than 60 days’ notice without penalty or premium) and (v) all other contracts or
agreements material to the business, operations, condition (financial or
otherwise), performance, prospects or properties of such Person or such
Subsidiary.

“Maturity Date” has the meaning specified therefor in Section 3.3.

“Maximum Revolver Amount” means $20,000,000.

“Moody’s” has the meaning specified therefor in the definition of Cash
Equivalents.

“Mortgage Policy” has the meaning specified therefor in Schedule 3.1(v).

“Mortgages” means, individually and collectively, one or more mortgages, deeds
of trust, or deeds to secure debt, executed and delivered by Borrower in favor
of Agent, in form and substance satisfactory to Agent, that encumber the Real
Property Collateral.

“NYMEX” means the New York Mercantile Exchange or its successor entity.

“NYMEX Strip Price” means as of any date of determination (A) for the 24 month
period commencing with the month in which the date of determination occurs, the
average of the 24 succeeding monthly futures contract prices, commencing with
the month during which the determination date occurs, for each of the
appropriate crude oil and natural gas categories included in the most recent
Reserve Report provided by Borrower to Agent pursuant to Section 5.2, as quoted
on the NYMEX, and (B) for period after such 24 month period, the average of the
quoted prices for the period from and including the 13th month in such 24 month
period through the 24th month in such period; provided, that if the NYMEX no
longer provides futures contract price quotes or has ceased to operate, the
future contract prices used shall be the comparable futures contract prices
quoted on such other nationally recognized commodities exchange as Agent shall
designate.

“Obligations” means (a) all loans, Advances, debts, principal, interest
(including any interest that accrues after the commencement of an Insolvency
Proceeding regardless of whether allowed or allowable in whole or in part as a
claim in any such Insolvency Proceeding), contingent reimbursement obligations
with respect to outstanding Letters of Credit, premiums, liabilities (including
all amounts charged to Borrower’s Loan Account pursuant to the Agreement),
obligations (including indemnification obligations), fees (including the fees
provided for in the Fee Letter), charges, costs, Lender Group Expenses
(including any fees or expenses that accrue after the commencement of an
Insolvency Proceeding, regardless of whether allowed or allowable in whole or in
part as a claim in any such Insolvency Proceeding), lease payments, guaranties,
covenants, and duties of any kind and description owing by Borrower to the
Lender Group pursuant to or evidenced by the Loan Documents and irrespective of
whether for the payment of money, whether direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising, and
including all interest not paid when due and all other expenses or other amounts
that Borrower is required to pay or reimburse by the Loan Documents or by law or
otherwise in connection with the Loan Documents, and (b) all Bank Product
Obligations. Any reference in the Agreement or in the Loan Documents to the
Obligations shall include all or any portion thereof and any extensions,
modifications, renewals, or alterations thereof, both prior and subsequent to
any Insolvency Proceeding.

--------------------------------------------------------------------------------

“Officers’ Certificate” means the representations and warranties of officers
form submitted by Agent to Borrower, together with Borrower’s completed
responses to the inquiries set forth therein, the form and substance of such
responses to be satisfactory to Agent.

“Oil and Gas Business” means (a) the acquisition, exploration, exploitation,
development, operation and disposition of interests in Oil and Gas Properties
and Hydrocarbons, (b) the gathering, marketing, treating, processing, storage,
selling and transporting of any production from such interests or properties,
including, without limitation, the marketing of Hydrocarbons obtained from
unrelated Persons, (c) any business relating to or arising from exploration for
or development, production, treatment, processing, storage, transportation or
marketing of oil, gas and other minerals and products produced in association
therewith, (d) any business relating to oilfield sales and service, and (e) any
activity that is ancillary or necessary or desirable to facilitate the
activities described in clauses (a) through (d) of this definition.

“Oil and Gas Liens” means (i) Liens on any specific property or any interest
therein, construction thereon or improvement thereto to secure all or any part
of the costs incurred for surveying, exploration, drilling, extraction,
development, operation, production, construction, alteration, repair or
improvement of, in, under or on such property and the plugging and abandonment
of wells located thereon (it being understood that, in the case of oil and gas
producing properties, or any interest therein, costs incurred for “development”
shall include costs incurred for facilities relating to such properties or to
projects, ventures or other arrangements of which such properties form a part or
which relate to such properties or interests); (ii) Liens on an oil or gas
producing property to secure obligations incurred or guarantees of obligations
incurred in connection with or necessarily incidental to commitments for the
purchase or sale of, or the transportation or distribution of, the products
derived from such property; (iii) Liens arising under partnership agreements,
oil and gas leases, overriding royalty agreements, net profits agreements,
production payment agreements, royalty trust agreements, incentive compensation
programs for geologists, geophysicists and other providers of technical services
to Borrower, master limited partnership agreements, farm-out agreements, farm-in
agreements, division orders, contracts for the sale, purchase, exchange,
transportation, gathering or processing of oil, gas or other hydrocarbons,
utilizations and pooling designations, declarations, orders and agreements,
development agreements, operating agreements, production sales contracts, area
of mutual interest agreements, gas balancing or deferred production agreements,
injection, repressuring and recycling agreements, salt water or other disposal
agreements, seismic or geophysical permits or agreements, and other agreements
which are customary in the Oil and Gas Business; provided, however, in all
instances that such Liens are limited to the assets that are the subject of the
relevant agreement, program, order or contract; and (iv) Liens on pipelines or
pipeline facilities that arise by operation of law.

“Oil and Gas Properties” means all Hydrocarbon Interests; personal property
and/or real property now or hereafter pooled or unitized with Hydrocarbon
Interests; 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 having jurisdiction) which may affect all or any portion
of the Hydrocarbon Interests; pipelines, gathering lines, compression
facilities, tanks and processing plants; oil wells, gas wells, water wells,
injection wells, platforms, spars or other offshore facilities, casings, rods,
tubing, pumping units and engines, Christmas trees, derricks, separators, gun
barrels, flow lines, gas systems (for gathering, treating and compression), and
water systems (for treating, disposal and injection); interests held in royalty
trusts whether presently existing or hereafter created; Hydrocarbons in and
under and which may be produced, saved, processed or attributable to the
Hydrocarbon Interests, the lands covered thereby and all Hydrocarbons in
pipelines, gathering lines, tanks and processing plants and all rents, issues,
profits, proceeds, products, revenues and other incomes from or attributable to
the Hydrocarbon Interests; tenements, hereditaments, appurtenances and personal
property and/or real property in any way appertaining, belonging, affixed or
incidental to the Hydrocarbon Interests, and all rights, titles, interests and
estates described or referred to above, including any and all real property, now
owned or hereafter acquired, used or held for use in connection with the
operating, working or development of

--------------------------------------------------------------------------------

any of such Hydrocarbon Interests or personal property and/or Real Property and
including any and all surface leases, rights-of-way, easements and servitudes
together with all additions, substitutions, replacements, accessions and
attachments to any and all of the foregoing; oil, gas and mineral leasehold, fee
and term interests, overriding royalty interests, mineral interests, royalty
interests, net profits interests, net revenue interests, oil payments,
production payments, carried interests, leases, subleases, farmouts and any and
all other interests in Hydrocarbons; in each case whether now owned or hereafter
acquired directly or indirectly.

“Originating Lender” has the meaning specified therefor in Section 13.1(e).

“Overadvance” has the meaning specified therefor in Section 2.5.

“Participant” has the meaning specified therefor in Section 13.1(e).

“Permitted Acquisition” means (a) a Permitted Cash Acquisition, or (b) a
Permitted Non-Cash Acquisition, as the context requires.

“Permitted Cash Acquisition” means any Acquisition as to which each of the
following is applicable;

(a) such Acquisition qualifies as a Permitted Non-Cash Acquisition except that
the consideration payable in respect of the proposed Acquisition includes some
form of consideration other than solely the consideration specified in clause
(b) of the definition of Permitted Non-Cash Acquisition;

(b) Borrower has provided Agent with forecasted balance sheets, profit and loss
statements, and cash flow statements of the Person to be acquired, all prepared
on a basis consistent with such Person’s historical financial statements,
together with appropriate supporting details and a statement of underlying
assumptions for the 3 year period following the date of the proposed Acquisition
(on a year by year basis, and for the 1 year period following the date of the
proposed Acquisition, on a quarterly basis), in form and substance (including as
to scope and underlying assumptions) reasonably satisfactory to Agent;

(c) Borrower shall have Availability plus Qualified Cash in an amount equal to
$15,000,000 immediately after giving effect to the consummation of the proposed
Acquisition,

(d) the assets being acquired (other than a de minimis amount of assets in
relation to the assets being acquired) are located within the United States or
the Person whose Stock is being acquired is organized in a jurisdiction located
within the United States,

(e) the assets being acquired (other than a de minimis amount of assets in
relation to the assets being acquired) do not include any offshore raw acreage
or offshore Proved Reserves or leases for offshore acreage or offshore Proved
Reserves,

(f) the purchase consideration payable in respect of all Permitted Cash
Acquisitions, in the aggregate (including the proposed Acquisition and including
deferred payment obligations) shall not exceed $20,000,000 in the aggregate;
provided, however, that the Purchase Price of any single Permitted Cash
Acquisition or series of related Permitted Cash Acquisitions shall not exceed
$5,000,000 in the aggregate,

(g) in the case of an Asset Acquisition (and notwithstanding any contrary
provisions of Section 5.16 or any other contrary provision of the Agreement),
the Borrower shall have executed and delivered any and all documentation
reasonably requested by Agent in order to provide Agent with a first priority
perfected security interest, subject to Permitted Liens, in such assets, and

--------------------------------------------------------------------------------

(h) in the case of a Stock Acquisition (and notwithstanding any contrary
provisions of Section 5.16 or any other contrary provision of the Agreement),
(i) the Person whose Stock is being acquired shall have executed and delivered
any and all documentation reasonably requested by Agent in order to become a
guarantor of the Obligations, (ii) the Person whose Stock is being acquired
shall have executed and delivered any and all documentation reasonably requested
by Agent in order to provide Agent with a first priority perfected security
interest, subject to Permitted Liens, in the assets of such Person, and
(iii) the owner of the Stock subject to such Stock Acquisition shall have
executed and delivered any and all documentation reasonably requested by Agent
in order to provide Agent with a first priority perfected security interest in
such Stock.

“Permitted Changes” means amendments, modifications, refinancings, renewals, or
extensions of Indebtedness so long as: (a) the terms and conditions of such
amendments, modifications, refinancings, renewals, or extensions do not
materially impair the prospects of repayment of the Obligations by Borrower or
materially impair Borrower’s creditworthiness, (b) such amendments,
modifications, refinancings, renewals, or extensions do not result in an
increase in the principal amount of the Indebtedness so amended, modified,
refinanced, renewed, or extended (other than increases not exceeding the unused
amounts permitted under Section 6.1(m), (c) such amendments, modifications,
refinancings, renewals, or extensions do not result in an increase in the
interest rate in excess of market rate of interests for Borrower with respect to
the Indebtedness so amended, modified, refinanced, renewed, or extended,
(d) (i) in the case of the Second Secured Debt or the Third Secured Debt, such
amendments, modifications, refinancings, renewals, or extensions do not result
in a shortening of the average weighted maturity of the Indebtedness so amended,
modified, refinanced, renewed, or extended, nor (ii) in the case of all
Indebtedness, are such amendments, modifications, refinancings, renewals, or
extensions on terms or conditions that, taken as a whole, are materially more
burdensome or restrictive to Borrower, (e) if the Indebtedness that is amended,
modified, refinanced, renewed, or extended was subordinated in right of payment
to the Obligations, then the terms and conditions of the amendment,
modification, refinancing, renewal, or extension must include subordination
terms and conditions that are at least as favorable to the Lender Group as those
that were applicable to the amended, modified, refinanced, renewed, or extended
Indebtedness, and (f) the Indebtedness that is amended, modified, refinanced,
renewed, or extended is not recourse to any Person that is liable on account of
the Obligations other than those Persons which were obligated with respect to
the Indebtedness that was amended, modified, refinanced, renewed, or extended.

“Permitted Discretion” means a determination made in the exercise of reasonable
(from the perspective of a secured lender) business judgment.

“Permitted Dispositions” means (a) sales or other dispositions of Equipment that
is substantially worn, damaged, or obsolete in the ordinary course of business,
(b) sales of Inventory, including Hydrocarbons, to buyers in the ordinary course
of business, (c) the use or transfer of money or Cash Equivalents in a manner
that is not prohibited by the terms of the Agreement or the other Loan
Documents, (d) the licensing, on a non-exclusive basis, of patents, trademarks,
copyrights, and other intellectual property rights in the ordinary course of
business, (e) sales or other dispositions of the Investments set forth on
Schedule P-3, and (f) sales, leases, licenses, assignments, farm-outs,
conveyances or other transfers of any Oil and Gas Property or any interest in
any Oil and Gas Property in the ordinary course of business.

“Permitted Distributions” means (a) such dividends, payments or other
distributions to the extent payable solely in shares of Stock of Borrower, and
(b) the repurchase, redemption or other acquisition or retirement for value of
any Stock of Borrower held by any employee, director or consultant of Borrower
upon termination of employment or services of such employee, director or
consultant, provided that (i) the aggregate consideration (excluding
consideration paid in other Stock of Borrower) paid for such repurchased,
redeemed, acquired or retired Stock after the Closing Date shall not exceed
$1,000,000, (ii) no Default or Event of Default shall have occurred and be
continuing immediately after such transaction, and (iii) the average amount

--------------------------------------------------------------------------------

of Qualified Cash and Availability for the 30 day period prior to any such
repurchase, redemption or acquisition and the amount of Qualified Cash and
Availability immediately after giving effect to any such repurchase, redemption
or acquisition is not less than $15,000,000.

“Permitted Holder” means the Person identified on Schedule P-1.

“Permitted Investments” means (a) Investments in cash and Cash Equivalents,
(b) Investments in negotiable instruments for collection, (c) advances made in
connection with purchases of goods or services in the ordinary course of
business, (d) Investments received in settlement of amounts due to Borrower
effected in the ordinary course of business or owing to Borrower as a result of
Insolvency Proceedings involving an Account Debtor or upon the foreclosure or
enforcement of any Lien in favor of Borrower, (e) Investments made in the
ordinary course of, and of a nature that is customary in, the Oil and Gas
Business as a means of actively exploiting, exploring for, acquiring,
developing, processing, gathering, marketing or transporting oil and gas through
agreements, transactions, interests or arrangements which permit one to share
risks or costs, comply with regulatory requirements regarding local ownership or
satisfy other objectives customarily achieved through the conduct of the Oil and
Gas Business jointly with third parties, including, without limitation, the
entry into operating agreements, working interests, royalty interests, mineral
leases, processing agreements, farm-out and farm-in agreements, division orders,
contracts for the sale, transportation or exchange of oil or natural gas,
unitization and pooling declarations and agreements and area of mutual interest
agreements, production sharing agreements or other similar or customary
agreements, transactions, properties, interests, and investments and
expenditures in connection therewith; provided that for purposes of this clause
(e), an investment in capital Stock, partnership interests, joint venture
interests, limited liability company interests or other similar equity interests
in a Person shall not constitute a Permitted Investment, (f) Permitted
Acquisitions and (g) Investments set forth on Schedule P-3.

“Permitted Liens” means (a) Liens held by Agent to secure the Obligations,
(b) Liens for unpaid taxes, assessments, or other governmental charges or levies
that either (i) are not yet delinquent, or (ii) do not have priority over the
Agent’s Liens and the underlying taxes, assessments, or charges or levies are
the subject of Permitted Protests, (c) judgment Liens that do not constitute an
Event of Default under Section 7.7 of the Agreement, (d) Liens set forth on
Schedule P-2, provided that any such Lien only secures the Indebtedness that it
secures on the Closing Date and any Refinancing Indebtedness in respect thereof,
(e) the interests of lessors under operating leases, (f) purchase money Liens or
the interests of lessors under Capital Leases to the extent that such Liens or
interests secure Permitted Purchase Money Indebtedness and so long as (i) such
Lien attaches only to the asset purchased or acquired and the proceeds thereof,
and (ii) such Lien only secures the Indebtedness that was incurred to acquire
the asset purchased or acquired or any Refinancing Indebtedness in respect
thereof, (g) Liens arising by operation of law in favor of warehousemen,
landlords, carriers, mechanics, materialmen, laborers, or suppliers, incurred in
the ordinary course of business and not in connection with the borrowing of
money, and which Liens either (i) are for sums not yet delinquent, or (ii) are
the subject of Permitted Protests, (h) Liens on amounts deposited in connection
with obtaining worker’s compensation or other unemployment insurance, (i) Liens
on amounts deposited in connection with the making or entering into of bids,
tenders, or leases in the ordinary course of business and not in connection with
the borrowing of money, (j) Liens on amounts deposited as security for surety or
appeal bonds in connection with obtaining such bonds in the ordinary course of
business, (k) with respect to any Real Property, easements, rights of way, and
zoning restrictions that do not materially interfere with or impair the use or
operation thereof, (l) Liens securing the Second Secured Debt, provided, that
such Liens are subject to the Intercreditor Agreement, (m) Liens securing the
Third Secured Debt, provided, that such Liens are subject to the Intercreditor
Agreement, (n) Liens that are replacements of Permitted Liens to the extent the
original Indebtedness is refinanced, renewed, or extended pursuant to
Refinancing Indebtedness and so long as the replacement Liens only encumber
those assets that secured the Refinancing Indebtedness, and (o) Oil and Gas
Liens which are not incurred in connection with the borrowing of money.

--------------------------------------------------------------------------------

“Permitted Non-Cash Acquisition” means any Acquisition so long as:

(a) no Default or Event of Default shall have occurred and be continuing or
would result from the consummation of the proposed Acquisition and the proposed
Acquisition is consensual,

(b) the consideration payable in respect of the proposed Acquisition shall be
composed solely of (i) common Stock of Borrower, or (ii) proceeds of
Indebtedness incurred pursuant to clause (f) of Section 6.1;

(c) no Indebtedness will be incurred, assumed, or would exist with respect to
Borrower as a result of such Acquisition, other than Indebtedness permitted
under clauses (c) or (f) of Section 6.1 and no Liens will be incurred, assumed,
or would exist with respect to the assets of Borrower as a result or such
Acquisition other than Liens permitted under clause (f) of the definition of
Permitted Liens;

(d) Borrower has provided Agent with written confirmation, supported by
reasonably detailed calculations, that on a pro forma basis, created by adding
the historical combined financial statements of Borrower (including the combined
financial statements of any other Person or assets that were the subject of a
prior Permitted Acquisition during the relevant period) to the historical
consolidated financial statements of the Person to be acquired (or the
historical financial statements related to the assets to be acquired) pursuant
to the proposed Acquisition (adjusted to eliminate expense items that would not
have been incurred and to include income items that would have been recognized,
in each case, if the combination had been accomplished at the beginning of the
relevant period; such eliminations and inclusions to be mutually and reasonably
agreed upon by Borrower and Agent), Borrower (i) would have been in compliance
with the financial covenants in Section 6.16 for the 12 month period ended
immediately prior to the proposed date of consummation of such proposed
Acquisition, and (ii) are projected to be in compliance with the financial
covenants in Section 6.16 for the 12 month period ended one year after the
proposed date of consummation of such proposed Acquisition, together with copies
of all such historical financial statements of the Person or assets being
acquired,

(e) Borrower has provided Agent with written notice of the proposed Acquisition
at least 30 Business Days prior to the anticipated closing date of the proposed
Acquisition and, not later than 5 Business Days prior to the anticipated closing
date of the proposed Acquisition, copies of the acquisition agreement and other
material documents relative to the proposed Acquisition, which agreement and
documents must be reasonably acceptable to Agent,

(f) the assets being acquired (other than a de minimis amount of assets in
relation to Borrower’s total assets), or the Person whose Stock is being
acquired, are useful in or engaged in, as applicable, the business of Borrower
or a business reasonably related thereto, and

(g) the subject assets or Stock, as applicable, are being acquired directly by
Borrower, and (i) in the case of an Asset Acquisition, the Borrower shall have
executed and delivered or authorized, as applicable, any and all documentation
reasonably requested by the Agent in order to include the newly acquired assets
within the collateral hypothecated under the Loan Documents, and (ii) in the
case of a Stock Acquisition, the Borrower shall have complied with Section 5.16
of the Agreement.

“Permitted Protest” means the right of Borrower to protest any Lien (other than
any Lien that secures the Obligations), taxes (other than payroll taxes or taxes
that are the subject of a United States federal tax lien), or rental payment,
provided that (a) a reserve with respect to such obligation is established on
Borrower’s books and records in such amount as is required under GAAP, (b) any
such protest is instituted promptly and prosecuted diligently by Borrower, as
applicable, in good faith, and (c) Agent is satisfied that, while any such
protest is pending, there will be no impairment of the enforceability, validity,
or priority of any of the Agent’s Liens.

--------------------------------------------------------------------------------

“Permitted Purchase Money Indebtedness” means, as of any date of determination,
Purchase Money Indebtedness incurred after the Closing Date in an aggregate
principal amount outstanding at any one time not in excess of $1,000,000.

“Person” means natural persons, corporations, limited liability companies,
limited partnerships, general partnerships, limited liability partnerships,
joint ventures, trusts, land trusts, business trusts, or other organizations,
irrespective of whether they are legal entities, and governments and agencies
and political subdivisions thereof.

“Petroleum Engineers” means such petroleum engineers of recognized national
standing as may be selected by Borrower with the prior consent of Agent.

“Projections” means Borrower’s forecasted (a) balance sheets, (b) profit and
loss statements, and (c) cash flow statements, all prepared on a consistent
basis using a successful efforts methodology, together with appropriate
supporting details and a statement of underlying assumptions.

“Pro Rata Share” means, as of any date of determination:

(a) with respect to a Lender’s obligation to make Advances and right to receive
payments of principal, interest, fees, costs, and expenses with respect thereto,
(i) prior to the Revolver Commitments being terminated or reduced to zero, the
percentage obtained by dividing (y) such Lender’s Revolver Commitment, by
(z) the aggregate Revolver Commitments of all Lenders, and (ii) from and after
the time that the Revolver Commitments have been terminated or reduced to zero,
the percentage obtained by dividing (y) the outstanding principal amount of such
Lender’s Advances by (z) the outstanding principal amount of all Advances,

(b) with respect to a Lender’s obligation to participate in Letters of Credit,
to reimburse the Issuing Lender, and right to receive payments of fees with
respect thereto, (i) prior to the Revolver Commitments being terminated or
reduced to zero, the percentage obtained by dividing (y) such Lender’s Revolver
Commitment, by (z) the aggregate Revolver Commitments of all Lenders, and
(ii) from and after the time that the Revolver Commitments have been terminated
or reduced to zero, the percentage obtained by dividing (y) the outstanding
principal amount of such Lender’s Advances by (z) the outstanding principal
amount of all Advances, and

(c) with respect to all other matters as to a particular Lender (including the
indemnification obligations arising under Section 15.7), the percentage obtained
by dividing (i) such Lender’s Revolver Commitment, by (ii) the aggregate amount
of Revolver Commitments of all Lenders; provided, however, that in the event the
Revolver Commitments have been terminated or reduced to zero, Pro Rata Share
under this clause shall be the percentage obtained by dividing (A) the
outstanding principal amount of such Lender’s Advances plus such Lender’s
ratable portion of the Risk Participation Liability with respect to outstanding
Letters of Credit, by (B) the outstanding principal amount of all Advances plus
the aggregate amount of the Risk Participation Liability with respect to
outstanding Letters of Credit.

“Protective Advances” has the meaning specified therefor in Section 2.3(d)(i).

“Proved Developed Non-Producing Reserves” means those Oil and Gas Properties
designated as “proved developed non-producing” (in accordance with the
Definitions for Oil and Gas Reserves approved by the Board of Directors of the
Society for Petroleum Engineers, Inc. from time to time) in the Reserve Report
and used in establishing the Borrowing Base.

--------------------------------------------------------------------------------

“Proved Developed Producing Reserves” means those Oil and Gas Properties
designated as “proved developed producing” (in accordance with the Definitions
for Oil and Gas Reserves approved by the Board of Directors of the Society for
Petroleum Engineers, Inc. from time to time) in the Reserve Report and used in
establishing the Borrowing Base.

“Proved Reserves” means those Oil and Gas Properties designated as “proved” (in
accordance with the Definitions for Oil and Gas Reserves approved by the Board
of Directors of the Society for Petroleum Engineers, Inc. from time to time) in
the Reserve Report and used in establishing the Borrowing Base.

“PV-10” means, as of any date of determination, the sum of the present values of
the amounts of net revenues before income taxes expected to be received by
Borrower in each of the months following the date of determination on the basis
of estimated production from Proved Reserves during such months determined as
follows:

(i) each such monthly net revenue amount shall be calculated (x) on the basis of
the applicable NYMEX Strip Price for the appropriate category of oil or gas as
of such date of determination, adjusting such price to reflect (A) the
appropriate Basis Differential with respect to Hydrocarbons produced from
specific Oil and Gas Properties of Borrower as set forth on Exhibit PV-10, as
such Exhibit may from time to time be amended at the request of Borrower with
the written consent of Agent, (B) the prices for fixed price contracts for such
month and (C) Btu content, (y) assuming that production costs remain constant
throughout the periods of the calculation of such monthly net revenues, and
(z) otherwise applying the financial accounting and reporting standards
prescribed by the SEC for application of the successful efforts method of
accounting for such revenues under Rule 4-10 of Regulation S-X as promulgated by
the SEC from time to time; and

(ii) the present value of each such monthly net revenue amount shall be
determined by discounting each such monthly net revenue amount from the month in
which it is expected to be received, on a monthly basis, to such date of
determination at a rate of 10% per annum.

“Purchase Money Indebtedness” means Indebtedness (other than the Obligations,
but including Capitalized Lease Obligations), incurred at the time of, or within
20 days after, the acquisition of any fixed assets for the purpose of financing
all or any part of the acquisition cost thereof.

“Qualified Cash” means, as of any date of determination, the amount of
unrestricted cash and Cash Equivalents of Borrower that is in Deposit Accounts
or in Securities Accounts, or any combination thereof, and which such Deposit
Account or Securities Account is the subject of a Control Agreement and is
maintained by a branch office of the bank or securities intermediary located
within the United States.

“Real Property” means any estates or interests in real property now owned or
hereafter acquired by Borrower and the improvements thereto.

“Real Property Collateral” means the Real Property identified on Schedule R-1
and any Real Property hereafter acquired by Borrower.

“Record” means information that is inscribed on a tangible medium or that is
stored in an electronic or other medium and is retrievable in perceivable form.

--------------------------------------------------------------------------------

“Refinancing Indebtedness” means refinancings, renewals, or extensions of
Indebtedness so long as the only amendments, modifications or other changes to
such Indebtedness are Permitted Changes.

“Release” means any spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, seeping, migrating, dumping or
disposing of any Hazardous Material (including the abandonment or discarding of
barrels, containers and other closed receptacles containing any Hazardous
Material) into the indoor or outdoor environment, including, without limitation,
the movement of Hazardous Materials through or in the ambient air, soil, surface
or ground water, or property.

“Remedial Action” means all actions taken to (a) clean up, remove, remediate,
contain, treat, monitor, assess, evaluate, or in any way address Hazardous
Materials in the indoor or outdoor environment, (b) prevent or minimize a
release or threatened release of Hazardous Materials so they do not migrate or
endanger or threaten to endanger public health or welfare or the indoor or
outdoor environment, (c) restore or reclaim natural resources or the
environment, (d) perform any pre-remedial studies, investigations, or
post-remedial operation and maintenance activities, or (e) conduct any other
actions with respect to Hazardous Materials authorized by Environmental Laws.

“Replacement Lender” has the meaning specified therefor in Section 14.2(a).

“Report” has the meaning specified therefor in Section 15.16.

“Required Availability” means that the sum of (a) Excess Availability, plus
(b) Qualified Cash exceeds $10,000,000.

“Required Lenders” means, at any time, Lenders whose aggregate Pro Rata Shares
(calculated under clause (c) of the definition of Pro Rata Shares) exceed 50%;
provided, that, if at any date of determination, there are less than three
unaffiliated Lenders, the “Required Lenders” shall mean all of the Lenders.

“Reserve Percentage” means, on any day, for any Lender, the maximum percentage
prescribed by the Board of Governors of the Federal Reserve System (or any
successor Governmental Authority) for determining the reserve requirements
(including any basic, supplemental, marginal, or emergency reserves) that are in
effect on such date with respect to eurocurrency funding (currently referred to
as “eurocurrency liabilities”) of that Lender, but so long as such Lender is not
required or directed under applicable regulations to maintain such reserves, the
Reserve Percentage shall be zero.

“Reserve Report” means a report of the Petroleum Engineers (or in the case of
the report dated June 30, of the chief engineer of Borrower) in the form of the
Initial Reserve Report, setting forth, as of June 30 or December 31 of any
calendar year (i) the volumetric quantity and the PV-10 (and solely with respect
to the Reserve Report dated December 31, shall also include the SEC Value), of
the oil and gas reserves attributable to the Oil and Gas Properties of Borrower
included in the calculation of the Borrowing Base, 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, and (ii) such other
information as Agent may reasonably request, all in form and substance
satisfactory to Agent.

“Revolver Commitment” means, with respect to each Lender, its Revolver
Commitment, and, with respect to all Lenders, their Revolver Commitments, in
each case as such Dollar amounts are set forth beside such Lender’s name under
the applicable heading on Schedule C-1 or in the Assignment and Acceptance
pursuant to which such Lender became a Lender hereunder, as such amounts may be
reduced or increased from time to time pursuant to assignments made in
accordance with the provisions of Section 13.1.

--------------------------------------------------------------------------------

“Revolver Usage” means, as of any date of determination, the sum of (a) the
amount of outstanding Advances, plus (b) the amount of the Letter of Credit
Usage.

“Risk Participation Liability” means, as to each Letter of Credit, all
reimbursement obligations of Borrower to the Issuing Lender with respect to an
L/C Undertaking, consisting of (a) the amount available to be drawn or which may
become available to be drawn, (b) all amounts that have been paid by the Issuing
Lender to the Underlying Issuer to the extent not reimbursed by Borrower,
whether by the making of an Advance or otherwise, and (c) all accrued and unpaid
interest, fees, and expenses payable with respect thereto.

“SEC” means the United States Securities and Exchange Commission and any
successor thereto.

“SEC Value” means the future net revenues before income taxes from Proved
Reserves, estimated utilizing the actual price for the appropriate category of
oil or gas as of the date of determination and assuming that oil and natural gas
prices and production costs thereafter remain constant, then discounted at the
rate of 10% per year to obtain the present value, and otherwise applying the
financial accounting and reporting standards prescribed by the SEC for
application of the successful efforts method of accounting under Rule 4-10 and
Regulation S-X as promulgated by the SEC from time to time.

“Second Secured Debt” means all current and future Indebtedness and other
liabilities owing pursuant to the Second Secured Notes or any other Second
Secured Debt Documents and any Refinancing Indebtedness in respect of such
Indebtedness.

“Second Secured Debt Documents” means the Second Secured Note Indenture, the
Second Secured Notes and all agreements and documents executed in connection
therewith at any time, including without limitation those agreements and
documents listed on Schedule 4.29 hereto.

“Second Secured Notes” means the 12.5% Senior Secured Notes issued by the
Borrower in the original principal amount of $115,000,000 due October 1, 2012
issued pursuant to the Second Secured Note Indenture and any other securities
issued pursuant to the Second Secured Note Indenture at any time.

“Second Secured Note Indenture” means the Senior Secured Indenture between the
Borrower, the Subsidiary guarantors named therein and The Bank of New York, as
trustee, dated as of the date hereof, as amended, supplemented or otherwise
modified from time to time in accordance with Section 6.7 of this Agreement.

“Securities Account” means a securities account (as that term is defined in the
Code).

“Security Agreement” means a security agreement, in form and substance
satisfactory to Agent, executed and delivered by Borrower to Agent.

“Seismic Licenses” has the meaning specified therefor in Section 4.39.

“Settlement” has the meaning specified therefor in Section 2.3(e)(i).

“Settlement Date” has the meaning specified therefor in Section 2.3(e)(i).

“Solvent” means, with respect to any Person on a particular date, that, at fair
valuations, the sum of such Person’s assets is greater than all of such Person’s
debts.

--------------------------------------------------------------------------------

“S&P” has the meaning specified therefor in the definition of Cash Equivalents.

“Stock” means all shares, options, warrants, interests, participations, or other
equivalents (regardless of how designated) of or in a Person, whether voting or
nonvoting, including common stock, preferred stock, or any other “equity
security” (as such term is defined in Rule 3a11-1 of the General Rules and
Regulations promulgated by the SEC under the Exchange Act).

“Subordinated Indebtedness” means Indebtedness of Borrower the terms of which
are reasonably satisfactory to the Required Lenders and which has been expressly
subordinated in right of payment to all Indebtedness of Borrower under the Loan
Documents (i) by the execution and delivery of a subordination agreement, in
form and substance reasonably satisfactory to the Required Lenders, or
(ii) otherwise on terms and conditions (including, without limitation,
subordination provisions, payment terms, interest rates, covenants, remedies,
defaults and other material terms) reasonably satisfactory to the Required
Lenders.

“Subsidiary” of a Person means a corporation, partnership, limited liability
company, or other entity in which that Person directly or indirectly owns or
controls the shares of Stock having ordinary voting power to elect a majority of
the board of directors (or appoint other comparable managers) of such
corporation, partnership, limited liability company, or other entity.

“Swing Lender” means WFF or any other Lender that, at the request of Borrower
and with the consent of Agent agrees, in such Lender’s sole discretion, to
become the Swing Lender under Section 2.3(b).

“Swing Loan” has the meaning specified therefor in Section 2.3(b).

“Taxes” has the meaning specified therefor in Section 16(a).

“Third Secured Debt” means all current and future Indebtedness and other
liabilities owing pursuant to the Third Secured Notes or any other Third Secured
Debt Documents and any Refinancing Indebtedness in respect of such Indebtedness.

“Third Secured Debt Documents” means the Third Secured Note Indenture, the Third
Secured Notes and all agreements and documents executed in connection therewith
at any time, including without limitation those agreements and documents listed
on Schedule 4.29 hereto.

“Third Secured Notes” means the 14.0% Senior Subordinated Convertible Notes
issued by the Borrower in the original principal amount of $50,000,000 due
October 1, 2013 issued pursuant to the Second Secured Note Indenture and any
other securities issued pursuant to the Third Secured Note Indenture at any
time.

“Third Secured Note Indenture” means the Senior Secured Indenture between the
Borrower, the Subsidiary guarantors named therein and The Bank of New York, as
trustee, dated as of the date hereof, as amended, supplemented or otherwise
modified from time to time in accordance with Section 6.7 of this Agreement.

“Total Commitment” means, with respect to each Lender, its Total Commitment,
and, with respect to all Lenders, their Total Commitments, in each case as such
Dollar amounts are set forth beside such Lender’s name under the applicable
heading on Schedule C-1 attached hereto or on the signature page of the
Assignment and Acceptance pursuant to which such Lender became a Lender
hereunder, as such amounts may be reduced or increased from time to time
pursuant to assignments made in accordance with the provisions of Section 13.1.

--------------------------------------------------------------------------------

“Transactions” means collectively, the DSX Acquisition and the issuance of the
Second Secured Debt and the Third Secured Debt.

“Underlying Issuer” means a third Person which is the beneficiary of an L/C
Undertaking and which has issued a letter of credit at the request of the
Issuing Lender for the benefit of Borrower.

“Underlying Letter of Credit” means a letter of credit that has been issued by
an Underlying Issuer.

“United States” means the United States of America.

“Utilization Percentage” means, as of any period, the average outstanding
principal amount of the Advances plus the Letter of Credit Usage for such
period, as a percentage of the lesser of (x) the average Borrowing Base for such
period and (y) the average Maximum Revolver Amount for such period.

“Voidable Transfer” has the meaning specified therefor in Section 18.8.

“Wells Fargo” means Wells Fargo Bank, National Association, a national banking
association.

“WFF” means Wells Fargo Foothills, Inc., a California corporation.