Exhibit 10.1
 
 
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF
AUGUST 9, 2007
AMONG
TETON ENERGY CORPORATION,
AS BORROWER,
JPMORGAN CHASE BANK, N.A.,
AS ADMINISTRATIVE AGENT,
AND
THE LENDERS PARTY HERETO
SOLE LEAD ARRANGER AND SOLE BOOKRUNNER
J.P. MORGAN SECURITIES INC.
 
 

 

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TABLE OF CONTENTS

              Page No.
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
       
Section 1.01 Terms Defined Above
    2  
Section 1.02 Certain Defined Terms
    2  
Section 1.03 Types of Loans and Borrowings
    20  
Section 1.04 Terms Generally; Rules of Construction
    20  
Section 1.05 Accounting Terms and Determinations; GAAP
    21  
 
       
ARTICLE II
THE CREDITS
       
Section 2.01 Commitments
    21  
Section 2.02 Loans and Borrowings
    21  
Section 2.03 Requests for Borrowings
    22  
Section 2.04 Interest Elections
    23  
Section 2.05 Funding of Borrowings
    25  
Section 2.06 Termination and Reduction of Aggregate Maximum Credit Amounts
    25  
Section 2.07 Borrowing Base and Conforming Borrowing Base
    26  
Section 2.08 Letters of Credit
    29  
 
       
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES
       
Section 3.01 Repayment of Loans
    34  
Section 3.02 Interest
    34  
Section 3.03 Alternate Rate of Interest
    35  
Section 3.04 Prepayments
    35  
Section 3.05 Fees
    37  
Section 3.06 Extension of Maturity Date
    38  
 
       
ARTICLE IV
PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS
       
Section 4.01 Payments Generally; Pro Rata Treatment; Sharing of Set-offs
    39  
Section 4.02 Presumption of Payment by the Borrower
    40  
Section 4.03 Certain Deductions by the Administrative Agent
    40  
Section 4.04 Disposition of Proceeds
    40  
 
       
ARTICLE V
INCREASED COSTS; BREAK FUNDING PAYMENTS; TAXES; ILLEGALITY
       
Section 5.01 Increased Costs
    41  
Section 5.02 Break Funding Payments
    42  
Section 5.03 Taxes
    42  
Section 5.04 Mitigation Obligations
    43  
Section 5.05 Illegality
    44  
 
       
ARTICLE VI
CONDITIONS PRECEDENT
       
Section 6.01 Effective Date
    44  
 
        i

 

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              Page No.
Section 6.02 Each Credit Event
    46  
 
       
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
       
Section 7.01 Organization; Powers
    47  
Section 7.02 Authority; Enforceability
    47  
Section 7.03 Approvals; No Conflicts
    48  
Section 7.04 Financial Condition; No Material Adverse Change
    48  
Section 7.05 Litigation
    48  
Section 7.06 Environmental Matters
    49  
Section 7.07 Compliance with the Laws and Agreements; No Defaults
    50  
Section 7.08 Investment Company Act
    50  
Section 7.09 Taxes
    50  
Section 7.10 ERISA
    50  
Section 7.11 Disclosure; No Material Misstatements
    51  
Section 7.12 Insurance
    52  
Section 7.13 Restriction on Liens
    52  
Section 7.14 Subsidiaries
    52  
Section 7.15 Location of Business and Offices
    52  
Section 7.16 Properties; Titles, Etc.
    52  
Section 7.17 Maintenance of Properties
    53  
Section 7.18 Gas Imbalances, Prepayments
    54  
Section 7.19 Marketing of Production
    54  
Section 7.20 Swap Agreements
    54  
Section 7.21 Use of Loans and Letters of Credit
    54  
Section 7.22 Solvency
    55  
Section 7.23 Senior Indebtedness
    55  
 
       
ARTICLE VIII
AFFIRMATIVE COVENANTS
       
Section 8.01 Financial Statements; Other Information
    55  
Section 8.02 Notices of Material Events
    58  
Section 8.03 Existence; Conduct of Business
    58  
Section 8.04 Payment of Obligations
    58  
Section 8.05 Performance of Obligations under Loan Documents
    59  
Section 8.06 Operation and Maintenance of Properties
    59  
Section 8.07 Insurance
    60  
Section 8.08 Books and Records; Inspection Rights
    60  
Section 8.09 Compliance with Laws
    60  
Section 8.10 Environmental Matters
    60  
Section 8.11 Further Assurances
    61  
Section 8.12 Reserve Reports
    62  
Section 8.13 Title Information
    62  
Section 8.14 Additional Collateral; Additional Guarantors
    63  
Section 8.15 ERISA Compliance
    65  
Section 8.16 Marketing Activities
    65  
Section 8.17 Payment of Interest in Kind
    65  
 
        ii

 

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              Page No.
ARTICLE IX
NEGATIVE COVENANTS
       
Section 9.01 Financial Covenants
    66  
Section 9.02 Debt
    66  
Section 9.03 Liens
    67  
Section 9.04 Dividends, Distributions and Redemptions
    68  
Section 9.05 Investments, Loans and Advances
    68  
Section 9.06 Nature of Business; International Operations
    69  
Section 9.07 Proceeds of Notes
    70  
Section 9.08 ERISA Compliance
    70  
Section 9.09 Sale or Discount of Receivables
    71  
Section 9.10 Mergers, Etc
    71  
Section 9.11 Sale of Properties
    71  
Section 9.12 Environmental Matters
    72  
Section 9.13 Transactions with Affiliates
    72  
Section 9.14 Subsidiaries
    72  
Section 9.15 Negative Pledge Agreements; Dividend Restrictions
    73  
Section 9.16 Gas Imbalances, Take-or-Pay or Other Prepayments
    73  
Section 9.17 Swap Agreements
    73  
 
       
ARTICLE X
EVENTS OF DEFAULT; REMEDIES
       
Section 10.01 Events of Default
    73  
Section 10.02 Remedies
    75  
 
       
ARTICLE XI
THE AGENTS
       
Section 11.01 Appointment; Powers
    77  
Section 11.02 Duties and Obligations of Administrative Agent
    77  
Section 11.03 Action by Administrative Agent
    78  
Section 11.04 Reliance by Administrative Agent
    78  
Section 11.05 Subagents
    79  
Section 11.06 Resignation or Removal of Administrative Agent
    79  
Section 11.07 Administrative Agent as Lender
    79  
Section 11.08 No Reliance
    79  
Section 11.09 Administrative Agent May File Proofs of Claim
    80  
Section 11.10 Authority of Administrative Agent to Release Collateral and Liens
    80  
Section 11.11 The Arranger
    81  
 
       
ARTICLE XII
MISCELLANEOUS
       
Section 12.01 Notices
    81  
Section 12.02 Waivers; Amendments
    82  
Section 12.03 Expenses, Indemnity; Damage Waiver
    83  
Section 12.04 Successors and Assigns
    85  
Section 12.05 Survival; Revival; Reinstatement
    88  
Section 12.06 Counterparts; Integration; Effectiveness
    89  
Section 12.07 Severability
    89  
 
        iii

 

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              Page No.
Section 12.08 Right of Setoff
    89  
Section 12.09 GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS
    90  
Section 12.10 Headings
    91  
Section 12.11 Confidentiality
    91  
Section 12.12 Interest Rate Limitation
    92  
Section 12.13 EXCULPATION PROVISIONS
    92  
Section 12.14 Collateral Matters; Swap Agreements
    93  
Section 12.15 No Third Party Beneficiaries
    93  
Section 12.16 USA Patriot Act Notice
    93  
Section 12.17 Restatement; Existing Credit Agreement
    93  
 
        iv

 

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ANNEXES, EXHIBITS AND SCHEDULES

     
Annex I
  List of Maximum Credit Amounts
 
   
Exhibit A
  Form of Note
Exhibit B
  Form of Borrowing Request
Exhibit C
  Form of Interest Election Request
Exhibit D
  Form of Compliance Certificate
Exhibit E-1
  Form of Legal Opinion of Gersten Savage LLP, special counsel to the Borrower
Exhibit E-2
  Form of Legal Opinion of Local Counsel
Exhibit F-1
  Security Instruments
Exhibit F-2
  Form of Guaranty and Pledge Agreement
Exhibit G
  Form of Assignment and Assumption
 
   
Schedule 7.05
  Litigation
Schedule 7.14
  Subsidiaries and Partnerships
Schedule 7.15
  Location of Business and Offices
Schedule 7.18
  Gas Imbalances
Schedule 7.19
  Marketing Contracts
Schedule 7.20
  Swap Agreements
Schedule 9.05
  Investments
 
    v

 

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LIST OF DEFINED TERMS

              Page No.
$          
    7  
ABR
    2  
Administrative Agent
    1  
Administrative Questionnaire
    2  
Affected Loans
    45  
Affiliate
    2  
Aggregate Maximum Credit Amounts
    2  
Agreement
    2  
Alternate Base Rate
    3  
Applicable Margin
    3  
Applicable Percentage
    3  
Approved Petroleum Engineers
    3  
Arranger
    3  
Assignment and Assumption
    3  
Availability Period
    4  
Board
    4  
Borrower
    1  
Borrowing
    4  
Borrowing Base
    4  
Borrowing Base Deficiency
    4  
Borrowing Request
    4  
Business Day
    4  
Capital Leases
    4  
Casualty Event
    4  
CERCLA
    8  
Change in Control
    4  
Change in Law
    5  
Code
    5  
Commitment
    5  
Commitment Fee Rate
    5  
Conforming Borrowing Base
    5  
Conforming Borrowing Base Utilization Percentage
    5  
Conforming Credit Criteria
    5  
Consolidated Net Income
    5  
Consolidated Subsidiaries
    6  
Control
    6  
Controlled
    6  
Controlling
    6  
Debt
    6  
Default
    7  
disposal
    8  
disposed
    8  
Disqualified Capital Stock
    7  
dollars
    7  
 
        vi

 

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              Page No.
Domestic Subsidiary
    7  
EBITDAX
    7  
Effective Date
    8  
Election Notice
    37  
Engineering Reports
    28  
Environmental Laws
    8  
Equity Interests
    9  
ERISA
    9  
ERISA Affiliate
    9  
ERISA Event
    9  
Eurodollar
    9  
Eurodollar Borrowing
    21  
Eurodollar Loan
    21  
Event of Default
    74  
Excepted Liens
    9  
Excluded Taxes
    10  
Existing Administrative Agent
    1  
Existing Credit Agreement
    1  
Existing Lender
    1  
Existing Loan Documents
    2  
Extension Effective Date
    40  
Federal Funds Effective Rate
    11  
Fee Letter
    11  
Financial Officer
    11  
Financial Statements
    11  
Foreign Lender
    11  
Foreign Subsidiary
    11  
GAAP
    11  
Governmental Authority
    12  
Governmental Requirement
    12  
Guarantors
    12  
Guaranty Agreement
    12  
hazardous substance
    8  
Highest Lawful Rate
    12  
Hydrocarbon Interests
    12  
Hydrocarbons
    13  
Indebtedness
    13  
Indemnified Taxes
    13  
Indemnitee
    84  
Information
    92  
Initial Reserve Report
    13  
Interest Election Request
    13  
Interest Payment Date
    13  
Interest Period
    13  
Interim Redetermination
    27  
Interim Redetermination Date
    14  
 
        vii

 

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              Page No.
Investment
    14  
Issuing Bank
    14  
JPMorgan Chase
    1  
LC Commitment
    14  
LC Disbursement
    14  
LC Exposure
    14  
Lenders
    14  
Letter of Credit
    14  
Letter of Credit Agreements
    15  
LIBO Rate
    15  
Lien
    15  
Loan Documents
    15  
Loans
    15  
Majority Lenders
    15  
Mandatory Redetermination
    16  
Mandatory Redetermination Date
    16  
Material Adverse Effect
    16  
Material Indebtedness
    16  
Maturity Date
    16  
Maximum Credit Amount
    16  
Monthly Date
    16  
Moody’s
    16  
Mortgaged Property
    16  
Multiemployer Plan
    16  
New Borrowing Base Notice
    29  
Notes
    17  
oil
    8  
Oil and Gas Properties
    17  
oil and gas waste
    8  
OPA
    8  
Other Taxes
    17  
Participant
    88  
PBGC
    17  
Person
    17  
Plan
    17  
Prime Rate
    18  
Property
    18  
Proposed Borrowing Base
    28  
Proposed Borrowing Base Notice
    28  
Proposed Conforming Borrowing Base
    28  
RCRA
    8  
Redeem
    18  
Redemption
    18  
Redetermination Date
    18  
Register
    88  
Related Parties
    18  
 
        viii

 

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              Page No.
release
    8  
Remedial Work
    62  
Reserve Report
    18  
Responsible Officer
    19  
Restricted Payment
    19  
Revolving Credit Exposure
    19  
Rights Agreement
    19  
S&P
    20  
Scheduled Redetermination
    27  
Scheduled Redetermination Date
    19  
SEC
    19  
Section 91.1011
    8  
Security Instruments
    19  
Senior Subordinated Convertible Notes
    20  
SFAS 133
    20  
solid waste
    8  
Subsidiary
    20  
Swap Agreement
    20  
Swap Termination Value
    20  
Synthetic Leases
    20  
Taxes
    21  
Termination Date
    21  
threatened release
    8  
Total Debt
    21  
Transactions
    21  
Type
    21  
venture
    70  
Wholly-Owned Subsidiary
    21  
 
        ix

 

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     THIS AMENDED AND RESTATED CREDIT AGREEMENT dated as of August 9, 2007, is
among: Teton Energy Corporation, a Delaware corporation (the “Borrower”); each
of the Lenders from time to time party hereto; and JPMorgan Chase Bank, N.A. (in
its individual capacity, “JPMorgan Chase”), as administrative agent for the
Lenders (in such capacity, together with its successors in such capacity, the
“Administrative Agent”).
R E C I T A L S
     A. The Borrower, BNP Paribas, as the administrative agent (“Existing
Administrative Agent”), and BNP Paribas as the sole lender thereunder (the
“Existing Lender”) are parties to that certain Credit Agreement dated as of
June 15, 2006, as amended by that certain First Amendment to Credit Agreement
dated as of November 1, 2006, and as amended by that certain Second Amendment to
Credit Agreement dated as of May 14, 2007 (as renewed, extended, amended or
restated from time to time, the “Existing Credit Agreement”).
     B. The Existing Lender agreed to sell and assign, and JPMorgan Chase agreed
to purchase and assume, all of the outstanding commitments and loans under the
Existing Credit Agreement and all of the Existing Lender’s rights, titles,
interests, liens, security interests, privileges, claims, demands and equities
existing in connection with or as security for the payment and performance under
the Existing Credit Agreement, and the Existing Administrative Agent agreed to
assign, and JPMorgan Chase agreed to assume, the position of administrative
agent under the Existing Credit Agreement, pursuant to that certain Master
Assignment of Notes, Security Instruments and Liens dated as of even date
herewith.
     C. The Borrower has requested JPMorgan Chase, and JPMorgan Chase has
agreed, to amend and restate (but not extinguish) the Existing Credit Agreement,
and the Borrower has further requested that the Lenders provide certain loans to
and extensions of credit on behalf of the Borrower, and the Lenders have agreed
to make such loans and extensions of credit subject to the terms and conditions
of this Agreement.
     D. Pursuant to Article XI of this Agreement, JPMorgan Chase Bank, N.A. has
been appointed Administrative Agent for the Lenders hereunder.
     E. It is the intention of the parties hereto that this Agreement is an
amendment and restatement of the Existing Credit Agreement, and not a new or
substitute credit agreement or novation of the Existing Credit Agreement.
     F. In consideration of the mutual covenants and agreements herein contained
and of the loans, extensions of credit and commitments hereinafter referred to,
the parties hereto agree that this Agreement supersedes and replaces the
Existing Credit Agreement in its entirety; provided, that, (i) such amendment
and restatement shall operate to renew, amend and modify the rights and
obligations of the parties under the Existing Credit Agreement, as applicable,
and as provided herein, but shall not effect a novation thereof, (ii) unless
otherwise provided for herein and evidenced by a separate written agreement,
amendment or release, no other Loan Document, as defined in, and executed and/or
delivered pursuant to the terms of, the Existing Credit Agreement (collectively,
the “Existing Loan Documents”) shall be amended, terminated or released in any
respect and all of such other Existing Loan Documents shall remain in full

1

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force and effect except that the Borrower and the Lenders agree that by
executing this Agreement the definition of “Credit Agreement” contained in such
Existing Loan Documents shall be amended to include this Agreement and all
future amendments hereto, and (iii) the Liens securing the Indebtedness under
and as defined in the Existing Credit Agreement and granted pursuant to the
Existing Loan Documents and the liabilities and obligations of the Borrower
shall not be extinguished, but shall be carried forward, and such Liens shall
secure such Indebtedness, in each case, as renewed, amended, restated and
modified hereby. The Borrower represents and warrants that, as of the Effective
Date, there are no claims or offsets against, or defenses or counterclaims to,
its obligations (or the obligations of any Subsidiary) under the Existing Credit
Agreement or any of the other Existing Loan Documents.
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
     Section 1.01 Terms Defined Above. As used in this Agreement, each term
defined above has the meaning indicated above.
     Section 1.02 Certain Defined Terms. As used in this Agreement, the
following terms have the meanings specified below:
     “ABR”, when used in reference to any Loan or Borrowing, refers to whether
such Loan, or the Loans comprising such Borrowing, are bearing interest at a
rate determined by reference to the Alternate Base Rate.
     “Administrative Agent” has the meaning set forth in the introductory
paragraph of this Agreement.
     “Administrative Questionnaire” means an Administrative Questionnaire in a
form supplied by the Administrative Agent.
     “Affected Loans” has the meaning assigned such term in Section 5.05.
     “Affiliate” means, with respect to a specified Person, another Person that
directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
     “Aggregate Maximum Credit Amounts” at any time shall equal the sum of the
Maximum Credit Amounts, as the same may be reduced or terminated pursuant to
Section 2.06.
     “Agreement” means this Amended and Restated Credit Agreement, as the same
may from time to time be amended, modified, supplemented or restated.
     “Alternate Base Rate” means, for any day, a rate per annum equal to the
greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds
Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate
Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate
shall be effective from and including the effective date of such change in the
Prime Rate or the Federal Funds Effective Rate, respectively.

2

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     “Applicable Margin” means, for any day, with respect to any ABR Loan or
Eurodollar Loan, or with respect to the Commitment Fee Rate, as the case may be,
the rate per annum set forth in the Conforming Borrowing Base Utilization Grid
below based upon the Conforming Borrowing Base Utilization Percentage then in
effect:

                                                  Conforming Borrowing Base
Utilization Grid Conforming                         Borrowing Base              
          Utilization                         Percentage   <50%   ³50% <75%  
³75% <90%   ³90% £100%   >100% £112.5%   >112.5%
ABR Loans
    0.000 %     0.000 %     0.250 %     0.500 %     1.000 %     1.500 %
Eurodollar Loans
    1.250 %     1.500 %     1.750 %     2.000 %     2.500 %     3.000 %
Commitment Fee Rate
    0.375 %     0.375 %     0.375 %     0.500 %     0.500 %     0.500 %

     Each change in the Applicable Margin shall apply during the period
commencing on the effective date of such change and ending on the date
immediately preceding the effective date of the next such change, provided,
however, that if at any time the Borrower fails to deliver a Reserve Report
pursuant to Section 8.12(a), then the “Applicable Margin” means the rate per
annum set forth on the grid when the Conforming Borrowing Base Utilization
Percentage is at its highest level.
     “Applicable Percentage” means, with respect to any Lender, the percentage
of the Aggregate Maximum Credit Amounts represented by such Lender’s Maximum
Credit Amount as such percentage is set forth on Annex I.
     “Approved Petroleum Engineers” means (a) Netherland, Sewell & Associates,
Inc., (b) Ryder Scott Company Petroleum Consultants, L.P. and (c) any other
independent petroleum engineers reasonably acceptable to the Administrative
Agent and the Borrower.
     “Arranger” means J.P. Morgan Securities Inc., in its capacities as the sole
lead arranger and sole bookrunner hereunder.
     “Assignment and Assumption” means an assignment and assumption entered into
by a Lender and an assignee (with the consent of any party whose consent is
required by Section 12.04(b)), and accepted by the Administrative Agent, in the
form of Exhibit G or any other form approved by the Administrative Agent.
     “Availability Period” means the period from and including the Effective
Date to but excluding the Termination Date.
     “Board” means the Board of Governors of the Federal Reserve System of the
United States of America or any successor Governmental Authority.
     “Borrower” has the meaning set forth in the introductory paragraph of this
Agreement.

3

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     “Borrowing” means Loans of the same Type, made, converted or continued on
the same date and, in the case of Eurodollar Loans, as to which a single
Interest Period is in effect.
     “Borrowing Base” means at any time an amount equal to the amount determined
in accordance with Section 2.07, as the same may be adjusted from time to time
pursuant to Section 8.13(c) or Section 9.11(d). From and after November 1, 2008,
the Borrowing Base shall be, and shall be in an amount equal to, the Conforming
Borrowing Base.
     “Borrowing Base Deficiency” occurs if at any time the total Revolving
Credit Exposures exceeds the Borrowing Base then in effect.
     “Borrowing Request” means a request by the Borrower for a Borrowing in
accordance with Section 2.03.
     “Business Day” means any day that is not a Saturday, Sunday or other day on
which commercial banks in New York City, Chicago, Illinois or Dallas, Texas are
authorized or required by law to remain closed; and if such day relates to a
Borrowing or continuation of, a payment or prepayment of principal of or
interest on, or a conversion of or into, or the Interest Period for, a
Eurodollar Loan or a notice by the Borrower with respect to any such Borrowing
or continuation, payment, prepayment, conversion or Interest Period, any day
which is also a day on which dealings in dollar deposits are carried out in the
London interbank market.
     “Capital Leases” means, in respect of any Person, all leases which shall
have been, or should have been, in accordance with GAAP, recorded as capital
leases on the balance sheet of the Person liable (whether contingent or
otherwise) for the payment of rent thereunder.
     “Casualty Event” means any loss, casualty or other insured damage to, or
any nationalization, taking under power of eminent domain or by condemnation or
similar proceeding of, any Property of the Borrower or any of its Subsidiaries
having a fair market value in excess of the greater of $500,000 or two and
one-half percent (2.5%) of the then effective Conforming Borrowing Base.
     “Change in Control” means (a) the acquisition of ownership, directly or
indirectly, beneficially or of record, by any Person or group of Equity
Interests representing more than 30% of the aggregate ordinary voting power
represented by the issued and outstanding Equity Interests of the Borrower,
(b) occupation of a majority of the seats (other than vacant seats) on the board
of directors of the Borrower by Persons who were neither (i) nominated by the
board of directors of the Borrower nor (ii) appointed by directors so nominated,
(c) the acquisition of direct or indirect Control of the Borrower by any Person
or group or (d) a “Change of Control Transaction” as defined in the Senior
Subordinated Convertible Notes.
     “Change in Law” means (a) the adoption of any law, rule or regulation of
general applicability to all commercial banks (such requirement of generally
applicability not to apply to JPMorgan Chase), after the date of this Agreement
and with respect to which none of the Lenders has knowledge of as of the
Effective Date, (b) any change in any law, rule or regulation or in the
interpretation or application thereof by any Governmental Authority after the
date of this Agreement or (c) compliance by any Lender or the Issuing Bank (or,
for purposes of Section 5.01(b)), by any lending office of such Lender or by
such Lender’s or the Issuing Bank’s holding

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company, if any) with any request, guideline or directive (whether or not having
the force of law) of any Governmental Authority made or issued after the date of
this Agreement.
     “Code” means the Internal Revenue Code of 1986, as amended from time to
time, and any successor statute.
     “Commitment” means, with respect to each Lender, the commitment of such
Lender to make Loans and to acquire participations in Letters of Credit
hereunder, expressed as an amount representing the maximum aggregate amount of
such Lender’s Revolving Credit Exposure hereunder, as such commitment may be
(a) modified from time to time pursuant to Section 2.06 and (b) modified from
time to time pursuant to assignments by or to such Lender pursuant to
Section 12.04(b). The amount representing each Lender’s Commitment shall at any
time be the lesser of such Lender’s Maximum Credit Amount and such Lender’s
Applicable Percentage of the then effective Borrowing Base.
     “Commitment Fee Rate” has the meaning, or is otherwise described as, set
forth in the definition of “Applicable Margin.”
     “Conforming Borrowing Base” means at any time an amount determined in
accordance with Section 2.07 based on the Administrative Agent’s application of
Conforming Credit Criteria.
     “Conforming Borrowing Base Utilization Percentage” means, as of any day,
the fraction expressed as a percentage, the numerator of which is the sum of the
Revolving Credit Exposures of the Lenders on such day, and the denominator of
which is the Conforming Borrowing Base in effect on such day.
     “Conforming Credit Criteria” means the credit standards and other criteria
customarily applied by the Administrative Agent in the determination of the
credit limitations for companies similar to the Borrower.
     “Consolidated Net Income” means with respect to the Borrower and the
Consolidated Subsidiaries, for any period beginning after January 1, 2007, the
aggregate of the net income (or loss) of the Borrower and the Consolidated
Subsidiaries after allowances for taxes for such period determined on a
consolidated basis in accordance with GAAP; provided that there shall be
excluded from such net income (to the extent otherwise included therein) the
following: (a) the net income of any Person in which the Borrower or any
Consolidated Subsidiary has an interest (which interest does not cause the net
income of such other Person to be consolidated with the net income of the
Borrower and the Consolidated Subsidiaries in accordance with GAAP), except to
the extent of the amount of dividends or distributions actually paid in cash
during such period by such other Person to the Borrower or to a Consolidated
Subsidiary, as the case may be; (b) the net income (but not loss) during such
period of any Consolidated Subsidiary to the extent that the declaration or
payment of dividends or similar distributions or transfers or loans by that
Consolidated Subsidiary is not at the time permitted by operation of the terms
of its charter or any agreement, instrument or Governmental Requirement
applicable to such Consolidated Subsidiary or is otherwise restricted or
prohibited, in each case determined in accordance with GAAP; (c) the net income
(or loss) of any Person acquired in a pooling-of-interests transaction

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for any period prior to the date of such transaction; (d) any extraordinary
non-cash gains or losses during such period; (e) non-cash gains or losses
resulting from the net change in Borrower’s mark to market portfolio of
commodity price risk management activities during that period; (f) any non-cash
gains, losses or charges on any Swap Agreement or on the Senior Subordinated
Convertible Notes and associated warrants resulting from the requirements of
SFAS 133 for that period; and (g) any gains or losses attributable to writeups,
writedowns or impairments of assets, including ceiling test writedowns; provided
that if the Borrower or any Consolidated Subsidiary shall acquire or dispose of
any Property during such period, then Consolidated Net Income shall be
calculated after giving pro forma effect to such acquisition or disposition, as
if such acquisition or disposition had occurred on the first day of such period.
     “Consolidated Subsidiaries” means each Subsidiary of the Borrower (whether
now existing or hereafter created or acquired) the financial statements of which
shall be (or should have been) consolidated with the financial statements of the
Borrower in accordance with GAAP.
     “Control” means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or otherwise. For the
purposes of this definition, and without limiting the generality of the
foregoing, any Person that owns directly or indirectly 30% or more of the Equity
Interests having ordinary voting power for the election of the directors or
other governing body of a Person (other than as a limited partner of such other
Person) will be deemed to “control” such other Person. “Controlling” and
“Controlled” have meanings correlative thereto.
     “Debt” means, for any Person, the sum of the following (without
duplication), excluding any assets retirement obligations associated with Oil &
Gas Properties, any non-cash liabilities created by SFAS 133 for Swap Agreements
and the Senior Subordinated Convertible Notes and associated warrants, whether
such amounts are reflected as a liability under GAAP or not: (a) all obligations
of such Person for borrowed money or evidenced by bonds, bankers’ acceptances,
debentures, notes or other similar instruments; (b) all obligations of such
Person (whether contingent or otherwise) in respect of letters of credit, surety
or other bonds and similar instruments; (c) all accounts payable and all accrued
expenses, liabilities or other obligations of such Person to pay the deferred
purchase price of Property or services; (d) all obligations under Capital
Leases; (e) all obligations under Synthetic Leases; (f) all Debt (as defined in
the other clauses of this definition) of others secured by (or for which the
holder of such Debt has an existing right, contingent or otherwise, to be
secured by) a Lien on any Property of such Person, whether or not such Debt is
assumed by such Person; (g) all Debt (as defined in the other clauses of this
definition) of others guaranteed by such Person or in which such Person
otherwise assures a creditor against loss of the Debt (howsoever such assurance
shall be made) to the extent of the lesser of the amount of such Debt and the
maximum stated amount of such guarantee or assurance against loss; (h) all
obligations or undertakings of such Person to maintain or cause to be maintained
the financial position or covenants of others or to purchase the Debt or
Property of others; (i) obligations to deliver commodities, goods or services,
including, without limitation, Hydrocarbons, in consideration of one or more
advance payments, other than gas balancing arrangements in the ordinary course
of business; (j) obligations to pay for goods or services even if such goods or
services are not actually received or utilized by such Person; (k) any Debt of a

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partnership for which such Person is liable either by agreement, by operation of
law or by a Governmental Requirement but only to the extent of such liability;
(l) Disqualified Capital Stock; and (m) the undischarged balance of any
production payment created by such Person or for the creation of which such
Person directly or indirectly received payment. The Debt of any Person shall
include all obligations of such Person of the character described above to the
extent such Person remains legally liable in respect thereof notwithstanding
that any such obligation is not included as a liability of such Person under
GAAP. Any Debt issued with an original issue debt discount is deemed to be
outstanding at the full face amount without regard to such original issue debt
discount.
     “Default” means any event or condition which constitutes an Event of
Default or which upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
     “Disqualified Capital Stock” means any Equity Interest that, by its terms
(or by the terms of any security into which it is convertible or for which it is
exchangeable) or upon the happening of any event, matures or is mandatorily
redeemable for any consideration other than other Equity Interests (which would
not constitute Disqualified Capital Stock), pursuant to a sinking fund
obligation or otherwise, or is convertible or exchangeable for Debt or
redeemable for any consideration other than other Equity Interests (which would
not constitute Disqualified Capital Stock) at the option of the holder thereof,
in whole or in part, on or prior to the date that is one year after the earlier
of (a) the Maturity Date and (b) the date on which there are no Loans, LC
Exposure or other obligations hereunder outstanding and all of the Commitments
are terminated.
     “dollars” or “$” refers to lawful money of the United States of America.
     “Domestic Subsidiary” means any Subsidiary that is organized under the laws
of the United States of America or any state thereof or the District of
Columbia.
     “EBITDAX” means, for any period, the sum of Consolidated Net Income for
such period plus the following expenses or charges to the extent deducted from
Consolidated Net Income in such period: interest, income taxes, depreciation,
depletion, amortization, exploration expenses and other similar non-cash charges
(including non-cash income or losses associated with SFAS 133 for Swap
Agreements and the Senior Subordinated Convertible Notes and associated
warrants), minus all non-cash income added to Consolidated Net Income; provided
that EBITDAX for the fiscal quarters ending December 31, 2007, March 31, 2008
and June 30, 2008 shall be calculated as follows:

  (a)   for the fiscal quarter ending December 31, 2007, EBITDAX shall be
EBITDAX for such quarter multiplied by four;     (b)   for the fiscal quarter
ending March 31, 2008, EBITDAX shall be EBITDAX for the two fiscal quarter
period ending March 31, 2008, multiplied by two;     (c)   for the fiscal
quarter ending June 30, 2008, EBITDAX shall be EBITDAX for the three fiscal
quarter period ending June 30, 2008, multiplied by 4/3.

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     Thereafter, EBITDAX shall be calculated using EBITDAX for the period of
four fiscal quarters ending on the last day of the fiscal quarter immediately
preceding the date of determination for which financial statements are
available.
     “Effective Date” means the date on which the conditions specified in
Section 6.01 are satisfied (or waived in accordance with Section 12.02).
     “Engineering Reports” has the meaning assigned such term in
Section 2.07(c)(i).
     “Environmental Laws” means any and all Governmental Requirements pertaining
in any way to health, safety the environment or the preservation or reclamation
of natural resources, in effect in any and all jurisdictions in which the
Borrower or any Subsidiary is conducting or at any time has conducted business,
or where any Property of the Borrower or any Subsidiary is located, including
without limitation, the Oil Pollution Act of 1990 (“OPA”), as amended, the Clean
Air Act, as amended, the Comprehensive Environmental, Response, Compensation,
and Liability Act of 1980 (“CERCLA”), as amended, the Federal Water Pollution
Control Act, as amended, the Occupational Safety and Health Act of 1970, as
amended, the Resource Conservation and Recovery Act of 1976 (“RCRA”), as
amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control
Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as
amended, the Hazardous Materials Transportation Act, as amended, and other
environmental conservation or protection Governmental Requirements. The term
“oil” shall have the meaning specified in OPA, the terms “hazardous substance”
and “release” (or “threatened release”) have the meanings specified in CERCLA,
the terms “solid waste” and “disposal” (or “disposed”) have the meanings
specified in RCRA and the term “oil and gas waste” shall have the meaning
specified in Section 91.1011 of the Texas Natural Resources Code
(“Section 91.1011”); provided, however, that (a) in the event either OPA,
CERCLA, RCRA or Section 91.1011 is amended so as to broaden the meaning of any
term defined thereby, such broader meaning shall apply subsequent to the
effective date of such amendment and (b) to the extent the laws of the state or
other jurisdiction in which any Property of the Borrower or any Subsidiary is
located establish a meaning for “oil,” “hazardous substance,” “release,” “solid
waste,” “disposal” or “oil and gas waste” which is broader than that specified
in either OPA, CERCLA, RCRA or Section 91.1011, such broader meaning shall
apply.
     “Equity Interests” means shares of capital stock, partnership interests,
membership interests in a limited liability company, beneficial interests in a
trust or other equity ownership interests in a Person, and any warrants, options
or other rights (including, without limitation, rights under the Rights
Agreement) entitling the holder thereof to purchase or acquire any such Equity
Interest.
     “ERISA” means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute.
     “ERISA Affiliate” means each trade or business (whether or not
incorporated) which together with the Borrower or a Subsidiary would be deemed
to be a “single employer” within the meaning of section 4001(b)(1) of ERISA or
subsections (b), (c), (m) or (o) of section 414 of the Code.

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     “ERISA Event” means (a) a “Reportable Event” described in section 4043 of
ERISA and the regulations issued thereunder, (b) the withdrawal of the Borrower,
a Subsidiary or any ERISA Affiliate from a Plan during a plan year in which it
was a “substantial employer” as defined in section 4001(a)(2) of ERISA, (c) the
filing of a notice of intent to terminate a Plan or the treatment of a Plan
amendment as a termination under section 4041 of ERISA, (d) the institution of
proceedings to terminate a Plan by the PBGC, (e) receipt of a notice of
withdrawal liability pursuant to Section 4202 of ERISA or (f) any other event or
condition which might constitute grounds under section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan.
     “Eurodollar”, when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the LIBO Rate.
     “Event of Default” has the meaning assigned such term in Section 10.01.
     “Excepted Liens” means: (a) Liens for Taxes, assessments or other
governmental charges or levies which are not delinquent or which are being
contested in good faith by appropriate action and for which adequate reserves
have been maintained in accordance with GAAP; (b) Liens in connection with
workers’ compensation, unemployment insurance or other social security, old age
pension or public liability obligations which are not delinquent or which are
being contested in good faith by appropriate action and for which adequate
reserves have been maintained in accordance with GAAP; (c) statutory landlord’s
liens, operators’, vendors’, carriers’, warehousemen’s, repairmen’s, mechanics’,
suppliers’, workers’, materialmen’s, construction or other like Liens arising by
operation of law in the ordinary course of business or incident to the
exploration, development, operation and maintenance of Oil and Gas Properties
each of which is in respect of obligations that are not delinquent or which are
being contested in good faith by appropriate action and for which adequate
reserves have been maintained in accordance with GAAP; (d) contractual Liens
which arise in the ordinary course of business under operating agreements, joint
venture agreements, oil and gas partnership agreements, oil and gas leases,
farm-out agreements, division orders, contracts for the sale, transportation or
exchange of oil and natural gas, unitization and pooling declarations and
agreements, area of mutual interest agreements, overriding royalty agreements,
marketing agreements, processing agreements, net profits agreements, development
agreements, gas balancing or deferred production agreements, injection,
repressuring and recycling agreements, salt water or other disposal agreements,
seismic or other geophysical permits or agreements, and other agreements which
are usual and customary in the oil and gas business and are for claims which are
not delinquent or which are being contested in good faith by appropriate action
and for which adequate reserves have been maintained in accordance with GAAP,
provided that any such Lien referred to in this clause does not materially
impair the use of all of the Borrower’s or any Subsidiary’s Property; (e) Liens
arising solely by virtue of any statutory or common law provision relating to
banker’s liens, rights of set-off or similar rights and remedies and burdening
only deposit accounts or other funds maintained with a creditor depository
institution, provided that no such deposit account is a dedicated cash
collateral account or is subject to restrictions against access by the depositor
in excess of those set forth by regulations promulgated by the Board and no such
deposit account is intended by Borrower or any of its Subsidiaries to provide
collateral to the depository institution; (f) easements, restrictions,
servitudes, permits, conditions,

9

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covenants, exceptions or reservations in any Property of the Borrower or any
Subsidiary for the purpose of roads, pipelines, transmission lines,
transportation lines, distribution lines for the removal of gas, oil, coal or
other minerals or timber, and other like purposes, or for the joint or common
use of real estate, rights of way, facilities and equipment, that do not secure
any monetary obligations and which in the aggregate do not materially impair the
use of all of the Borrower’s or any Subsidiary’s Property; (g) Liens on cash or
securities pledged to secure performance of tenders, surety and appeal bonds,
government contracts, performance and return of money bonds, bids, trade
contracts, leases, statutory obligations, regulatory obligations and other
obligations of a like nature incurred in the ordinary course of business and
(h) judgment and attachment Liens not giving rise to an Event of Default,
provided that any appropriate legal proceedings which may have been duly
initiated for the review of such judgment shall not have been finally terminated
or the period within which such proceeding may be initiated shall not have
expired and no action to enforce such Lien has been commenced; provided, further
that Liens described in clauses (a) through (e) shall remain “Excepted Liens”
only for so long as no action to enforce such Lien has been commenced and no
intention to subordinate the first priority Lien granted in favor of the
Administrative Agent and the Lenders is to be hereby implied or expressed by the
permitted existence of such Excepted Liens.
     “Excluded Taxes” means, with respect to the Administrative Agent, any
Lender, the Issuing Bank or any other recipient of any payment to be made by or
on account of any obligation of the Borrower or any Guarantor hereunder or under
any other Loan Document, (a) income or franchise taxes and interest and
penalties in respect thereof imposed on (or measured by) its net income by the
United States of America or such other jurisdiction under the laws of which such
recipient is organized or in which its principal office is located or, in the
case of any Lender, in which its applicable lending office is located, (b) any
branch profits taxes imposed by the United States of America or any similar tax
imposed by any other jurisdiction in which the Borrower or any Guarantor is
located (c) excise, sales, or use taxes and (d) in the case of a Foreign Lender,
any withholding tax that is imposed on amounts payable to such Foreign Lender at
the time such Foreign Lender becomes a party to this Agreement (or designates a
new lending office) or is attributable to such Foreign Lender’s failure to
comply with Section 5.03(e), except to the extent that such Foreign Lender (or
its assignor, if any) was entitled, at the time of designation of a new lending
office (or assignment), to receive additional amounts with respect to such
withholding tax pursuant to Section 5.03(a) or Section 5.03(c).
     “Existing Administrative Agent” has the meaning set forth in the Recitals
hereto.
     “Existing Credit Agreement” has the meaning set forth in the Recitals
hereto.
     “Existing Lender” has the meaning set forth in the Recitals hereto.
     “Existing Loan Documents” has the meaning set forth in the Recitals hereto.
     “Federal Funds Effective Rate” means, for any day, the weighted average
(rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if

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necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
     “Fee Letter” means that certain letter agreement among JPMorgan Chase, the
Arranger and the Borrower dated July 31, 2007 concerning certain fees in
connection with this Agreement and any agreements or instruments executed in
connection therewith, as the same may be amended or replaced from time to time.
     “Financial Officer” means, for any Person, the chief financial officer,
principal accounting officer, treasurer or controller of such Person. Unless
otherwise specified, all references herein to a Financial Officer means a
Financial Officer of the Borrower.
     “Financial Statements” means the financial statement or statements of the
Borrower and its Consolidated Subsidiaries referred to in Section 7.04(a).
     “Foreign Lender” means any Lender that is organized under the laws of a
jurisdiction other than that in which the Borrower is located. For purposes of
this definition, the United States of America, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.
     “Foreign Subsidiary” means any Subsidiary that is not a Domestic
Subsidiary.
     “GAAP” means generally accepted accounting principles in the United States
of America as in effect from time to time subject to the terms and conditions
set forth in Section 1.05.
     “Governmental Authority” means the government of the United States of
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government over the Borrower, any Subsidiary, any of their Properties, any
Agent, the Issuing Bank or any Lender.
     “Governmental Requirement” means any law, statute, code, ordinance,
enforceable order, enforceable determination, final rule, final regulation,
final judgment, final decree, injunction, franchise, permit, certificate,
license, authorization or other directive or requirement, whether now or
hereinafter in effect, including, without limitation, Environmental Laws, energy
regulations and occupational, safety and health standards or controls, of any
Governmental Authority.
     “Guarantors” means:

  (a)   Teton North America LLC, a Colorado limited liability company;     (b)  
Teton Piceance LLC, a Colorado limited liability company;     (c)   Teton DJ
LLC, a Colorado limited liability company;

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  (d)   Teton Williston LLC, a Colorado limited liability company;     (e)  
Teton Big Horn LLC, a Colorado limited liability company; and     (f)   each
other Subsidiary that guarantees the Indebtedness pursuant to Section 8.14(b).

     “Guaranty Agreement” means an agreement executed by the Guarantors in
substantially the form of Exhibit F -2 unconditionally guarantying on a joint
and several basis, payment of the Indebtedness, as the same may be amended,
modified or supplemented from time to time.
     “Highest Lawful Rate” means, with respect to each Lender, the maximum
non-usurious interest rate, if any, that at any time or from time to time may be
contracted for, taken, reserved, charged or received on the Notes or on other
Indebtedness under laws applicable to such Lender which are presently in effect
or, to the extent allowed by law, under such applicable laws which may hereafter
be in effect and which allow a higher maximum non-usurious interest rate than
applicable laws allow as of the date hereof.
     “Hydrocarbon Interests” means all rights, titles, interests and estates now
or hereafter acquired in and to oil and gas leases, oil, gas and mineral leases,
or other liquid or gaseous hydrocarbon leases, mineral fee interests, overriding
royalty and royalty interests, net profit interests and production payment
interests, including any reserved or residual interests of whatever nature.
     “Hydrocarbons” means oil, gas, casinghead gas, natural gas (regardless of
source rock) drip gasoline, natural gasoline, condensate, distillate, liquid
hydrocarbons, gaseous hydrocarbons and all products refined or separated
therefrom.
     “Indebtedness” means any and all amounts owing or to be owing by the
Borrower, any Subsidiary or any Guarantor (whether direct or indirect (including
those acquired by assumption), absolute or contingent, due or to become due, now
existing or hereafter arising): (a) to the Administrative Agent, the Issuing
Bank or any Lender under any Loan Document; (b) to any Lender or any Affiliate
of a Lender under any Swap Agreement between the Borrower or any Subsidiary and
such Lender or Affiliate of a Lender while such Person (or in the case of its
Affiliate, the Person affiliated therewith) is a Lender hereunder and (c) all
renewals, extensions and/or rearrangements of any of the above.
     “Indemnified Taxes” means Taxes other than Excluded Taxes.
     “Initial Reserve Report” means the engineering information prepared by the
Borrower and delivered to the Administrative Agent, with respect to the value of
the Oil and Gas Properties of the Borrower and its Subsidiaries as of July 1,
2007.
     “Interest Election Request” means a request by the Borrower to convert or
continue a Borrowing in accordance with Section 2.04.
     “Interest Payment Date” means (a) with respect to any ABR Loan, the last
day of each March, June, September and December and (b) with respect to any
Eurodollar Loan, the last day

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of the Interest Period applicable to the Borrowing of which such Loan is a part
and, in the case of a Eurodollar Borrowing with an Interest Period of more than
three months’ duration, each day prior to the last day of such Interest Period
that occurs at intervals of three months’ duration after the first day of such
Interest Period.
     “Interest Period” means with respect to any Eurodollar Borrowing, the
period commencing on the date of such Borrowing and ending on the numerically
corresponding day in the calendar month that is one, two, three or six months
(or, with the consent of each Lender, nine or twelve months) thereafter, as the
Borrower may elect; provided, that (a) if any Interest Period would end on a day
other than a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless such next succeeding Business Day would fall in
the next calendar month, in which case such Interest Period shall end on the
next preceding Business Day and (b) any Interest Period pertaining to a
Eurodollar Borrowing that commences on the last Business Day of a calendar month
(or on a day for which there is no numerically corresponding day in the last
calendar month of such Interest Period) shall end on the last Business Day of
the last calendar month of such Interest Period. For purposes hereof, the date
of a Borrowing initially shall be the date on which such Borrowing is made and
thereafter shall be the effective date of the most recent conversion or
continuation of such Borrowing.
     “Interim Redetermination” has the meaning assigned such term in
Section 2.07(b).
     “Interim Redetermination Date” means the date on which a Borrowing Base and
Conforming Borrowing Base that has been redetermined pursuant to an Interim
Redetermination becomes effective as provided in Section 2.07(e).
     “Investment” means, for any Person: (a) the acquisition (whether for cash,
Property, services or securities or otherwise) of Equity Interests of any other
Person or any agreement to make any such acquisition (including, without
limitation, any “short sale” or any sale of any securities at a time when such
securities are not owned by the Person entering into such short sale); (b) the
making of any deposit with, or advance, loan or capital contribution to, the
assumption of Debt of, the purchase or other acquisition of any other Debt or
equity participation or interest in, or other extension of credit to, any other
Person (including the purchase of Property from another Person subject to an
understanding or agreement, contingent or otherwise, to resell such Property to
such Person, but excluding any such advance, loan or extension of credit having
a term not exceeding ninety (90) days representing the purchase price of
inventory or supplies sold by such Person in the ordinary course of business);
(c) the purchase or acquisition (in one or a series of transactions) of Property
of another Person that constitutes a business unit or (d) the entering into of
any guarantee of, or other contingent obligation (including the deposit of any
Equity Interests to be sold) with respect to, Debt or other liability of any
other Person and (without duplication) any amount committed to be advanced, lent
or extended to such Person.
     “Issuing Bank” means JPMorgan Chase, in its capacity as the issuer of
Letters of Credit hereunder, and its successors in such capacity as provided in
Section 2.08(i). The Issuing Bank may, in its discretion, arrange for one or
more Letters of Credit to be issued by Affiliates of the Issuing Bank, in which
case the term “Issuing Bank” shall include any such Affiliate with respect to
Letters of Credit issued by such Affiliate.

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     “JPMorgan Chase” has the meaning set forth in the introductory paragraph of
this Agreement.
     “LC Commitment” at any time means $5,000,000.
     “LC Disbursement” means a payment made by the Issuing Bank pursuant to a
Letter of Credit.
     “LC Exposure” means, at any time, the sum of (a) the aggregate undrawn
amount of all outstanding Letters of Credit at such time plus (b) the aggregate
amount of all LC Disbursements that have not yet been reimbursed by or on behalf
of the Borrower at such time. The LC Exposure of any Lender at any time shall be
its Applicable Percentage of the total LC Exposure at such time.
     “Lenders” means the Persons listed on Annex I and any Person that shall
have become a party hereto pursuant to an Assignment and Assumption, other than
any such Person that ceases to be a party hereto pursuant to an Assignment and
Assumption.
     “Letter of Credit” means any letter of credit issued pursuant to this
Agreement.
     “Letter of Credit Agreements” means all letter of credit applications and
other agreements (including any amendments, modifications or supplements
thereto) submitted by the Borrower, or entered into by the Borrower, with the
Issuing Bank relating to any Letter of Credit.
     “LIBO Rate” means, with respect to any Eurodollar Borrowing for any
Interest Period, the rate appearing on Page 3750 of the Dow Jones Market Service
(or on any successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes of providing quotations of
interest rates applicable to dollar deposits in the London interbank market) at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for dollar deposits with a
maturity comparable to such Interest Period. In the event that such rate is not
available at such time for any reason, then the “LIBO Rate” with respect to such
Eurodollar Borrowing for such Interest Period shall be the rate (rounded
upwards, if necessary, to the next 1/16 of 1%) at which dollar deposits of
$5,000,000 and for a maturity comparable to such Interest Period are offered by
the principal London office of the Administrative Agent in immediately available
funds in the London interbank market at approximately 11:00 a.m., London time,
two Business Days prior to the commencement of such Interest Period.
     “Lien” means any interest in Property securing an obligation owed to, or a
claim by, a Person other than the owner of the Property, whether such interest
is based on the common law, statute or contract, and whether such obligation or
claim is fixed or contingent, and including but not limited to (a) the lien or
security interest arising from a mortgage, encumbrance, pledge, security
agreement, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes or (b) production payments and the like payable out of Oil
and Gas Properties. The term “Lien” shall include easements, restrictions,
servitudes, permits, conditions, covenants, exceptions or reservations. For the
purposes of this Agreement, the Borrower and its Subsidiaries shall be deemed to
be the owner of any Property which it has acquired or holds subject to a

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conditional sale agreement, or leases under a financing lease or other
arrangement pursuant to which title to the Property has been retained by or
vested in some other Person in a transaction intended to create a financing.
     “Loan Documents” means this Agreement, the Notes, the Letter of Credit
Agreements, the Letters of Credit and the Security Instruments.
     “Loans” means the loans made by the Lenders to the Borrower pursuant to
this Agreement.
     “Majority Lenders” means, at any time while no Loans or LC Exposure is
outstanding, Lenders having at least sixty-six and two-thirds percent (66-2/3%)
of the Aggregate Maximum Credit Amounts; and at any time while any Loans or LC
Exposure is outstanding, Lenders holding at least sixty-six and two-thirds
percent (66-2/3%) of the outstanding aggregate principal amount of the Loans or
participation interests in Letters of Credit (without regard to any sale by a
Lender of a participation in any Loan under Section 12.04(c)).
     “Mandatory Redetermination” means the redetermination of the Borrowing Base
pursuant to Section 2.07(d).
     “Mandatory Redetermination Date” means November 1, 2008.
     “Material Adverse Effect” means a material adverse change in, or material
adverse effect on (a) the business, operations, Property or condition (financial
or otherwise) of the Borrower and the Subsidiaries taken as a whole, (b) the
ability of the Borrower, any Subsidiary or any Guarantor to perform any of its
obligations under any Loan Document, (c) the validity or enforceability of any
Loan Document or (d) the rights and remedies of or benefits available to the
Administrative Agent, the Issuing Bank or any Lender under any Loan Document.
     “Material Indebtedness” means Debt (other than the Loans and Letters of
Credit and accounts payable and other current obligations incurred in the
ordinary course of business that are not in dispute and are not more than
90 days past due), or obligations in respect of one or more Swap Agreements, of
any one or more of the Borrower and its Subsidiaries in an aggregate principal
amount exceeding the greater of $500,000 or five percent (5%) of the then
effective Conforming Borrowing Base. For purposes of determining Material
Indebtedness, the “principal amount” of the obligations of the Borrower or any
Subsidiary in respect of any Swap Agreement at any time shall be the Swap
Termination Value.
     “Maturity Date” means August 9, 2011, or as extended in accordance with
Section 3.06.
     “Maximum Credit Amount” means, as to each Lender, the amount set forth
opposite such Lender’s name on Annex I under the caption “Maximum Credit
Amounts”, as the same may be (a) reduced or terminated from time to time in
connection with a reduction or termination of the Aggregate Maximum Credit
Amounts pursuant to Section 2.06(b) or (b) modified from time to time pursuant
to any assignment permitted by Section 12.04(b).
     “Monthly Date” means the last day of each calendar month.

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     “Moody’s” means Moody’s Investors Service, Inc. and any successor thereto
that is a nationally recognized rating agency.
     “Mortgaged Property” means any Property owned by the Borrower or any
Guarantor which is subject to the Liens existing and to exist under the terms of
the Security Instruments.
     “Multiemployer Plan” means a Plan which is a multiemployer plan as defined
in section 3(37) or 4001 (a)(3) of ERISA.
     “New Borrowing Base Notice” has the meaning assigned such term in
Section 2.07(e).
     “Notes” means the promissory notes of the Borrower described in
Section 2.02(d) and being substantially in the form of Exhibit A, together with
all amendments, modifications, replacements, extensions and rearrangements
thereof.
     “Oil and Gas Properties” means (a) Hydrocarbon Interests; (b) the
Properties now or hereafter pooled or unitized with Hydrocarbon Interests;
(c) all presently existing or future unitization, pooling agreements and
declarations of pooled units and the units created thereby (including without
limitation all units created under orders, regulations and rules of any
Governmental Authority) which may affect all or any portion of the Hydrocarbon
Interests; (d) all operating agreements, contracts and other agreements,
including production sharing contracts and agreements, which relate to any of
the Hydrocarbon Interests or the production, sale, purchase, exchange or
processing of Hydrocarbons from or attributable to such Hydrocarbon Interests;
(e) all Hydrocarbons in and under and which may be produced and saved or
attributable to the Hydrocarbon Interests, including all oil in tanks, and all
rents, issues, profits, proceeds, products, revenues and other incomes from or
attributable to the Hydrocarbon Interests; (f) all tenements, hereditaments,
appurtenances and Properties in any manner appertaining, belonging, affixed or
incidental to the Hydrocarbon Interests and (g) all Properties, rights, titles,
interests and estates described or referred to above, including any and all
Property, real or personal, now owned or hereinafter acquired and situated upon,
used, held for use or useful in connection with the operating, working or
development of any of such Hydrocarbon Interests or Property (excluding drilling
rigs, automotive equipment, rental equipment or other personal Property which
may be on such premises for the purpose of drilling a well or for other similar
temporary uses) and including any and all oil wells, gas wells, injection wells
or other wells, buildings, structures, fuel separators, liquid extraction
plants, plant compressors, pumps, pumping units, field gathering systems, tanks
and tank batteries, fixtures, valves, fittings, machinery and parts, engines,
boilers, meters, apparatus, equipment, appliances, tools, implements, cables,
wires, towers, casing, tubing and rods, surface leases, rights-of-way, easements
and servitudes together with all additions, substitutions, replacements,
accessions and attachments to any and all of the foregoing.
     “Other Taxes” means, exclusive of Excluded Taxes, any and all present or
future stamp or documentary taxes or any other excise or Property taxes, charges
or similar levies arising from any payment made hereunder or from the execution,
delivery or enforcement of, or otherwise with respect to, this Agreement and any
other Loan Document.
     “Participant” has the meaning set forth in Section 12.04(c)(i).

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     “PBGC” means the Pension Benefit Guaranty Corporation, or any successor
thereto.
     “Person” means any natural person, corporation, limited liability company,
trust, joint venture, association, company, partnership, Governmental Authority
or other entity.
     “Plan” means any employee pension benefit plan, as defined in section 3(2)
of ERISA, which (a) is currently or hereafter sponsored, maintained or
contributed to by the Borrower, a Subsidiary or an ERISA Affiliate or (b) was at
any time during the six calendar years preceding the date hereof, sponsored,
maintained or contributed to by the Borrower or a Subsidiary or an ERISA
Affiliate.
     “Prime Rate” means the rate of interest per annum publicly announced from
time to time by JPMorgan Chase as its prime rate in effect at its principal
office in New York City; each change in the Prime Rate shall be effective from
and including the date such change is publicly announced as being effective.
Such rate is set by the Administrative Agent as a general reference rate of
interest, taking into account such factors as the Administrative Agent may deem
appropriate; it being understood that many of the Administrative Agent’s
commercial or other loans are priced in relation to such rate, that it is not
necessarily the lowest or best rate actually charged to any customer and that
the Administrative Agent may make various commercial or other loans at rates of
interest having no relationship to such rate.
     “Property” means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible, including, without
limitation, cash, securities, accounts and contract rights.
     “Proposed Borrowing Base” has the meaning assigned to such term in
Section 2.07(c)(i).
     “Proposed Borrowing Base Notice” has the meaning assigned to such term in
Section 2.07(c)(ii).
     “Proposed Conforming Borrowing Base” has the meaning assigned to such term
in Section 2.07(c)(i).
     “Redemption” means with respect to any Debt, the repurchase, redemption,
prepayment, repayment, defeasance or any other acquisition or retirement for
value (or the segregation of funds with respect to any of the foregoing) of such
Debt. “Redeem” has the correlative meaning thereto.
     “Redetermination Date” means, with respect to any Scheduled
Redetermination, any Interim Redetermination, or the Mandatory Redetermination,
the date that the redetermined Borrowing Base and/or Conforming Borrowing Base
related thereto becomes effective pursuant to Section 2.07(e).
     “Register” has the meaning assigned such term in Section 12.04(b)(iv).

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     “Related Parties” means, with respect to any specified Person, such
Person’s Affiliates and the respective directors, officers, employees, agents
and advisors (including attorneys, accountants and experts) of such Person and
such Person’s Affiliates.
     “Remedial Work” has the meaning assigned such term in Section 8.10(a).
     “Reserve Report” means a report, in form and substance reasonably
satisfactory to the Administrative Agent, setting forth, as of each January 1st
or July 1st (or such other date in the event of an Interim Redetermination) the
oil and gas reserves attributable to the Oil and Gas Properties of the Borrower
and the Subsidiaries, together with a projection of the rate of production and
future net income, taxes, operating expenses and capital expenditures with
respect thereto as of such date, based upon the economic assumptions consistent
with the Administrative Agent’s lending requirements applicable to all similarly
situated borrowers operating in similar regional geographic and geologic areas
at the time.
     “Responsible Officer” means, as to any Person, the Chief Executive Officer,
the President, any Financial Officer or any Vice President of such Person.
Unless otherwise specified, all references to a Responsible Officer herein shall
mean a Responsible Officer of the Borrower.
     “Restricted Payment” means any dividend or other distribution (whether in
cash, securities or other Property) with respect to any Equity Interests in the
Borrower or any of its Subsidiaries, or any payment (whether in cash, securities
or other Property), including any sinking fund or similar deposit, on account of
the purchase, redemption, retirement, acquisition, cancellation or termination
of any such Equity Interests in the Borrower or any of its Subsidiaries or any
option, warrant or other right to acquire any such Equity Interests in the
Borrower or any of its Subsidiaries.
     “Revolving Credit Exposure” means, with respect to any Lender at any time,
the sum of the outstanding principal amount of such Lender’s Loans and its LC
Exposure at such time.
     “Rights Agreement” means that certain agreement dated as of June 3, 2005,
between Teton Energy Corporation (f/k/a Teton Petroleum Company) and
Computershare Investor Services LLC.
     “Scheduled Redetermination” has the meaning assigned such term in
Section 2.07(b).
     “Scheduled Redetermination Date” means the date on which a Borrowing Base
and/or Conforming Borrowing Base that has been redetermined pursuant to a
Scheduled Redetermination becomes effective as provided in Section 2.07(e).
     “SEC” means the Securities and Exchange Commission or any successor
Governmental Authority.
     “Security Instruments” means the Guaranty Agreement, mortgages, deeds of
trust, amended and restated mortgages, amended and restated deeds of trust and
other agreements, instruments or certificates described or referred to in
Exhibit F-1, and any and all other agreements, instruments, consents or
certificates now or hereafter executed and delivered by the

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Borrower or any other Person (other than Swap Agreements with the Lenders or any
Affiliate of a Lender or participation or similar agreements between any Lender
and any other lender or creditor with respect to any Indebtedness pursuant to
this Agreement) in connection with, or as security for the payment or
performance of the Indebtedness, the Notes, this Agreement, or reimbursement
obligations under the Letters of Credit, as such agreements may be amended,
modified, supplemented or restated from time to time.
     “Senior Subordinated Convertible Notes” means the Borrower’s $9,000,000
8.00% senior subordinated convertible notes due May 14, 2008.
     “S&P” means Standard & Poor’s Ratings Group, a division of The McGraw-Hill
Companies, Inc., and any successor thereto that is a nationally recognized
rating agency.
     “SFAS 133” means the Statement of Financial Accounting Standard Number 133
entitled “Accounting for Derivative Instruments and Hedging Activities” issued
by the Financial Accounting Standards Board in June of 1998, as amended and in
effect from time to time.
     “Subsidiary” means: (a) any Person of which at least a majority of the
outstanding Equity Interests having by the terms thereof ordinary voting power
to elect a majority of the board of directors, manager or other governing body
of such Person (irrespective of whether or not at the time Equity Interests of
any other class or classes of such Person shall have or might have voting power
by reason of the happening of any contingency) is at the time directly or
indirectly owned or controlled by the Borrower or one or more of its
Subsidiaries or by the Borrower and one or more of its Subsidiaries and (b) any
partnership of which the Borrower or any of its Subsidiaries is a general
partner. Unless otherwise indicated herein, each reference to the term
“Subsidiary” shall mean a Subsidiary of the Borrower.
     “Swap Agreement” means any agreement with respect to any swap, forward,
future or derivative transaction or option or similar agreement, whether
exchange traded, “over-the-counter” or otherwise, involving, or settled by
reference to, one or more interest rates, currencies, commodities, equity or
debt instruments or securities, or economic, financial or pricing indices or
measures of economic, financial or pricing risk or value or any similar
transaction or any combination of these transactions; provided that no phantom
stock or similar plan providing for payments only on account of services
provided by current or former directors, officers, employees or consultants of
the Borrower or the Subsidiaries shall be a Swap Agreement.
     “Swap Termination Value” means, in respect of any one or more Swap
Agreements, after taking into account the effect of any legally enforceable
netting agreement relating to such Swap Agreements, (a) for any date on or after
the date such Swap Agreements have been closed out and termination value(s)
determined in accordance therewith, such termination value(s) and (b) for any
date prior to the date referenced in clause (a), the amount(s) unpaid under such
Swap Agreements.
     “Synthetic Leases” means, in respect of any Person, all leases which shall
have been, or should have been, in accordance with GAAP, treated as operating
leases on the financial statements of the Person liable (whether contingently or
otherwise) for the payment of rent thereunder and which were properly treated as
indebtedness for borrowed money for purposes of

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U.S. federal income taxes, if the lessee in respect thereof is obligated to
either purchase for an amount in excess of, or pay upon early termination an
amount in excess of, 80% of the residual value of the Property subject to such
operating lease upon expiration or early termination of such lease.
     “Taxes” means any and all present or future taxes, levies, imposts, duties,
deductions, charges or withholdings imposed by any Governmental Authority and as
applicable to any Lender, taxes, levies, imposts, duties, deductions, charges or
withholdings generally imposed on the commercial banking industry as a whole or
on particular groups, i.e. Foreign Lenders.
     “Termination Date” means the earlier of the Maturity Date and the date of
termination of the Commitments.
     “Total Debt” means, at any date, all Debt of the Borrower and the
Consolidated Subsidiaries on a consolidated basis, excluding (a) non-cash
obligations (including non-cash liabilities created by SFAS 133 for Swap
Agreements and the Senior Subordinated Convertible Notes and associated
warrants) and (b) accounts payable and other accrued liabilities (for the
deferred purchase price of Property or services) from time to time incurred in
the ordinary course of business which are not greater than ninety (90) days past
the date of invoice or delinquent or which are being contested in good faith by
appropriate action and for which adequate reserves have been maintained in
accordance with GAAP.
     “Transactions” means, with respect to (a) the Borrower, the execution,
delivery and performance by the Borrower of this Agreement and each other Loan
Document to which it is a party, the borrowing of Loans, the use of the proceeds
thereof and the issuance of Letters of Credit hereunder, and the grant of Liens
by the Borrower on Mortgaged Properties and other Properties pursuant to the
Security Instruments and (b) each Guarantor, the execution, delivery and
performance by such Guarantor of each Loan Document to which it is a party, the
guaranteeing of the Indebtedness and the other obligations under the Guaranty
Agreement by such Guarantor and such Guarantor’s grant of the security interests
and provision of collateral under the Security Instruments, and the grant of
Liens by such Guarantor on Mortgaged Properties and other Properties pursuant to
the Security Instruments.
     “Type”, when used in reference to any Loan or Borrowing, refers to whether
the rate of interest on such Loan, or on the Loans comprising such Borrowing, is
determined by reference to the Alternate Base Rate or the LIBO Rate.
     “Wholly-Owned Subsidiary” means any Subsidiary of which all of the
outstanding Equity Interests (other than any directors’ qualifying shares
mandated by applicable law), on a fully-diluted basis, are owned by the Borrower
or one or more of the Wholly-Owned Subsidiaries or are owned by the Borrower and
one or more of the Wholly-Owned Subsidiaries.
     Section 1.03 Types of Loans and Borrowings. For purposes of this Agreement,
Loans and Borrowings, respectively, may be classified and referred to by Type
(e.g., a “Eurodollar Loan” or a “Eurodollar Borrowing”).
     Section 1.04 Terms Generally; Rules of Construction. The definitions of
terms herein shall apply equally to the singular and plural forms of the terms
defined. Whenever the

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context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words “include”, “includes” and “including” shall
be deemed to be followed by the phrase “without limitation”. The word “will”
shall be construed to have the same meaning and effect as the word “shall”.
Unless the context requires otherwise (a) any definition of or reference to any
agreement, instrument or other document herein shall be construed as referring
to such agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth in the Loan Documents),
(b) any reference herein to any law shall be construed as referring to such law
as amended, modified, codified or reenacted, in whole or in part, and in effect
from time to time, (c) any reference herein to any Person shall be construed to
include such Person’s successors and assigns (subject to the restrictions
contained in the Loan Documents), (d) the words “herein”, “hereof” and
“hereunder”, and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (e) with
respect to the determination of any time period, the word “from” means “from and
including” and the word “to” means “to and including” and (f) any reference
herein to Articles, Sections, Annexes, Exhibits and Schedules shall be construed
to refer to Articles and Sections of, and Annexes, Exhibits and Schedules to,
this Agreement. No provision of this Agreement or any other Loan Document shall
be interpreted or construed against any Person solely because such Person or its
legal representative drafted such provision.
     Section 1.05 Accounting Terms and Determinations; GAAP. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all financial statements and certificates and reports as to financial matters
required to be furnished to the Administrative Agent or the Lenders hereunder
shall be prepared, in accordance with GAAP, applied on a basis consistent with
the Financial Statements except for changes in which Borrower’s independent
certified public accountants concur and which are disclosed to Administrative
Agent on the next date on which financial statements are required to be
delivered to the Lenders pursuant to Section 8.01(a); provided that, unless the
Borrower and the Majority Lenders shall otherwise agree in writing, no such
change shall modify or affect the manner in which compliance with the covenants
contained herein is computed such that all such computations shall be conducted
utilizing financial information presented consistently with prior periods.
ARTICLE II
THE CREDITS
     Section 2.01 Commitments. Subject to the terms and conditions set forth
herein, each Lender agrees to make Loans to the Borrower during the Availability
Period in an aggregate principal amount that will not result in (a) such
Lender’s Revolving Credit Exposure exceeding such Lender’s Commitment or (b) the
total Revolving Credit Exposures exceeding the total Commitments. Within the
foregoing limits and subject to the terms and conditions set forth herein, the
Borrower may borrow, repay and reborrow the Loans.
     Section 2.02 Loans and Borrowings.
          (a) Borrowings; Several Obligations. Each Loan shall be made as part
of a Borrowing consisting of Loans made by the Lenders ratably in accordance
with their respective

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Commitments. The failure of any Lender to make any Loan required to be made by
it shall not relieve any other Lender of its obligations hereunder; provided
that the Commitments are several and no Lender shall be responsible for any
other Lender’s failure to make Loans as required.
          (b) Types of Loans. Subject to Section 3.03, each Borrowing shall be
comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request
in accordance herewith. Each Lender at its option may make any Eurodollar Loan
by causing any domestic or foreign branch or Affiliate of such Lender to make
such Loan; provided that any exercise of such option shall not affect the
obligation of the Borrower to repay such Loan in accordance with the terms of
this Agreement.
          (c) Minimum Amounts; Limitation on Number of Borrowings. At the
commencement of each Interest Period for any Eurodollar Borrowing, such
Borrowing shall be in an aggregate amount that is an integral multiple of
$1,000,000 and not less than $1,000,000. At the time that each ABR Borrowing is
made, such Borrowing shall be in an aggregate amount that is an integral
multiple of $1,000,000 and not less than $1,000,000; provided that an ABR
Borrowing may be in an aggregate amount that is equal to the entire unused
balance of the total Commitments or that is required to finance the
reimbursement of an LC Disbursement as contemplated by Section 2.08(e).
Borrowings of more than one Type may be outstanding at the same time, provided
that there shall not at any time be more than a total of six (6) Eurodollar
Borrowings outstanding. Notwithstanding any other provision of this Agreement,
the Borrower shall not be entitled to request, or to elect to convert or
continue, any Borrowing if the Interest Period requested with respect thereto
would end after the Maturity Date.
          (d) Notes. The Loans made by each Lender shall be evidenced by a
single promissory note of the Borrower in substantially the form of Exhibit A,
dated, in the case of (i) any Lender party hereto as of the date of this
Agreement, as of the date of this Agreement or (ii) any Lender that becomes a
party hereto pursuant to an Assignment and Assumption, as of the effective date
of the Assignment and Assumption, payable to the order of such Lender in a
principal amount equal to its Maximum Credit Amount as in effect on such date,
and otherwise duly completed. In the event that any Lender’s Maximum Credit
Amount increases or decreases for any reason (whether pursuant to Section 2.06,
Section 12.04(b) or otherwise), the Borrower shall deliver or cause to be
delivered on the effective date of such increase or decrease, a new Note payable
to the order of such Lender in a principal amount equal to its Maximum Credit
Amount after giving effect to such increase or decrease, and otherwise duly
completed. The date, amount, Type, interest rate and, if applicable, Interest
Period of each Loan made by each Lender, and all payments made on account of the
principal thereof, shall be recorded by such Lender on its books for its Note,
and, prior to any transfer, may be endorsed by such Lender on a schedule
attached to such Note or any continuation thereof or on any separate record
maintained by such Lender. Failure to make any such notation or to attach a
schedule shall not affect any Lender’s or the Borrower’s rights or obligations
in respect of such Loans or affect the validity of such transfer by any Lender
of its Note.
     Section 2.03 Requests for Borrowings. To request a Borrowing, the Borrower
shall notify the Administrative Agent of such request by telephone (a) in the
case of a Eurodollar Borrowing, not later than 11:00 a.m., Chicago, Illinois
time, three Business Days before the date of the proposed Borrowing or (b) in
the case of an ABR Borrowing, not later than 11:00 a.m.,

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Chicago, Illinois time, on the date of the proposed Borrowing; provided that no
such notice shall be required for any deemed request of an ABR Borrowing to
finance the reimbursement of an LC Disbursement as provided in Section 2.08(e).
Each such telephonic Borrowing Request shall be irrevocable and shall be
confirmed promptly by hand delivery or telecopy to the Administrative Agent of a
written Borrowing Request in substantially the form of Exhibit B and signed by
the Borrower. Each such telephonic and written Borrowing Request shall specify
the following information in compliance with Section 2.02:
          (i) the aggregate amount of the requested Borrowing;
          (ii) the date of such Borrowing, which shall be a Business Day;
          (iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar
Borrowing;
          (iv) in the case of a Eurodollar Borrowing, the initial Interest
Period to be applicable thereto, which shall be a period contemplated by the
definition of the term “Interest Period”;
          (v) the amount of the then effective Borrowing Base, the current total
Revolving Credit Exposures (without regard to the requested Borrowing) and the
pro forma total Revolving Credit Exposures (giving effect to the requested
Borrowing); and
          (vi) the location and number of the Borrower’s account to which funds
are to be disbursed, which shall comply with the requirements of Section 2.05.
If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be an ABR Borrowing. If no Interest Period is specified with
respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed
to have selected an Interest Period of one month’s duration. Each Borrowing
Request shall constitute a representation that the amount of the requested
Borrowing shall not cause the total Revolving Credit Exposures to exceed the
total Commitments (i.e., the lesser of the Aggregate Maximum Credit Amounts and
the then effective Borrowing Base).
Promptly following receipt of a Borrowing Request in accordance with this
Section 2.03, the Administrative Agent shall advise each Lender of the details
thereof and of the amount of such Lender’s Loan to be made as part of the
requested Borrowing.
     Section 2.04 Interest Elections.
          (a) Conversion and Continuance. Each Borrowing initially shall be of
the Type specified in the applicable Borrowing Request and, in the case of a
Eurodollar Borrowing, shall have an initial Interest Period as specified in such
Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing
to a different Type or to continue such Borrowing and, in the case of a
Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in
this Section 2.04. The Borrower may elect different options with respect to
different portions of the affected Borrowing, in which case each such portion
shall be allocated ratably

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among the Lenders holding the Loans comprising such Borrowing, and the Loans
comprising each such portion shall be considered a separate Borrowing.
          (b) Interest Election Requests. To make an election pursuant to this
Section 2.04, the Borrower shall notify the Administrative Agent of such
election by telephone by the time that a Borrowing Request would be required
under Section 2.03 if the Borrower were requesting a Borrowing of the Type
resulting from such election to be made on the effective date of such election.
Each such telephonic Interest Election Request shall be irrevocable and shall be
confirmed promptly by hand delivery or telecopy to the Administrative Agent of a
written Interest Election Request in substantially the form of Exhibit C and
signed by the Borrower.
          (c) Information in Interest Election Requests. Each telephonic and
written Interest Election Request shall specify the following information in
compliance with Section 2.02:
          (i) the Borrowing to which such Interest Election Request applies and,
if different options are being elected with respect to different portions
thereof, the portions thereof to be allocated to each resulting Borrowing (in
which case the information to be specified pursuant to Section 2.04(c)(iii) and
(iv) shall be specified for each resulting Borrowing);
          (ii) the effective date of the election made pursuant to such Interest
Election Request, which shall be a Business Day;
          (iii) whether the resulting Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing; and
          (iv) if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such election,
which shall be a period contemplated by the definition of the term “Interest
Period”.
          (d) If any such Interest Election Request requests a Eurodollar
Borrowing but does not specify an Interest Period, then the Borrower shall be
deemed to have selected an Interest Period of one month’s duration.
          (e) Notice to Lenders by the Administrative Agent. Promptly following
receipt of an Interest Election Request, the Administrative Agent shall advise
each Lender of the details thereof and of such Lender’s portion of each
resulting Borrowing.
          (f) Effect of Failure to Deliver Timely Interest Election Request and
Events of Default and Borrowing Base Deficiencies on Interest Election. If the
Borrower fails to deliver a timely Interest Election Request with respect to a
Eurodollar Borrowing prior to the end of the Interest Period applicable thereto,
then, unless such Borrowing is repaid as provided herein, at the end of such
Interest Period such Borrowing shall be converted to an ABR Borrowing.
Notwithstanding any contrary provision hereof, if an Event of Default or a
Borrowing Base Deficiency has occurred and is continuing: (i) no outstanding
Borrowing may be converted to or continued as a Eurodollar Borrowing (and any
Interest Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar

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Borrowing shall be ineffective) and (ii) unless repaid, each Eurodollar
Borrowing shall be converted to an ABR Borrowing at the end of the Interest
Period applicable thereto.
     Section 2.05 Funding of Borrowings.
          (a) Funding by Lenders. Each Lender shall make each Loan to be made by
it hereunder on the proposed date thereof by wire transfer of immediately
available funds by 1:00 p.m., Chicago, Illinois time, to the account of the
Administrative Agent most recently designated by it for such purpose by notice
to the Lenders. The Administrative Agent will make such Loans available to the
Borrower by promptly crediting the amounts so received, in like funds, to an
account of the Borrower and designated by the Borrower in the applicable
Borrowing Request; provided that ABR Loans made to finance the reimbursement of
an LC Disbursement as provided in Section 2.08(e) shall be remitted by the
Administrative Agent to the Issuing Bank. Nothing herein shall be deemed to
obligate any Lender to obtain the funds for its Loan in any particular place or
manner or to constitute a representation by any Lender that it has obtained or
will obtain the funds for its Loan in any particular place or manner.
          (b) Presumption of Funding by the Lenders. Unless the Administrative
Agent shall have received notice from a Lender prior to the proposed date of any
Borrowing that such Lender will not make available to the Administrative Agent
such Lender’s share of such Borrowing, the Administrative Agent may assume that
such Lender has made such share available on such date in accordance with
Section 2.05(a) and may, in reliance upon such assumption, make available to the
Borrower a corresponding amount. In such event, if a Lender has not in fact made
its share of the applicable Borrowing available to the Administrative Agent,
then the applicable Lender agrees to pay to the Administrative Agent forthwith
on demand such corresponding amount with interest thereon, for each day from and
including the date such amount is made available to the Borrower to but
excluding the date of payment to the Administrative Agent, at the greater of the
Federal Funds Effective Rate and a rate determined by the Administrative Agent
in accordance with banking industry rules on interbank compensation.
     Section 2.06 Termination and Reduction of Aggregate Maximum Credit Amounts.
          (a) Scheduled Termination of Commitments. Unless previously
terminated, the Commitments shall terminate on the Maturity Date. If at any time
the Aggregate Maximum Credit Amounts or the Borrowing Base is terminated or
reduced to zero, then the Commitments shall terminate on the effective date of
such termination or reduction.
          (b) Optional Termination and Reduction of Aggregate Credit Amounts.
          (i) The Borrower may at any time terminate, or from time to time
reduce, the Aggregate Maximum Credit Amounts; provided that (A) each reduction
of the Aggregate Maximum Credit Amounts shall be in an amount that is an
integral multiple of $1,000,000 and not less than $5,000,000 and (B) the
Borrower shall not terminate or reduce the Aggregate Maximum Credit Amounts if,
after giving effect to any concurrent prepayment of the Loans in accordance with
Section 3.04(c), the total Revolving Credit Exposures would exceed the total
Commitments.

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          (ii) The Borrower shall notify the Administrative Agent of any
election to terminate or reduce the Aggregate Maximum Credit Amounts under
Section 2.06(b)(i) at least three Business Days prior to the effective date of
such termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any notice, the Administrative Agent
shall advise the Lenders of the contents thereof. Each notice delivered by the
Borrower pursuant to this Section 2.06(b)(ii) shall be irrevocable. Any
termination or reduction of the Aggregate Maximum Credit Amounts shall be
permanent and may not be reinstated. Each reduction of the Aggregate Maximum
Credit Amounts shall be made ratably among the Lenders in accordance with each
Lender’s Applicable Percentage.
     Section 2.07 Borrowing Base and Conforming Borrowing Base.
          (a) Initial Borrowing Base and Initial Conforming Borrowing Base. For
the period from and including the Effective Date to but excluding the first
Redetermination Date, the amount of the Borrowing Base shall be Fourteen Million
Dollars and No/100 ($14,000,000.00). Notwithstanding the foregoing, the
Borrowing Base may be subject to further adjustments from time to time pursuant
to Section 8.13(c) or Section 9.11(d). For the period from and including the
Effective Date to but excluding the first Redetermination Date, the amount of
the Conforming Borrowing Base shall be Eleven Million Dollars and No/100
($11,000,000.00). Notwithstanding the foregoing, the Conforming Borrowing Base
may be subject to further adjustments from time to time pursuant to
Section 8.13(c) or Section 9.11(d).
          (b) Scheduled and Interim Redeterminations. The Borrowing Base and, as
applicable prior to November 1, 2008, the Conforming Borrowing Base, shall be
redetermined semi-annually in accordance with this Section 2.07 (a “Scheduled
Redetermination”), and, subject to Section 2.07(e), such redetermined Borrowing
Base and, as applicable, Conforming Borrowing Base, shall become effective and
applicable to the Borrower, the Administrative Agent, the Issuing Bank and the
Lenders on May 1st and November 1st of each year, commencing November 1, 2007.
In addition, the Borrower may, by notifying the Administrative Agent thereof,
and the Administrative Agent may, at the direction of the Majority Lenders, by
notifying the Borrower thereof, each elect to cause the Borrowing Base and
Conforming Borrowing Base to be redetermined one time between Scheduled
Redeterminations (together with any additional redetermination provided in the
last sentence of this Section 2.07(b), an “Interim Redetermination”) in
accordance with this Section 2.07. Further, the Borrower may, in addition to its
right to cause the Borrowing Base and Conforming Borrowing Base to be
redetermined pursuant to the immediately preceding sentence, by notifying the
Administrative Agent thereof, one additional time during the calendar year
ending December 31, 2008, elect to cause the Borrowing Base and Conforming
Borrowing Base to be redetermined.
          (c) Scheduled and Interim Redetermination Procedure.
          (i) Each Scheduled Redetermination and each Interim Redetermination
shall be effectuated as follows: Upon receipt by the Administrative Agent of
(A) the Reserve Report and the certificate required to be delivered by the
Borrower to the Administrative Agent, in the case of a Scheduled
Redetermination, pursuant to Section 8.12(a) and (c), and, in the case of an
Interim Redetermination,

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pursuant to Section 8.12(b) and (c), and (B) such other reports, data and
supplemental information, including, without limitation, the information
provided pursuant to Section 8.12(c), as may, from time to time, be reasonably
requested by the Majority Lenders (the Reserve Report, such certificate and such
other reports, data and supplemental information being the “Engineering
Reports”), the Administrative Agent shall evaluate the information contained in
the Engineering Reports and shall, in its sole discretion, propose (1) a new
Borrowing Base (the “Proposed Borrowing Base”) based upon such information and
such other information (including, without limitation, the status of title
information with respect to the Oil and Gas Properties as described in the
Engineering Reports and the existence of any other Debt) as the Administrative
Agent deems appropriate in its sole discretion and consistent with its normal
oil and gas lending criteria applicable to all similarly situated borrowers
operating in similar regional geographic and geologic areas at the particular
time, and (2) with respect to any Interim Redetermination prior to November 1,
2008, a new Conforming Borrowing Base (the “Proposed Conforming Borrowing Base”)
based upon the Administrative Agent’s application of Conforming Credit Criteria.
In no event shall the Proposed Borrowing Base or Proposed Conforming Borrowing
Base exceed the Aggregate Maximum Credit Amounts.
          (ii) The Administrative Agent shall notify the Borrower and the
Lenders of the Proposed Borrowing Base and, as applicable, the Proposed
Conforming Borrowing Base (the “Proposed Borrowing Base Notice”):
          (A) in the case of a Scheduled Redetermination (1) if the
Administrative Agent shall have received the Engineering Reports required to be
delivered by the Borrower pursuant to Section 8.12(a) and (c) in a timely and
complete manner, then on or before April 15th and October 15th of such year
following the date of delivery or (2) if the Administrative Agent shall not have
received the Engineering Reports required to be delivered by the Borrower
pursuant to Section 8.12(a) and (c) in a timely and complete manner, then
promptly after the Administrative Agent has received complete Engineering
Reports from the Borrower and has had a reasonable opportunity to determine the
Proposed Borrowing Base and, as applicable, the Proposed Conforming Borrowing
Base in accordance with Section 2.07(c)(i); and
          (B) in the case of an Interim Redetermination, promptly, and in any
event, within fifteen (15) days after the Administrative Agent has received the
required Engineering Reports.
          (iii) Any Proposed Borrowing Base or Proposed Conforming Borrowing
Base that would increase the Borrowing Base or Conformed Borrowing Base, as
applicable, then in effect must be approved or deemed to have been approved by
all of the Lenders as provided in this Section 2.07(c)(iii); and any Proposed
Borrowing Base or Proposed Conforming Borrowing Base that would decrease or
maintain the Borrowing Base or Conformed Borrowing Base, as applicable, then in
effect must be approved or be deemed to have been approved by the Majority
Lenders as provided in this Section 2.07(c)(iii). Upon receipt of the Proposed
Borrowing Base Notice, each Lender shall have fifteen (15) days to agree with
the Proposed Borrowing Base or disagree with the

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Proposed Borrowing Base or, as applicable, agree with the Proposed Conforming
Borrowing Base or disagree with the Proposed Conforming Borrowing Base, by
proposing an alternate Borrowing Base or alternate Conforming Borrowing Base. If
at the end of such fifteen (15) days, any Lender has not communicated its
approval or disapproval in writing to the Administrative Agent, such silence
shall be deemed to be an approval of the Proposed Borrowing Base or, as
applicable, the Proposed Conforming Borrowing Base. If, at the end of such
15-day period, all of the Lenders, in the case of a Proposed Borrowing Base or
Proposed Conforming Borrowing Base that would increase the Borrowing Base or
Conforming Borrowing Base, as applicable, then in effect, or the Majority
Lenders, in the case of a Proposed Borrowing Base or Proposed Conforming
Borrowing Base that would decrease or maintain the Borrowing Base or Conforming
Borrowing Base, as applicable, then in effect, have approved or deemed to have
approved, as aforesaid, then the Proposed Borrowing Base and/or Proposed
Conforming Borrowing Base, as applicable, shall become the new Borrowing Base
and/or Conforming Borrowing Base, as applicable, effective on the date specified
in Section 2.07(e). If, however, at the end of such 15-day period, all of the
Lenders or the Majority Lenders, as applicable, have not approved or deemed to
have approved, as aforesaid, then the Administrative Agent shall poll the
Lenders to ascertain the highest Borrowing Base and/or Conforming Borrowing
Base, as applicable, then acceptable to a number of Lenders sufficient to
constitute the Majority Lenders and, so long as such amount does not increase
the Borrowing Base or Conforming Borrowing Base, as applicable, then in effect,
such amount shall become the new Borrowing Base and/or new Conforming Borrowing
Base, as applicable, effective on the date specified in Section 2.07(e).
          (d) Mandatory Redetermination. In addition to the other
redeterminations of the Borrowing Base and Conforming Borrowing Base provided
for herein, and notwithstanding anything to the contrary contained herein, the
Borrowing Base shall reduce immediately and automatically on November 1, 2008 to
the Conforming Borrowing Base as in effect on and as of such date, and from and
after such date, the Borrowing Base shall be, and shall be in an amount equal
to, the Conforming Borrowing Base.
          (e) Effectiveness of a Redetermined Borrowing Base and Conforming
Borrowing Base. After a redetermined Borrowing Base and/or Conforming Borrowing
Base is approved or is deemed to have been approved by all of the Lenders or the
Majority Lenders, as applicable, or otherwise automatically adjusted, as
applicable, pursuant to Section 2.07(c)(iii) or Section 2.07(d), the
Administrative Agent shall notify the Borrower and the Lenders of the amount of
the redetermined Borrowing Base and/or Conforming Borrowing Base (the “New
Borrowing Base Notice”), and such amount shall become the new Borrowing Base
and/or new Conforming Borrowing Base, as applicable, effective and applicable to
the Borrower, the Administrative Agent, the Issuing Bank and the Lenders:
          (i) in the case of a Scheduled Redetermination, (A) if the
Administrative Agent shall have received the Engineering Reports required to be
delivered by the Borrower pursuant to Section 8.12(a) and (c) in a timely and
complete manner, then on the May 1st or November 1st, as applicable, following
such notice, or (B) if the Administrative Agent shall not have received the
Engineering Reports required

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to be delivered by the Borrower pursuant to Section 8.12(a) and (c) in a timely
and complete manner, then on the Business Day next succeeding delivery of such
notice;
          (ii) in the case of an Interim Redetermination, on the Business Day
next succeeding delivery of such notice; and
          (iii) in the case of the Mandatory Redetermination, on November 1,
2008, regardless of the date of delivery of any such notice.
Such amount shall then become the Borrowing Base and/or Conforming Borrowing
Base, as applicable, until the next Scheduled Redetermination Date, the next
Interim Redetermination Date, the Mandatory Redetermination Date or the next
adjustment to the Borrowing Base and/or Conforming Borrowing Base, as
applicable, under Section 8.13(c) or Section 9.11(d), whichever occurs first.
Notwithstanding the foregoing, no Scheduled Redetermination or Interim
Redetermination shall become effective until the New Borrowing Base Notice
related thereto is received by the Borrower.
     Section 2.08 Letters of Credit.
          (a) General. Subject to the terms and conditions set forth herein, the
Borrower may request the issuance of dollar denominated Letters of Credit for
its own account or for the account of any of its Subsidiaries, in a form
reasonably acceptable to the Administrative Agent and the Issuing Bank, at any
time and from time to time during the Availability Period; provided that the
Borrower may not request the issuance, amendment, renewal or extension of
Letters of Credit hereunder if a Borrowing Base Deficiency exists at such time
or would exist as a result thereof. In the event of any inconsistency between
the terms and conditions of this Agreement and the terms and conditions of any
form of letter of credit application or other agreement submitted by the
Borrower to, or entered into by the Borrower with, the Issuing Bank relating to
any Letter of Credit, the terms and conditions of this Agreement shall control.
          (b) Notice of Issuance, Amendment, Renewal, Extension; Certain
Conditions. To request the issuance of a Letter of Credit (or the amendment,
renewal or extension of an outstanding Letter of Credit), the Borrower shall
hand deliver or telecopy (or transmit by electronic communication, if
arrangements for doing so have been approved by the Issuing Bank) to the Issuing
Bank and the Administrative Agent (not less than five (5) Business Days in
advance of the requested date of issuance, amendment, renewal or extension) a
notice:
          (i) requesting the issuance of a Letter of Credit or identifying the
Letter of Credit to be amended, renewed or extended;
          (ii) specifying the date of issuance, amendment, renewal or extension
(which shall be a Business Day);
          (iii) specifying the date on which such Letter of Credit is to expire
(which shall comply with Section 2.08(c));
          (iv) specifying the amount of such Letter of Credit;

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          (v) specifying the name and address of the beneficiary thereof and
such other information as shall be necessary to prepare, amend, renew or extend
such Letter of Credit; and
          (vi) specifying the amount of the then effective Borrowing Base and
whether a Borrowing Base Deficiency exists at such time, the current total
Revolving Credit Exposures (without regard to the requested Letter of Credit or
the requested amendment, renewal or extension of an outstanding Letter of
Credit) and the pro forma total Revolving Credit Exposures (giving effect to the
requested Letter of Credit or the requested amendment, renewal or extension of
an outstanding Letter of Credit).
Each notice shall constitute a representation that after giving effect to the
requested issuance, amendment, renewal or extension, as applicable, (A) the LC
Exposure shall not exceed the LC Commitment and (B) the total Revolving Credit
Exposures shall not exceed the total Commitments (i.e., the lesser of the
Aggregate Maximum Credit Amounts and the then effective Borrowing Base).
If requested by the Issuing Bank, the Borrower also shall submit a letter of
credit application on the Issuing Bank’s standard form in connection with any
request for a Letter of Credit.
          (c) Expiration Date. Each Letter of Credit shall expire at or prior to
the close of business on the earlier of (i) the date one year after the date of
the issuance of such Letter of Credit (or, in the case of any renewal or
extension thereof, one year after such renewal or extension) and (ii) the date
that is five Business Days prior to the Maturity Date.
          (d) Participations. By the issuance of a Letter of Credit (or an
amendment to a Letter of Credit increasing the amount thereof) and without any
further action on the part of the Issuing Bank or the Lenders, the Issuing Bank
hereby grants to each Lender, and each Lender hereby acquires from the Issuing
Bank, a participation in such Letter of Credit equal to such Lender’s Applicable
Percentage of the aggregate amount available to be drawn under such Letter of
Credit. In consideration and in furtherance of the foregoing, each Lender hereby
absolutely and unconditionally agrees to pay to the Administrative Agent, for
the account of the Issuing Bank, such Lender’s Applicable Percentage of each LC
Disbursement made by the Issuing Bank and not reimbursed by the Borrower on the
date due as provided in Section 2.08(e), or of any reimbursement payment
required to be refunded to the Borrower for any reason. Each Lender acknowledges
and agrees that its obligation to acquire participations pursuant to this
Section 2.08(d) in respect of Letters of Credit is absolute and unconditional
and shall not be affected by any circumstance whatsoever, including any
amendment, renewal or extension of any Letter of Credit or the occurrence and
continuance of a Default, the existence of a Borrowing Base Deficiency or
reduction or termination of the Commitments, and that each such payment shall be
made without any offset, abatement, withholding or reduction whatsoever.
          (e) Reimbursement. If the Issuing Bank shall make any LC Disbursement
in respect of a Letter of Credit, the Borrower shall reimburse such LC
Disbursement by paying to the Administrative Agent an amount equal to such LC
Disbursement not later than 11:00 a.m., Chicago, Illinois time, on the date that
such LC Disbursement is made, if the Borrower shall have received notice of such
LC Disbursement prior to 10:00 a.m., Chicago, Illinois time, on

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such date, or, if such notice has not been received by the Borrower prior to
such time on such date, then not later than 11:00 a.m., Chicago, Illinois time,
on (i) the Business Day that the Borrower receives such notice, if such notice
is received prior to 9:00 a.m., Chicago, Illinois time, on the day of receipt,
or (ii) the Business Day immediately following the day that the Borrower
receives such notice, if such notice is not received prior to such time on the
day of receipt; provided that if such LC Disbursement is not less than
$1,000,000, the Borrower shall, subject to the conditions to Borrowing set forth
herein, be deemed to have requested, and the Borrower does hereby request under
such circumstances, that such payment be financed with an ABR Borrowing in an
equivalent amount and, to the extent so financed, the Borrower’s obligation to
make such payment shall be discharged and replaced by the resulting ABR
Borrowing. If the Borrower fails to make such payment when due, the
Administrative Agent shall notify each Lender of the applicable LC Disbursement,
the payment then due from the Borrower in respect thereof and such Lender’s
Applicable Percentage thereof. Promptly following receipt of such notice, each
Lender shall pay to the Administrative Agent its Applicable Percentage of the
payment then due from the Borrower, in the same manner as provided in
Section 2.05 with respect to Loans made by such Lender (and Section 2.05 shall
apply, mutatis mutandis, to the payment obligations of the Lenders), and the
Administrative Agent shall promptly pay to the Issuing Bank the amounts so
received by it from the Lenders. Promptly following receipt by the
Administrative Agent of any payment from the Borrower pursuant to this
Section 2.08(e), the Administrative Agent shall distribute such payment to the
Issuing Bank or, to the extent that Lenders have made payments pursuant to this
Section 2.08(e) to reimburse the Issuing Bank, then to such Lenders and the
Issuing Bank as their interests may appear. Any payment made by a Lender
pursuant to this Section 2.08(e) to reimburse the Issuing Bank for any LC
Disbursement (other than the funding of ABR Loans as contemplated above) shall
not constitute a Loan and shall not relieve the Borrower of its obligation to
reimburse such LC Disbursement. Any LC Disbursement not reimbursed by the
Borrower or funded as a Loan on the date of such LC Disbursement shall bear
interest for such day at the ABR plus the Applicable Margin.
          (f) Obligations Absolute. The Borrower’s obligation to reimburse LC
Disbursements as provided in Section 2.08(e) shall be absolute, unconditional
and irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement under any and all circumstances whatsoever and irrespective of
(i) any lack of validity or enforceability of any Letter of Credit, any Letter
of Credit Agreement or this Agreement, or any term or provision therein,
(ii) any draft or other document presented under a Letter of Credit proving to
be forged, fraudulent or invalid in any respect or any statement therein being
untrue or inaccurate in any respect, (iii) payment by the Issuing Bank under a
Letter of Credit against presentation of a draft or other document that does not
comply with the terms of such Letter of Credit or any Letter of Credit
Agreement, or (iv) any other event or circumstance whatsoever, whether or not
similar to any of the foregoing, that might, but for the provisions of this
Section 2.08(f), constitute a legal or equitable discharge of, or provide a
right of setoff against, the Borrower’s obligations hereunder. Neither the
Administrative Agent, the Lenders nor the Issuing Bank, nor any of their Related
Parties shall have any liability or responsibility by reason of or in connection
with the issuance or transfer of any Letter of Credit or any payment or failure
to make any payment thereunder (irrespective of any of the circumstances
referred to in the preceding sentence), or any error, omission, interruption,
loss or delay in transmission or delivery of any draft, notice or other
communication under or relating to any Letter of Credit (including any document
required

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to make a drawing thereunder), any error in interpretation of technical terms or
any consequence arising from causes beyond the control of the Issuing Bank;
provided that the foregoing shall not be construed to excuse the Issuing Bank
from liability to the Borrower to the extent of any direct damages (as opposed
to consequential damages, claims in respect of which are hereby waived by the
Borrower to the extent permitted by applicable law) suffered by the Borrower
that are caused by the Issuing Bank’s failure to exercise care when determining
whether drafts and other documents presented under a Letter of Credit comply
with the terms thereof. The parties hereto expressly agree that, in the absence
of gross negligence or willful misconduct on the part of the Issuing Bank (as
finally determined by a court of competent jurisdiction), the Issuing Bank shall
be deemed to have exercised all requisite care in each such determination. In
furtherance of the foregoing and without limiting the generality thereof, the
parties agree that, with respect to documents presented which appear on their
face to be in substantial compliance with the terms of a Letter of Credit, the
Issuing Bank may, in its sole discretion, either accept and make payment upon
such documents without responsibility for further investigation, regardless of
any notice or information to the contrary, or refuse to accept and make payment
upon such documents if such documents are not in strict compliance with the
terms of such Letter of Credit.
          (g) Disbursement Procedures. The Issuing Bank shall, promptly
following its receipt thereof, examine all documents purporting to represent a
demand for payment under a Letter of Credit. The Issuing Bank shall promptly
notify the Administrative Agent and the Borrower by telephone (confirmed by
telecopy) of such demand for payment and whether the Issuing Bank has made or
will make an LC Disbursement thereunder; provided that any failure to give or
delay in giving such notice shall not relieve the Borrower of its obligation to
reimburse the Issuing Bank and the Lenders with respect to any such LC
Disbursement.
          (h) Interim Interest. If the Issuing Bank shall make any LC
Disbursement, then, until the Borrower shall have reimbursed the Issuing Bank
for such LC Disbursement (either with its own funds or a Borrowing under
Section 2.08(e)), the unpaid amount thereof shall bear interest, for each day
from and including the date such LC Disbursement is made to but excluding the
date that the Borrower reimburses such LC Disbursement, at the rate per annum
then applicable to ABR Loans. Interest accrued pursuant to this Section 2.08(h)
shall be for the account of the Issuing Bank, except that interest accrued on
and after the date of payment by any Lender pursuant to Section 2.08(e) to
reimburse the Issuing Bank shall be for the account of such Lender to the extent
of such payment.
          (i) Replacement of the Issuing Bank. The Issuing Bank may be replaced
at any time by written agreement among the Borrower, the Administrative Agent,
the replaced Issuing Bank and the successor Issuing Bank. The Administrative
Agent shall notify the Lenders of any such replacement of the Issuing Bank. At
the time any such replacement shall become effective, the Borrower shall pay all
unpaid fees accrued for the account of the replaced Issuing Bank pursuant to
Section 3.05(b). From and after the effective date of any such replacement,
(i) the successor Issuing Bank shall have all the rights and obligations of the
Issuing Bank under this Agreement with respect to Letters of Credit to be issued
thereafter and (ii) references herein to the term “Issuing Bank” shall be deemed
to refer to such successor or to any previous Issuing Bank, or to such successor
and all previous Issuing Banks, as the context shall require. After the
replacement of the Issuing Bank hereunder, the replaced Issuing Bank shall
remain a party hereto and shall continue to have all the rights and obligations
of the Issuing Bank under this

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Agreement with respect to Letters of Credit issued by it prior to such
replacement, but shall not be required to issue additional Letters of Credit.
          (j) Cash Collateralization. If (i) any Event of Default shall occur
and be continuing and the Borrower receives notice from the Administrative Agent
or the Majority Lenders demanding the deposit of cash collateral pursuant to
this Section 2.08(j), or (ii) the Borrower is required to pay to the
Administrative Agent the excess attributable to an LC Exposure in connection
with any prepayment pursuant to Section 3.04(c), then the Borrower shall
deposit, in an account with the Administrative Agent, in the name of the
Administrative Agent and for the benefit of the Lenders, an amount in cash equal
to, in the case of an Event of Default, the LC Exposure, and in the case of a
payment required by Section 3.04(c), the amount of such excess as provided in
Section 3.04(c), as of such date plus any accrued and unpaid interest thereon;
provided that the obligation to deposit such cash collateral shall become
effective immediately, and such deposit shall become immediately due and
payable, without demand or other notice of any kind, upon the occurrence of any
Event of Default with respect to the Borrower or any Subsidiary described in
Section 10.01(h) or Section 10.01(i). The Borrower hereby grants to the
Administrative Agent, for the benefit of the Issuing Bank and the Lenders, an
exclusive first priority and continuing perfected security interest in and Lien
on such account and all cash, checks, drafts, certificates and instruments, if
any, from time to time deposited or held in such account, all deposits or wire
transfers made thereto, any and all investments purchased with funds deposited
in such account, all interest, dividends, cash, instruments, financial assets
and other Property from time to time received, receivable or otherwise payable
in respect of, or in exchange for, any or all of the foregoing, and all
proceeds, products, accessions, rents, profits, income and benefits therefrom,
and any substitutions and replacements therefor. The Borrower’s obligation to
deposit amounts pursuant to this Section 2.08(j) shall be absolute and
unconditional, without regard to whether any beneficiary of any such Letter of
Credit has attempted to draw down all or a portion of such amount under the
terms of a Letter of Credit, and, to the fullest extent permitted by applicable
law, shall not be subject to any defense or be affected by a right of set-off,
counterclaim or recoupment which the Borrower or any of its Subsidiaries may now
or hereafter have against any such beneficiary, the Issuing Bank, the
Administrative Agent, the Lenders or any other Person for any reason whatsoever.
Such deposit shall be held as collateral securing the payment and performance of
the Borrower’s and the Guarantor’s obligations under this Agreement and the
other Loan Documents. The Administrative Agent shall have exclusive dominion and
control, including the exclusive right of withdrawal, over such account in
accordance with the terms of this Agreement. Other than any interest earned on
the investment of such deposits, which investments shall be made at the option
and sole discretion of the Administrative Agent and at the Borrower’s risk and
expense, such deposits shall not bear interest. Interest or profits, if any, on
such investments shall accumulate in such account. Moneys in such account shall
be applied by the Administrative Agent to reimburse the Issuing Bank for LC
Disbursements for which it has not been reimbursed and, to the extent not so
applied, shall be held for the satisfaction of the reimbursement obligations of
the Borrower for the LC Exposure at such time or, if the maturity of the Loans
has been accelerated, be applied to satisfy other obligations of the Borrower
and the Guarantors under this Agreement or the other Loan Documents. If the
Borrower is required to provide an amount of cash collateral hereunder as a
result of the occurrence of an Event of Default, and the Borrower is not
otherwise required to pay to the Administrative Agent the excess attributable to
an LC Exposure in connection with any prepayment pursuant to Section 3.04(c),
then such amount (to

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the extent not applied as aforesaid) shall be returned to the Borrower within
three Business Days after all Events of Default have been cured or waived.
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES
     Section 3.01 Repayment of Loans. The Borrower hereby unconditionally
promises to pay to the Administrative Agent for the account of each Lender the
then unpaid principal amount of each Loan on the Termination Date.
     Section 3.02 Interest.
          (a) ABR Loans. The Loans comprising each ABR Borrowing shall bear
interest at the Alternate Base Rate plus the Applicable Margin, but in no event
to exceed the Highest Lawful Rate.
          (b) Eurodollar Loans. The Loans comprising each Eurodollar Borrowing
shall bear interest at the LIBO Rate for the Interest Period in effect for such
Borrowing plus the Applicable Margin, but in no event to exceed the Highest
Lawful Rate.
          (c) Post-Default Rate and Borrowing Base Deficiency Rate.
Notwithstanding the foregoing, (i) if an Event of Default has occurred and is
continuing, or if any principal of or interest on any Loan or any fee or other
amount payable by the Borrower or any Guarantor hereunder or under any other
Loan Document is not paid when due, whether at stated maturity, upon
acceleration or otherwise, and including any payments in respect of a Borrowing
Base Deficiency under Section 3.04(c), then all Loans outstanding, in the case
of an Event of Default, and such overdue amount, in the case of a failure to pay
amounts when due, shall bear interest, after as well as before judgment, at a
rate per annum equal to two percent (2%) plus the rate applicable to ABR Loans
as provided in Section 3.02(a), but in no event to exceed the Highest Lawful
Rate, and (ii) during any Borrowing Base Deficiency, all Loans outstanding at
such time shall bear interest, after as well as before judgment, at the rate
then applicable to such Loans, plus the Applicable Margin, if any, plus an
additional two percent (2%), but in no event to exceed the Highest Lawful Rate.
          (d) Interest Payment Dates. Accrued interest on each Loan shall be
payable in arrears on each Interest Payment Date for such Loan and on the
Termination Date; provided that (i) interest accrued pursuant to Section 3.02(c)
shall be payable on demand, (ii) in the event of any repayment or prepayment of
any Loan (other than an optional prepayment of an ABR Loan prior to the
Termination Date), accrued interest on the principal amount repaid or prepaid
shall be payable on the date of such repayment or prepayment, and (iii) in the
event of any conversion of any Eurodollar Loan prior to the end of the current
Interest Period therefor, accrued interest on such Loan shall be payable on the
effective date of such conversion.
          (e) Interest Rate Computations. All interest hereunder shall be
computed on the basis of a year of 360 days, unless such computation would
exceed the Highest Lawful Rate, in which case interest shall be computed on the
basis of a year of 365 days (or 366 days in a leap year), except that interest
computed by reference to the Alternate Base Rate at times when the Alternate
Base Rate is based on the Prime Rate shall be computed on the basis of a year of

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365 days (or 366 days in a leap year), and in each case shall be payable for the
actual number of days elapsed (including the first day but excluding the last
day). The applicable Alternate Base Rate or LIBO Rate shall be determined by the
Administrative Agent, and such determination shall be conclusive absent manifest
error, and be binding upon the parties hereto.
     Section 3.03 Alternate Rate of Interest. If prior to the commencement of
any Interest Period for a Eurodollar Borrowing:
          (a) the Administrative Agent determines (which determination shall be
conclusive absent manifest error) that adequate and reasonable means do not
exist for ascertaining the LIBO Rate for such Interest Period; or
          (b) the Administrative Agent is advised by the Majority Lenders that
the LIBO Rate for such Interest Period will not adequately and fairly reflect
the cost to such Lenders of making or maintaining their Loans included in such
Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective,
and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such
Borrowing shall be made as an ABR Borrowing.
     Section 3.04 Prepayments.
          (a) Optional Prepayments. The Borrower shall have the right at any
time and from time to time to prepay any Borrowing in whole or in part, subject
to prior notice in accordance with Section 3.04(b).
          (b) Notice and Terms of Optional Prepayment. The Borrower shall notify
the Administrative Agent by telephone (confirmed by telecopy) of any prepayment
hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later
than 11:00 a.m., Chicago, Illinois time, three Business Days before the date of
prepayment, or (ii) in the case of prepayment of an ABR Borrowing, not later
than 11:00 a.m., Chicago, Illinois time, one Business Day before the date of
prepayment. Each such notice shall be irrevocable and shall specify the
prepayment date and the principal amount of each Borrowing or portion thereof to
be prepaid. Promptly following receipt of any such notice relating to a
Borrowing, the Administrative Agent shall advise the Lenders of the contents
thereof. Each partial prepayment of any Borrowing shall be in an amount that
would be permitted in the case of an advance of a Borrowing of the same Type as
provided in Section 2.02. Each prepayment of a Borrowing shall be applied
ratably to the Loans included in the prepaid Borrowing. Prepayments shall be
accompanied by accrued interest to the extent required by Section 3.02.
          (c) Mandatory Prepayments.
          (i) If, after giving effect to any termination or reduction of the
Aggregate Maximum Credit Amounts pursuant to Section 2.06(b), the total
Revolving

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Credit Exposures exceeds the total Commitments, then the Borrower shall
(A) prepay the Borrowings on the date of such termination or reduction in an
aggregate principal amount equal to such excess, and (B) if any excess remains
after prepaying all of the Borrowings as a result of an LC Exposure, pay to the
Administrative Agent on behalf of the Lenders an amount equal to such excess to
be held as cash collateral as provided in Section 2.08(j).
          (ii) Upon any redetermination of or adjustment to the amount of the
Borrowing Base in accordance with Section 2.07 (other than Section 2.07(d)) or
Section 8.13(c), if the total Revolving Credit Exposures exceeds the
redetermined or adjusted Borrowing Base, then the Borrower shall, within 10 days
following receipt of the New Borrowing Base Notice in accordance with
Section 2.07(e) or the date the adjustment occurs, provide written notice (the
“Election Notice”) to the Administrative Agent stating the action which the
Borrower proposes to take to remedy such excess, and the Borrower shall
thereafter, (A) within 30 days following the delivery of the Election Notice,
prepay the Borrowings in an aggregate principal amount equal to such excess,
(B) eliminate such excess by making three (3) consecutive mandatory prepayments
of principal on the Loans, each of which shall be in the amount of 1/3rd of the
amount of such excess, commencing on the first Monthly Date following the
delivery of the Election Notice, and continuing on each Monthly Date thereafter,
(C) within 90 days following the delivery of the Election Notice, submit
additional Oil and Gas Properties owned by the Borrower or its Subsidiaries for
consideration in connection with the determination of the Borrowing Base, which
the Administrative Agent and the Lenders deem sufficient in their sole
discretion to eliminate such excess, or (D) within 90 days following the
delivery of the Election Notice, eliminate such excess through a combination of
prepayments and submission of additional Oil and Gas Properties as set forth in
subclauses (A) and (C) above. If any excess remains after prepaying all of the
Borrowings as a result of an LC Exposure, then the Borrower shall pay to the
Administrative Agent on behalf of the Lenders an amount equal to such excess to
be held as cash collateral as provided in Section 2.08(j). Notwithstanding the
foregoing, all payments required to be made pursuant to this Section 3.04(c)(ii)
must be made on or prior to the Termination Date.
          (iii) Upon the Mandatory Redetermination of the Borrowing Base
pursuant to Section 2.07(d), if the total Revolving Credit Exposures exceeds the
Borrowing Base as redetermined, then the Borrower shall (A) prepay the
Borrowings in an aggregate principal amount equal to such excess, and (B) if any
excess remains after prepaying all of the Borrowings as a result of an LC
Exposure, pay to the Administrative Agent on behalf of the Lenders an amount
equal to such excess to be held as cash collateral as provided in
Section 2.08(j). The Borrower shall be obligated to make such prepayment and/or
deposit of cash collateral on November 1, 2008; provided that all payments
required to be made pursuant to this Section 3.04(c)(iii) must be made on or
prior to the Termination Date.
          (iv) Upon any adjustments to the Borrowing Base pursuant to
Section 9.11(d), if the total Revolving Credit Exposures exceeds the Borrowing
Base as adjusted, then the Borrower shall (A) prepay the Borrowings in an
aggregate principal amount

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equal to such excess, and (B) if any excess remains after prepaying all of the
Borrowings as a result of an LC Exposure, pay to the Administrative Agent on
behalf of the Lenders an amount equal to such excess to be held as cash
collateral as provided in Section 2.08(j). The Borrower shall be obligated to
make such prepayment and/or deposit of cash collateral on the date it or any
Subsidiary receives cash proceeds as a result of such disposition; provided that
all payments required to be made pursuant to this Section 3.04(c)(iv) must be
made on or prior to the Termination Date.
          (v) Each prepayment of Borrowings pursuant to this Section 3.04(c)
shall be applied, first, ratably to any ABR Borrowings then outstanding, and,
second, to any Eurodollar Borrowings then outstanding, and if more than one
Eurodollar Borrowing is then outstanding, to each such Eurodollar Borrowing in
order of priority beginning with the Eurodollar Borrowing with the least number
of days remaining in the Interest Period applicable thereto and ending with the
Eurodollar Borrowing with the most number of days remaining in the Interest
Period applicable thereto.
          (vi) Each prepayment of Borrowings pursuant to this Section 3.04(c)
shall be applied ratably to the Loans included in the prepaid Borrowings.
Prepayments pursuant to this Section 3.04(c) shall be accompanied by accrued
interest to the extent required by Section 3.02.
          (d) No Premium or Penalty. Prepayments permitted or required under
this Section 3.04 shall be without premium or penalty, except as required under
Section 5.01(d).
     Section 3.05 Fees.
          (a) Commitment Fees. The Borrower agrees to pay to the Administrative
Agent for the account of each Lender a commitment fee, which shall accrue at the
applicable Commitment Fee Rate on the average daily amount of the unused amount
of the Commitment of such Lender during the period from and including the date
of this Agreement to but excluding the Termination Date. Accrued commitment fees
shall be payable in arrears on the last day of March, June, September and
December of each year and on the Termination Date, commencing on the first such
date to occur after the date hereof. All commitment fees shall be computed on
the basis of a year of 360 days, unless such computation would exceed the
Highest Lawful Rate, in which case interest shall be computed on the basis of a
year of 365 days (or 366 days in a leap year), and shall be payable for the
actual number of days elapsed (including the first day but excluding the last
day).
          (b) Letter of Credit Fees. The Borrower agrees to pay (i) to the
Administrative Agent for the account of each Lender a participation fee with
respect to its participations in Letters of Credit, which shall accrue at the
same Applicable Margin used to determine the interest rate applicable to
Eurodollar Loans on the average daily amount of such Lender’s LC Exposure
(excluding any portion thereof attributable to unreimbursed LC Disbursements)
during the period from and including the date of this Agreement to but excluding
the later of the date on which such Lender’s Commitment terminates and the date
on which such Lender ceases to have any LC Exposure, (ii) to the Issuing Bank a
fronting fee, which shall accrue at the rate of 0.125% per annum on the average
daily amount of the LC Exposure

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(excluding any portion thereof attributable to unreimbursed LC Disbursements)
during the period from and including the date of this Agreement to but excluding
the later of the Termination Date and the date on which there ceases to be any
LC Exposure, provided that in no event shall such fee be less than $500 during
any quarter, and (iii) to the Issuing Bank, for its own account, its standard
fees with respect to the issuance, amendment, renewal or extension of any Letter
of Credit or processing of drawings thereunder. Participation fees and fronting
fees accrued through and including the last day of March, June, September and
December of each year shall be payable on the third Business Day following such
last day, commencing on the first such date to occur after the date of this
Agreement; provided that all such fees shall be payable on the Termination Date
and any such fees accruing after the Termination Date shall be payable on
demand. Any other fees payable to the Issuing Bank pursuant to this
Section 3.05(b) shall be payable within ten days after demand. All participation
fees and fronting fees shall be computed on the basis of a year of 360 days,
unless such computation would exceed the Highest Lawful Rate, in which case
interest shall be computed on the basis of a year of 365 days (or 366 days in a
leap year), and shall be payable for the actual number of days elapsed
(including the first day but excluding the last day).
          (c) Administrative Agent Fees. The Borrower agrees to pay to the
Administrative Agent, for its own account, fees payable in the amounts and at
the times separately agreed upon between the Borrower and the Administrative
Agent in the Fee Letter.
          (d) Borrowing Base Increase Fees. The Borrower agrees to pay to the
Administrative Agent, for the account of each Lender then party to this
Agreement, ratably in accordance with its Applicable Percentage, a Borrowing
Base increase fee in an amount to be agreed by the Lenders and the Borrower on
the amount of any increase of the Borrowing Base over the highest Borrowing Base
previously in effect, payable on the effective date of any such increase to the
Borrowing Base.
     Section 3.06 Extension of Maturity Date.
          (a) On each anniversary of this Agreement, the Borrower may, upon
notice to the Administrative Agent (which shall promptly notify the Lenders),
request successive one-year extension of the Maturity Date. Within 30 days of
delivery of such notice, each Lender shall notify the Administrative Agent
whether or not it consents to such extension (which consent may be given or
withheld in such Lender’s sole and absolute discretion). Any Lender not
responding within the above time period shall be deemed not to have consented to
such extension. The Administrative Agent shall promptly notify the Borrower and
the Lenders of the Lenders’ responses.
          (b) The Maturity Date shall be extended only if all of the Lenders
have consented thereto. If so extended, the Maturity Date shall be extended to
the same date in the following year, effective as of the Maturity Date then in
effect (such existing Maturity Date being the “Extension Effective Date”). The
Administrative Agent shall promptly confirm to the Lenders such extension and
the Extension Effective Date. As a condition precedent to such extension, the
Borrower shall deliver to the Administrative Agent a certificate of the Borrower
dated as of the Extension Effective Date (in sufficient copies for each Lender)
signed by a Responsible Officer of the Borrower (i) certifying and attaching the
resolutions adopted by the

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Borrower approving or consenting to such extension or confirming that those
previously delivered pursuant to Section 6.01 remain in full force and effect
and have not been amended or rescinded, as the case may be, and (ii) certifying
that, (A) before and after giving effect to such extension, the representations
and warranties contained in Article VII made by it are true and correct on and
as of the Extension Effective Date, except to the extent that such
representations and warranties specifically refer to an earlier date, (B) before
and after giving effect to such extension no Event of Default exists or will
exist, and (C) since (1) the most immediately preceding June 30 and (2) prior to
the date thirty (30) days preceding such Extension Effectiveness Date, whichever
shall later occur, there has not occurred an event, development or circumstance
that has had or would reasonably be expected to have, a Material Adverse Effect
on the consolidated financial position or consolidated results of operations of
the Borrower and its Subsidiaries taken as a whole.
ARTICLE IV
PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS
     Section 4.01 Payments Generally; Pro Rata Treatment; Sharing of Set-offs.
          (a) Payments by the Borrower. The Borrower shall make each payment
required to be made by it hereunder (whether of principal, interest, fees or
reimbursement of LC Disbursements, or of amounts payable under Section 5.01,
Section 5.01(d), Section 5.03 or otherwise) prior to 11:00 a.m., Chicago,
Illinois time, on the date when due, in immediately available funds, without
defense, deduction, recoupment, set-off or counterclaim. Fees, once paid, shall
be fully earned and shall not be refundable under any circumstances. Any amounts
received after such time on any date may, in the discretion of the
Administrative Agent, be deemed to have been received on the next succeeding
Business Day for purposes of calculating interest thereon. All such payments
shall be made to the Administrative Agent at its offices specified in
Section 12.01, except payments to be made directly to the Issuing Bank as
expressly provided herein and except that payments pursuant to Section 5.01,
Section 5.01(d), Section 5.03 and Section 12.03 shall be made directly to the
Persons entitled thereto. The Administrative Agent shall distribute any such
payments received by it for the account of any other Person to the appropriate
recipient promptly following receipt thereof. If any payment hereunder shall be
due on a day that is not a Business Day, the date for payment shall be extended
to the next succeeding Business Day, and, in the case of any payment accruing
interest, interest thereon shall be payable for the period of such extension.
All payments hereunder shall be made in dollars.
          (b) Application of Insufficient Payments. If at any time insufficient
funds are received by and available to the Administrative Agent to pay fully all
amounts of principal, unreimbursed LC Disbursements, interest and fees then due
hereunder, such funds shall be applied (i) first, towards payment of interest
and fees then due hereunder, ratably among the parties entitled thereto in
accordance with the amounts of interest and fees then due to such parties, and
(ii) second, towards payment of principal and unreimbursed LC Disbursements then
due hereunder, ratably among the parties entitled thereto in accordance with the
amounts of principal and unreimbursed LC Disbursements then due to such parties.

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          (c) Sharing of Payments by Lenders. If any Lender shall, by exercising
any right of set-off or counterclaim or otherwise, obtain payment in respect of
any principal of or interest on any of its Loans or participations in LC
Disbursements resulting in such Lender receiving payment of a greater proportion
of the aggregate amount of its Loans and participations in LC Disbursements and
accrued interest thereon than the proportion received by any other Lender, then
the Lender receiving such greater proportion shall purchase (for cash at face
value) participations in the Loans and participations in LC Disbursements of
other Lenders to the extent necessary so that the benefit of all such payments
shall be shared by the Lenders ratably in accordance with the aggregate amount
of principal of and accrued interest on their respective Loans and
participations in LC Disbursements; provided that (i) if any such participations
are purchased and all or any portion of the payment giving rise thereto is
recovered, such participations shall be rescinded and the purchase price
restored to the extent of such recovery, without interest, and (ii) the
provisions of this Section 4.01(c) shall not be construed to apply to any
payment made by the Borrower pursuant to and in accordance with the express
terms of this Agreement or any payment obtained by a Lender as consideration for
the assignment of or sale of a participation in any of its Loans or
participations in LC Disbursements to any assignee or participant, other than to
the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions
of this Section 4.01(c) shall apply). The Borrower consents to the foregoing and
agrees, to the extent it may effectively do so under applicable law, that any
Lender acquiring a participation pursuant to this Section 4.01(c) may exercise
against the Borrower rights of set-off and counterclaim with respect to such
participation as fully as if such Lender were a direct creditor of the Borrower
in the amount of such participation.
     Section 4.02 Presumption of Payment by the Borrower. Unless the
Administrative Agent shall have received notice from the Borrower prior to the
date on which any payment is due to the Administrative Agent for the account of
the Lenders or the Issuing Bank that the Borrower will not make such payment,
the Administrative Agent may assume that the Borrower has made such payment on
such date in accordance herewith and may, in reliance upon such assumption,
distribute to the Lenders or the Issuing Bank, as the case may be, the amount
due. In such event, if the Borrower has not in fact made such payment, then each
of the Lenders or the Issuing Bank, as the case may be, severally agrees to
repay to the Administrative Agent forthwith on demand the amount so distributed
to such Lender or Issuing Bank with interest thereon, for each day from and
including the date such amount is distributed to it to but excluding the date of
payment to the Administrative Agent, at the greater of the Federal Funds
Effective Rate and a rate determined by the Administrative Agent in accordance
with banking industry rules on interbank compensation.
     Section 4.03 Certain Deductions by the Administrative Agent. If any Lender
shall fail to make any payment required to be made by it pursuant to
Section 2.05(b), Section 2.08(d), Section 2.08(e) or Section 4.02 then the
Administrative Agent may, in its discretion (notwithstanding any contrary
provision hereof), apply any amounts thereafter received by the Administrative
Agent for the account of such Lender to satisfy such Lender’s obligations under
such Sections until all such unsatisfied obligations are fully paid.
     Section 4.04 Disposition of Proceeds. The Security Instruments contain an
assignment by the Borrower and/or the Guarantors unto and in favor of the
Administrative Agent for the benefit of the Lenders of all of the Borrower’s or
each Guarantor’s interest in and to production

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and all proceeds attributable thereto which may be produced from or allocated to
the Mortgaged Property. The Security Instruments further provide in general for
the application of such proceeds to the satisfaction of the Indebtedness and
other obligations described therein and secured thereby. Notwithstanding the
assignment contained in such Security Instruments, until the occurrence of an
Event of Default, (a) the Administrative Agent and the Lenders agree that they
will neither notify the purchaser or purchasers of such production nor take any
other action to cause such proceeds to be remitted to the Administrative Agent
or the Lenders, but the Lenders will instead permit such proceeds to be paid to
the Borrower and its Subsidiaries and (b) the Lenders hereby authorize the
Administrative Agent to take such actions as may be necessary to cause such
proceeds to be paid to the Borrower and/or such Subsidiaries.
ARTICLE V
INCREASED COSTS; BREAK FUNDING PAYMENTS; TAXES; ILLEGALITY
     Section 5.01 Increased Costs.
          (a) Eurodollar Changes in Law. If any Change in Law, which is
generally applicable to all commercial banking institutions shall:
          (i) impose, modify or deem applicable any reserve (including marginal,
special, emergency or supplemental reserves), special deposit or similar
requirement against assets of, deposits with or for the account of, or credit
extended by, any Lender for Eurocurrency liabilities under Regulation D of the
Board (as the same may be amended, supplemented or replaced from time to time)
or otherwise (except any such reserve requirement reflected in the LIBO Rate);
or
          (ii) impose on any Lender or the London interbank market any other
condition affecting this Agreement or Eurodollar Loans made by such Lender;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to reduce the amount of any sum received or
receivable by such Lender (whether of principal, interest or otherwise), then
the Borrower will pay to such Lender such additional amount or amounts as will
compensate such Lender for such additional costs incurred or reduction suffered.
          (b) Capital Requirements. If any Lender or the Issuing Bank determines
that any Change in Law regarding capital requirements has or would have the
effect of reducing the rate of return on such Lender’s or the Issuing Bank’s
capital or on the capital of such Lender’s or the Issuing Bank’s holding
company, if any, as a consequence of this Agreement or the Loans made by, or
participations in Letters of Credit held by, such Lender, or the Letters of
Credit issued by the Issuing Bank, to a level below that which such Lender or
the Issuing Bank or such Lender’s or the Issuing Bank’s holding company could
have achieved but for such Change in Law (taking into consideration such
Lender’s or the Issuing Bank’s policies and the policies of such Lender’s or the
Issuing Bank’s holding company with respect to capital adequacy), then from time
to time the Borrower will pay to such Lender or the Issuing Bank, as the case
may be, such additional amount or amounts as will compensate such Lender or the

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Issuing Bank or such Lender’s or the Issuing Bank’s holding company for any such
reduction suffered.
          (c) Certificates. A certificate of a Lender or the Issuing Bank
setting forth the amount or amounts necessary to compensate such Lender or the
Issuing Bank or its holding company, as the case may be, as specified in
Section 5.01(a) or (b) shall be delivered to the Borrower and shall be
conclusive absent manifest error. The Borrower shall pay such Lender or the
Issuing Bank, as the case may be, the amount shown as due on any such
certificate within ten days after receipt thereof.
          (d) Effect of Failure or Delay in Requesting Compensation. Failure or
delay on the part of any Lender or the Issuing Bank to demand compensation
pursuant to this Section 5.01 shall not constitute a waiver of such Lender’s or
the Issuing Bank’s right to demand such compensation.
     Section 5.02 Break Funding Payments. In the event of (a) the payment of any
principal of any Eurodollar Loan other than on the last day of an Interest
Period applicable thereto (including as a result of an Event of Default),
(b) the conversion of any Eurodollar Loan into an ABR Loan other than on the
last day of the Interest Period applicable thereto, or (c) the failure to
borrow, convert, continue or prepay any Eurodollar Loan on the date specified in
any notice delivered pursuant hereto, then, in any such event, the Borrower
shall compensate each Lender for the loss, cost and expense attributable to such
event. In the case of a Eurodollar Loan, such loss, cost or expense to any
Lender shall be deemed to include an amount determined by such Lender to be the
excess, if any, of (i) the amount of interest which would have accrued on the
principal amount of such Loan had such event not occurred, at the LIBO Rate that
would have been applicable to such Loan, for the period from the date of such
event to the last day of the then current Interest Period therefor (or, in the
case of a failure to borrow, convert or continue, for the period that would have
been the Interest Period for such Loan), over (ii) the amount of interest which
would accrue on such principal amount for such period at the interest rate which
such Lender would bid were it to bid, at the commencement of such period, for
dollar deposits of a comparable amount and period from other banks in the
eurodollar market.
A certificate of any Lender setting forth any amount or amounts that such Lender
is entitled to receive pursuant to this Section 5.01(d) shall be delivered to
the Borrower and shall be conclusive absent manifest error. The Borrower shall
pay such Lender the amount shown as due on any such certificate within 10 days
after receipt thereof.
     Section 5.03 Taxes.
          (a) Payments Free of Taxes. Any and all payments by or on account of
any obligation of the Borrower or any Guarantor under any Loan Document shall be
made free and clear of and without deduction for any Indemnified Taxes or Other
Taxes; provided that if the Borrower or any Guarantor shall be required to
deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum
payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 5.03(a)), the Administrative Agent, Lender or Issuing Bank (as the
case may be) receives an amount equal to the sum it would have received had no
such deductions been

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made, (ii) the Borrower or such Guarantor shall make such deductions and
(iii) the Borrower or such Guarantor shall pay the full amount deducted to the
relevant Governmental Authority in accordance with applicable law.
          (b) Payment of Other Taxes by the Borrower. The Borrower shall pay any
Other Taxes to the relevant Governmental Authority in accordance with applicable
law.
          (c) Indemnification by the Borrower. The Borrower shall indemnify the
Administrative Agent, each Lender and the Issuing Bank, within 10 days after
written demand therefor, for the full amount of any Indemnified Taxes or Other
Taxes paid by the Administrative Agent, such Lender or the Issuing Bank, as the
case may be, on or with respect to any payment by or on account of any
obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes
imposed or asserted on or attributable to amounts payable under this
Section 5.03) and any penalties, interest and reasonable expenses arising
therefrom or with respect thereto, whether or not such Indemnified Taxes or
Other Taxes were correctly or legally imposed or asserted by the relevant
Governmental Authority. A certificate of the Administrative Agent, a Lender or
the Issuing Bank as to the amount of such payment or liability under this
Section 5.03 shall be delivered to the Borrower and shall be conclusive absent
manifest error.
          (d) Evidence of Payments. As soon as practicable after any payment of
Indemnified Taxes or Other Taxes by the Borrower or a Guarantor to a
Governmental Authority, the Borrower shall deliver to the Administrative Agent
the original or a certified copy of a receipt issued by such Governmental
Authority evidencing such payment, a copy of the return reporting such payment
or other evidence of such payment reasonably satisfactory to the Administrative
Agent.
          (e) Foreign Lenders. Any Foreign Lender that is entitled to an
exemption from or reduction of withholding tax under the law of the jurisdiction
in which the Borrower is located, or any treaty to which such jurisdiction is a
party, with respect to payments under this Agreement or any other Loan Document
shall deliver to the Borrower (with a copy to the Administrative Agent), at the
time or times prescribed by applicable law, such properly completed and executed
documentation prescribed by applicable law or reasonably requested by the
Borrower as will permit such payments to be made without withholding or at a
reduced rate.
     Section 5.04 Mitigation Obligations. If any Lender requests compensation
under Article V, or if the Borrower is required to pay any additional amount to
any Lender or any Governmental Authority for the account of any Lender pursuant
to Article V, then such Lender shall use reasonable efforts to designate a
different lending office for funding or booking its Loans hereunder or to assign
its rights and obligations hereunder to another of its offices, branches or
affiliates, if, in the judgment of such Lender, such designation or assignment
(a) would eliminate or reduce amounts payable pursuant to Article V, as the case
may be, in the future and (b) would not subject such Lender to any unreimbursed
cost or expense and would not otherwise be disadvantageous to such Lender. The
Borrower hereby agrees to pay all reasonable costs and expenses incurred by any
Lender in connection with any such designation or assignment.

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     Section 5.05 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or its
applicable lending office to honor its obligation to make or maintain Eurodollar
Loans either generally or having a particular Interest Period hereunder, then
(a) such Lender shall promptly notify the Borrower and the Administrative Agent
thereof and such Lender’s obligation to make such Eurodollar Loans shall be
suspended (the “Affected Loans”) until such time as such Lender may again make
and maintain such Eurodollar Loans and (b) all Affected Loans which would
otherwise be made by such Lender shall be made instead as ABR Loans (and, if
such Lender so requests by notice to the Borrower and the Administrative Agent,
all Affected Loans of such Lender then outstanding shall be automatically
converted into ABR Loans on the date specified by such Lender in such notice)
and, to the extent that Affected Loans are so made as (or converted into) ABR
Loans, all payments of principal which would otherwise be applied to such
Lender’s Affected Loans shall be applied instead to its ABR Loans.
ARTICLE VI
CONDITIONS PRECEDENT
     Section 6.01 Effective Date. The obligations of the Lenders to make Loans
and of the Issuing Bank to issue Letters of Credit hereunder shall not become
effective until the date on which each of the following conditions is satisfied
(or waived in accordance with Section 12.02):
          (a) The Administrative Agent and the Arranger shall have received all
fees and other amounts due and payable under the Fee Letter on or prior to the
Effective Date, including, to the extent invoiced, reimbursement or payment of
all out-of-pocket expenses required to be reimbursed or paid by the Borrower
thereunder.
          (b) The Administrative Agent shall have received a certificate of the
Secretary or an Assistant Secretary of the Borrower and each Guarantor setting
forth (i) resolutions of its board of directors or other appropriate governing
body with respect to the authorization of the Borrower or such Guarantor to
execute and deliver the Loan Documents to which it is a party and to enter into
the transactions contemplated in those documents, (ii) the officers of the
Borrower or such Guarantor (A) who are authorized to sign the Loan Documents to
which the Borrower or such Guarantor is a party and (B) who will, until replaced
by another officer or officers duly authorized for that purpose, act as its
representative for the purposes of signing documents and giving notices and
other communications in connection with this Agreement and the transactions
contemplated hereby, (iii) specimen signatures of such authorized officers, and
(iv) the articles or certificate of incorporation and bylaws, as applicable, of
the Borrower and such Guarantor, certified as being true and complete. The
Administrative Agent and the Lenders may conclusively rely on such certificate
until the Administrative Agent receives notice in writing from the Borrower to
the contrary.
          (c) The Administrative Agent shall have received certificates of the
appropriate State agencies with respect to the existence, qualification and good
standing of the Borrower and each Guarantor.

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          (d) The Administrative Agent shall have received a compliance
certificate which shall be substantially in the form of Exhibit D, duly and
properly executed by a Responsible Officer and dated as of the date of Effective
Date.
          (e) The Administrative Agent shall have received from each party
hereto counterparts (in such number as may be requested by the Administrative
Agent) of this Agreement signed on behalf of such party.
          (f) The Administrative Agent shall have received duly executed Notes
payable to the order of each Lender in a principal amount equal to its Maximum
Credit Amount dated as of the date hereof.
          (g) The Administrative Agent shall have received from each party
thereto duly executed counterparts (in such number as may be requested by the
Administrative Agent) of the Security Instruments, including the Guaranty
Agreement and the other Security Instruments described on Exhibit F-1. In
connection with the execution and delivery of the Security Instruments, the
Administrative Agent shall:
          (i) be reasonably satisfied that the Security Instruments create first
priority, perfected Liens (subject only to Excepted Liens identified in clauses
(a) to (d) and (f) of the definition thereof, but subject to the provisos at the
end of such definition) on at least 95% of the total value of the Oil and Gas
Properties evaluated in the Initial Reserve Report; and
          (ii) have received certificates, together with undated, blank stock
powers for each such certificate, representing all of the issued and outstanding
Equity Interests of each of the Guarantors.
          (h) The Administrative Agent shall have received an opinion of
(i) Gersten Savage LLP, special counsel to the Borrower, substantially in the
form of Exhibit E 1 hereto, and (ii) local counsel in each of the following
states: Colorado and any other jurisdictions requested by the Administrative
Agent, substantially in the form of Exhibit E-2.
          (i) The Administrative Agent shall have received a certificate of
insurance coverage of the Borrower evidencing that the Borrower is carrying
insurance in accordance with Section 7.12.
          (j) The Administrative Agent shall have received title information as
the Administrative Agent may reasonably require satisfactory to the
Administrative Agent setting forth the status of title to at least 80% of the
total value of the Oil and Gas Properties evaluated in the Initial Reserve
Report.
          (k) The Administrative Agent shall be reasonably satisfied with the
environmental condition of the Oil and Gas Properties of the Borrower and its
Subsidiaries.
          (l) The Administrative Agent shall have received a certificate of a
Responsible Officer of the Borrower certifying that the Borrower has received
all consents and approvals required by Section 7.03.

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          (m) The Administrative Agent shall have received the financial
statements referred to in Section 7.04(a) and the Initial Reserve Report
accompanied by a certificate covering the matters described in Section 8.12(c).
          (n) The Administrative Agent shall have received appropriate UCC
search certificates reflecting no prior Liens encumbering the Properties of the
Borrower and its Subsidiaries for each of the following jurisdictions: Delaware,
Colorado and any other jurisdiction requested by the Administrative Agent; other
than those being assigned or released on or prior to the Effective Date or Liens
permitted by Section 9.03.
          (o) All Swap Agreements to which the Borrower or any of its
Subsidiaries is a party as of the date of this Agreement shall have been
assigned, novated or otherwise transferred to JPMorgan Chase.
          (p) The Administrative Agent shall have received a Master Assignment
of Notes, Security Instruments and Liens, in form and substance reasonably
satisfactory to the Administrative Agent, from the Existing Administrative Agent
and Existing Lender under the Existing Credit Agreement assigning to the
Administrative Agent and the Lenders the Debt and Liens under the Existing
Credit Agreement, together with such assignments, endorsed notes, UCC-3
assignments, and other instruments as the Administrative Agent shall reasonably
request.
          (q) The Administrative Agent shall have received such other documents
as the Administrative Agent or special counsel to the Administrative Agent may
reasonably request.
     The Administrative Agent shall notify the Borrower and the Lenders of the
Effective Date, and such notice shall be conclusive and binding. Notwithstanding
the foregoing, the obligations of the Lenders to make Loans and of the Issuing
Bank to issue Letters of Credit hereunder shall not become effective unless each
of the foregoing conditions is satisfied (or waived pursuant to Section 12.02)
at or prior to 1:00 p.m., Chicago, Illinois time, on August 31, 2007 (and, in
the event such conditions are not so satisfied or waived, the Commitments shall
terminate at such time).
     Section 6.02 Each Credit Event. The obligation of each Lender to make a
Loan on the occasion of any Borrowing (including the initial funding), and of
the Issuing Bank to issue, amend, renew or extend any Letter of Credit, is
subject to the satisfaction of the following conditions:
          (a) At the time of and immediately after giving effect to such
Borrowing or the issuance, amendment, renewal or extension of such Letter of
Credit, as applicable, no Default shall have occurred and be continuing.
          (b) At the time of and immediately after giving effect to such
Borrowing or the issuance, amendment, renewal or extension of such Letter of
Credit, as applicable, no event, development or circumstance has occurred or
shall then exist that has resulted in, or could reasonably be expected to have,
a Material Adverse Effect.
          (c) The representations and warranties of the Borrower and the
Guarantors set forth in this Agreement and in the other Loan Documents shall be
true and correct on and as of

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the date of such Borrowing or the date of issuance, amendment, renewal or
extension of such Letter of Credit, as applicable, except to the extent any such
representations and warranties are expressly limited to an earlier date, in
which case, on and as of the date of such Borrowing or the date of issuance,
amendment, renewal or extension of such Letter of Credit, as applicable, such
representations and warranties shall continue to be true and correct as of such
specified earlier date.
          (d) The making of such Loan or the issuance, amendment, renewal or
extension of such Letter of Credit, as applicable, would not conflict with, or
cause any Lender or the Issuing Bank to violate or exceed, any applicable
Governmental Requirement, and no Change in Law shall have occurred, and no
litigation shall be pending or threatened, which does or, with respect to any
threatened litigation, seeks to, enjoin, prohibit or restrain, the making or
repayment of any Loan, the issuance, amendment, renewal, extension or repayment
of any Letter of Credit or any participations therein or the consummation of the
transactions contemplated by this Agreement or any other Loan Document.
          (e) The receipt by the Administrative Agent of a Borrowing Request in
accordance with Section 2.03 or a request for a Letter of Credit in accordance
with Section 2.08(b), as applicable.
Each request for a Borrowing and each request for the issuance, amendment,
renewal or extension of any Letter of Credit shall be deemed to constitute a
representation and warranty by the Borrower on the date thereof as to the
matters specified in Section 6.02(a) through (e).
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lenders that:
     Section 7.01 Organization; Powers. Each of the Borrower and the
Subsidiaries is duly organized, validly existing and in good standing` under the
laws of the jurisdiction of its organization, has all requisite power and
authority, and has all material governmental licenses, authorizations, consents
and approvals necessary, to own its assets and to carry on its business as now
conducted, and is qualified to do business in, and is in good standing in, every
jurisdiction where such qualification is required, except where failure to have
such power, authority, licenses, authorizations, consents, approvals and
qualifications could not reasonably be expected to have a Material Adverse
Effect.
     Section 7.02 Authority; Enforceability. The Transactions are within the
Borrower’s and each Guarantor’s corporate powers and have been duly authorized
by all necessary corporate and, if required, stockholder action (including,
without limitation, any action required to be taken by any class of directors of
the Borrower or any other Person, whether interested or disinterested, in order
to ensure the due authorization of the Transactions). Each Loan Document to
which the Borrower and each Guarantor is a party has been duly executed and
delivered by the Borrower and such Guarantor and constitutes a legal, valid and
binding obligation of the Borrower and such Guarantor, as applicable,
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors’ rights

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generally and subject to general principles of equity, regardless of whether
considered in a proceeding in equity or at law.
     Section 7.03 Approvals; No Conflicts. Except as could not be reasonably
expected to have a Material Adverse Effect, the Transactions (a) do not require
any consent or approval of, registration or filing with, or any other action by,
any Governmental Authority or any other third Person (including shareholders or
any class of directors, whether interested or disinterested, of the Borrower or
any other Person), nor is any such consent, approval, registration, filing or
other action necessary for the validity or enforceability of any Loan Document
or the consummation of the transactions contemplated thereby, except such as
have been obtained or made and are in full force and effect other than the
recording and filing of the Security Instruments as required by this Agreement,
(b) will not violate any applicable law or regulation or the charter, by-laws or
other organizational documents of the Borrower or any Subsidiary or any order of
any Governmental Authority, (c) will not violate or result in a default under
any indenture, agreement or other instrument binding upon the Borrower or any
Subsidiary or its Properties, or give rise to a right thereunder to require any
payment to be made by the Borrower or such Subsidiary and (d) will not result in
the creation or imposition of any Lien on any Property of the Borrower or any
Subsidiary (other than the Liens created by the Loan Documents).
     Section 7.04 Financial Condition; No Material Adverse Change.
          (a) The Borrower has heretofore furnished to the Lenders its
consolidated balance sheet and statements of income, stockholders’ equity and
cash flows (i) as of and for the fiscal year ended December 31, 2006, reported
on by EKS&H, independent public accountants, and (ii) as of and for the fiscal
quarter and the portion of the fiscal year ended March 31, 2007, certified by
its chief financial officer. Such financial statements present fairly, in all
material respects, the financial position and results of operations and cash
flows of the Borrower and its Consolidated Subsidiaries as of such dates and for
such periods in accordance with GAAP, subject to year-end audit adjustments and
the absence of footnotes in the case of the unaudited quarterly financial
statements.
          (b) Since December 31, 2006, (i) there has been no event, development
or circumstance that has had or could reasonably be expected to have a Material
Adverse Effect and (ii) the business of the Borrower and its Subsidiaries has
been conducted only in the ordinary course consistent with past business
practices.
          (c) Neither the Borrower nor any Subsidiary has on the date hereof any
material Debt (including Disqualified Capital Stock) or any contingent
liabilities, off-balance sheet liabilities or partnerships, liabilities for
taxes, except as referred to or reflected or provided for in the Financial
Statements.
     Section 7.05 Litigation.
          (a) Except as set forth on Schedule 7.05, there are no actions, suits,
investigations or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of the Borrower, threatened
against or affecting the Borrower or any Subsidiary (i) not fully covered by
insurance (except for normal deductibles) as to which there is

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a reasonable possibility of an adverse determination that, if adversely
determined, could reasonably be expected, individually or in the aggregate, to
result in a Material Adverse Effect or (ii) that involve any Loan Document or
the Transactions.
          (b) Since the date of this Agreement, there has been no change in the
status of the matters disclosed in Schedule 7.05 that, individually or in the
aggregate, has resulted in, or materially increased the likelihood of, a
Material Adverse Effect.
     Section 7.06 Environmental Matters. Except as could not be reasonably
expected to have a Material Adverse Effect (or with respect to (c), (d) and
(e) below, where the failure to take such actions could not be reasonably
expected to have a Material Adverse Effect):
          (a) neither any Property of the Borrower or any Subsidiary nor the
operations conducted thereon violate any order or requirement of any court or
Governmental Authority or any Environmental Laws.
          (b) no Property of the Borrower or any Subsidiary nor the operations
currently conducted thereon are in violation of or subject to any existing,
pending or threatened action, suit, investigation, inquiry or proceeding by or
before any court or Governmental Authority or to any remedial obligations under
Environmental Laws.
          (c) all notices, permits, licenses, exemptions, approvals or similar
authorizations, if any, required to be obtained or filed in connection with the
operation or use of any and all Property of the Borrower and each Subsidiary,
including, without limitation, past or present treatment, storage, disposal or
release of a hazardous substance, oil and gas waste or solid waste into the
environment, have been duly obtained or filed, and the Borrower and each
Subsidiary are in compliance with the terms and conditions of all such notices,
permits, licenses and similar authorizations.
          (d) all hazardous substances, solid waste and oil and gas waste, if
any, generated at any and all Property of the Borrower or any Subsidiary have in
the past been transported, treated and disposed of in accordance with
Environmental Laws and so as not to pose an imminent and substantial
endangerment to public health or welfare or the environment, and, to the
knowledge of the Borrower, all such transport carriers and treatment and
disposal facilities have been and are operating in compliance with Environmental
Laws and so as not to pose an imminent and substantial endangerment to public
health or welfare or the environment, and are not the subject of any existing,
pending or threatened action, investigation or inquiry by any Governmental
Authority in connection with any Environmental Laws.
          (e) the Borrower has taken all steps reasonably necessary to determine
and has determined that no oil, hazardous substances, solid waste or oil and gas
waste, have been disposed of or otherwise released and there has been no
threatened release of any oil, hazardous substances, solid waste or oil and gas
waste on or to any Property of the Borrower or any Subsidiary except in
compliance with Environmental Laws and so as not to pose an imminent and
substantial endangerment to public health or welfare or the environment.
          (f) to the extent applicable, all Property of the Borrower and each
Subsidiary currently satisfies all design, operation, and equipment requirements
imposed by the OPA, and

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the Borrower does not have any reason to believe that such Property, to the
extent subject to the OPA, will not be able to maintain compliance with the OPA
requirements during the term of this Agreement.
          (g) neither the Borrower nor any Subsidiary has any known contingent
liability or Remedial Work in connection with any release or threatened release
of any oil, hazardous substance, solid waste or oil and gas waste into the
environment.
     Section 7.07 Compliance with the Laws and Agreements; No Defaults.
          (a) Except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect, each of the Borrower and each Subsidiary is in compliance with all
Governmental Requirements applicable to it or its Property and all agreements
and other instruments binding upon it or its Property, and possesses all
licenses, permits, franchises, exemptions, approvals and other governmental
authorizations necessary for the ownership of its Property and the conduct of
its business.
          (b) Neither the Borrower nor any Subsidiary is in default nor has any
event or circumstance occurred which, but for the expiration of any applicable
grace period or the giving of notice, or both, would constitute a default or
would require the Borrower or a Subsidiary to Redeem or make any offer to Redeem
all or any portion of any Debt outstanding under any indenture, note, credit
agreement or instrument pursuant to which any Material Indebtedness is
outstanding or by which the Borrower or any Subsidiary or any of their
Properties is bound.
          (c) No Default has occurred and is continuing.
     Section 7.08 Investment Company Act. Neither the Borrower nor any
Subsidiary is an “investment company” or a company “controlled” by an
“investment company,” within the meaning of, or subject to regulation under, the
Investment Company Act of 1940, as amended.
     Section 7.09 Taxes. Each of the Borrower and its Subsidiaries has timely
filed or caused to be filed all Tax returns and reports required to have been
filed and has paid or caused to be paid all Taxes required to have been paid by
it, except (a) Taxes that are being contested in good faith by appropriate
proceedings and for which the Borrower or such Subsidiary, as applicable, has
set aside on its books adequate reserves in accordance with GAAP or (b) to the
extent that the failure to do so could not reasonably be expected to result in a
Material Adverse Effect. The charges, accruals and reserves on the books of the
Borrower and its Subsidiaries in respect of Taxes and other governmental charges
are, in the reasonable opinion of the Borrower, adequate. No Tax Lien has been
filed and, to the knowledge of the Borrower, no claim is being asserted with
respect to any such Tax or other such governmental charge.
     Section 7.10 ERISA.
          (a) The Borrower, the Subsidiaries and each ERISA Affiliate have
complied in all material respects with ERISA and, where applicable, the Code
regarding each Plan.
          (b) Each Plan is, and has been, maintained in substantial compliance
with ERISA and, where applicable, the Code.

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          (c) No act, omission or transaction has occurred which could result in
imposition on the Borrower, any Subsidiary or any ERISA Affiliate (whether
directly or indirectly) of (i) either a civil penalty assessed pursuant to
subsections (c), (i) or (l) of section 502 of ERISA or a tax imposed pursuant to
Chapter 43 of Subtitle D of the Code or (ii) breach of fiduciary duty liability
damages under section 409 of ERISA.
          (d) No Plan (other than a defined contribution plan) or any trust
created under any such Plan has been terminated since September 2, 1974. No
liability to the PBGC (other than for the payment of current premiums which are
not past due) by the Borrower, any Subsidiary or any ERISA Affiliate has been or
is expected by the Borrower, any Subsidiary or any ERISA Affiliate to be
incurred with respect to any Plan. No ERISA Event with respect to any Plan has
occurred.
          (e) Full payment when due has been made of all amounts which the
Borrower, the Subsidiaries or any ERISA Affiliate is required under the terms of
each Plan or applicable law to have paid as contributions to such Plan as of the
date hereof, and no accumulated funding deficiency (as defined in section 302 of
ERISA and section 412 of the Code), whether or not waived, exists with respect
to any Plan.
          (f) The actuarial present value of the benefit liabilities under each
Plan which is subject to Title IV of ERISA does not, as of the end of the
Borrower’s most recently ended fiscal year, exceed the current value of the
assets (computed on a plan termination basis in accordance with Title IV of
ERISA) of such Plan allocable to such benefit liabilities. The term “actuarial
present value of the benefit liabilities” shall have the meaning specified in
section 4041 of ERISA.
          (g) Neither the Borrower, the Subsidiaries nor any ERISA Affiliate
sponsors, maintains, or contributes to an employee welfare benefit plan, as
defined in section 3(1) of ERISA, including, without limitation, any such plan
maintained to provide benefits to former employees of such entities, that may
not be terminated by the Borrower, a Subsidiary or any ERISA Affiliate in its
sole discretion at any time without any material liability.
          (h) Neither the Borrower, the Subsidiaries nor any ERISA Affiliate
sponsors, maintains or contributes to, or has at any time in the six-year period
preceding the date hereof sponsored, maintained or contributed to, any
Multiemployer Plan.
          (i) Neither the Borrower, the Subsidiaries nor any ERISA Affiliate is
required to provide security under section 401(a)(29) of the Code due to a Plan
amendment that results in an increase in current liability for the Plan.
     Section 7.11 Disclosure; No Material Misstatements. None of the other
reports, financial statements, certificates or other written information
furnished by or on behalf of the Borrower or any Subsidiary to the
Administrative Agent in connection with the execution and delivery of this
Agreement or any other Loan Document (as modified or supplemented by other
information so furnished) contains any material misstatement of fact or omits to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided that,
with respect to projected financial

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information, the Borrower represents only that such information was prepared in
good faith based upon assumptions believed to be reasonable at the time. There
are no statements or conclusions in any Reserve Report delivered hereunder which
are based upon or include misleading information or fail to take into account
material information regarding the matters reported therein.
     Section 7.12 Insurance. The Borrower has, and has caused all of its
Subsidiaries to have, (a) all insurance policies sufficient for the compliance
by each of them with all material Governmental Requirements and all material
agreements and (b) insurance coverage in at least amounts and against such risk
(including, without limitation, public liability) that are usually insured
against by companies similarly situated and engaged in the same or a similar
business for the assets and operations of the Borrower and its Subsidiaries. To
the extent the Borrower or its Subsidiaries acquire insurance, the
Administrative Agent and the Lenders have been named, or will be named, as
additional insureds in respect of such liability insurance policies and the
Administrative Agent has been named as loss payee with respect to Property loss
insurance.
     Section 7.13 Restriction on Liens. Neither the Borrower nor any of the
Subsidiaries is a party to any material agreement or arrangement (other than
Capital Leases creating Liens permitted by Section 9.03(c), but then only on the
Property subject of such Capital Lease), or subject to any order, judgment, writ
or decree, which either restricts or purports to restrict its ability to grant
Liens to the Administrative Agent and the Lenders on or in respect of their
Properties to secure the Indebtedness and the Loan Documents.
     Section 7.14 Subsidiaries. Except as set forth on Schedule 7.14 or as
disclosed in writing to the Administrative Agent (which shall promptly furnish a
copy to the Lenders), which shall be a supplement to Schedule 7.14, the Borrower
has no Subsidiaries and the Borrower has no Foreign Subsidiaries.
     Section 7.15 Location of Business and Offices. The Borrower’s jurisdiction
of organization is Delaware; the name of the Borrower as listed in the public
records of its jurisdiction of organization is Teton Energy Corporation; and the
organizational identification number of the Borrower in its jurisdiction of
organization is 2896826 (or, in each case, as set forth in a notice delivered to
the Administrative Agent pursuant to Section 8.01(l) in accordance with
Section 12.01). The Borrower’s principal place of business and chief executive
offices are located at the address specified in Section 12.01 (or as set forth
in a notice delivered pursuant to Section 8.01(l) and Section 12.01(c)). Each
Subsidiary’s jurisdiction of organization, name as listed in the public records
of its jurisdiction of organization, organizational identification number in its
jurisdiction of organization, and the location of its principal place of
business and chief executive office is stated on Schedule 7.15 (or as set forth
in a notice delivered pursuant to Section 8.01(l)).
     Section 7.16 Properties; Titles, Etc.
          (a) Each of the Borrower and the Subsidiaries has (i) in all material
respects, good and defensible title to the Oil and Gas Properties evaluated in
the most recently delivered Reserve Report; and (ii) good title to all its
personal Properties, in each case, free and clear of all Liens except Liens
permitted by Section 9.03, except as could not reasonably be excepted to

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

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reasonably expected to have a Material Adverse Effect, (a) no Oil and Gas
Property of the Borrower or any Subsidiary is subject to having allowable
production reduced below the full and regular allowable (including the maximum
permissible tolerance) because of any overproduction (whether or not the same
was permissible at the time) and (b) none of the wells comprising a part of the
Oil and Gas Properties (or Properties unitized therewith) of the Borrower or any
Subsidiary is deviated from the vertical more than the maximum permitted by
Governmental Requirements, and such wells are, in fact, bottomed under and are
producing from, and the well bores are wholly within, the Oil and Gas Properties
(or in the case of wells located on Properties unitized therewith, such unitized
Properties) of the Borrower or such Subsidiary. All pipelines, wells, gas
processing plants, platforms and other material improvements, fixtures and
equipment owned in whole or in part by the Borrower or any of its Subsidiaries
that are necessary to conduct normal operations are being maintained in a state
adequate to conduct normal operations, and with respect to such of the foregoing
which are operated by the Borrower or any of its Subsidiaries, in a manner
consistent with the Borrower’s or its Subsidiaries’ past practices (other than
those the failure of which to maintain in accordance with this Section 7.17
could not reasonably be expected to have a Material Adverse Effect).
     Section 7.18 Gas Imbalances, Prepayments. Except as set forth on Schedule
7.18 or on the most recent certificate delivered pursuant to Section 8.12(c), at
no time will the net negative gas imbalances, as calculated in accordance with
GAAP, exceed the greater of $500,000 or five percent (5%) of the then effective
Conforming Borrowing Base.
     Section 7.19 Marketing of Production. Except for contracts listed and in
effect on the date hereof on Schedule 7.19, and thereafter either disclosed in
writing to the Administrative Agent or included in the most recently delivered
Reserve Report (with respect to all of which contracts the Borrower represents
that it or its Subsidiaries are receiving a price for all production sold
thereunder which is computed substantially in accordance with the terms of the
relevant contract and are not having deliveries curtailed substantially below
the subject Property’s delivery capacity), no material agreements exist which
are not cancelable on 60 days notice or less without penalty or detriment for
the sale of production from the Borrower’s or its Subsidiaries’ Hydrocarbons
(including, without limitation, calls on or other rights to purchase,
production, whether or not the same are currently being exercised) that
(a) pertain to the sale of production at a fixed price and (b) have a maturity
or expiry date of longer than six (6) months from the date hereof.
     Section 7.20 Swap Agreements. Schedule 7.20, as of the date hereof, and
after the date hereof, each report required to be delivered by the Borrower
pursuant to Section 8.01(e), sets forth, a true and complete list of all Swap
Agreements of the Borrower and each Subsidiary, the material terms thereof
(including the type, term, effective date, termination date and notional amounts
or volumes), the net mark to market value thereof, all credit support agreements
other than the Loan Documents relating thereto (including any margin required or
supplied) and the counterparty to each such agreement.
     Section 7.21 Use of Loans and Letters of Credit. The proceeds of the Loans
and the Letters of Credit shall be used to refinance the Debt under the Existing
Credit Agreement, for general corporate purposes, working capital, capital
expenditures and acquisitions of the Borrower and its Subsidiaries. The Borrower
and its Subsidiaries are not engaged principally, or

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as one of its or their important activities, in the business of extending credit
for the purpose, whether immediate, incidental or ultimate, of buying or
carrying margin stock (within the meaning of Regulation T, U or X of the Board).
No part of the proceeds of any Loan or Letter of Credit will be used for any
purpose which violates the provisions of Regulations T, U or X of the Board.
     Section 7.22 Solvency. After giving effect to the transactions contemplated
hereby, (a) the aggregate assets (after giving effect to amounts that could
reasonably be received by reason of indemnity, offset, insurance or any similar
arrangement), at a fair valuation, of the Borrower and the Guarantors, taken as
a whole, will exceed the aggregate Debt of the Borrower and the Guarantors on a
consolidated basis, as the Debt becomes absolute and matures, (b) each of the
Borrower and the Guarantors will not have incurred or intended to incur, and
will not believe that it will incur, Debt beyond its ability to pay such Debt
(after taking into account the timing and amounts of cash to be received by each
of the Borrower and the Guarantors and the amounts to be payable on or in
respect of its liabilities, and giving effect to amounts that could reasonably
be received by reason of indemnity, offset, insurance or any similar
arrangement) as such Debt becomes absolute and matures and (c) each of the
Borrower and the Guarantors will not have (and will have no reason to believe
that it will have thereafter) unreasonably small capital for the conduct of its
business.
     Section 7.23 Senior Indebtedness. (a) The Indebtedness of the Borrower
constitutes “Senior Indebtedness,” (b) the Administrative Agent is the
“Administrative Agent” and a “Senior Indebtedness Representative,” (c) this
Agreement constitutes the “Senior Revolving Credit Agreement,” (d) this
Agreement and the other Loan Documents constitute “Senior Revolving Credit
Documents,” and (e) the Lenders constitute “Senior Revolving Lenders,” in each
case, under and as defined in the Senior Subordinated Convertible Notes.
ARTICLE VIII
AFFIRMATIVE COVENANTS
Until the Commitments have expired or been terminated and the principal of and
interest on each Loan and all fees payable hereunder and all other amounts
payable under the Loan Documents shall have been paid in full and all Letters of
Credit shall have expired or terminated and all LC Disbursements shall have been
reimbursed, the Borrower covenants and agrees with the Lenders that:
     Section 8.01 Financial Statements; Other Information. The Borrower will
furnish to the Administrative Agent and each Lender:
          (a) Annual Financial Statements. As soon as available, but in any
event in accordance with then applicable law and not later than 90 days after
the end of each fiscal year of the Borrower, its audited consolidated balance
sheet and related statements of operations, stockholders’ equity and cash flows
as of the end of and for such year, setting forth in each case in comparative
form the figures for the previous fiscal year, all reported on by EKS&H or other
independent public accountants registered with the PCAOB (without a “going
concern” or like qualification or exception and without any qualification or
exception as to the scope of such audit) to the effect that such consolidated
financial statements present fairly in all material

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respects the financial condition and results of operations of the Borrower and
its Consolidated Subsidiaries on a consolidated basis in accordance with GAAP
consistently applied.
          (b) Quarterly Financial Statements. As soon as available, but in any
event in accordance with then applicable law and not later than 45 days after
the end of each of the first three fiscal quarters of each fiscal year of the
Borrower, its consolidated balance sheet and related statements of operations,
stockholders’ equity and cash flows as of the end of and for such fiscal quarter
and the then elapsed portion of the fiscal year, setting forth in each case in
comparative form the figures for the corresponding period or periods of (or, in
the case of the balance sheet, as of the end of) the previous fiscal year, all
certified by one of its Financial Officers as presenting fairly in all material
respects the financial condition and results of operations of the Borrower and
its Consolidated Subsidiaries on a consolidated basis in accordance with GAAP
consistently applied, subject to normal year-end audit adjustments and the
absence of footnotes.
          (c) Certificate of Financial Officer — Compliance. Concurrently with
any delivery of financial statements under Section 8.01(a) or Section 8.01(b), a
certificate of a Financial Officer in substantially the form of Exhibit D hereto
(i) certifying as to whether a Default has occurred and, if a Default has
occurred, specifying the details thereof and any action taken or proposed to be
taken with respect thereto, (ii) setting forth reasonably detailed calculations
demonstrating compliance with Section 8.13(b) and Section 9.01 and (iii) stating
whether any change in GAAP or in the application thereof has occurred since the
date of the audited financial statements referred to in Section 7.04 and, if any
such change has occurred, specifying the effect of such change on the financial
statements accompanying such certificate.
          (d) Certificate of Accounting Firm — Defaults. Concurrently with any
delivery of financial statements under Section 8.01(a), a certificate of the
accounting firm that reported on such financial statements stating whether they
obtained knowledge during the course of their examination of such financial
statements of any Default (which certificate may be limited to the extent
required by accounting rules or guidelines).
          (e) Certificate of Financial Officer — Swap Agreements. Concurrently
with any delivery of financial statements under Section 8.01(a) and
Section 8.01(b), a certificate of a Financial Officer, in form and substance
satisfactory to the Administrative Agent, setting forth as of the last Business
Day of such fiscal quarter or fiscal year, a true and complete list of all Swap
Agreements of the Borrower and each Subsidiary, the material terms thereof
(including the type, term, effective date, termination date and notional amounts
or volumes), the net mark-to-market value therefor, any new credit support
agreements relating thereto not listed on Schedule 7.20, any margin required or
supplied under any credit support document, and the counterparty to each such
agreement.
          (f) Certificate of Insurer — Insurance Coverage. Concurrently with any
delivery of financial statements under Section 8.01(a), a certificate of
insurance coverage from each insurer with respect to the insurance required by
Section 8.07, in form and substance satisfactory to the Administrative Agent,
and, if requested by the Administrative Agent, all copies of the applicable
policies.

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          (g) Other Accounting Reports. Promptly upon receipt thereof, a copy of
each other report or letter submitted to the Borrower or any of its Subsidiaries
by independent accountants in connection with any annual, interim or special
audit made by them of the books of the Borrower or any such Subsidiary, and a
copy of any response by the Borrower or any such Subsidiary, or the board of
directors or other appropriate governing body of the Borrower or any such
Subsidiary, to such letter or report.
          (h) SEC and Other Filings; Reports to Shareholders. Promptly after the
same become publicly available, copies of all periodic and other reports, proxy
statements and other materials filed by the Borrower or any Subsidiary with the
SEC, or with any national securities exchange, or distributed by the Borrower to
its shareholders generally, as the case may be.
          (i) Notices Under Material Instruments. Promptly after the furnishing
thereof, copies of any financial statement, report or notice furnished to or by
any Person pursuant to the terms of any preferred stock designation, indenture,
loan or credit or other similar agreement, other than this Agreement and not
otherwise required to be furnished to the Lenders pursuant to any other
provision of this Section 8.01.
          (j) Notice of Sales of Oil and Gas Properties. In the event the
Borrower or any Subsidiary intends to sell, transfer, assign or otherwise
dispose of any Oil or Gas Properties or any Equity Interests in any Subsidiary
in accordance with Section 9.11, prior written notice of such disposition, the
price thereof and the anticipated date of closing and any other details thereof
requested by the Administrative Agent. For purposes of this Agreement, the
Borrower has notified the Administrative Agent of the potential sale of a 10%
working interest in the Piceance Basin.
          (k) Notice of Casualty Events. Prompt written notice, and in any event
within three Business Days, of the occurrence of any Casualty Event or the
commencement of any action or proceeding that could reasonably be expected to
result in a Casualty Event.
          (l) Information Regarding Borrower and Guarantors. Prompt written
notice (and in any event at least ten (10) days prior thereto) of any change
(i) in the Borrower or any Guarantor’s corporate name or in any trade name used
to identify such Person in the conduct of its business or in the ownership of
its Properties, (ii) in the location of the Borrower or any Guarantor’s chief
executive office or principal place of business, (iii) in the Borrower or any
Guarantor’s identity or corporate structure or in the jurisdiction in which such
Person is incorporated or formed, (iv) in the Borrower or any Guarantor’s
jurisdiction of organization or such Person’s organizational identification
number in such jurisdiction of organization, and (v) in the Borrower or any
Guarantor’s federal taxpayer identification number.
          (m) Notices of Certain Changes. Promptly, but in any event within five
(5) Business Days after the execution thereof, copies of any amendment,
modification or supplement to the certificate or articles of incorporation,
by-laws, any preferred stock designation or any other organic document of the
Borrower or any Subsidiary.

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          (n) Annual Budget. Promptly, at the request of the Administrative
Agent, a budget for the then current fiscal year, including a pro forma balance
sheet and income and cash flow projections.
          (o) Other Requested Information. Promptly following any request
therefor, such other information regarding the operations, business affairs and
financial condition of the Borrower or any Subsidiary (including, without
limitation, any Plan or Multiemployer Plan and any reports or other information
required to be filed under ERISA), or compliance with the terms of this
Agreement or any other Loan Document, as the Administrative Agent may reasonably
request.
     Section 8.02 Notices of Material Events. The Borrower will furnish to the
Administrative Agent and each Lender prompt written notice of the following:
          (a) the occurrence of any Default;
          (b) the filing or commencement of, or the threat in writing of, any
action, suit, proceeding, investigation or arbitration by or before any
arbitrator or Governmental Authority against or affecting the Borrower or any
Affiliate thereof not previously disclosed in writing to the Lenders or any
material adverse development in any action, suit, proceeding, investigation or
arbitration (whether or not previously disclosed to the Lenders) that, in either
case, if adversely determined, could reasonably be expected to result in
liability in excess of the greater of $500,000 or two and one half percent
(2.5%) of the then effective Conforming Borrowing Base, not fully covered by
insurance, subject to normal deductibles;
          (c) the occurrence of any ERISA Event that, alone or together with any
other ERISA Events that have occurred, could reasonably be expected to result in
liability of the Borrower and its Subsidiaries in an aggregate amount exceeding
the greater of $500,000 or two and one half percent of the then effective
Conforming Borrowing Base; and
          (d) any other development that results in, or could reasonably be
expected to result in, a Material Adverse Effect.
Each notice delivered under this Section 8.02 shall be accompanied by a
statement of a Responsible Officer setting forth the details of the event or
development requiring such notice and any action taken or proposed to be taken
with respect thereto.
     Section 8.03 Existence; Conduct of Business. The Borrower will, and will
cause each Subsidiary to, do or cause to be done all things necessary to
preserve, renew and keep in full force and effect its legal existence and the
rights, licenses, permits, privileges and franchises material to the conduct of
its business and maintain, if necessary, its qualification to do business in
each other jurisdiction in which its Oil and Gas Properties is located or the
ownership of its Properties requires such qualification, except where the
failure to so qualify could not reasonably be expected to have a Material
Adverse Effect; provided that the foregoing shall not prohibit any merger,
consolidation, liquidation or dissolution permitted under Section 9.11.
     Section 8.04 Payment of Obligations. The Borrower will, and will cause each
Subsidiary to, pay its obligations, including Tax liabilities of the Borrower
and all of its

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Subsidiaries before the same shall become delinquent or in default, except where
(a) the validity or amount thereof is being contested in good faith by
appropriate proceedings, (b) the Borrower or such Subsidiary has set aside on
its books adequate reserves with respect thereto in accordance with GAAP and
(c) the failure to make payment pending such contest could not reasonably be
expected to result in a Material Adverse Effect or result in the seizure or levy
of any Property of the Borrower or any Subsidiary.
     Section 8.05 Performance of Obligations under Loan Documents. The Borrower
will pay the Notes according to the reading, tenor and effect thereof, and the
Borrower will, and will cause each Subsidiary to, do and perform every act and
discharge all of the obligations to be performed and discharged by them under
the Loan Documents, including, without limitation, this Agreement, at the time
or times and in the manner specified.
     Section 8.06 Operation and Maintenance of Properties. The Borrower, at its
own expense, will, and will cause each Subsidiary to:
          (a) operate, to the extent applicable, its Oil and Gas Properties and
other material Properties or cause such Oil and Gas Properties and other
material Properties to be maintained in a careful and efficient manner in
accordance with the practices of the industry and in compliance with all
applicable contracts and agreements and in compliance with all Governmental
Requirements, including, without limitation, applicable pro ration requirements
and Environmental Laws, and all applicable laws, rules and regulations of every
other Governmental Authority from time to time constituted to regulate the
development and operation of its Oil and Gas Properties and the production and
sale of Hydrocarbons and other minerals therefrom, except, in each case, where
the failure to comply could not reasonably be expected to have a Material
Adverse Effect.
          (b) keep and maintain all Property material to the conduct of its
business in good working order and condition, (ordinary wear and tear excepted)
preserve, maintain and keep in good repair, working order and efficiency
(ordinary wear and tear excepted) all of its material Oil and Gas Properties and
other material Properties, including, without limitation, all equipment,
machinery and facilities.
          (c) promptly pay and discharge, or make reasonable and customary
efforts to cause to be paid and discharged, all delay rentals, royalties,
expenses and indebtedness accruing under the leases or other agreements
affecting or pertaining to its Oil and Gas Properties and will do all other
things necessary to keep unimpaired their rights with respect thereto and
prevent any forfeiture thereof or default thereunder.
          (d) promptly perform or make reasonable and customary efforts to cause
to be performed, in accordance with industry standards, the obligations required
by each and all of the assignments, deeds, leases, sub-leases, contracts and
agreements affecting its interests in its Oil and Gas Properties and other
material Properties.
          (e) operate its Oil and Gas Properties and other material Properties
or cause or make reasonable and customary efforts to cause such Oil and Gas
Properties and other material Properties to be operated in accordance with the
practices of the industry and in material

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compliance with all applicable contracts and agreements and in compliance in all
material respects with all Governmental Requirements.
          (f) to the extent the Borrower is not the operator of any Property,
the Borrower shall use reasonable efforts to cause the operator to comply with
this Section 8.06.
     Section 8.07 Insurance. The Borrower will, and will cause each Subsidiary
to, maintain, with financially sound and reputable insurance companies,
insurance in such amounts and against such risks as are customarily maintained
by companies engaged in the same or similar businesses operating in the same or
similar locations. The loss payable clauses or provisions in said insurance
policy or policies insuring any of the collateral for the Loans shall be
endorsed in favor of and made payable to the Administrative Agent as its
interests may appear and such policies shall name the Administrative Agent and
the Lenders as “additional insureds” and provide that the insurer will endeavor
to give at least 30 days prior notice of any cancellation to the Administrative
Agent.
     Section 8.08 Books and Records; Inspection Rights. The Borrower will, and
will cause each Subsidiary to, keep proper books of record and account in which
full, true and correct entries are made of all dealings and transactions in
relation to its business and activities. The Borrower will, and will cause each
Subsidiary to, permit any representatives designated by the Administrative
Agent, upon reasonable prior notice during normal business hours, to visit and
inspect its Properties, to examine and make extracts from its books and records,
and to discuss its affairs, finances and condition with its officers and
independent accountants, all at such reasonable times and as often as reasonably
requested.
     Section 8.09 Compliance with Laws. The Borrower will, and will cause each
Subsidiary to, comply with all laws, rules, regulations and orders of any
Governmental Authority applicable to it or its Property, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.
     Section 8.10 Environmental Matters.
          (a) The Borrower shall at its sole expense: (i) comply, and shall
cause its Properties and operations and each Subsidiary and each Subsidiary’s
Properties and operations to comply, with all applicable Environmental Laws, the
breach of which could be reasonably expected to have a Material Adverse Effect;
(ii) not dispose of or otherwise release, and shall cause each Subsidiary not to
dispose of or otherwise release, any oil, oil and gas waste, hazardous
substance, or solid waste on, under, about or from any of the Borrower’s or its
Subsidiaries’ Properties or any other Property to the extent caused by the
Borrower’s or any of its Subsidiaries’ operations except in compliance with
applicable Environmental Laws, the disposal or release of which could reasonably
be expected to have a Material Adverse Effect; (iii) timely obtain or file, and
shall cause each Subsidiary to timely obtain or file, all notices, permits,
licenses, exemptions, approvals, registrations or other authorizations, if any,
required under applicable Environmental Laws to be obtained or filed in
connection with the operation or use of the Borrower’s or its Subsidiaries’
Properties, which failure to obtain or file could reasonably be expected to have
a Material Adverse Effect; (iv) promptly commence and diligently prosecute to
completion, and shall cause each Subsidiary to promptly commence and

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diligently prosecute to completion, any assessment, evaluation, investigation,
monitoring, containment, cleanup, removal, repair, restoration, remediation or
other remedial obligations (collectively, the “Remedial Work”) in the event any
Remedial Work is required or reasonably necessary under applicable Environmental
Laws because of or in connection with the actual or suspected past, present or
future disposal or other release of any oil, oil and gas waste, hazardous
substance or solid waste on, under, about or from any of the Borrower’s or its
Subsidiaries’ Properties, which failure to commence and diligently prosecute to
completion could reasonably be expected to have a Material Adverse Effect; and
(v) establish and implement, and shall cause each Subsidiary to establish and
implement, such procedures as may be necessary to continuously determine and
assure that the Borrower’s and its Subsidiaries’ obligations under this
Section 8.10(a) are timely and fully satisfied, which failure to establish and
implement could reasonably be expected to have a Material Adverse Effect.
          (b) The Borrower will promptly, but in no event later than five days
of the occurrence of a triggering event, notify the Administrative Agent and the
Lenders in writing of any threatened action, investigation or inquiry by any
Governmental Authority or any threatened demand or lawsuit by any landowner or
other third party against the Borrower or its Subsidiaries or their Properties
of which the Borrower has knowledge in connection with any Environmental Laws
(excluding routine testing and corrective action) if the Borrower reasonably
anticipates that such action will result in liability (whether individually or
in the aggregate) in excess of the greater of $500,000 or two and one half
percent (2.5%) of the then effective Conforming Borrowing Base, not fully
covered by insurance, subject to normal deductibles.
          (c) The Borrower will, and will cause each of its Subsidiaries to
obtain a phase I environmental report in connection with any future acquisitions
of Oil and Gas Properties or other Properties that the Borrower requests be
included in the Borrowing Base.
     Section 8.11 Further Assurances.
          (a) The Borrower at its sole expense will, and will cause each
Subsidiary to, promptly execute and deliver to the Administrative Agent all such
other documents, agreements and instruments reasonably requested by the
Administrative Agent to comply with, cure any defects or accomplish the
conditions precedent, covenants and agreements of the Borrower or any
Subsidiary, as the case may be, in the Loan Documents, including the Notes, or
to further evidence and more fully describe the collateral intended as security
for the Indebtedness, or to correct any omissions in this Agreement or the
Security Instruments, or to state more fully the obligations secured therein, or
to perfect, protect or preserve any Liens created pursuant to this Agreement or
any of the Security Instruments or the priority thereof, or to make any
recordings, file any notices or obtain any consents, all as may be reasonably
necessary or appropriate, in the sole discretion of the Administrative Agent, in
connection therewith.
          (b) The Borrower hereby authorizes the Administrative Agent to file
one or more financing or continuation statements, and amendments thereto,
relative to all or any part of the Mortgaged Property without the signature of
the Borrower or any other Guarantor where permitted by law. A carbon,
photographic or other reproduction of the Security Instruments or any financing
statement covering the Mortgaged Property or any part thereof shall be
sufficient as a financing statement where permitted by law.

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     Section 8.12 Reserve Reports.
          (a) On or before April 1st and October 1st of each year, commencing
October 1, 2007, the Borrower shall furnish to the Administrative Agent and the
Lenders a Reserve Report evaluating the Oil and Gas Properties of the Borrower
and its Subsidiaries as of the immediately preceding January 1 and July 1. The
Reserve Report as of January 1 of each year shall be prepared by one or more
Approved Petroleum Engineers, and the July 1 Reserve Report of each year shall
be prepared by or under the supervision of the chief engineer of the Borrower
who shall certify such Reserve Report to be true and accurate and to have been
prepared in accordance with the procedures used in the immediately preceding
January 1 Reserve Report.
          (b) In the event of an Interim Redetermination, the Borrower shall
furnish to the Administrative Agent and the Lenders a Reserve Report prepared by
or under the supervision of the chief engineer of the Borrower who shall certify
such Reserve Report to be true and accurate and to have been prepared in
accordance with the procedures used in the immediately preceding January 1
Reserve Report. For any Interim Redetermination requested by the Administrative
Agent or the Borrower pursuant to Section 2.07(b), the Borrower shall provide
such Reserve Report with an “as of” date as required by the Administrative Agent
as soon as possible, but in any event no later than thirty (30) days following
the receipt of such request.
          (c) With the delivery of each Reserve Report, the Borrower shall
provide to the Administrative Agent and the Lenders a certificate from a
Responsible Officer certifying that in all material respects: (i) the
information contained in the Reserve Report and any other information delivered
in connection therewith is true and correct, (ii) the Borrower or its
Subsidiaries owns good and defensible title to the Oil and Gas Properties
evaluated in such Reserve Report and such Properties are free of all Liens
except for Liens permitted by Section 9.03, (iii) except as set forth on an
exhibit to the certificate, on a net basis there are no gas imbalances, take or
pay or other prepayments in excess of the volume specified in Section 7.18 with
respect to its Oil and Gas Properties evaluated in such Reserve Report which
would require the Borrower or any Subsidiary to deliver Hydrocarbons either
generally or produced from such Oil and Gas Properties at some future time
without then or thereafter receiving full payment therefor, (iv) none of their
Oil and Gas Properties have been sold since the date of the last Borrowing Base
determination except as set forth on an exhibit to the certificate, which
certificate shall list all of its Oil and Gas Properties sold and in such detail
as reasonably required by the Administrative Agent, (v) attached to the
certificate is a list of all marketing agreements entered into subsequent to the
later of the date hereof or the most recently delivered Reserve Report which the
Borrower could reasonably be expected to have been obligated to list on
Schedule 7.19 had such agreement been in effect on the date hereof and
(vi) attached thereto is a schedule of the Oil and Gas Properties evaluated by
such Reserve Report that are Mortgaged Properties and demonstrating the
percentage of the total proved value of such Mortgaged Properties represent in
compliance with Section 8.14(a).
     Section 8.13 Title Information.
          (a) On or before the delivery to the Administrative Agent and the
Lenders of each Reserve Report required by Section 8.12(a), the Borrower will
deliver title information in

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form and substance acceptable to the Administrative Agent covering enough of the
Oil and Gas Properties evaluated by such Reserve Report that were not included
in the immediately preceding Reserve Report, so that the Administrative Agent
shall have received together with title information previously delivered to the
Administrative Agent, satisfactory title information on at least 80% of the
total value of the Oil and Gas Properties evaluated by such Reserve Report.
          (b) If the Borrower has provided title information for additional
Properties under Section 8.13(a), the Borrower shall, within 90 days of notice
from the Administrative Agent that title defects or exceptions exist with
respect to such additional Properties, either (i) cure any such title defects or
exceptions (including defects or exceptions as to priority) which are not
permitted by Section 9.03 raised by such information, (ii) substitute acceptable
Mortgaged Properties with no title defects or exceptions except for Excepted
Liens (other than Excepted Liens described in clauses (e), (g) and (h) of such
definition) having an equivalent value or (iii) deliver title information in
form and substance acceptable to the Administrative Agent so that the
Administrative Agent shall have received, together with title information
previously delivered to the Administrative Agent, satisfactory title information
on at least 80% of the value of the Oil and Gas Properties evaluated by such
Reserve Report.
          (c) If the Borrower is unable to cure any title defect requested by
the Administrative Agent or the Lenders to be cured within the 90-day period or
the Borrower does not comply with the requirements to provide acceptable title
information covering 80% of the value of the Oil and Gas Properties evaluated in
the most recent Reserve Report, such default shall not be a Default, but instead
the Administrative Agent and/or the Majority Lenders shall have the right to
exercise the following remedy in their sole discretion from time to time, and
any failure to so exercise this remedy at any time shall not be a waiver as to
future exercise of the remedy by the Administrative Agent or the Lenders. To the
extent that the Administrative Agent or the Majority Lenders are not satisfied
with title to any Mortgaged Property after the 90-day period has elapsed, such
unacceptable Mortgaged Property shall not count towards the 80% requirement, and
the Administrative Agent may send a notice to the Borrower and the Lenders that
the then outstanding Borrowing Base and, as applicable, Conforming Borrowing
Base, shall be reduced by an amount as determined by the Majority Lenders to
cause the Borrower to be in compliance with the requirement to provide
acceptable title information on 80% of the value of the Oil and Gas Properties.
This new Borrowing Base and, as applicable, Conforming Borrowing Base, shall
become effective immediately after receipt of such notice.
     Section 8.14 Additional Collateral; Additional Guarantors.
          (a) In connection with each redetermination of the Borrowing Base and,
as applicable, Conforming Borrowing Base, the Borrower shall review the Reserve
Report and the list of current Mortgaged Properties (as described in
Section 8.12(c)(vi)) to ascertain whether the Mortgaged Properties represent at
least 80% (or at least 95%, as provided below, in the event the Borrowing Base
then exceeds the Conforming Borrowing Base) of the total value of the Oil and
Gas Properties evaluated in the most recently completed Reserve Report after
giving effect to exploration and production activities, acquisitions,
dispositions and production. In the event that the Mortgaged Properties do not
represent at least 80% (or at least 95%, as provided below, in the event the
Borrowing Base then exceeds the Conforming Borrowing Base) of such total value,

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then the Borrower shall, and shall cause its Subsidiaries to, grant, within
thirty (30) days of delivery of the certificate required under Section 8.12(c),
to the Administrative Agent as security for the Indebtedness a first-priority
Lien interest (provided that Excepted Liens of the type described in clauses(a)
to (d) and (f) of the definition thereof may exist, but subject to the provisos
at the end of such definition) on additional Oil and Gas Properties not already
subject to a Lien of the Security Instruments such that after giving effect
thereto, the Mortgaged Properties will represent at least 80% (or at least 95%,
as provided below, in the event the Borrowing Base then exceeds the Conforming
Borrowing Base) of such total value. All such Liens will be created and
perfected by and in accordance with the provisions of deeds of trust, security
agreements and financing statements or other Security Instruments, all in form
and substance reasonably satisfactory to the Administrative Agent and in
sufficient executed (and acknowledged where necessary or appropriate)
counterparts for recording purposes. In order to comply with the foregoing, if
any Subsidiary places a Lien on its Oil and Gas Properties and such Subsidiary
is not a Guarantor, then it shall become a Guarantor and comply with
Section 8.14(b).
Notwithstanding the foregoing or anything to the contrary contained herein, on
the Effective Date and at all times that the Borrowing Base exceeds the
Conforming Borrowing Base, the Mortgaged Properties must represent at least 95%
of the total value of the Oil and Gas Properties evaluated in the most recently
completed Reserve Report (including the Initial Reserve Report) after giving
effect to exploration and production activities, acquisitions, dispositions and
production.
          (b) The Borrower shall promptly cause each Subsidiary to guarantee the
Indebtedness pursuant to the Guaranty Agreement. In connection with any such
guaranty, the Borrower shall, or shall cause such Subsidiary to (i) execute and
deliver a supplement to the Guaranty Agreement executed by such Subsidiary,
(ii) pledge all of the Equity Interests of such new Subsidiary (including,
without limitation, delivery of original stock certificates evidencing the
Equity Interests of such Subsidiary, together with an appropriate undated stock
powers for each certificate duly executed in blank by the registered owner
thereof) and (iii) execute and deliver such other additional closing documents,
certificates and legal opinions as shall reasonably be requested by the
Administrative Agent.
          (c) If any Event of Default shall occur and be continuing, then the
Borrower shall, and shall cause each of its Subsidiaries to, within ten
(10) Business Days after notice by Administrative Agent, grant to the
Administrative Agent as security for the Indebtedness a first-priority Lien
interest (provided Excepted Liens of the type described in clauses (a) to
(d) and (f) of the definition thereof may exist, but subject to the provisos at
the end of such definition) on all of their Oil and Gas Properties not already
subject to a Lien of the Security Instruments such that after giving effect
thereto, the Mortgaged Properties will represent substantially all of the Oil
and Gas Properties of the Borrower and its Subsidiaries. All such Liens will be
created and perfected by and in accordance with the provisions of deeds of
trust, security agreements and financing statements or other Security
Instruments, all in form and substance reasonably satisfactory to the
Administrative Agent and in sufficiently executed (and acknowledged where
necessary or appropriate) counterparts for recording purposes.

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     Section 8.15 ERISA Compliance. The Borrower will promptly furnish and will
cause the Subsidiaries and any ERISA Affiliate to promptly furnish to the
Administrative Agent (a) promptly after the filing thereof with the United
States Secretary of Labor, the Internal Revenue Service or the PBGC, copies of
each annual and other report with respect to each Plan or any trust created
thereunder, (b) immediately upon becoming aware of the occurrence of any ERISA
Event or of any “prohibited transaction,” as described in section 406 of ERISA
or in section 4975 of the Code, in connection with any Plan or any trust created
thereunder, a written notice signed by the President or the principal Financial
Officer, the Subsidiary or the ERISA Affiliate, as the case may be, specifying
the nature thereof, what action the Borrower, the Subsidiary or the ERISA
Affiliate is taking or proposes to take with respect thereto, and, when known,
any action taken or proposed by the Internal Revenue Service, the Department of
Labor or the PBGC with respect thereto, and (c) immediately upon receipt
thereof, copies of any notice of the PBGC’s intention to terminate or to have a
trustee appointed to administer any Plan. With respect to each Plan (other than
a Multiemployer Plan), the Borrower will, and will cause each Subsidiary and
ERISA Affiliate to, (i) satisfy in full and in a timely manner, without
incurring any late payment or underpayment charge or penalty and without giving
rise to any lien, all of the contribution and funding requirements of section
412 of the Code (determined without regard to subsections (d), (e), (f) and
(k) thereof) and of section 302 of ERISA (determined without regard to sections
303, 304 and 306 of ERISA), and (ii) pay, or cause to be paid, to the PBGC in a
timely manner, without incurring any late payment or underpayment charge or
penalty, all premiums required pursuant to sections 4006 and 4007 of ERISA.
     Section 8.16 Marketing Activities. The Borrower will not, and will not
permit any of its Subsidiaries to, engage in marketing activities for any
Hydrocarbons or enter into any contracts related thereto other than
(a) 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, (b) contracts for the sale of Hydrocarbons scheduled or reasonably
estimated to be produced from proved Oil and Gas Properties of third parties
during the period of such contract associated with the Oil and Gas Properties of
the Borrower and its Subsidiaries that the Borrower or one of its Subsidiaries
has the right to market pursuant to joint operating agreements, unitization
agreements or other similar contracts that are usual and customary in the oil
and gas business and (c) other contracts for the purchase and/or sale of
Hydrocarbons of third parties (i) which have generally offsetting provisions
(i.e., corresponding pricing mechanics, delivery dates and points and volumes)
such that no “position” is taken and (ii) for which appropriate credit support
has been taken to alleviate the material credit risks of the counterparty
thereto.
     Section 8.17 Payment of Interest in Kind. If as of any interest payment
date under the Senior Subordinated Convertible Notes, a Borrowing Base
Deficiency or Event of Default exists or would result from the making of such
payment in cash, the Borrower shall exercise its right under the Senior
Subordinated Convertible Notes to, and will pay such interest in shares of its
common Equity Interests.

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ARTICLE IX
NEGATIVE COVENANTS
     Until the Commitments have expired or terminated and the principal of and
interest on each Loan and all fees payable hereunder and all other amounts
payable under the Loan Documents have been paid in full and all Letters of
Credit have expired or terminated and all LC Disbursements shall have been
reimbursed, the Borrower covenants and agrees with the Lenders that:
     Section 9.01 Financial Covenants.
          (a) Ratio of Total Debt to EBITDAX. The Borrower will not, as of the
last day of any fiscal quarter, commencing with the fiscal quarter ending
December 31, 2007, permit its ratio of Total Debt as of the end of such fiscal
quarter to EBITDAX for the four fiscal quarters ending on the last day of the
fiscal quarter immediately preceding the date of determination for which
financial statements are available to be greater than 3.5 to 1.0.
     Notwithstanding anything to the contrary in the definition of “EBITDAX”,
for purposes of this Section 9.01(a), EBITDAX shall be calculated as follows:
          (i) for the fiscal quarter ending December 31, 2007, EBITDAX shall be
EBITDAX for such fiscal quarter ending December 31, 2007, multiplied by four;
          (ii) for the fiscal quarter ending March 31, 2008, EBITDAX shall be
EBITDAX for the two fiscal quarter period ending March 31, 2008, multiplied by
two; and
          (iii) for the fiscal quarter ending June 30, 2008, EBITDAX shall be
EBITDAX for the three fiscal quarter period ending June 30, 2008, multiplied by
4/3.
     Thereafter, EBITDAX shall be calculated using EBITDAX for the period of
four fiscal quarters ending on the last day of the fiscal quarter immediately
preceding the date of determination for which financial statements are
available.
          (b) Current Ratio. The Borrower will not, as of the last day of any
fiscal quarter, commencing with the fiscal quarter ending September 30, 2007,
permit its ratio of (i) consolidated current assets (including the unused amount
of the total Commitments, but excluding non-cash assets under SFAS 133) to
(ii) consolidated current liabilities (excluding non-cash obligations, SFAS 133
liabilities and current maturities under (A) this Agreement, and (B) the Senior
Subordinated Convertible Notes, whether such amounts are reflected as a
liability under GAAP or not) to be less than 1.0 to 1.0.
     Section 9.02 Debt. The Borrower will not, and will not permit any
Subsidiary to, incur, create, assume or suffer to exist any Debt, except:
          (a) the Notes or other Indebtedness arising under the Loan Documents
or any guaranty of or suretyship arrangement for the Notes or other Indebtedness
arising under the Loan Documents.

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          (b) accounts payable and accrued expenses, liabilities or other
obligations to pay the deferred purchase price of Property or services, from
time to time incurred in the ordinary course of business which are not greater
than ninety (90) days past the date of invoice or delinquent or which are being
contested in good faith by appropriate action and for which adequate reserves
have been maintained in accordance with GAAP.
          (c) Debt under Capital Leases not to exceed the greater of $500,000 or
five percent (5%) of the then effective Conforming Borrowing Base.
          (d) Debt associated with bonds or surety obligations required by
Governmental Requirements in connection with the operation of the Oil and Gas
Properties.
          (e) intercompany Debt between the Borrower and any of its Subsidiaries
or between Subsidiaries to the extent permitted by Section 9.05(g); provided
that such Debt is not held, assigned, transferred, negotiated or pledged to any
Person other than the Borrower or one of its Wholly-Owned Subsidiaries, and,
provided further, that any such Debt owed by either the Borrower or a Guarantor
shall be subordinated to the Indebtedness on terms set forth in the Guaranty
Agreement.
          (f) endorsements of negotiable instruments for collection in the
ordinary course of business.
          (g) other Debt not to exceed the greater of $500,000 or five percent
(5%) of the then effective Conforming Borrowing Base in the aggregate at any one
time outstanding.
          (h) Debt under the Senior Subordinated Convertible Notes, the
principal amount of which does not exceed $9,000,000.
          (i) non-cash liabilities created by SFAS 133 for Swap Agreements and
the Senior Subordinated Convertible Notes and associated warrants.
     Section 9.03 Liens. The Borrower will not, and will not permit any
Subsidiary to, create, incur, assume or permit to exist any Lien on any of its
Properties (now owned or hereafter acquired), except:
          (a) Liens securing the payment of any Indebtedness.
          (b) Excepted Liens.
          (c) Liens securing Capital Leases permitted by Section 9.02(c) but
only on the Property under lease.
          (d) Liens on Property not constituting collateral for the Indebtedness
and not otherwise permitted by the foregoing clauses of this Section 9.03;
provided that the aggregate principal or face amount of all Debt secured under
this Section 9.03(d) shall not exceed the greater of $500,000 or five percent
(5%) of the then effective Conforming Borrowing Base at any time.

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     Section 9.04 Dividends, Distributions and Redemptions.
          (a) Restricted Payments. The Borrower will not, and will not permit
any of its Subsidiaries to, declare or make, or agree to pay or make, directly
or indirectly, any Restricted Payment, return any capital to its stockholders or
make any distribution of its Property to its Equity Interest holders, except
(i) the Borrower may declare and pay dividends or distributions with respect to
its Equity Interests, including without limitation, distributions under the
Rights Agreement, payable solely in additional shares of its Equity Interests
(other than Disqualified Capital Stock), (ii) Subsidiaries may declare and pay
dividends ratably with respect to their Equity Interests and (iii) the Borrower
may make Restricted Payments pursuant to and in accordance with stock option
plans or other benefit plans for management or employees of the Borrower and its
Subsidiaries.
          (b) Redemption of Senior Subordinated Convertible Notes; Amendment of
Senior Subordinated Convertible Notes. The Borrower will not, and will not
permit any Restricted Subsidiary to: (i) call, make or offer to make any
Redemption of or otherwise Redeem (whether in whole or in part) the Senior
Subordinated Convertible Notes in respect thereof; provided, that the Borrower
may Redeem the Senior Subordinated Convertible Notes, in whole, but not in part,
with the net cash proceeds of any sale of Equity Interests (other than
Disqualified Capital Stock); (ii) amend, modify, waive or otherwise change,
consent or agree to any amendment, modification, waiver or other change to, any
of the terms of the Senior Subordinated Convertible Notes; or (iii) designate
any Debt (other than obligations of the Borrower and the Subsidiaries pursuant
to the Loan Documents) as “Senior Indebtedness” (as defined in the Senior
Subordinated Convertible Notes) or give any such other Debt any other similar
designation for the purposes of any Senior Subordinated Convertible Note. The
Borrower hereby agrees that all rights (including, without limitation, approval
and consent rights) of, and references to, BNP Paribas in and under the Senior
Subordinated Convertible Notes shall be the rights of, and references to,
JPMorgan Chase Bank, N.A.
     Section 9.05 Investments, Loans and Advances. The Borrower will not, and
will not permit any Subsidiary to, make or permit to remain outstanding any
Investments in or to any Person, except that the foregoing restriction shall not
apply to:
          (a) Investments reflected in the Financial Statements or which are
disclosed to the Lenders in Schedule 9.05.
          (b) accounts receivable arising in the ordinary course of business.
          (c) direct obligations of the United States or any agency thereof, or
obligations guaranteed by the United States or any agency thereof, in each case
maturing within one year from the date of creation thereof.
          (d) commercial paper maturing within one year from the date of
creation thereof rated in the highest grade by S&P or Moody’s.
          (e) deposits maturing within one year from the date of creation
thereof with, including certificates of deposit issued by, any Lender or any
office located in the United States of any other bank or trust company which is
organized under the laws of the United States or any

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state thereof, has capital, surplus and undivided profits aggregating at least
$100,000,000 (as of the date of such bank or trust company’s most recent
financial reports) and has a short term deposit rating of no lower than A2 or
P2, as such rating is set forth from time to time, by S&P or Moody’s,
respectively.
          (f) deposits in money market funds investing exclusively in
Investments described in Section 9.05(c), Section 9.05(d) or Section 9.05(e).
          (g) Investments (i) made by the Borrower in or to the Guarantors, and
(ii) made by any Guarantor in or to the Borrower or any other Guarantor.
          (h) subject to the limits in Section 9.06, Investments (including,
without limitation, capital contributions) in general or limited partnerships or
other types of entities (each a “venture”) entered into by the Borrower or a
Subsidiary with others in the ordinary course of business; provided that (i) any
such venture is engaged exclusively in oil and gas exploration, development,
production, processing and related activities, including transportation,
(ii) the interest in such venture is acquired in the ordinary course of business
and on fair and reasonable terms and (iii) such venture interests acquired and
capital contributions made (valued as of the date such interest was acquired or
the contribution made) do not exceed, in the aggregate at any time outstanding
an amount equal to the greater of $500,000 or five percent (5%) of the then
effective Conforming Borrowing Base.
          (i) subject to the limits in Section 9.06, Investments in direct
ownership interests in additional Oil and Gas Properties and gas gathering
systems related thereto or related to farm-out, farm-in, joint operating, joint
venture or area of mutual interest agreements, gathering systems, pipelines or
other similar arrangements which are usual and customary in the oil and gas
exploration and production business located within the geographic boundaries of
the United States of America.
          (j) loans or advances to employees, officers or directors in the
ordinary course of business of the Borrower or any of its Subsidiaries, in each
case only as permitted by applicable law, including Section 402 of the Sarbanes
Oxley Act of 2002, but in any event not to exceed the greater of $500,000 or two
percent (2%) of the then effective Conforming Borrowing Base in the aggregate at
any time.
          (k) Investments in stock, obligations or securities received in
settlement of debts arising from Investments permitted under this Section 9.05
owing to the Borrower or any Subsidiary as a result of a bankruptcy or other
insolvency proceeding of the obligor in respect of such debts or upon the
enforcement of any Lien in favor of the Borrower or any of its Subsidiaries;
provided that the Borrower shall give the Administrative Agent prompt written
notice in the event that the aggregate amount of all Investments held at any one
time under this Section 9.05(k) exceeds the greater of $500,000 or two percent
(2%) of the then effective Conforming Borrowing Base.
          (l) other Investments not to exceed $2,000,000 in the aggregate at any
time.
     Section 9.06 Nature of Business; International Operations. The Borrower
will not, and will not permit any Subsidiary to, allow any material change to be
made in the character of

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its business as an independent oil and gas exploration and production company.
From and after the date hereof, the Borrower and its Subsidiaries will not
acquire or make any other expenditures (whether such expenditure is capital,
operating or otherwise) in or related to, any Oil and Gas Properties not located
within the geographical boundaries of the United States.
     Section 9.07 Proceeds of Notes. The Borrower will not permit the proceeds
of the Notes to be used for any purpose other than those permitted by
Section 7.21. Neither the Borrower nor any Person acting on behalf of the
Borrower has taken or will take any action which might cause any of the Loan
Documents to violate Regulations T, U or X or any other regulation of the Board
or to violate Section 7 of the Securities Exchange Act of 1934 or any rule or
regulation thereunder, in each case as now in effect or as the same may
hereinafter be in effect. If requested by the Administrative Agent, the Borrower
will furnish to the Administrative Agent and each Lender a statement to the
foregoing effect in conformity with the requirements of FR Form U-1 or such
other form referred to in Regulation U, Regulation T or Regulation X of the
Board, as the case may be.
     Section 9.08 ERISA Compliance. The Borrower will not, and will not permit
any Subsidiary to, at any time:
          (a) engage in, or permit any ERISA Affiliate to engage in, any
transaction in connection with which the Borrower, a Subsidiary or any ERISA
Affiliate could be subjected to either a civil penalty assessed pursuant to
subsections (c), (i) or (l) of section 502 of ERISA or a tax imposed by
Chapter 43 of Subtitle D of the Code.
          (b) terminate, or permit any ERISA Affiliate to terminate, any Plan in
a manner, or take any other action with respect to any Plan, which could result
in any liability of the Borrower, a Subsidiary or any ERISA Affiliate to the
PBGC.
          (c) fail to make, or permit any ERISA Affiliate to fail to make, full
payment when due of all amounts which, under the provisions of any Plan,
agreement relating thereto or applicable law, the Borrower, a Subsidiary or any
ERISA Affiliate is required to pay as contributions thereto.
          (d) permit to exist, or allow any ERISA Affiliate to permit to exist,
any accumulated funding deficiency within the meaning of section 302 of ERISA or
section 412 of the Code, whether or not waived, with respect to any Plan.
          (e) permit, or allow any ERISA Affiliate to permit, the actuarial
present value of the benefit liabilities under any Plan maintained by the
Borrower, a Subsidiary or any ERISA Affiliate which is regulated under Title IV
of ERISA to exceed the current value of the assets (computed on a plan
termination basis in accordance with Title IV of ERISA) of such Plan allocable
to such benefit liabilities. The term “actuarial present value of the benefit
liabilities” shall have the meaning specified in section 4041 of ERISA.
          (f) contribute to or assume an obligation to contribute to, or permit
any ERISA Affiliate to contribute to or assume an obligation to contribute to,
any Multiemployer Plan.

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          (g) acquire, or permit any ERISA Affiliate to acquire, an interest in
any Person that causes such Person to become an ERISA Affiliate with respect to
the Borrower or a Subsidiary or with respect to any ERISA Affiliate of the
Borrower or a Subsidiary if such Person sponsors, maintains or contributes to,
or at any time in the six-year period preceding such acquisition has sponsored,
maintained, or contributed to, (i) any Multiemployer Plan, or (ii) any other
Plan that is subject to Title IV of ERISA under which the actuarial present
value of the benefit liabilities under such Plan exceeds the current value of
the assets (computed on a plan termination basis in accordance with Title IV of
ERISA) of such Plan allocable to such benefit liabilities.
          (h) incur, or permit any ERISA Affiliate to incur, a liability to or
on account of a Plan under sections 515, 4062, 4063, 4064, 4201 or 4204 of
ERISA.
          (i) contribute to or assume an obligation to contribute to, or permit
any ERISA Affiliate to contribute to or assume an obligation to contribute to,
any employee welfare benefit plan, as defined in section 3(1) of ERISA,
including, without limitation, any such plan maintained to provide benefits to
former employees of such entities, that may not be terminated by such entities
in their sole discretion at any time without any material liability.
          (j) amend, or permit any ERISA Affiliate to amend, a Plan resulting in
an increase in current liability such that the Borrower, a Subsidiary or any
ERISA Affiliate is required to provide security to such Plan under section
401(a)(29) of the Code.
     Section 9.09 Sale or Discount of Receivables. Except for receivables
obtained by the Borrower or any Subsidiary out of the ordinary course of
business or the settlement of joint interest billing accounts in the ordinary
course of business or discounts granted to settle collection of accounts
receivable or the sale of defaulted accounts arising in the ordinary course of
business in connection with the compromise or collection thereof and not in
connection with any financing transaction, the Borrower will not, and will not
permit any Subsidiary to, discount or sell (with or without recourse) any of its
notes receivable or accounts receivable.
     Section 9.10 Mergers, Etc. Neither the Borrower nor any of its Subsidiaries
will merge into or with or consolidate with any other Person, or sell, lease or
otherwise dispose of (whether in one transaction or in a series of transactions)
all or substantially all of its Property to any other Person, except that any
Wholly-Owned Subsidiary may merge with any other Wholly-Owned Subsidiary and
that the Borrower may merge with any Wholly-Owned Subsidiary so long as the
Borrower is the survivor.
     Section 9.11 Sale of Properties. The Borrower will not, and will not permit
any Subsidiary to, sell, assign, farm-out, convey or otherwise transfer any
Property except for (a) the sale of Hydrocarbons in the ordinary course of
business; (b) farmouts in the ordinary course of business of undeveloped acreage
or undrilled depths and assignments in connection with such farmouts; (c) the
sale or transfer, in the ordinary course of business, of (i) equipment that is
no longer necessary for the business of the Borrower or such Subsidiary (ii) Oil
and Gas Properties or interests therein or Subsidiaries owning Oil and Gas
Properties, which were not taken into account in determining the most recent
Borrowing Base or Conforming Borrowing Base or to which there were no proved
reserves attributed in the most recent Reserve Report delivered to

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the Lenders; (d) the sale or other disposition (including Casualty Events) of
any Oil and Gas Property or any interest therein or any Subsidiary owning Oil
and Gas Properties; provided that (i) 100% of the consideration received in
respect of such sale or other disposition shall be cash, (ii) the consideration
received in respect of such sale or other disposition shall be equal to or
greater than the fair market value of the Oil and Gas Property, interest therein
or Subsidiary subject of such sale or other disposition (as reasonably
determined by the board of directors of the Borrower and, if requested by the
Administrative Agent, the Borrower shall deliver a certificate of a Responsible
Officer of the Borrower certifying to that effect), (iii) if such sale or other
disposition of Oil and Gas Property or Subsidiary owning Oil and Gas Properties
included in the most recently delivered Reserve Report during any period between
two successive Scheduled Redetermination Dates has a fair market value in excess
of five percent (5%) of the Conforming Borrowing Base as then in effect (as
determined by the Administrative Agent), individually or in the aggregate, the
Borrowing Base and Conforming Borrowing Base shall be reduced, effective
immediately upon such sale or disposition, by an amount equal to the value, if
any, assigned such Property in the most recently delivered Reserve Report and
(iv) if any such sale or other disposition is of a Subsidiary owning Oil and Gas
Properties, such sale or other disposition shall include all the Equity
Interests of such Subsidiary; and (e) sales and other dispositions of Properties
not regulated by Section 9.11(a) to (d) having a fair market value not to exceed
the greater of $500,000 or five percent (5%) of the then effective Conforming
Borrowing Base during any 12-month period. For purposes of this Agreement, the
Borrower has notified the Administrative Agent of the potential sale of a 10%
working interest in the Piceance Basin.
     Section 9.12 Environmental Matters. The Borrower will not, and will not
permit any Subsidiary to, cause or permit any of its Property to be in violation
of, or do anything or permit anything to be done which will subject any such
Property to any Remedial Work under any Environmental Laws, assuming disclosure
to the applicable Governmental Authority of all relevant facts, conditions and
circumstances, if any, pertaining to such Property where such violations or
remedial obligations could reasonably be expected to have a Material Adverse
Effect.
     Section 9.13 Transactions with Affiliates. The Borrower will not, and will
not permit any Subsidiary to, enter into any transaction, including, without
limitation, any purchase, sale, lease or exchange of Property or the rendering
of any service, with any Affiliate (other than the Guarantors and Wholly-Owned
Subsidiaries of the Borrower) unless such transactions are otherwise permitted
under this Agreement and are upon fair and reasonable terms no less favorable to
it than it would obtain in a comparable arm’s length transaction with a Person
not an Affiliate.
     Section 9.14 Subsidiaries. The Borrower will not, and will not permit any
Subsidiary to, create or acquire any additional Subsidiaries unless the Borrower
gives written notice to the Administrative Agent of such creation or acquisition
and complies with Section 8.14(b). The Borrower shall not, and shall not permit
any Subsidiary to, sell, assign or otherwise dispose of any Equity Interests in
any Subsidiary except in compliance with Section 9.11(d). The Borrower shall
have no Foreign Subsidiaries.

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     Section 9.15 Negative Pledge Agreements; Dividend Restrictions. The
Borrower will not, and will not permit any Subsidiary to, create, incur, assume
or suffer to exist any contract, agreement or understanding (other than this
Agreement, the Security Instruments or Capital Leases creating Liens permitted
by Section 9.03(c)) which in any way prohibits or restricts the granting,
conveying, creation or imposition of any Lien on any of its Property in favor of
the Administrative Agent and the Lenders or restricts any Subsidiary from paying
dividends or making distributions to the Borrower or any Guarantor, or which
requires the consent of or notice to other Persons in connection therewith.
     Section 9.16 Gas Imbalances, Take-or-Pay or Other Prepayments. The Borrower
will not, and will not permit any Subsidiary to, allow gas imbalances,
take-or-pay or other prepayments with respect to the Oil and Gas Properties of
the Borrower or any Subsidiary that would require the Borrower or such
Subsidiary to deliver Hydrocarbons at some future time without then or
thereafter receiving full payment therefor to exceed the greater of $500,000 or
five percent (5%) of the then effective Conforming Borrowing Base in the
aggregate.
     Section 9.17 Swap Agreements. The Borrower will not, and will not permit
any Subsidiary to, enter into any Swap Agreements with any Person other than
(a) Swap Agreements in respect of commodities, the notional volumes for which
(when aggregated with other commodity Swap Agreements then in effect other than
basis differential swaps on volumes already hedged pursuant to other Swap
Agreements) do not exceed, as of the date such Swap Agreement is executed, 80%
of the reasonably anticipated projected production from proved, developed,
producing Oil and Gas Properties for each month during the period during which
such Swap Agreement is in effect for each of crude oil and natural gas,
calculated separately; provided, that such Swap Agreements in respect of
commodities shall be permitted for a period not to exceed three (3) calendar
years from the date upon which the Minimum Production Requirements have been
met, and (b) Swap Agreements in respect of interest rates which effectively
convert interest rates from floating to fixed, the notional amounts of which
(when aggregated with all other Swap Agreements of the Borrower and its
Subsidiaries then in effect effectively converting interest rates from floating
to fixed) do not exceed 100% of the then outstanding principal amount of the
Borrower’s Debt for borrowed money which bears interest at a floating rate. In
no event shall any Swap Agreement contain any requirement, agreement or covenant
for the Borrower or any Subsidiary to post collateral or margin to secure their
obligations under such Swap Agreement or to cover market exposures.
ARTICLE X
EVENTS OF DEFAULT; REMEDIES
     Section 10.01 Events of Default. One or more of the following events shall
constitute an “Event of Default”:
          (a) the Borrower shall fail to pay any principal of any Loan or any
reimbursement obligation in respect of any LC Disbursement when and as the same
shall become due and payable, whether at the due date thereof or at a date fixed
for prepayment thereof, by acceleration or otherwise.

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          (b) the Borrower shall fail to pay any interest on any Loan or any fee
or any other amount (other than an amount referred to in Section 10.01(a))
payable under any Loan Document, when and as the same shall become due and
payable, and such failure shall continue unremedied for a period of three
(3) Business Days.
          (c) any representation or warranty made or deemed made by or on behalf
of the Borrower or any Subsidiary in or in connection with any Loan Document or
any amendment or modification of any Loan Document or waiver under such Loan
Document, or in any report, certificate, financial statement or other document
furnished pursuant to or in connection with any Loan Document or any amendment
or modification thereof or waiver thereunder, shall prove to have been incorrect
when made or deemed made.
          (d) the Borrower or any Subsidiary shall fail to observe or perform
any covenant, condition or agreement contained in Section 8.01(i),
Section 8.01(l), Section 8.02, Section 8.03, Section 8.14 or in Article IX.
          (e) the Borrower or any Subsidiary shall fail to observe or perform
any covenant, condition or agreement contained in this Agreement (other than
those specified in Section 10.01(a), Section 10.01(b) or Section 10.01(d)) or
any other Loan Document, and such failure shall continue unremedied for a period
of 30 days after the earlier to occur of (A) notice thereof from the
Administrative Agent to the Borrower (which notice will be given at the request
of any Lender) or (B) a Responsible Officer of the Borrower or such Subsidiary
otherwise becoming aware of such default.
          (f) the Borrower or any Subsidiary shall fail to make any payment
(whether of principal or interest and regardless of amount) in respect of any
Material Indebtedness, when and as the same shall become due and payable.
          (g) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that enables or
permits (with or without the giving of notice, the lapse of time or both) the
holder or holders of any Material Indebtedness or any trustee or agent on its or
their behalf to cause any Material Indebtedness to become due, or to require the
Redemption thereof or any offer to Redeem to be made in respect thereof, prior
to its scheduled maturity or require the Borrower or any Subsidiary to make an
offer in respect thereof.
          (h) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed seeking (i) liquidation, reorganization or other relief
in respect of the Borrower or any Subsidiary or its debts, or of a substantial
part of its assets, under any Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect or (ii) the appointment
of a receiver, trustee, custodian, sequestrator, conservator or similar official
for the Borrower or any Subsidiary or for a substantial part of its assets, and,
in any such case, such proceeding or petition shall continue undismissed for
thirty (30) days or an order or decree approving or ordering any of the
foregoing shall be entered.
          (i) the Borrower or any Subsidiary shall (i) voluntarily commence any
proceeding or file any petition seeking liquidation, reorganization or other
relief under any Federal, state or foreign bankruptcy, insolvency, receivership
or similar law now or hereafter in

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effect, (ii) consent to the institution of, or fail to contest in a timely and
appropriate manner, any proceeding or petition described in Section 10.01(h),
(iii) apply for or consent to the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for the Borrower or any Subsidiary
or for a substantial part of its assets, (iv) file an answer admitting the
material allegations of a petition filed against it in any such proceeding,
(v) make a general assignment for the benefit of creditors or (vi) take any
action for the purpose of effecting any of the foregoing; or any stockholder of
the Borrower shall make any request or take any action for the purpose of
calling a meeting of the stockholders of the Borrower to consider a resolution
to dissolve and wind up the Borrower’s affairs.
          (j) the Borrower or any Subsidiary shall become unable, admit in
writing its inability or fail generally to pay its debts as they become due.
          (k) (i) one or more judgments for the payment of money in an aggregate
amount in excess of the greater of $500,000 or two and one half percent (2.5%)
of the then effective Conforming Borrowing Base (to the extent not covered by
independent third party insurance provided by insurers of the highest claims
paying rating or financial strength as to which the insurer does not dispute
coverage and is not subject to an insolvency proceeding) or (ii) any one or more
non-monetary judgments that have, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect, shall be rendered
against the Borrower, any Subsidiary or any combination thereof and the same
shall remain undischarged for a period of 30 consecutive days during which
execution shall not be effectively stayed, or any action shall be legally taken
by a judgment creditor to attach or levy upon any assets of the Borrower or any
Subsidiary to enforce any such judgment.
          (l) the Loan Documents after delivery thereof shall for any reason,
except to the extent permitted by the terms thereof, cease to be in full force
and effect and valid, binding and enforceable in accordance with their terms
against the Borrower or a Guarantor party thereto or shall be repudiated by any
of them, or cease to create a valid and perfected Lien of the priority required
thereby on any of the collateral purported to be covered thereby, except to the
extent permitted by the terms of this Agreement, or the Borrower or any
Subsidiary or any of their Affiliates shall so state in writing.
          (m) an ERISA Event shall have occurred that, in the opinion of the
Majority Lenders, when taken together with all other ERISA Events that have
occurred, could reasonably be expected to result in liability of the Borrower
and its Subsidiaries in an aggregate amount exceeding the greater of $500,000 or
two and one half percent (2.5%) of the then effective Conforming Borrowing Base
in any year.
          (n) a Change in Control shall occur.
     Section 10.02 Remedies.
          (a) In the case of an Event of Default other than one described in
Section 10.01(h), Section 10.01(i) or Section 10.01(j), at any time thereafter
during the continuance of such Event of Default, the Administrative Agent may,
and at the request of the Majority Lenders, shall, by notice to the Borrower,
take either or both of the following actions, at the same or

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different times: (i) terminate the Commitments, and thereupon the Commitments
shall terminate immediately, and (ii) declare the Notes and the Loans then
outstanding to be due and payable in whole (or in part, in which case any
principal not so declared to be due and payable may thereafter be declared to be
due and payable), and thereupon the principal of the Loans so declared to be due
and payable, together with accrued interest thereon and all fees and other
obligations of the Borrower and the Guarantors accrued hereunder and under the
Notes and the other Loan Documents (including, without limitation, the payment
of cash collateral to secure the LC Exposure as provided in Section 2.08(j)),
shall become due and payable immediately, without presentment, demand, protest,
notice of intent to accelerate, notice of acceleration or other notice of any
kind, all of which are hereby waived by the Borrower and each Guarantor; and in
case of an Event of Default described in Section 10.01(h), Section 10.01(i) or
Section 10.01(j), the Commitments shall automatically terminate and the Notes
and the principal of the Loans then outstanding, together with accrued interest
thereon and all fees and the other obligations of the Borrower and the
Guarantors accrued hereunder and under the Notes and the other Loan Documents
(including, without limitation, the payment of cash collateral to secure the LC
Exposure as provided in Section 2.08(j)), shall automatically become due and
payable, without presentment, demand, protest or other notice of any kind, all
of which are hereby waived by the Borrower and each Guarantor.
          (b) In the case of the occurrence of an Event of Default, the
Administrative Agent and the Lenders will have all other rights and remedies
available at law and equity.
          (c) All proceeds realized from the liquidation or other disposition of
collateral or otherwise received after maturity of the Notes, whether by
acceleration or otherwise, shall be applied:
          (i) first, to payment or reimbursement of that portion of the
Indebtedness constituting fees, expenses and indemnities payable to the
Administrative Agent in its capacity as such;
          (ii) second, pro rata to payment or reimbursement of that portion of
the Indebtedness constituting fees, expenses and indemnities payable to the
Lenders;
          (iii) third, pro rata to payment of accrued interest on the Loans;
          (iv) fourth, pro rata to payment of principal outstanding on the Loans
and Indebtedness referred to in Clause (b) of the definition of Indebtedness
owing to a Lender or an Affiliate of a Lender;
          (v) fifth, pro rata to any other Indebtedness;
          (vi) sixth, to serve as cash collateral to be held by the
Administrative Agent to secure the LC Exposure; and
          (vii) seventh, any excess, after all of the Indebtedness shall have
been indefeasibly paid in full in cash, shall be paid to the Borrower or as
otherwise required by any Governmental Requirement.

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ARTICLE XI
THE AGENTS
     Section 11.01 Appointment; Powers. Each of the Lenders and the Issuing Bank
hereby irrevocably appoints the Administrative Agent as its agent and authorizes
the Administrative Agent to take such actions on its behalf and to exercise such
powers as are delegated to the Administrative Agent by the terms hereof and the
other Loan Documents, together with such actions and powers as are reasonably
incidental thereto.
     Section 11.02 Duties and Obligations of Administrative Agent. The
Administrative Agent shall not have any duties or obligations except those
expressly set forth in the Loan Documents. Without limiting the generality of
the foregoing, (a) the Administrative Agent shall not be subject to any
fiduciary or other implied duties, regardless of whether a Default has occurred
and is continuing (the use of the term “agent” herein and in the other Loan
Documents with reference to the Administrative Agent is not intended to connote
any fiduciary or other implied (or express) obligations arising under agency
doctrine of any applicable law; rather, such term is used merely as a matter of
market custom, and is intended to create or reflect only an administrative
relationship between independent contracting parties), (b) the Administrative
Agent shall have no duty to take any discretionary action or exercise any
discretionary powers, except as provided in Section 11.03, and (c) except as
expressly set forth herein, the Administrative Agent shall not have any duty to
disclose, and shall not be liable for the failure to disclose, any information
relating to the Borrower or any of its Subsidiaries that is communicated to or
obtained by the bank serving as Administrative Agent or any of its Affiliates in
any capacity. The Administrative Agent shall be deemed not to have knowledge of
any Default unless and until written notice thereof is given to the
Administrative Agent by the Borrower or a Lender, and shall not be responsible
for or have any duty to ascertain or inquire into (i) any statement, warranty or
representation made in or in connection with this Agreement or any other Loan
Document, (ii) the contents of any certificate, report or other document
delivered hereunder or under any other Loan Document or in connection herewith
or therewith, (iii) the performance or observance of any of the covenants,
agreements or other terms or conditions set forth herein or in any other Loan
Document, (iv) the validity, enforceability, effectiveness or genuineness of
this Agreement, any other Loan Document or any other agreement, instrument or
document, (v) the satisfaction of any condition set forth in Article VI or
elsewhere herein, other than to confirm receipt of items expressly required to
be delivered to the Administrative Agent or as to those conditions precedent
expressly required to be to the Administrative Agent’s satisfaction, (vi) the
existence, value, perfection or priority of any collateral security or the
financial or other condition of the Borrower and its Subsidiaries or any other
obligor or guarantor, or (vii) any failure by the Borrower or any other Person
(other than itself) to perform any of its obligations hereunder or under any
other Loan Document or the performance or observance of any covenants,
agreements or other terms or conditions set forth herein or therein. For
purposes of determining compliance with the conditions specified in Article VI,
each Lender shall be deemed to have consented to, approved or accepted or to be
satisfied with, each document or other matter required thereunder to be
consented to or approved by or acceptable or satisfactory to a Lender unless the
Administrative Agent shall have received written notice from such Lender prior
to the proposed closing date specifying its objection thereto.

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     Section 11.03 Action by Administrative Agent. The Administrative Agent
shall have no duty to take any discretionary action or exercise any
discretionary powers, except discretionary rights and powers expressly
contemplated hereby or by the other Loan Documents that the Administrative Agent
is required to exercise in writing as directed by the Majority Lenders (or such
other number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 12.02) and in all cases the Administrative
Agent shall be fully justified in failing or refusing to act hereunder or under
any other Loan Documents unless it shall (a) receive written instructions from
the Majority Lenders or the Lenders, as applicable, (or such other number or
percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 12.02) specifying the action to be taken and (b) be
indemnified to its satisfaction by the Lenders against any and all liability and
expenses which may be incurred by it by reason of taking or continuing to take
any such action. The instructions as aforesaid and any action taken or failure
to act pursuant thereto by the Administrative Agent shall be binding on all of
the Lenders. If a Default has occurred and is continuing, then the
Administrative Agent shall take such action with respect to such Default as
shall be directed by the requisite Lenders in the written instructions (with
indemnities) described in this Section 11.03, provided that, unless and until
the Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default as it shall deem advisable in
the best interests of the Lenders. In no event, however, shall the
Administrative Agent be required to take any action which exposes the
Administrative Agent to personal liability or which is contrary to this
Agreement, the Loan Documents or applicable law. The Administrative Agent shall
not be liable for any action taken or not taken by it with the consent or at the
request of the Majority Lenders or the Lenders (or such other number or
percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 12.02), and otherwise the Administrative Agent shall not be
liable for any action taken or not taken by it hereunder or under any other Loan
Document or under any other document or instrument referred to or provided for
herein or therein or in connection herewith or therewith INCLUDING ITS OWN
ORDINARY NEGLIGENCE, except for its own gross negligence or willful misconduct.
     Section 11.04 Reliance by Administrative Agent. The Administrative Agent
shall be entitled to rely upon, and shall not incur any liability for relying
upon, any notice, request, certificate, consent, statement, instrument, document
or other writing believed by it to be genuine and to have been signed or sent by
the proper Person. The Administrative Agent also may rely upon any statement
made to it orally or by telephone and believed by it to be made by the proper
Person, and shall not incur any liability for relying thereon and each of the
Borrower, the Lenders and the Issuing Bank hereby waives the right to dispute
the Administrative Agent’s record of such statement, except in the case of gross
negligence or willful misconduct by the Administrative Agent. The Administrative
Agent may consult with legal counsel (who may be counsel for the Borrower),
independent accountants and other experts selected by it, and shall not be
liable for any action taken or not taken by it in accordance with the advice of
any such counsel, accountants or experts. The Administrative Agent may deem and
treat the payee of any Note as the holder thereof for all purposes hereof unless
and until a written notice of the assignment or transfer thereof permitted
hereunder shall have been filed with the Administrative Agent.

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     Section 11.05 Subagents. The Administrative Agent may perform any and all
its duties and exercise its rights and powers by or through any one or more
sub-agents appointed by the Administrative Agent. The Administrative Agent and
any such sub-agent may perform any and all its duties and exercise its rights
and powers through their respective Related Parties. The exculpatory provisions
of the preceding Sections of this Article XI shall apply to any such sub-agent
and to the Related Parties of the Administrative Agent and any such sub-agent,
and shall apply to their respective activities in connection with the
syndication of the credit facilities provided for herein as well as activities
as Administrative Agent.
     Section 11.06 Resignation or Removal of Administrative Agent. Subject to
the appointment and acceptance of a successor Administrative Agent as provided
in this Section 11.06, the Administrative Agent may resign at any time by
notifying the Lenders, the Issuing Bank and the Borrower, and the Administrative
Agent may be removed at any time with or without cause by the Majority Lenders.
Upon any such resignation or removal, the Majority Lenders shall have the right,
with the approval of the Borrower, to appoint a successor. If no successor shall
have been so appointed by the Majority Lenders and shall have accepted such
appointment within 30 days after the retiring Administrative Agent gives notice
of its resignation or removal of the retiring Administrative Agent, then the
retiring Administrative Agent may, on behalf of the Lenders and the Issuing
Bank, appoint a successor Administrative Agent. Upon the acceptance of its
appointment as Administrative Agent hereunder by a successor, such successor
shall succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder. The fees
payable by the Borrower to a successor Administrative Agent shall be the same as
those payable to its predecessor unless otherwise agreed between the Borrower
and such successor. After the Administrative Agent’s resignation hereunder, the
provisions of this Article XI and Section 12.03 shall continue in effect for the
benefit of such retiring Administrative Agent, its sub-agents and their
respective Related Parties in respect of any actions taken or omitted to be
taken by any of them while it was acting as Administrative Agent.
     Section 11.07 Administrative Agent as Lender. JPMorgan Chase Bank, N.A.,
serving as the Administrative Agent hereunder, shall have the same rights and
powers in its capacity as a Lender as any other Lender and may exercise the same
as though it were not the Administrative Agent, and such bank and its Affiliates
may accept deposits from, lend money to and generally engage in any kind of
business with the Borrower or any Subsidiary or other Affiliate thereof as if it
were not the Administrative Agent hereunder.
     Section 11.08 No Reliance. Each Lender acknowledges that it has,
independently and without reliance upon the Administrative Agent or any other
Lender and based on such documents and information as it has deemed appropriate,
made its own credit analysis and decision to enter into this Agreement and each
other Loan Document to which it is a party. Each Lender also acknowledges that
it will, independently and without reliance upon the Administrative Agent or any
other Lender and based on such documents and information as it shall from time
to time deem appropriate, continue to make its own decisions in taking or not
taking action under or based upon this Agreement, any other Loan Document, any
related agreement or any document furnished hereunder or thereunder. The
Administrative Agent shall not be required to keep itself informed as to the
performance or observance by the Borrower or

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any of its Subsidiaries of this Agreement, the Loan Documents or any other
document referred to or provided for herein or to inspect the Properties or
books of the Borrower or its Subsidiaries. Except for notices, reports and other
documents and information expressly required to be furnished to the Lenders by
the Administrative Agent hereunder, the Administrative Agent and the Arranger
shall have no duty or responsibility to provide any Lender with any credit or
other information concerning the affairs, financial condition or business of the
Borrower (or any of its Affiliates) which may come into the possession of the
Administrative Agent or any of its Affiliates. In this regard, each Lender
acknowledges that Vinson & Elkins L.L.P. is acting in this transaction as
special counsel to the Administrative Agent only, except to the extent otherwise
expressly stated in any legal opinion or any Loan Document. Each other party
hereto will consult with its own legal counsel to the extent that it deems
necessary in connection with the Loan Documents and the matters contemplated
therein.
     Section 11.09 Administrative Agent May File Proofs of Claim. In case of the
pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relative to the Borrower or any of its Subsidiaries, the
Administrative Agent (irrespective of whether the principal of any Loan shall
then be due and payable as herein expressed or by declaration or otherwise and
irrespective of whether the Administrative Agent shall have made any demand on
the Borrower) shall be entitled and empowered, by intervention in such
proceeding or otherwise:
          (a) to file and prove a claim for the whole amount of the principal
and interest owing and unpaid in respect of the Loans and all other Indebtedness
that are owing and unpaid and to file such other documents as may be necessary
or advisable in order to have the claims of the Lenders and the Administrative
Agent (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Lenders and the Administrative Agent and their
respective agents and counsel and all other amounts due the Lenders and the
Administrative Agent under Section 12.03) allowed in such judicial proceeding;
and
          (b) to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Lender to make such payments to the Administrative Agent and, in the event
that the Administrative Agent shall consent to the making of such payments
directly to the Lenders, to pay to the Administrative Agent any amount due for
the reasonable compensation, expenses, disbursements and advances of the
Administrative Agent and its agents and counsel, and any other amounts due the
Administrative Agent under Section 12.03.
Nothing contained herein shall be deemed to authorize the Administrative Agent
to authorize or consent to or accept or adopt on behalf of any Lender any plan
of reorganization, arrangement, adjustment or composition affecting the
Indebtedness or the rights of any Lender or to authorize the Administrative
Agent to vote in respect of the claim of any Lender in any such proceeding.
     Section 11.10 Authority of Administrative Agent to Release Collateral and
Liens. Each Lender and the Issuing Bank hereby authorizes the Administrative
Agent to release any

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collateral that is permitted to be sold or released pursuant to the terms of the
Loan Documents. Each Lender and the Issuing Bank hereby authorizes the
Administrative Agent to execute and deliver to the Borrower, at the Borrower’s
sole cost and expense, any and all releases of Liens, termination statements,
assignments or other documents reasonably requested by the Borrower in
connection with any sale or other disposition of Property to the extent such
sale or other disposition is permitted by the terms of Section 9.11 or is
otherwise authorized by the terms of the Loan Documents.
     Section 11.11 The Arranger. The Arranger shall have no duties,
responsibilities or liabilities under this Agreement and the other Loan
Documents other than their duties, responsibilities and liabilities in their
capacity as Lenders hereunder.
ARTICLE XII
MISCELLANEOUS
     Section 12.01 Notices.
          (a) Except in the case of notices and other communications expressly
permitted to be given by telephone (and subject to Section 12.01(b)), all
notices and other communications provided for herein shall be in writing and
shall be delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
          (i) if to the Borrower, to it at 410 17th Street, Suite 1850, Denver,
CO 80202, Attention of Bill I. Pennington (Telecopy No. 303.565.4606); with a
copy to Gersten Savage LLP, 600 Lexington Avenue, New York, NY 10022, Attention
of David Danovitch (Telecopy No. 212.980.5192);
          (ii) if to the Administrative Agent, to it at 1717 Main Street, 4th
Floor, Mail Code TX1-2448, Dallas, Texas 75201, Attention of J. Scott Fowler
(Telecopy No. 214.290.2332) with a copy to 10 South Dearborn, Floor 7, Chicago,
Illinois 60603-2003, Attention of Chavonne Cockrell (Telecopy No. 312.385.7096);
and
          (iii) if to any other Lender, to it at its address (or telecopy
number) set forth in its Administrative Questionnaire.
          (b) Notices and other communications to the Lenders hereunder may be
delivered or furnished by electronic communications pursuant to procedures
approved by the Administrative Agent; provided that the foregoing shall not
apply to notices pursuant to Article II, Article III, Article IV and Article V
unless otherwise agreed by the Administrative Agent and the applicable Lender.
The Administrative Agent or the Borrower may, in its discretion, agree to accept
notices and other communications to it hereunder by electronic communications
pursuant to procedures approved by it; provided that approval of such procedures
may be limited to particular notices or communications.
          (c) Any party hereto may change its address or telecopy number for
notices and other communications hereunder by notice to the other parties
hereto. All notices and other communications given to any party hereto in
accordance with the provisions of this Agreement shall be deemed to have been
given on the date of receipt.

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     Section 12.02 Waivers; Amendments.
          (a) No failure on the part of the Administrative Agent, the Issuing
Bank or any Lender to exercise and no delay in exercising, and no course of
dealing with respect to, any right, power or privilege, or any abandonment or
discontinuance of steps to enforce such right, power or privilege, under any of
the Loan Documents shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege under any of the Loan
Documents preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies of the Administrative
Agent, the Issuing Bank and the Lenders hereunder and under the other Loan
Documents are cumulative and are not exclusive of any rights or remedies that
they would otherwise have. No waiver of any provision of this Agreement or any
other Loan Document or consent to any departure by the Borrower therefrom shall
in any event be effective unless the same shall be permitted by
Section 12.02(b), and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. Without limiting the
generality of the foregoing, the making of a Loan or issuance of a Letter of
Credit shall not be construed as a waiver of any Default, regardless of whether
the Administrative Agent, any Lender or the Issuing Bank may have had notice or
knowledge of such Default at the time.
          (b) Neither this Agreement nor any provision hereof nor any Security
Instrument nor any provision thereof may be waived, amended or modified except
pursuant to an agreement or agreements in writing entered into by the Borrower
and the Majority Lenders or by the Borrower and the Administrative Agent with
the consent of the Majority Lenders; provided that no such agreement shall
(i) increase the Maximum Credit Amount of any Lender without the written consent
of such Lender, (ii) increase the Borrowing Base or Conforming Borrowing Base
without the written consent of each Lender, decrease or maintain the Borrowing
Base or Conforming Borrowing Base without the consent of the Majority Lenders,
or modify Section 2.07 in any manner without the consent of each Lender,
(iii) reduce the principal amount of any Loan or LC Disbursement or reduce the
rate of interest thereon, or reduce any fees payable hereunder, or reduce any
other Indebtedness hereunder or under any other Loan Document, without the
written consent of each Lender affected thereby, (iv) postpone the scheduled
date of payment or prepayment of the principal amount of any Loan or LC
Disbursement, or any interest thereon, or any fees payable hereunder, or any
other Indebtedness hereunder or under any other Loan Document, or reduce the
amount of, waive or excuse any such payment, or postpone or extend the
Termination Date without the written consent of each Lender affected thereby,
(v) change Section 4.01(b) or Section 4.01(c) in a manner that would alter the
pro rata sharing of payments required thereby, without the written consent of
each Lender, (vi) waive or amend Section 3.04(c), Section 6.01, Section 8.14,
Section 10.02(c) or Section 12.14 or change the definition of the terms
“Domestic Subsidiary”, “Foreign Subsidiary”, or “Subsidiary”, without the
written consent of each Lender, (vii) release any Guarantor (except as set forth
in the Guaranty Agreement), release any of the collateral (other than as
provided in Section 11.10), or reduce the percentage set forth in
Section 8.14(a) to less than 80% (or, as applicable, 95%), without the written
consent of each Lender, or (viii) change any of the provisions of this Section
12.02(b) or the definition of “Majority Lenders” or any other provision hereof
specifying the number or percentage of Lenders required to waive, amend or
modify any rights hereunder or under any other Loan Documents or make any
determination or grant any consent hereunder or any other Loan Documents,
without the written consent of each Lender; provided further that no

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such agreement shall amend, modify or otherwise affect the rights or duties of
the Administrative Agent or the Issuing Bank hereunder or under any other Loan
Document without the prior written consent of the Administrative Agent or the
Issuing Bank, as the case may be. Notwithstanding the foregoing, any supplement
to Schedule 7.14 (Subsidiaries) shall be effective simply by delivering to the
Administrative Agent a supplemental schedule clearly marked as such and, upon
receipt, the Administrative Agent will promptly deliver a copy thereof to the
Lenders.
     Section 12.03 Expenses, Indemnity; Damage Waiver.
          (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses
incurred by the Administrative Agent and its Affiliates, including, without
limitation, the reasonable fees, charges and disbursements of counsel and other
outside consultants for the Administrative Agent, the reasonable travel,
photocopy, mailing, courier, telephone and other similar expenses, and the cost
of environmental audits and surveys and appraisals, in connection with the
syndication of the credit facilities provided for herein, the preparation,
negotiation, execution, delivery and administration (both before and after the
execution hereof and including advice of counsel to the Administrative Agent as
to the rights and duties of the Administrative Agent and the Lenders with
respect thereto) of this Agreement and the other Loan Documents and any
amendments, modifications or waivers of or consents related to the provisions
hereof or thereof (whether or not the transactions contemplated hereby or
thereby shall be consummated), (ii) all costs, expenses, Taxes, assessments and
other charges incurred by the Administrative Agent in connection with any
filing, registration, recording or perfection of any security interest
contemplated by this Agreement or any Security Instrument or any other document
referred to therein, (iii) all reasonable out-of-pocket expenses incurred by the
Issuing Bank in connection with the issuance, amendment, renewal or extension of
any Letter of Credit or any demand for payment thereunder, (iv) all
out-of-pocket expenses incurred by the Administrative Agent, including the fees,
charges and disbursements of any counsel for the Administrative Agent in
connection with the enforcement or protection of its rights in connection with
this Agreement or any other Loan Document, including its rights under this
Section 12.03, or in connection with the Loans made or Letters of Credit issued
hereunder, including, without limitation, all such out-of-pocket expenses
incurred during any workout, restructuring or negotiations in respect of such
Loans or Letters of Credit.
          (b) THE BORROWER SHALL INDEMNIFY THE ADMINSTRATIVE AGENT, THE
ARRANGER, THE ISSUING BANK AND EACH LENDER, AND EACH RELATED PARTY OF ANY OF THE
FOREGOING PERSONS (EACH SUCH PERSON BEING CALLED AN “INDEMNITEE”) AGAINST, AND
HOLD EACH INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES,
LIABILITIES AND RELATED EXPENSES, INCLUDING THE FEES, CHARGES AND DISBURSEMENTS
OF ANY COUNSEL FOR ANY INDEMNITEE, INCURRED BY OR ASSERTED AGAINST ANY
INDEMNITEE ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF (i) THE
EXECUTION OR DELIVERY OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY
AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, (ii) THE PERFORMANCE BY
THE PARTIES HERETO OR THE PARTIES TO ANY OTHER LOAN DOCUMENT OF THEIR RESPECTIVE
OBLIGATIONS HEREUNDER OR THEREUNDER OR THE CONSUMMATION OF THE TRANSACTIONS

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CONTEMPLATED HEREBY OR BY ANY OTHER LOAN DOCUMENT, (iii) THE FAILURE OF THE
BORROWER OR ANY SUBSIDIARY TO COMPLY WITH THE TERMS OF ANY LOAN DOCUMENT,
INCLUDING THIS AGREEMENT, OR WITH ANY GOVERNMENTAL REQUIREMENT, (iv) ANY
INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY WARRANTY OR COVENANT OF
THE BORROWER OR ANY GUARANTOR SET FORTH IN ANY OF THE LOAN DOCUMENTS OR ANY
INSTRUMENTS, DOCUMENTS OR CERTIFICATIONS DELIVERED IN CONNECTION THEREWITH,
(v) ANY LOAN OR LETTER OF CREDIT OR THE USE OF THE PROCEEDS THEREFROM,
INCLUDING, WITHOUT LIMITATION, (A) ANY REFUSAL BY THE ISSUING BANK TO HONOR A
DEMAND FOR PAYMENT UNDER A LETTER OF CREDIT IF THE DOCUMENTS PRESENTED IN
CONNECTION WITH SUCH DEMAND DO NOT STRICTLY COMPLY WITH THE TERMS OF SUCH LETTER
OF CREDIT, OR (B) THE PAYMENT OF A DRAWING UNDER ANY LETTER OF CREDIT
NOTWITHSTANDING THE NON-COMPLIANCE, NON-DELIVERY OR OTHER IMPROPER PRESENTATION
OF THE DOCUMENTS PRESENTED IN CONNECTION THEREWITH, (vi) ANY OTHER ASPECT OF THE
LOAN DOCUMENTS, (vii) THE OPERATIONS OF THE BUSINESS OF THE BORROWER AND ITS
SUBSIDIARIES BY THE BORROWER AND ITS SUBSIDIARIES, (viii) ANY ASSERTION THAT THE
LENDERS WERE NOT ENTITLED TO RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THE
SECURITY INSTRUMENTS, (ix) ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR
ANY SUBSIDIARY OR ANY OF THEIR PROPERTIES, INCLUDING WITHOUT LIMITATION, THE
PRESENCE, GENERATION, STORAGE, RELEASE, THREATENED RELEASE, USE, TRANSPORT,
DISPOSAL, ARRANGEMENT OF DISPOSAL OR TREATMENT OF OIL, OIL AND GAS WASTES, SOLID
WASTES OR HAZARDOUS SUBSTANCES ON ANY OF THEIR PROPERTIES, (x) THE BREACH OR
NON-COMPLIANCE BY THE BORROWER OR ANY SUBSIDIARY WITH ANY ENVIRONMENTAL LAW
APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY, (xi) THE PAST OWNERSHIP BY THE
BORROWER OR ANY SUBSIDIARY OF ANY OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF
THEIR PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD
RESULT IN PRESENT LIABILITY, (xii) THE PRESENCE, USE, RELEASE, STORAGE,
TREATMENT, DISPOSAL, GENERATION, THREATENED RELEASE, TRANSPORT, ARRANGEMENT FOR
TRANSPORT OR ARRANGEMENT FOR DISPOSAL OF OIL, OIL AND GAS WASTES, SOLID WASTES
OR HAZARDOUS SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY THE
BORROWER OR ANY SUBSIDIARY OR ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE OF
HAZARDOUS MATERIALS ON OR FROM ANY PROPERTY OWNED OR OPERATED BY THE BORROWER OR
ANY OF ITS SUBSIDIARIES, (xiii) ANY ENVIRONMENTAL LIABILITY RELATED IN ANY WAY
TO THE BORROWER OR ANY OF ITS SUBSIDIARIES, (xiv) ANY OTHER ENVIRONMENTAL,
HEALTH OR SAFETY CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS OR (xv) ANY
ACTUAL OR PROSPECTIVE CLAIM, LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO
ANY OF THE FOREGOING, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY AND
REGARDLESS OF WHETHER ANY INDEMNITEE IS A PARTY THERETO, AND SUCH INDEMNITY
SHALL EXTEND TO EACH INDEMNITEE NOTWITHSTANDING THE SOLE OR CONCURRENT
NEGLIGENCE OF EVERY KIND

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OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT
OR AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT
IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE
INDEMNITEES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR
MORE OF THE INDEMNITEES; PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO ANY
INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS, DAMAGES,
LIABILITIES OR RELATED EXPENSES ARE DETERMINED BY A COURT OF COMPETENT
JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE.
          (c) To the extent that the Borrower fails to pay any amount required
to be paid by it to the Administrative Agent, the Arranger or the Issuing Bank
under Section 12.03(a) or (a), each Lender severally agrees to pay to the
Administrative Agent, the Arranger or the Issuing Bank, as the case may be, such
Lender’s Applicable Percentage (determined as of the time that the applicable
unreimbursed expense or indemnity payment is sought) of such unpaid amount;
provided that the unreimbursed expense or indemnified loss, claim, damage,
liability or related expense, as the case may be, was incurred by or asserted
against the Administrative Agent, the Arranger or the Issuing Bank in its
capacity as such.
          (d) To the extent permitted by applicable law, the Borrower shall not
assert, and hereby waives, any claim against any Indemnitee, on any theory of
liability, for special, indirect, consequential or punitive damages (as opposed
to direct or actual damages) arising out of, in connection with, or as a result
of, this Agreement, any other Loan Document or any agreement or instrument
contemplated hereby or thereby, the Transactions, any Loan or Letter of Credit
or the use of the proceeds thereof.
          (e) All amounts due under this Section 12.03 shall be payable not
later than ten days after written demand therefor.
     Section 12.04 Successors and Assigns.
          (a) The provisions of this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and assigns
permitted hereby (including any Affiliate of the Issuing Bank that issues any
Letter of Credit), except that (i) the Borrower may not assign or otherwise
transfer any of its rights or obligations hereunder without the prior written
consent of each Lender (and any attempted assignment or transfer by the Borrower
without such consent shall be null and void) and (ii) no Lender may assign or
otherwise transfer its rights or obligations hereunder except in accordance with
this Section 12.04. Nothing in this Agreement, expressed or implied, shall be
construed to confer upon any Person (other than the parties hereto, their
respective successors and assigns permitted hereby (including any Affiliate of
the Issuing Bank that issues any Letter of Credit), Participants (to the extent
provided in Section 12.04(c)) and, to the extent expressly contemplated hereby,
the Related Parties of each of the Administrative Agent, the Issuing Bank and
the Lenders) any legal or equitable right, remedy or claim under or by reason of
this Agreement.

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          (b) (i) Subject to the conditions set forth in Section 12.04(b)(ii),
any Lender may assign to one or more assignees all or a portion of its rights
and obligations under this Agreement (including all or a portion of its
Commitment and the Loans at the time owing to it) with the prior written consent
(such consent not to be unreasonably withheld) of:
          (A) the Borrower, provided that no consent of the Borrower shall be
required if an Event of Default has occurred and is continuing, is to any other
assignee; and
          (B) the Administrative Agent, provided that no consent of the
Administrative Agent shall be required for an assignment to an assignee that is
a Lender immediately prior to giving effect to such assignment.
          (ii) Assignments shall be subject to the following additional
conditions:
          (A) except in the case of an assignment to a Lender or an Affiliate of
a Lender or an assignment of the entire remaining amount of the assigning
Lender’s Commitment or Loans, the amount of the Commitment or Loans of the
assigning Lender subject to each such assignment (determined as of the date the
Assignment and Assumption with respect to such assignment is delivered to the
Administrative Agent) shall not be less than $5,000,000 unless each of the
Borrower and the Administrative Agent otherwise consent, provided that no such
consent of the Borrower shall be required if an Event of Default has occurred
and is continuing;
          (B) each partial assignment shall be made as an assignment of a
proportionate part of all the assigning Lender’s rights and obligations under
this Agreement;
          (C) the parties to each assignment shall execute and deliver to the
Administrative Agent an Assignment and Assumption, together with a processing
and recordation fee of $3,500; and
          (D) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire.
          (iii) Subject to Section 12.04(b)(iv) and the acceptance and recording
thereof, from and after the effective date specified in each Assignment and
Assumption the assignee thereunder shall be a party hereto and, to the extent of
the interest assigned by such Assignment and Assumption, have the rights and
obligations of a Lender under this Agreement, and the assigning Lender
thereunder shall, to the extent of the interest assigned by such Assignment and
Assumption, be released from its obligations under this Agreement (and, in the
case of an Assignment and Assumption covering all of the assigning Lender’s
rights and obligations under this Agreement, such Lender shall cease to be a
party hereto but shall continue to be entitled to the benefits of Section 5.01,
Section 5.01(d), Section 5.03 and Section 12.03). Any assignment or transfer by
a Lender of rights or obligations under this Agreement that does not comply with
this

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Section 12.04 shall be treated for purposes of this Agreement as a sale by such
Lender of a participation in such rights and obligations in accordance with
Section 12.04(c).
          (iv) The Administrative Agent, acting for this purpose as an agent of
the Borrower, shall maintain at one of its offices a copy of each Assignment and
Assumption delivered to it and a register for the recordation of the names and
addresses of the Lenders, and the Maximum Credit Amount of, and principal amount
of the Loans and LC Disbursements owing to, each Lender pursuant to the terms
hereof from time to time (the “Register”). The entries in the Register shall be
conclusive, and the Borrower, the Administrative Agent, the Issuing Bank and the
Lenders may treat each Person whose name is recorded in the Register pursuant to
the terms hereof as a Lender hereunder for all purposes of this Agreement,
notwithstanding notice to the contrary. The Register shall be available for
inspection by the Borrower, the Issuing Bank and any Lender, at any reasonable
time and from time to time upon reasonable prior notice. In connection with any
changes to the Register, if necessary, the Administrative Agent will reflect the
revisions on Annex I and forward a copy of such revised Annex I to the Borrower,
the Issuing Bank and each Lender.
          (v) Upon its receipt of a duly completed Assignment and Assumption
executed by an assigning Lender and an assignee, the assignee’s completed
Administrative Questionnaire and, if required hereunder, applicable tax forms
(unless the assignee shall already be a Lender hereunder), the processing and
recordation fee referred to in Section 12.04(b) and any written consent to such
assignment required by Section 12.04(b), the Administrative Agent shall accept
such Assignment and Assumption and record the information contained therein in
the Register. No assignment shall be effective for purposes of this Agreement
unless it has been recorded in the Register as provided in this
Section 12.04(b).
     (c) (i) Any Lender may, without the consent of the Borrower, the
Administrative Agent or the Issuing Bank, sell participations to one or more
banks or other entities (a “Participant”) in all or a portion of such Lender’s
rights and obligations under this Agreement (including all or a portion of its
Commitment and the Loans owing to it); provided that (A) such Lender’s
obligations under this Agreement shall remain unchanged, (B) such Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations and (C) the Borrower, the Administrative Agent, the Issuing
Bank and the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender’s rights and obligations under this
Agreement. Any agreement or instrument pursuant to which a Lender sells such a
participation shall provide that such Lender shall retain the sole right to
enforce this Agreement and to approve any amendment, modification or waiver of
any provision of this Agreement. In addition such agreement must provide that
the Participant be bound by the provisions of Section 12.03. Subject to Section
12.04(c)(ii), the Borrower agrees that each Participant shall be entitled to the
benefits of Section 5.01, Section 5.01(d) and Section 5.03 to the same extent as
if it were a Lender and had acquired its interest by assignment pursuant to
Section 12.04(b). To the extent permitted by law, each Participant also shall be
entitled to the benefits of Section 12.08 as though it were a Lender, provided
such Participant agrees to be subject to Section 4.01(c) as though it were a
Lender.

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          (ii) A Participant shall not be entitled to receive any greater
payment under Section 5.01 or Section 5.03 than the applicable Lender would have
been entitled to receive with respect to the participation sold to such
Participant, unless the sale of the participation to such Participant is made
with the Borrower’s prior written consent. A Participant that would be a Foreign
Lender if it were a Lender shall not be entitled to the benefits of Section 5.03
unless the Borrower is notified of the participation sold to such Participant
and such Participant agrees, for the benefit of the Borrower, to comply with
Section 5.03(e) as though it were a Lender.
          (d) Any Lender may at any time pledge or assign a security interest in
all or any portion of its rights under this Agreement to secure obligations of
such Lender, including, without limitation, any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this Section 12.04(d) shall not apply
to any such pledge or assignment of a security interest; provided that no such
pledge or assignment of a security interest shall release a Lender from any of
its obligations hereunder or substitute any such pledgee or assignee for such
Lender as a party hereto.
          (e) Notwithstanding any other provisions of this Section 12.04, no
transfer or assignment of the interests or obligations of any Lender or any
grant of participations therein shall be permitted if such transfer, assignment
or grant would require the Borrower and the Guarantors to file a registration
statement with the SEC or to qualify the Loans under the “Blue Sky” laws of any
state.
     Section 12.05 Survival; Revival; Reinstatement.
          (a) All covenants, agreements, representations and warranties made by
the Borrower herein and in the certificates or other instruments delivered in
connection with or pursuant to this Agreement or any other Loan Document shall
be considered to have been relied upon by the other parties hereto and shall
survive the execution and delivery of this Agreement and the making of any Loans
and issuance of any Letters of Credit, regardless of any investigation made by
any such other party or on its behalf and notwithstanding that the
Administrative Agent, the Issuing Bank or any Lender may have had notice or
knowledge of any Default or incorrect representation or warranty at the time any
credit is extended hereunder, and shall continue in full force and effect as
long as the principal of or any accrued interest on any Loan or any fee or any
other amount payable under this Agreement is outstanding and unpaid or any
Letter of Credit is outstanding and so long as the Commitments have not expired
or terminated. The provisions of Section 5.01, Section 5.01(d), and Section 5.03
and Section 12.03 and Article XI shall survive and remain in full force and
effect regardless of the consummation of the transactions contemplated hereby,
the repayment of the Loans, the expiration or termination of the Letters of
Credit and the Commitments or the termination of this Agreement, any other Loan
Document or any provision hereof or thereof; provided, that the provisions of
Section 5.01, 5.02 and 5.03 shall survive and remain in effect only as to those
claims that the Borrower has received written notice thereof prior to one year
after the Maturity Date .
          (b) To the extent that any payments on the Indebtedness or proceeds of
any collateral are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or other Person under any

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bankruptcy law, common law or equitable cause, then to such extent, the
Indebtedness so satisfied shall be revived and continue as if such payment or
proceeds had not been received and the Administrative Agent’s and the Lenders’
Liens, security interests, rights, powers and remedies under this Agreement and
each Loan Document shall continue in full force and effect. In such event, each
Loan Document shall be automatically reinstated and the Borrower shall take such
action as may be reasonably requested by the Administrative Agent and the
Lenders to effect such reinstatement.
     Section 12.06 Counterparts; Integration; Effectiveness.
          (a) This Agreement may be executed in counterparts (and by different
parties hereto on different counterparts), each of which shall constitute an
original, but all of which when taken together shall constitute a single
contract.
          (b) This Agreement, the other Loan Documents and any separate letter
agreements with respect to fees payable to the Administrative Agent constitute
the entire contract among the parties relating to the subject matter hereof and
thereof and supersede any and all previous agreements and understandings, oral
or written, relating to the subject matter hereof and thereof. THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES
HERETO AND THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
          (c) Except as provided in Section 6.01, this Agreement shall become
effective when it shall have been executed by the Administrative Agent and when
the Administrative Agent shall have received counterparts hereof which, when
taken together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. Delivery of an executed counterpart
of a signature page of this Agreement by telecopy or other electronic
transmission (e.g., pdf) shall be effective as delivery of a manually executed
counterpart of this Agreement.
     Section 12.07 Severability. Any provision of this Agreement or any other
Loan Document held to be invalid, illegal or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such invalidity,
illegality or unenforceability without affecting the validity, legality and
enforceability of the remaining provisions hereof or thereof; and the invalidity
of a particular provision in a particular jurisdiction shall not invalidate such
provision in any other jurisdiction.
     Section 12.08 Right of Setoff. If an Event of Default shall have occurred
and be continuing, each Lender and each of its Affiliates is hereby authorized
at any time and from time to time, to the fullest extent permitted by law, to
set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other obligations (of whatsoever
kind, including, without limitations obligations under Swap Agreements) at any
time owing by such Lender or Affiliate to or for the credit or the account of
the Borrower or any Subsidiary against any of and all the obligations of the
Borrower or any Subsidiary owed to such Lender now or hereafter existing under
this Agreement or any other Loan Document, irrespective

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of whether or not such Lender shall have made any demand under this Agreement or
any other Loan Document and although such obligations may be unmatured. The
rights of each Lender under this Section 12.08 are in addition to other rights
and remedies (including other rights of setoff) which such Lender or its
Affiliates may have.
     Section 12.09 GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS.
          (a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT THAT
UNITED STATES FEDERAL LAW PERMITS ANY LENDER TO CONTRACT FOR, CHARGE, RECEIVE,
RESERVE OR TAKE INTEREST AT THE RATE ALLOWED BY THE LAWS OF THE STATE WHERE SUCH
LENDER IS LOCATED. CHAPTER 346 OF THE TEXAS FINANCE CODE (WHICH REGULATES
CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRI-PARTY ACCOUNTS) SHALL
NOT APPLY TO THIS AGREEMENT OR THE NOTES.
          (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS
SHALL BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES OF
AMERICA FOR THE NORTHERN DISTRICT OF TEXAS, AND, BY EXECUTION AND DELIVERY OF
THIS AGREEMENT, EACH PARTY HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT
PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY
OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE
JURISDICTIONS.
          (c) EACH PARTY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY
OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT THE
ADDRESS SPECIFIED IN SECTION 12.01 OR SUCH OTHER ADDRESS AS IS SPECIFIED
PURSUANT TO SECTION 12.01 (OR ITS ASSIGNMENT AND ASSUMPTION), SUCH SERVICE TO
BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL
AFFECT THE RIGHT OF A PARTY OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE
PROCEED AGAINST ANOTHER PARTY IN ANY OTHER JURISDICTION.
          (d) EACH PARTY HEREBY (i) IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN; (ii) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT

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PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES
OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (iii) CERTIFIES THAT NO PARTY
HERETO NOR ANY REPRESENTATIVE OR AGENT OF COUNSEL FOR ANY PARTY HERETO HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND
(iv) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE
LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION
12.09.
     Section 12.10 Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
     Section 12.11 Confidentiality. Each of the Administrative Agent, the
Issuing Bank and the Lenders agrees to maintain the confidentiality of the
Information (as defined below), except that Information may be disclosed (a) to
its and its Affiliates’ directors, officers, employees and agents, including
accountants, legal counsel and other advisors (it being understood that the
Persons to whom such disclosure is made will be informed of the confidential
nature of such Information and instructed to keep such Information
confidential), (b) to the extent requested by any regulatory authority, (c) to
the extent required by applicable laws or regulations or by any subpoena or
similar legal process, (d) to any other party to this Agreement or any other
Loan Document, (e) in connection with the exercise of any remedies hereunder or
under any other Loan Document or any suit, action or proceeding relating to this
Agreement or any other Loan Document or the enforcement of rights hereunder or
thereunder, (f) subject to an agreement containing provisions substantially the
same as those of this Section 12.11, to (i) any assignee of or Participant in,
or any prospective assignee of or Participant in, any of its rights or
obligations under this Agreement (who agrees to be bound by the terms hereof) or
(ii) any actual or prospective counterparty (or its advisors) to any Swap
Agreement relating to the Borrower and its obligations (who agrees to be bound
by the terms hereof), (g) with the consent of the Borrower or (h) to the extent
such Information (i) becomes publicly available other than as a result of a
breach of this Section 12.11 or (ii) becomes available to the Administrative
Agent, the Issuing Bank or any Lender on a non-confidential basis from a source
other than the Borrower. For the purposes of this Section 12.11, “Information”
means all information received from the Borrower or any Subsidiary relating to
the Borrower or any Subsidiary and their businesses, other than any such
information that is available to the Administrative Agent, the Issuing Bank or
any Lender on a non-confidential basis prior to disclosure by the Borrower or a
Subsidiary; provided that, in the case of information received from the Borrower
or any Subsidiary after the date hereof, such information is clearly identified
at the time of delivery as confidential. Any Person required to maintain the
confidentiality of Information as provided in this Section 12.11 shall be
considered to have complied with its obligation to do so if such Person has
exercised the same degree of care to maintain the confidentiality of such
Information as such Person would accord to its own confidential information.

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     Section 12.12 Interest Rate Limitation. It is the intention of the parties
hereto that each Lender shall conform strictly to usury laws applicable to it.
Accordingly, if the transactions contemplated hereby would be usurious as to any
Lender under laws applicable to it (including the laws of the United States of
America and the State of Texas or any other jurisdiction whose laws may be
mandatorily applicable to such Lender notwithstanding the other provisions of
this Agreement), then, in that event, notwithstanding anything to the contrary
in any of the Loan Documents or any agreement entered into in connection with or
as security for the Notes, it is agreed as follows: (a) the aggregate of all
consideration which constitutes interest under law applicable to any Lender that
is contracted for, taken, reserved, charged or received by such Lender under any
of the Loan Documents or agreements or otherwise in connection with the Notes
shall under no circumstances exceed the maximum amount allowed by such
applicable law, and any excess shall be canceled automatically and if
theretofore paid shall be credited by such Lender on the principal amount of the
Indebtedness (or, to the extent that the principal amount of the Indebtedness
shall have been or would thereby be paid in full, refunded by such Lender to the
Borrower); and (b) in the event that the maturity of the Notes is accelerated by
reason of an election of the holder thereof resulting from any Event of Default
under this Agreement or otherwise, or in the event of any required or permitted
prepayment, then such consideration that constitutes interest under law
applicable to any Lender may never include more than the maximum amount allowed
by such applicable law, and excess interest, if any, provided for in this
Agreement or otherwise shall be canceled automatically by such Lender as of the
date of such acceleration or prepayment and, if theretofore paid, shall be
credited by such Lender on the principal amount of the Indebtedness (or, to the
extent that the principal amount of the Indebtedness shall have been or would
thereby be paid in full, refunded by such Lender to the Borrower). All sums paid
or agreed to be paid to any Lender for the use, forbearance or detention of sums
due hereunder shall, to the extent permitted by law applicable to such Lender,
be amortized, prorated, allocated and spread throughout the stated term of the
Loans evidenced by the Notes until payment in full so that the rate or amount of
interest on account of any Loans hereunder does not exceed the maximum amount
allowed by such applicable law. If at any time and from time to time (i) the
amount of interest payable to any Lender on any date shall be computed at the
Highest Lawful Rate applicable to such Lender pursuant to this Section 12.12 and
(ii) in respect of any subsequent interest computation period the amount of
interest otherwise payable to such Lender would be less than the amount of
interest payable to such Lender computed at the Highest Lawful Rate applicable
to such Lender, then the amount of interest payable to such Lender in respect of
such subsequent interest computation period shall continue to be computed at the
Highest Lawful Rate applicable to such Lender until the total amount of interest
payable to such Lender shall equal the total amount of interest which would have
been payable to such Lender if the total amount of interest had been computed
without giving effect to this Section 12.12. To the extent that Chapter 303 of
the Texas Finance Code is relevant for the purpose of determining the Highest
Lawful Rate applicable to a Lender, such Lender elects to determine the
applicable rate ceiling under such Chapter by the weekly ceiling from time to
time in effect. Chapter 346 of the Texas Finance Code does not apply to the
Borrower’s obligations hereunder.
     Section 12.13 EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO
SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS
OF THIS AGREEMENT AND THE OTHER LOAN

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DOCUMENTS; THAT IT HAS IN FACT READ THIS AGREEMENT AND IS FULLY INFORMED AND HAS
FULL NOTICE AND KNOWLEDGE OF THE TERMS, CONDITIONS AND EFFECTS OF THIS
AGREEMENT; THAT IT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS
CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS; AND HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN
ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND THAT IT
RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF
THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH
LIABILITY. EACH PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE
VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS ON THE BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE
OF SUCH PROVISION OR THAT THE PROVISION IS NOT “CONSPICUOUS.”
     Section 12.14 Collateral Matters; Swap Agreements. The benefit of the
Security Instruments and of the provisions of this Agreement relating to any
collateral securing the Indebtedness shall also extend to and be available to
those Lenders or their Affiliates which are counterparties to any Swap Agreement
with the Borrower or any of its Subsidiaries on a pro rata basis in respect of
any obligations of the Borrower or any of its Subsidiaries which arise under any
such Swap Agreement while such Person or its Affiliate is a Lender, but only
while such Person or its Affiliate is a Lender, including any Swap Agreements
between such Persons in existence prior to the date hereof. No Lender or any
Affiliate of a Lender shall have any voting rights under any Loan Document as a
result of the existence of obligations owed to it under any such Swap
Agreements.
     Section 12.15 No Third Party Beneficiaries. This Agreement, the other Loan
Documents, and the agreement of the Lenders to make Loans and the Issuing Bank
to issue, amend, renew or extend Letters of Credit hereunder are solely for the
benefit of the Borrower, and no other Person (including, without limitation, any
Subsidiary of the Borrower, any obligor, contractor, subcontractor, supplier or
materialsman) shall have any rights, claims, remedies or privileges hereunder or
under any other Loan Document against the Administrative Agent, the Issuing Bank
or any Lender for any reason whatsoever. There are no third party beneficiaries.
     Section 12.16 USA Patriot Act Notice. Each Lender hereby notifies the
Borrower that pursuant to the requirements of the USA Patriot Act (Title III of
Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is required
to obtain, verify and record information that identifies the Borrower, which
information includes the name and address of the Borrower and other information
that will allow such Lender to identify the Borrower in accordance with the Act.
     Section 12.17 Restatement; Existing Credit Agreement. The parties hereto
agree that this Agreement amends and restates (but does not extinguish) the
Existing Credit Agreement in its entirety. On the Effective Date, the loans and
other Debt of the Borrower under the Existing

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Credit Agreement shall be refinanced in full with the proceeds of the initial
funding and the commitments of the lenders thereunder shall be superseded by
this Agreement and terminated.
[SIGNATURES BEGIN NEXT PAGE]

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     The parties hereto have caused this Agreement to be duly executed as of the
day and year first above written.

          BORROWER:   TETON ENERGY CORPORATION
 
       
 
  By:    
 
       
 
  Name:    
 
       
 
  Title:    
 
       

Amended and Restated Credit Agreement
Signature Page

 

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          ADMINISTRATIVE AGENT/LENDER:   JPMORGAN CHASE BANK, N.A.,
as Administrative Agent and a Lender
 
       
 
  By:    
 
       
 
      J. Scott Fowler,
 
      Senior Vice President

Amended and Restated Credit Agreement
Signature Page

 

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ANNEX I
LIST OF MAXIMUM CREDIT AMOUNTS
Aggregate Maximum Credit Amounts

                               Name of Lender   Applicable Percentage   Maximum
Credit Amount
JPMorgan Chase Bank, N.A.
    100.00 %   $ 50,000,000.00  
TOTAL
    100.00 %   $ 50,000,000.00  

Annex I - 1

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EXHIBIT A
FORM OF NOTE

      $[___],000,000.00   [                                        ], 20___

     FOR VALUE RECEIVED, Teton Energy Corporation, a Delaware corporation (the
“Borrower”) hereby promises to pay to the order of [                    ] (the
“Lender”), at the principal office of JPMorgan Chase Bank, N.A., as
administrative agent (the “Administrative Agent”), the principal sum of
[                    ] Dollars ($[                    ]) (or such lesser amount
as shall equal the aggregate unpaid principal amount of the Loans made by the
Lender to the Borrower under the Credit Agreement, as hereinafter defined), in
lawful money of the United States of America and in immediately available funds,
on the dates and in the principal amounts provided in the Credit Agreement, and
to pay interest on the unpaid principal amount of each such Loan, at such
office, in like money and funds, for the period commencing on the date of such
Loan until such Loan shall be paid in full, at the rates per annum and on the
dates provided in the Credit Agreement.
     The date, amount, Type, interest rate, Interest Period and maturity of each
Loan made by the Lender to the Borrower, and each payment made on account of the
principal thereof, shall be recorded by the Lender on its books and, prior to
any transfer of this Note, may be endorsed by the Lender on the schedules
attached hereto or any continuation thereof or on any separate record maintained
by the Lender. Failure to make any such notation or to attach a schedule shall
not affect any Lender’s or the Borrower’s rights or obligations in respect of
such Loans or affect the validity of such transfer by any Lender of this Note.
     This Note is one of the Notes referred to in the Amended and Restated
Credit Agreement dated as of August 9, 2007 among the Borrower, the
Administrative Agent, and the other lenders signatory thereto (including the
Lender), and evidences Loans made by the Lender thereunder (such Credit
Agreement as the same may be amended, supplemented or restated from time to
time, the “Credit Agreement”). Capitalized terms used in this Note have the
respective meanings assigned to them in the Credit Agreement.
     This Note is issued pursuant to, and is subject to the terms and conditions
set forth in, the Credit Agreement and is entitled to the benefits provided for
in the Credit Agreement and the other Loan Documents. The Credit Agreement
provides for the acceleration of the maturity of this Note upon the occurrence
of certain events, for prepayments of Loans upon the terms and conditions
specified therein and other provisions relevant to this Note.

A - 1

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     THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF TEXAS.

              TETON ENERGY CORPORATION
 
       
 
  By:    
 
       
 
  Name:    
 
       
 
  Title:    
 
       

A-2

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EXHIBIT B
FORM OF BORROWING REQUEST
[                                        ], 20___
     Teton Energy Corporation, a Delaware corporation (the “Borrower”), pursuant
to Section 2.03 of the Amended and Restated Credit Agreement dated as of
August 9, 2007 (together with all amendments, restatements, supplements or other
modifications thereto, the “Credit Agreement”) among the Borrower, JPMorgan
Chase Bank, N.A., as Administrative Agent and the other lenders which are or
become parties thereto (unless otherwise defined herein, each capitalized term
used herein is defined in the Credit Agreement), hereby requests a Borrowing as
follows:
          (i) Aggregate amount of the requested Borrowing is
$[                                        ];
          (ii) Date of such Borrowing is
[                                        ], 20[  ];
          (iii) Requested Borrowing is to be [an ABR Borrowing] [a Eurodollar
Borrowing];
          (iv) In the case of a Eurodollar Borrowing, the initial Interest
Period applicable thereto is [                                        ];
          (v) Amount of Borrowing Base in effect on the date hereof is
$[                                        ];
          (vi) Total Revolving Credit Exposures on the date hereof (i.e.,
outstanding principal amount of Loans and total LC Exposure) is
$[                                        ]; and
          (vii) Pro forma total Revolving Credit Exposures (giving effect to the
requested Borrowing) is $[                                        ]; and
          (viii) Location and number of the Borrower’s account to which funds
are to be disbursed, which shall comply with the requirements of Section 2.05 of
the Credit Agreement, is as follows:
[                                        ]
[                                        ]
[                                        ]
[                                        ]
[                                        ]

B-1

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The undersigned certifies that he/she is the
[                                        ] of the Borrower, and that as such
he/she is authorized to execute this certificate on behalf of the Borrower. The
undersigned further certifies, represents and warrants on behalf of the Borrower
that the Borrower is entitled to receive the requested Borrowing under the terms
and conditions of the Credit Agreement.

              TETON ENERGY CORPORATION
 
       
 
  By:    
 
       
 
  Name:    
 
       
 
  Title:    
 
       

B-2

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EXHIBIT C
FORM OF INTEREST ELECTION REQUEST
[                                        ], 20__
     Teton Energy Corporation, a Delaware corporation (the “Borrower”), pursuant
to Section 2.04 of the Amended and Restated Credit Agreement dated as of
August 9, 2007 (together with all amendments, restatements, supplements or other
modifications thereto, the “Credit Agreement”) among the Borrower, JPMorgan
Chase Bank, N.A., as Administrative Agent and the other lenders which are or
become parties thereto (unless otherwise defined herein, each capitalized term
used herein is defined in the Credit Agreement), hereby makes an Interest
Election Request as follows:
          (i) The Borrowing to which this Interest Election Request applies, and
if different options are being elected with respect to different portions
thereof, the portions thereof to be allocated to each resulting Borrowing (in
which case the information specified pursuant to (iii) and (iv) below shall be
specified for each resulting Borrowing) is
[                                        ];
          (ii) The effective date of the election made pursuant to this Interest
Election Request is [                                        ], 20[___];[and]
          (iii) The resulting Borrowing is to be [an ABR Borrowing] [a
Eurodollar Borrowing][; and]
          [(iv) [If the resulting Borrowing is a Eurodollar Borrowing] The
Interest Period applicable to the resulting Borrowing after giving effect to
such election is [                                        ].
     The undersigned certifies that he/she is the
[                                        ] of the Borrower, and that as such
he/she is authorized to execute this certificate on behalf of the Borrower. The
undersigned further certifies, represents and warrants on behalf of the Borrower
that the Borrower is entitled to receive the requested continuation or
conversion under the terms and conditions of the Credit Agreement.

              TETON ENERGY CORPORATION
 
       
 
  By:    
 
       
 
  Name:    
 
       
 
  Title:    
 
       

C-1

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EXHIBIT D
FORM OF COMPLIANCE CERTIFICATE
     The undersigned hereby certifies that he/she is the [                    ]
of Teton Energy Corporation, a Delaware corporation (the “Borrower”), and that
as such he/she is authorized to execute this certificate on behalf of the
Borrower. With reference to the Amended and Restated Credit Agreement dated as
of August 9, 2007 (together with all amendments, restatements, supplements or
other modifications thereto being the “Agreement”) among the Borrower, JPMorgan
Chase Bank, N.A., as Administrative Agent, and the other lenders which are or
become a party thereto, the undersigned represents and warrants as follows (each
capitalized term used herein having the same meaning given to it in the
Agreement unless otherwise specified):
          (a) The representations and warranties of the Borrower contained in
Article VII of the Agreement and in the Loan Documents and otherwise made in
writing by or on behalf of the Borrower pursuant to the Agreement and the Loan
Documents were true and correct when made, and are repeated at and as of the
time of delivery hereof and are true and correct in all material respects at and
as of the time of delivery hereof, except to the extent such representations and
warranties are expressly limited to an earlier date or the Majority Lenders have
expressly consented in writing to the contrary.
          (b) The Borrower has performed and complied with all agreements and
conditions contained in the Agreement and in the Loan Documents required to be
performed or complied with by it prior to or at the time of delivery hereof [or
specify default and describe].
          (c) Since December 31, 2006, no change has occurred, either in any
case or in the aggregate, in the condition, financial or otherwise, of the
Borrower or any Subsidiary which could reasonably be expected to have a Material
Adverse Effect [or specify event].
          (d) There exists no Default or Event of Default [or specify Default
and describe].
          (e) Attached hereto are the detailed computations necessary to
determine whether the Borrower is in compliance with Section 9.01 and
Section 8.14 as of the end of the [fiscal quarter][fiscal year] ending
[                    ].
     EXECUTED AND DELIVERED this [___] day of [                    ].

              TETON ENERGY CORPORATION
 
       
 
  By:    
 
       
 
  Name:    
 
       
 
  Title:    
 
       

D-1

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EXHIBIT E-1
FORM OF LEGAL OPINION OF GERSTEN SAVAGE LLP

E-1-1

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EXHIBIT E-2
FORM OF LEGAL OPINION OF LOCAL COUNSEL

E-2-1

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EXHIBIT F-1
SECURITY INSTRUMENTS
     1. Amended and Restated Guaranty and Pledge Agreement dated as of August 9,
2007 by the Borrower and Teton North America LLC, Teton Piceance LLC, Teton DJ
LLC, Teton Williston LLC and Teton Big Horn LLC, as the Guarantors, in favor of
the Administrative Agent and the Lenders.
     2. Financing Statements in respect of item 1.
     3. Amendment to and Ratification of Mortgage dated as of August 9, 2007 by
and between the Borrower, as mortgagor, and the Administrative Agent for the
benefit of itself, the Lenders and others, and acknowledged, ratified and agreed
to by Teton Piceance LLC (Colorado).
     4. Financing Statements in respect of item 3.
     5. Mortgage, Deed of Trust, Assignment of As-Extracted Collateral, Security
Agreement and Financing Statement dated as of August 9, 2007 by Teton DJ LLC, as
mortgagor, for the benefit of the Administrative Agent, the Lenders and others
(Colorado).
     6. Financing Statements in respect of item 5
     7. Mortgage, Deed of Trust, Assignment of As-Extracted Collateral, Security
Agreement and Financing Statement dated as of August 9, 2007 by Teton DJ LLC, as
mortgagor, for the benefit of the Administrative Agent, the Lenders and others
(Nebraska).
     8. Financing Statements in respect of item 7.
     9. Mortgage, Deed of Trust, Assignment of As-Extracted Collateral, Security
Agreement and Financing Statement dated as of August 9, 2007, by Teton Piceance
LLC, as mortgagor, for the benefit of the Administrative Agent, the Lenders and
others (Colorado).
     10. Financing Statements in respect of item 9.

F-1-1

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EXHIBIT F-2
FORM OF GUARANTY AND PLEDGE AGREEMENT

F-2-1

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EXHIBIT G
FORM OF ASSIGNMENT AND ASSUMPTION
     This Assignment and Assumption (the “Assignment and Assumption”) is dated
as of the Effective Date set forth below and is entered into by and between
[Insert name of Assignor] (the “Assignor”) and [Insert name of Assignee] (the
“Assignee”). Capitalized terms used but not defined herein shall have the
meanings given to them in the Credit Agreement identified below (as amended, the
“Credit Agreement”), receipt of a copy of which is hereby acknowledged by the
Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto
are hereby agreed to and incorporated herein by reference and made a part of
this Assignment and Assumption as if set forth herein in full.
     For an agreed consideration, the Assignor hereby irrevocably sells and
assigns to the Assignee, and the Assignee hereby irrevocably purchases and
assumes from the Assignor, subject to and in accordance with the Standard Terms
and Conditions and the Credit Agreement, as of the Effective Date inserted by
the Administrative Agent as contemplated below (i) all of the Assignor’s rights
and obligations in its capacity as a Lender under the Credit Agreement and any
other documents or instruments delivered pursuant thereto to the extent related
to the amount and percentage interest identified below of all of such
outstanding rights and obligations of the Assignor under the respective
facilities identified below (including any letters of credit and guarantees
included in such facilities) and (ii) to the extent permitted to be assigned
under applicable law, all claims, suits, causes of action and any other right of
the Assignor (in its capacity as a Lender) against any Person, whether known or
unknown, arising under or in connection with the Credit Agreement, any other
documents or instruments delivered pursuant thereto or the loan transactions
governed thereby or in any way based on or related to any of the foregoing,
including contract claims, tort claims, malpractice claims, statutory claims and
all other claims at law or in equity related to the rights and obligations sold
and assigned pursuant to clause (i) above (the rights and obligations sold and
assigned pursuant to clauses (i) and (ii) above being referred to herein
collectively as the “Assigned Interest”). Such sale and assignment is without
recourse to the Assignor and, except as expressly provided in this Assignment
and Assumption, without representation or warranty by the Assignor.

     
1. Assignor:
                                          
 
   
2. Assignee:
                                          
 
  [and is an Affiliate of [identify Lender]1]
 
   
3. Borrower:
  Teton Energy Corporation
 
   
4. Administrative Agent:
  JPMorgan Chase Bank, N.A., as the administrative agent under the Credit
Agreement
 
   
5. Credit Agreement:
  The Amended and Restated Credit Agreement dated as of August 9, 2007 among
Teton Energy Corporation, the Lenders parties thereto, JPMorgan Chase Bank,
N.A., as Administrative Agent, and the other lenders party thereto.

 

1   Select as applicable.

G-1

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     6. Assigned Interest:

                              Aggregate Amount of     Amount of     Percentage
Assigned   Commitment   Commitment/Loans     Commitment/Loans     of   Assigned
  for all Lenders     Assigned     Commitment/Loans2  
 
  $     $       %
 
                 
 
  $     $       %
 
                 
 
  $     $       %
 
                 

Effective Date:                      ___, 20___[TO BE INSERTED BY ADMINISTRATIVE
AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE
REGISTER THEREFOR.]
     The terms set forth in this Assignment and Assumption are hereby agreed to:

              ASSIGNOR
 
            [NAME OF ASSIGNOR]
 
       
 
  By:    
 
       
 
  Name:    
 
       
 
  Title:    
 
       
 
            ASSIGNEE
 
            [NAME OF ASSIGNEE]
 
       
 
  By:    
 
       
 
  Name:    
 
       
 
  Title:    
 
       

 

2   Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans
of all Lenders thereunder.

G-2

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      Consented to and Accepted:
 
    JPMorgan Chase Bank, N.A., as Administrative Agent
 
   
By:
   
 
   
Name:
   
 
   
Title:
   
 
   
 
    Consented to:
 
    TETON ENERGY CORPORATION
 
   
By:
   
 
   
Name:
   
 
   
Title:
   
 
   

G-3

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ANNEX 1
STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION
     1. Representations and Warranties.
          1.1 Assignor. The Assignor (a) represents and warrants that (i) it is
the legal and beneficial owner of the Assigned Interest, (ii) the Assigned
Interest is free and clear of any lien, encumbrance or other adverse claim and
(iii) it has full power and authority, and has taken all action necessary, to
execute and deliver this Assignment and Assumption and to consummate the
transactions contemplated hereby; and (b) assumes no responsibility with respect
to (i) any statements, warranties or representations made in or in connection
with the Credit Agreement or any other Loan Document, (ii) the execution,
legality, validity, enforceability, genuineness, sufficiency or value of the
Loan Documents or any collateral thereunder, (iii) the financial condition of
the Borrower, any of its Subsidiaries or Affiliates or any other Person
obligated in respect of any Loan Document or (iv) the performance or observance
by the Borrower, any of its Subsidiaries or Affiliates or any other Person of
any of their respective obligations under any Loan Document.
          1.2 Assignee. The Assignee (a) represents and warrants that (i) it has
full power and authority, and has taken all action necessary, to execute and
deliver this Assignment and Assumption and to consummate the transactions
contemplated hereby and to become a Lender under the Credit Agreement, (ii) it
satisfies the requirements, if any, specified in the Credit Agreement that are
required to be satisfied by it in order to acquire the Assigned Interest and
become a Lender, (iii) from and after the Effective Date, it shall be bound by
the provisions of the Credit Agreement as a Lender thereunder and, to the extent
of the Assigned Interest, shall have the obligations of a Lender thereunder,
(iv) it has received a copy of the Credit Agreement, together with copies of the
most recent financial statements delivered pursuant to Section 8.01 thereof, as
applicable, and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment and Assumption and to purchase the Assigned Interest on the basis of
which it has made such analysis and decision independently and without reliance
on the Administrative Agent or any other Lender, and (v) if it is a Foreign
Lender, attached to the Assignment and Assumption is any documentation required
to be delivered by it pursuant to the terms of the Credit Agreement, duly
completed and executed by the Assignee; and (b) agrees that (i) it will,
independently and without reliance on the Administrative Agent, the Assignor 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 the Loan Documents, and (ii) it will perform in
accordance with their terms all of the obligations which by the terms of the
Loan Documents are required to be performed by it as a Lender.
     2. Payments. From and after the Effective Date, the Administrative Agent
shall make all payments in respect of the Assigned Interest (including payments
of principal, interest, fees and other amounts) to the Assignor for amounts
which have accrued to but excluding the Effective Date and to the Assignee for
amounts which have accrued from and after the Effective Date.

G-4

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     3. General Provisions. This Assignment and Assumption shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
successors and assigns. This Assignment and Assumption may be executed in any
number of counterparts, which together shall constitute one instrument. Delivery
of an executed counterpart of a signature page of this Assignment and Assumption
by telecopy shall be effective as delivery of a manually executed counterpart of
this Assignment and Assumption. This Assignment and Assumption shall be governed
by, and construed in accordance with, the law of the State of Texas.

G-5

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SCHEDULE 7.05
LITIGATION
None.

Schedule 7.05 - 1

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SCHEDULE 7.14
SUBSIDIARIES AND PARTNERSHIPS
Teton Energy Corporation owns the following subsidiaries:
          (a) Teton North America LLC, a Colorado limited liability company.
     Teton North America LLC owns the following:
100% of the membership interests of Teton Piceance LLC
100% of the membership interests of Teton DJ LLC
100% of the membership interests of Teton Williston LLC
100% of the membership interests of Teton Big Horn LLC
     Teton Piceance LLC owns an undivided 25% working interest (19.69% net
revenue interest) in a 6,314-acre block located in Garfield County, Colorado,
townships T5S 96W and T6S 96 97W, immediately to the northwest of Grand Valley
gas field, the westernmost of the four gas fields that comprise the continuous,
basin-centered, tight gas sand accumulation (the “Piceance Fairway”).
     Teton DJ LLC owns over 256,000 gross leased acres with a working interest
of 25% and average net revenue interest of approximately 81%, is located on the
eastern flank of the DJ basin in Chase, Dundy, Perkins, and Keith counties in
Nebraska and Colorado in an Area of Mutual Interest (“AMI”) with Noble Energy,
Inc. Teton DJ LLC also 10,600 gross leased acres outside of the AMI with working
interests between 50% to 100% and average net revenue interest of approximately
81%.
     Teton Williston LLC owns an undivided 25% leasehold interest in certain
undeveloped oil and gas leases in the Williston Basin covering approximately
87,000 gross (58,000 net) acres in the state of North Dakota.
     Teton Big Horn LLC owns an undivided 100% leasehold interest in 12,000
gross and net acres in the Big Horn Basin in the State of Wyoming.
     Teton owns 100% of the membership interests in Goltech LLC, which is a
Texas limited liability company that is in the process of being dissolved.
Goltech formerly owned Teton’s interest in Goloil, which was sold in July 2004.
          (b) Teton currently owns no interests in any partnerships.

Schedule 7.14 - 1

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SCHEDULE 7.15
LOCATION OF BUSINESS AND OFFICES
Legal name of the Borrower: Teton Energy Corporation
     Address: 410 17th Street, Suite 1850, Denver, Colorado 80202
     All names and trade names that the Borrower has used in the last five
years: None
     Jurisdictions of organization over the last five years: Delaware
     Current jurisdiction of organization: Delaware
     Organizational number: 2896826
     Taxpayer identification number: 84-1482290
     Location of chief executive office or sole place of business over the last
five years:
          410 17th Street, Suite 1850, Denver, Colorado 80202
Legal name of the Obligor: Teton North America LLC
     Address: 410 17th Street, Suite 1850, Denver, Colorado 80202
     All names and trade names that the Borrower has used in the last five
years: None
     Jurisdictions of organization over the last five years: Colorado
     Current jurisdiction of organization: Colorado
     Organizational number: 20051069170
     Location of chief executive office or sole place of business over the last
five years:
          410 17th Street, Suite 1850, Denver, Colorado 80202
Legal name of the Obligor: Teton Piceance LLC
     Address: 410 17th Street, Suite 1850, Denver, Colorado 80202
     All names and trade names that the Borrower has used in the last five
years: None
     Jurisdictions of organization over the last five years: Colorado
     Current jurisdiction of organization: Colorado
     Organizational number: 20051069213
     Location of chief executive office or sole place of business over the last
five years:
          410 17th Street, Suite 1850, Denver, Colorado 80202
Legal name of the Obligor: Teton DJ LLC
     Address: 410 17th Street, Suite 1850, Denver, Colorado 80202
     All names and trade names that the Borrower has used in the last five
years: None
     Jurisdictions of organization over the last five years: Colorado
     Current jurisdiction of organization: Colorado
     Organizational number: 20051069240
     Location of chief executive office or sole place of business over the last
five years:
          410 17th Street, Suite 1850, Denver, Colorado 80202

Schedule 7.15 - 1

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Legal name of Obligor: Teton Williston LLC
     Address: 410 17th Street, Suite 1850, Denver, Colorado 80202
     All names and trade names that the Borrower has used in the last five
years: None
     Jurisdictions of organization over the last five years: Colorado
     Current jurisdiction of organization: Colorado
     Organizational number: 20061183886
     Location of chief executive office or sole place of business over the last
five years:
          410 17th Street, Suite 1850, Denver, Colorado 80202
Legal name of Obligor: Teton Big Horn LLC
     Address: 410 17th Street, Suite 1850, Denver, Colorado 80202
     All names and trade names that the Borrower has used in the last five
years: None
     Jurisdictions of organization over the last five years: Colorado
     Current jurisdiction of organization: Colorado
     Organizational number: [in process of obtaining]
     Location of chief executive office or sole place of business over the last
five years:
          410 17th Street, Suite 1850, Denver, Colorado 80202

Schedule 7.15 - 2

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SCHEDULE 7.18
GAS IMBALANCES
None.

Schedule 7.18 - 1

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SCHEDULE 7.19
MARKETING CONTRACTS
     1. Encana contract, Gas Gathering Contract 6/29/2006, Berry petroleum and
Encana Oil and Gas (USA) Inc.

  •   Term, Life of Lease     •   Fees, $0.33 MMBTU per receipt point and actual
prorate electricity costs for Gathering Fee     •   Processing, on a keep whole
basis, with Encana, at it’s option, will either return liquid shrink in kind or
purchase shrink, to Enterprise Meeker Plant, CIG insidee FERC lesss $0.10 per
MMBTU     •   Treating Fee for Co2 > 3.0%, $0.06 of the % CO0>3.0%, CPI adjusted
annually after first anniversary date     •   August 2007 to December 2007
pricing layers:

  (1)   first 12,000 day at CIG RM -$0.04
    (2)   >12,000 day at Rockies Cheyenne -$0.23

No firm pricing/volume commitments post December 2007.

Schedule 7.19 - 1

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SCHEDULE 7.20
SWAP AGREEMENTS
BNP Paribas Hedge Contract

  •   ISDDA Agreement dated October 24, 2006     •   Two hedge transactions to
date:

     1. Reference # 122448 zero-cost collars, November 29, 360,000 MMBTU,
covering January 2007 through December 2007 @ 30,000 MMBTU per month at $6.00
per MMBTU floor and $7.25 per MMBTU cap.
     2. Reference # 141886 6/13/2007, Swap @ $5.78 MMBTU, 480,000 MMBTU
July 2007 through October 2008 @ 30,000 MMBTU per month

Schedule 7.20 - 1

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SCHEDULE 9.05
INVESTMENTS
None.

Schedule 9.05 - 1