AMENDED AND RESTATED CREDIT AGREEMENT
 
Dated effective as of October 3, 2011
 
among
 
TEXAS CAPITAL BANK, N.A.,
as Administrative Agent, L/C Issuer and a Bank;
 
and
 
OTHER FINANCIAL INSTITUTIONS AND BANKS,
as Banks;
 
and
 
ENERJEX RESOURCES, INC.,
 
ENERJEX KANSAS, INC. (f/k/a MIDWEST ENERGY, INC.),
 
DD ENERGY, INC.,
 
WORKING INTEREST, LLC
 
and
 
BLACK SABLE ENERGY, LLC,
collectively, as Borrowers
   

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SENIOR SECURED REDUCING REVOLVING LINE OF CREDIT
OF UP TO $50,000,000
 

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TABLE OF CONTENTS
 

 
PAGE
   
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS
1
1.01
Defined Terms
1
1.02
Other Interpretive Provisions
20
1.03
Accounting Terms.
20
1.04
Rounding
21
1.05
References to Agreements and Laws
21
1.06
Letter of Credit Amounts
21
   
ARTICLE II THE COMMITMENT AND CREDIT EXTENSIONS.
21
2.01
Revolving Loans
21
2.02
Loans and Continuations of Loans.
22
2.03
Letters of Credit.
23
2.04
Borrowing Base Determination.
28
2.05
Prepayments.
31
2.06
Repayment of Loans
32
2.07
Interest.
33
2.08
Fees
33
2.09
Computation of Interest and Fees
34
2.10
Evidence of Debt
34
2.11
Payments Generally
34
2.12
Pro Rata Treatment and Payments
35
2.13
Sharing of Payments and Setoffs
35
2.14
Adjustment to Aggregate Commitment Amount
35
   
ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY
36
3.01
Taxes
36
3.02
Illegality
37
3.03
Inability to Determine Rates
37
3.04
Increased Cost and Reduced Return; Capital Adequacy; Reserves on Eurodollar
Loans.
38
3.05
Funding Losses
38
3.06
Matters Applicable to all Requests for Compensation
39
3.07
Survival
39
3.08
Replacement of Banks
39
   
ARTICLE IV CONDITIONS PRECEDENT TO CREDIT EXTENSIONS
39
4.01
Conditions of Initial Credit Extension
39
4.02
Conditions to all Credit Extensions and Continuations
41
   
ARTICLE V REPRESENTATIONS AND WARRANTIES
43
5.01
Existence, Qualification and Power; Compliance with Laws
43
5.02
Authorization; No Contravention
43
5.03
Governmental Authorization
43

 
 
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5.04
Binding Effect
43
5.05
Financial Statements; No Material Adverse Effect
44
5.06
Litigation
44
5.07
No Default
44
5.08
Title; Liens; Priority of Liens
44
5.09
Environmental Compliance
45
5.10
Insurance
45
5.11
Taxes
45
5.12
ERISA Compliance
45
5.13
Subsidiaries
46
5.14
Disclosure
46
5.15
Compliance with Laws
46
5.16
Suspended Revenues
46
5.17
Tax Shelter Regulations
47
5.18
Oil and Gas Leases
47
5.19
Oil and Gas Contracts
47
5.20
Producing Wells
47
5.21
Purchasers of Production
47
5.22
Swap Contracts
48
5.23
Solvency and Insurance
48
5.24
Material Agreements; Debt Instruments
48
   
ARTICLE VI AFFIRMATIVE COVENANTS
49
6.01
Financial Statements
49
6.02
Certificates; Other Information
49
6.03
Notices.
50
6.04
Payment of Obligations
51
6.05
Preservation of Existence, Etc.
51
6.06
Maintenance of Properties
51
6.07
Maintenance of Insurance
51
6.08
Compliance with Laws
51
6.09
Books and Records
52
6.10
Inspection Rights
52
6.11
Use of Proceeds
52
6.12
Accounts
52
6.13
Additional Borrowers and New Guarantors
52
6.14
Collateral Records
53
6.15
Security Interests
53
6.16
Title Defects
53
6.17
Maintenance of Tangible Property
53
6.18
Inspection of Tangible Assets/Right of Audit
54
6.19
Leases
54
6.20
Operation of Borrowing Base Oil and Gas Properties
54
6.21
Change of Purchasers of Production
54
6.22
Hedging
55
6.23
Title and Liens
55
6.24
Material Agreements
55

 
 
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6.25
Production Reports
55
6.26
Post-Closing Hedge Requirement
56
   
ARTICLE VII NEGATIVE COVENANTS
56
7.01
Liens
56
7.02
Investments; Acquisitions
57
7.03
Indebtedness
58
7.04
Fundamental Changes
58
7.05
Dispositions
58
7.06
Restricted Payments
59
7.07
Change in Nature of Business; Material Agreements
59
7.08
Transactions with Affiliates
59
7.09
Margin Regulations
60
7.10
Pooling or Unitization
60
7.11
Hedging
60
7.12
Financial Covenants
60
7.13
Agreements Restricting Liens.
61
7.14
Compliance with ERISA.
61
   
ARTICLE VIII THE AGENTS
62
8.01
Authorization and Action
62
8.02
Administrative Agent’s Reliance, Etc
63
8.03
Administrative Agent and its Affiliates
63
8.04
Bank Credit Decision
63
8.05
Administrative Agent Indemnity
64
8.06
Successor Agents
64
8.07
Notice of Default
65
   
ARTICLE IX EVENTS OF DEFAULT AND REMEDIES
65
9.01
Events of Default
65
9.02
Remedies Upon Event of Default
67
9.03
Application of Funds
68
   
ARTICLE X MISCELLANEOUS
68
10.01
Amendments, Etc
68
10.02
Notices and Other Communications; Facsimile Copies
69
10.03
No Waiver; Cumulative Remedies
70
10.04
Attorney Costs and Expenses
70
10.05
Indemnification by Borrowers
71
10.06
Payments Set Aside
71
10.07
Successors and Assigns; Participation; Purchasing Banks.
71
10.08
Set-off
75
10.09
Interest Rate Limitation
75
10.10
Counterparts
75
10.11
INTEGRATION; FINAL AGREEMENT
75
10.12
Survival of Representations and Warranties
76
10.13
Severability
76

 
 
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10.14
Governing Law; Submission to Jurisdiction
76
10.15
DISPUTE RESOLUTION; WAIVER OF JURY TRIAL; CLASS ACTION WAIVER; ARBITRATION;
RELIANCE; DAMAGES
76
10.16
USA Patriot Act Notice
79
10.17
Time of the Essence
79
10.18
Amendments or Modifications
79
10.19
Amendment and Restatement
81
10.20
Controlling Provision Upon Conflict
81

 
SCHEDULES
   
1.01
Commitment Amounts and Aggregate Commitment Amount
5.06
Litigation
5.09
Environmental Matters
5.13
Subsidiaries
5.19
Oil and Gas Contracts
5.21
Purchasers of Production
5.22
Swap Contracts
5.24
Material Agreements; Debt Instruments
7.01
Existing Liens
7.03
Existing Indebtedness
10.02
Addresses for Notices
10.07
Commitment Transfer Supplement

 
EXHIBITS
     
A
Borrowing Base Oil and Gas Properties
B
Form of Request for Credit Extension
C
Form of Note
D
Form of Compliance Certificate
E
List of Collateral Documents
F
Form of Guaranty
G
Form of Joinder Agreement

 
 
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AMENDED AND RESTATED CREDIT AGREEMENT
 
This AMENDED AND RESTATED CREDIT AGREEMENT is entered into effective as of
October 3, 2011 among ENERJEX RESOURCES, INC., a Nevada corporation (“Parent”),
ENERJEX KANSAS, INC. (f/k/a Midwest Energy, Inc.), a Nevada corporation
(“EnerJex Kansas”),  DD ENERGY, INC., a Nevada corporation (“DD Energy”),
WORKING INTEREST, LLC, a Kansas limited liability company (“Working Interest”)
and BLACK SABLE ENERGY, LLC, a Texas limited liability company (“Black Sable”)
(together with Subsidiaries of any such party that hereafter execute and deliver
a Joinder Agreement, collectively, “Borrowers”) and TEXAS CAPITAL BANK, N.A., a
national banking association, as a Bank, L/C Issuer and Administrative
Agent  (in such latter capacity and together with its successors and permitted
assigns in such capacity the “Administrative Agent”), and the several banks and
financial institutions from time to time parties to this Credit Agreement (the
“Banks,” such term to include all undersigned Banks and all other financial
institutions which subsequently become parties to this Agreement in accordance
with Section 10.07 hereof).
 
WHEREAS, Parent, EnerJex Kansas and DD Energy, as borrowers, and Texas Capital
Bank, N.A., as administrative agent and a lender, previously entered into the
Existing Loan Agreement (as defined below).
 
WHEREAS, Borrowers have requested that Administrative Agent and the Banks amend,
restate and rearrange the Existing Loan Agreement and provide a reducing
revolving credit facility, and Administrative Agent and the Banks are willing to
do so on the terms and conditions set out herein.
 
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein
contained, the parties hereto covenant and agree as follows:
 
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
 
1.01           Defined Terms.  As used in this Agreement, the following terms
shall have the meanings set out below:
 
“Administrative Agent” has the meaning specified in the preamble.
 
“Affiliate” means, with respect to any 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.  “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.  Without limiting the
generality of the foregoing, a Person shall be deemed to be Controlled by
another Person if such other Person possesses, directly or indirectly, power to
vote more than 25% of the securities having ordinary voting power for the
election of the Governing Body of such Person.
 
“Aggregate Commitment Amount” means the lesser of: (a) the Borrowing Base in
effect from time to time, or (b) the amount stated as the Aggregate Commitment
Amount on Schedule 1.01 attached hereto, as the same may be amended from time to
time as provided in this Agreement.
 
 
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“Aggregate Outstanding Credit Exposure” means, at any time, the aggregate of the
Outstanding Credit Exposure of all the Banks.
 
“Agreement” means this Amended and Restated Credit Agreement, as amended,
restated, supplemented or otherwise modified from time to time.
 
“Applicable Margin” means the applicable Eurodollar Margin or Base Rate Margin
provided for in the Margin/Fee Table.
 
“Approved Counterparty” means (i) BP Corporation North America Inc. and (ii) any
other swap counterparty under a Permitted Swap Contract, to the extent (x) such
Permitted Swap Contract satisfies the requirements hereof and (y) such swap
counterparty enters into an Intercreditor Agreement with, and in form and
content satisfactory to, Administrative Agent.
 
“Approved Counterparty Swap Obligations” means the obligations owed by Borrowers
or any of their Subsidiaries to any Approved Counterparty pursuant to a
Permitted Swap Contract.
 
“Attorney Costs” means and includes all reasonable fees, expenses and
disbursements of any law firm or other external counsel.
 
“Available Amount” means, when determined, with respect to the Commitments, the
difference of (a) the Aggregate Commitment Amount and (b) the Aggregate
Outstanding Credit Exposure.
 
“Availability Period” means the period from and including the Closing Date to
the Commitment Termination Date.
 
“Bank Parties” means the L/C Issuer, the Banks and the Administrative Agent.
 
“Banks” has the meaning specified in the preamble.
 
“Base Rate” means for any day a fluctuating rate per annum equal to the higher
of (a) the Federal Funds Rate plus 0.50% and (b) the rate of interest in effect
for such day as publicly announced from time to time by Administrative Agent as
its “prime rate.”  The “prime rate” is a rate set by Administrative Agent based
upon various factors including Administrative Agent’s costs and desired return,
general economic conditions and other factors, and is used as a reference point
for pricing some loans, which may be priced at, above, or below such announced
rate.  In the event that Administrative Agent at any time does not publish a
prime rate for any reason, Administrative Agent will choose a substitute prime
rate, for purposes of calculating the interest rate applicable hereunder.  Any
change in such rate announced by Administrative Agent shall take effect at the
opening of business on the day specified in the public announcement of such
change.
 
 
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“Base Rate Loan(s)” means Loans advanced or converted to Loans based on the Base
Rate and Base Rate Margin.
 
“Base Rate Margin” means the incremental rate of interest specified in the
Margin/Fee Table.
 
“Borrowers” has the meaning specified in the preamble.
 
“Borrowing Base” means the maximum amount of Loans that may be supported by the
Borrowing Base Oil and Gas Properties, as determined by Administrative Agent and
approved by the Banks or the Required Banks, as the case may be, in accordance
with Section 2.04 of this Agreement.
 
“Borrowing Base Oil and Gas Properties” means those Oil and Gas Properties of
the Loan Parties that are described in any Reserve Report submitted to the
Administrative Agent by Borrowers, together with  (a) those Oil and Gas
Properties of the Loan Parties that are described in Exhibit A attached hereto
and made a part hereof, as such Exhibit A may be amended from time to time, and
(b) any other Oil and Gas Properties of the Loan Parties that are described in
and covered by (or that the Administrative Agent and Loan Parties have attempted
to describe in) any of the Collateral Documents, whether or not such Oil and Gas
Properties are described in Exhibit A attached hereto.  Any reference to Exhibit
A attached hereto shall be deemed to also refer to any Exhibit A attached to any
and all mortgages, deeds of trust, and leasehold mortgages included in the
Collateral Documents.
 
“Borrowing Base Utilization Percentage” means the ratio, expressed as a
percentage, of the Aggregate Outstanding Credit Exposure to the Borrowing Base.
 
“Breakage Costs” means all reasonable losses, expenses and liabilities
(including, without limitation, any loss, expense or liability incurred by
reason of the liquidation or reemployment of deposits or other funds required by
any Bank to fund its Eurodollar Loans but excluding loss of anticipated profit
with respect to any Eurodollar Loans) which such Bank may sustain:  (i) if for
any reason (other than a default by such Bank or the Administrative Agent) a
borrowing of Eurodollar Loans does not occur on a date specified therefor in a
Request for Credit Extension; (ii) if any repayment or conversion of any
Eurodollar Loans occurs on a date which is not the last day of an Interest
Period applicable thereto; (iii) if any prepayment of any Eurodollar Loans is
not made on any date specified in a notice of prepayment given by Borrowers; or
(iv) as a consequence of any default by the Borrowers to repay Eurodollar Loans
when required by the terms of this Agreement.
 
“Business Day” means any day other than a Saturday, Sunday or other day on which
commercial banks are authorized to close under the Laws of, or are in fact
closed in, the state of Texas and, if such day relates to any Loan based on the
Eurodollar Rate, means any such day on which dealings in Dollar deposits are
conducted by and between banks in the London interbank Eurodollar market.
 
 
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“Business Entity” means a company, corporation, limited liability company,
general partnership, limited partnership, partnership, joint venture, trust,
business association, unincorporated organization, or other entity other than a
natural Person, that has been formed and exists to conduct any line of business.
 
“Cash Collateralize” has the meaning specified in Section 2.03(e).
 
“Certificate of Formation” means any certificates, articles, or other
instruments that are required or permitted to be filed with any designated
agency of the jurisdiction in which a Business Entity is formed in order to
evidence the legal formation of such Business Entity.
 
“Change of Control” means either of the following: (a) any person or group of
persons (within the meaning of the Securities Exchange Act of 1934) shall have
acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by
the Securities and Exchange Commission under the Securities Exchange Act of
1934) of 50% or more of the issued and outstanding shares of capital stock of
any Loan Party having the right to vote for the election of directors of any
Loan Party under ordinary circumstances; or (b) Parent ceases to own and control
more than 50% of the beneficial ownership associated with the issued and
outstanding shares of capital stock of any Loan Party.
 
“Closing Date” means October 3, 2011.
 
“Code” means the Internal Revenue Code of 1986, as amended from time to time,
and any successor statute and all regulations thereunder.
 
“Collateral” shall mean the assets and rights and interests in or to property of
Borrowers and each of the other Loan Parties, whether real or personal, tangible
or intangible, in which a Lien is granted or purported to be granted pursuant to
the Collateral Documents or the Existing Collateral Documents.
 
“Collateral Documents” means all agreements, instruments and documents
heretofore, now or hereafter executed and delivered in connection with this
Agreement pursuant to which Liens are granted or purported to be granted or
assigned to Administrative Agent, for the benefit of the Banks, in Collateral
securing all or part of the Total Obligations each in form and content
reasonably satisfactory to Administrative Agent and, including without
limitation, those documents described on the attached Exhibit E.
 
“Commitment” means, as to any Bank, the obligation of such Bank to make Loans
and participate in Letters of Credit issued upon the application of the
Borrowers pursuant to the terms of this Agreement.
 
“Commitment Amount” means at any time, for any Bank, the amount set forth
opposite such Bank’s name on Schedule 1.01 under the heading “Commitment
Amount,” as such amount may be changed as provided in this Agreement.
 
“Commitment Termination Date” means the earliest of (a) the Maturity Date, (b)
the date of termination of the Commitments of the Banks to make Loans and the
obligation of Banks to make L/C Credit Extensions pursuant to Section 9.02. and
(c) the date all Loans have been prepaid in full in accordance with Section
2.05(a) hereof and the Borrowers have notified the Administrative Agent, in
conjunction with the prepayment, that the Borrowers intend by such prepayment to
terminate the remainder of the Commitment.
 
 
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“Commitment Transfer Supplement” means a Commitment Transfer Supplement executed
by Administrative Agent, a Purchasing Bank, the transferring Bank and Borrowers,
if required by Section 10.07, substantially in the form of Schedule 10.07 and
registered with the Administrative Agent pursuant to Section 10.07(d) hereof.
 
“Compliance Certificate” means the certificate of an authorized officer of the
Borrowers submitted to the Administrative Agent from time to time pursuant to
this Agreement and attesting to the financial covenants and stating, to such
officer’s knowledge, whether or not a Default has occurred and is continuing
and, if such an event has occurred, the actions being taken by the Borrowers to
remedy such situation and that GAAP has been used in the preparation of the
Financial Statements subject to normal year-end audit adjustments and the
absence of footnotes, which certificate shall be in the form attached hereto as
Exhibit D.
 
“Contractual Obligation” means, as to any Person, any provision of any security
issued by such Person or of any agreement, instrument or other undertaking to
which such Person is a party or by which it or any of its property is bound.
 
“Control” has the meaning specified in the definition of “Affiliate.”
 
“Controlled Group” means all members of a controlled group of corporations and
all other Business Entities under common control which, together with Borrower,
are treated as a single employer under Section 414 of the Code.
 
“Corporate Action” means action taken by the Governing Body of any Business
Entity (not just a corporation) in order to authorize such Business Entity
pursuant to its Governing Documentation to enter into and become bound by the
terms of any particular transaction.
 
“Corporate Power” means the power and authority of a Business Entity (not just a
corporation), under the terms of its Governing Documentation and applicable Law,
to enter into, and become bound by, the terms of any particular transaction.
 
“Credit Extension” means a Loan or an L/C Credit Extension.
 
“Current Assets” means at any time all assets, that should in accordance with
GAAP be classified as current assets on a consolidated balance sheet of
Borrowers and their Subsidiaries, but excluding any mark-to-market valuation
under Permitted Swap Contracts.
 
“Current Financial Statements” means the most recent Financial Statements
delivered under Sections 6.01(a) or 6.01(b) or prior to delivery of any
Financial Statements after the Closing Date, the Financial Statements dated as
of and for the period ending June 30, 2011.
 
“Current Liabilities” means at any time, all liabilities that should in
accordance with GAAP, be classified as current liabilities on a consolidated
balance sheet of Borrowers and their Subsidiaries, but excluding any
mark-to-market valuation under Permitted Swap Contracts.
 
 
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“Debt Instruments” means all instruments and agreements providing for,
evidencing, securing or otherwise relating to any Indebtedness of Borrowers or
any of their Subsidiaries, and all obligations of Borrowers or any of their
Subsidiaries to issuers of surety or appeal bonds issued for account of
Borrowers or any such Subsidiaries.
 
“Debtor Relief Laws” means the Bankruptcy Code of the United States, and all
other liquidation, conservatorship, bankruptcy, assignment for the benefit of
creditors, moratorium, rearrangement, receivership, insolvency, reorganization,
or similar debtor relief Laws of the United States or other applicable
jurisdictions from time to time in effect and affecting the rights of creditors
generally.
 
“Default” means any event or condition that constitutes an Event of Default or
that, with the giving of any notice, the passage of time, or both, would be an
Event of Default.
 
“Default Rate” means the lesser of (a) an interest rate equal to the Floating
Rate for the Loans plus 4.0% per annum and (b) the Maximum Rate.
 
“Designation” means that certain Certificate of Designation of Preferences,
Rights and Limitations of Series A Preferred Stock dated December 31, 2010
setting forth the rights, preferences, restrictions and other matters relating
to Series A Preferred Stock of the Parent.
 
“Disposition” or “Dispose” means, whether voluntary or involuntary, the sale,
transfer, assignment, conveyance, farm-out, forfeiture, license, lease or other
disposition (including any sale and leaseback transaction but excluding
involuntary condemnations) of any property (whether real or personal property)
by any Person, including any sale, assignment, transfer or other disposal, with
or without recourse, of any notes or accounts receivable or any rights and
claims associated therewith.
 
“Dollar” and “$” mean lawful money of the United States.
 
“EBITDAX” means without duplication, for any reporting period, (a) Net Income
for such period less (b) the amount of any dividends or distributions paid
during such period by any Loan Party, including, without limitation, any
Restricted Payments made by Parent to its Series A Preferred Stock holders in
accordance with Section 7.06, plus (c) to the extent deducted in determining Net
Income: (i) Interest Expense, (ii) income taxes, (iii) depreciation,
(iv) depletion, (v) amortization, (vi) oil and gas exploration expenses,
including dry-hole costs, (vii) any net non-cash gain or loss during such period
arising from the sale, exchange, retirement or other disposition of capital
assets other than in the ordinary course of business, (viii) any write-up or
write-down of assets and (ix) effects arising from the application of FASB
Statements 133 and 143.
 
“Environmental Laws” means (a) the following federal laws as they may be cited,
referenced and amended from time to time: the Clean Air Act, the Clean Water
Act, the Safe Drinking Water Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Endangered Species Act, the Resource
Conservation and Recovery Act, the Occupational Safety and Health Act, the
Hazardous Materials Transportation Act, the Superfund Amendments and
Reauthorization Act, the Toxic Substances Control Act, and the Oil Pollution Act
of 1990; (b) any and all environmental statutes of any state in which property
of the Borrower is situated, as they may be cited, referenced and amended from
time to time; (c) any rules or regulations promulgated under or adopted pursuant
to the above federal and state laws; and (d) any other federal, state or local
statute or any requirement, rule, regulation, code, ordinance or order adopted
pursuant thereto, including, without limitation, those relating to the
generation, transportation, treatment, storage, recycling, disposal, handling or
release of Hazardous Materials.
 
 
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“Environmental Liability” means any liability, contingent or otherwise
(including any liability for damages, costs of environmental remediation, fines,
penalties or indemnities), of Borrowers, any other Loan Party or any of their
respective Subsidiaries directly or indirectly resulting from or based upon (a)
violation of any Environmental Law, (b) the generation, use, handling,
transportation, storage, treatment or disposal of any Hazardous Materials, (c)
exposure to any Hazardous Materials, (d) the release or threatened release of
any Hazardous Materials into the environment or (e) any contract, agreement or
other consensual arrangement pursuant to which liability is assumed or imposed
with respect to any of the foregoing.
 
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended
from time to time and the regulations promulgated thereunder.
 
“ERISA Affiliate” means any trade or business (whether or not incorporated)
under common control with either Borrower within the meaning of Section 414(b)
or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of
provisions relating to Section 412 of the Code).
 
“ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) a
withdrawal by any Borrower or any ERISA Affiliate from a Pension Plan subject to
Section 4063 of ERISA during a plan year in which it was a substantial employer
(as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is
treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or
partial withdrawal by any Borrower or any ERISA Affiliate from a Multiemployer
Plan or notification that a Multiemployer Plan is in reorganization; (d) the
filing of a notice of intent to terminate, the treatment of a Plan amendment as
a termination under Sections 4041 or 4041A of ERISA, or the commencement of
proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e)
an event or condition which might reasonably be expected to constitute grounds
under Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the
imposition of any liability under Title IV of ERISA, other than for PBGC
premiums due but not delinquent under Section 4007 of ERISA, upon any Borrower
or any ERISA Affiliate which liability remains unpaid or undischarged for thirty
(30) days.
 
“Eurodollar Loan(s)” means Loans advanced or converted to Loans based on the
Eurodollar Rate and the Eurodollar Margin.
 
“Eurodollar Margin” means the incremental rate of interest specified in the
Margin/Fee Table.
 
 
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“Eurodollar Rate” means the British Bankers’ Association Interest Settlement
Rate per annum for the applicable Interest Period appearing on the display
designated as page 3750 (or such other display page that may replace display
page 3750 from time to time) on Moneyline Telerate, Inc., formerly known as
Telerate (or appropriate successor), on the first day of each Interest Period
(or in the event no such quotation is available on such date, as quoted on the
day most immediately preceding the date of determination of which such quotation
was available).
 
“Existing Collateral Documents” means, collectively, all collateral documents
and instruments executed and delivered in connection with the Existing Loan
Agreement.
 
“Event of Default” has the meaning specified in Section 9.01.
 
“Existing Loan Agreement” means that certain Credit Agreement dated July 3,
2008, as amended heretofore, among Parent, EnerJex Kansas and DD Energy, as
borrowers, and Texas Capital Bank, N.A., as administrative agent and a lender.
 
“Federal Funds Rate” means, for any day, the rate per annum equal to the
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day; provided that (a) if such day is not a Business Day,
the Federal Funds Rate for such day shall be such rate on such transactions on
the next preceding Business Day as so published on the next succeeding Business
Day, and (b) if no such rate is so published on such next succeeding Business
Day, the Federal Funds Rate for such day shall be the average rate (rounded
upward, if necessary, to a whole multiple of 1/100 of 1%) charged to a Bank on
such day on such transactions.
 
“Federal Reserve Board” means the Board of Governors of the Federal Reserve
System or any of its successors.
 
“Financial Statements” means the statements of the financial condition of the
indicated Person, on a consolidated basis, as at the point in time and for the
period indicated and consisting of at least a balance sheet, income statement
and statement of cash flows, and when the foregoing are audited, accompanied by
the certification of such Person’s independent certified public accountants and
footnotes to any of the foregoing, all of which shall be prepared in accordance
with GAAP applied on a basis consistent with that of the preceding year, except
for any inconsistency that results from changes in GAAP from year to year, and
when the foregoing are not audited except for normal year-end audit adjustments
and the absence of footnotes.
 
“Floating Rate” means a per annum interest rate determined by reference to the
following schedule:
 
Eurodollar Rate + Eurodollar Margin at Borrower’s option pursuant to Section
2.02, but in no event shall such sum be less than four percent (4.0%),
 
or
 
Base Rate + Base Rate Margin at Borrower’s option or by default pursuant to
Section 2.02, but in no event shall such sum be less than four percent (4.0%).
 
 
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“Funded Debt” means, as of any date of determination for Borrowers and their
Subsidiaries on a consolidated basis, the sum of all Indebtedness for borrowed
money (whether as a direct obligor on a promissory note, a bond, debenture, loan
agreement or other similar instruments or a reimbursement obligor on a letter of
credit, a guarantor, or otherwise), including under this Agreement and other
Permitted Indebtedness described on Schedule 7.03 hereof.
 
“GAAP” means generally accepted accounting principles in the United States set
out in the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or such other
principles as may be approved by a significant segment of the accounting
profession in the United States, that are applicable to the circumstances as of
the date of determination, consistently applied.
 
“Governing Body” means, in the case of a corporation, its board of directors, in
the case of a limited liability company, its members or its managers, depending
on how the management of such Business Entity is allocated in its Governing
Documentation, in the case of a general partnership or joint venture, the
partners or the joint venturers thereof, respectively, in the case of a limited
partnership, the applicable Governing Body of the general partner thereof, if
such general partner is a Business Entity, and in the case of any other Business
Entity not specified herein, the designees thereof that, pursuant to the
Governing Documentation of such Business Entity, fulfill the responsibilities
typically discharged by a board of directors of a corporation.
 
“Governing Documentation” means, in the case of a corporation, its certification
of incorporation, articles of incorporation and bylaws, as amended, in the case
of a limited liability company, its Certificate of Formation, its limited
liability company agreement, and its operating agreement or regulations (or
similar documentation as denominated under the laws of the jurisdiction in which
it is formed), in the case of a partnership, joint venture or a limited
partnership, the applicable partnership agreement or joint venture agreement,
and in the case of any other Business Entity not specifically enumerated herein,
the applicable documentation typically utilized in the jurisdiction where such
Business Entity has been formed for purposes of initially forming such Business
Entity according to the laws of such jurisdiction and thereafter operating and
managing such Business Entity.
 
“Governmental Authority” means any nation or government, any state or other
political subdivision thereof, any agency, authority, instrumentality,
regulatory body, court, administrative tribunal, central bank or other entity
exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of or pertaining to government.
 
 
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“Guarantee” means, as to any Person, any (a) obligation, contingent or
otherwise, of such Person guaranteeing or having the economic effect of
guaranteeing any Indebtedness or other obligation payable or performable by
another Person (the “primary obligor”) in any manner, whether directly or
indirectly, and including any obligation of such Person, direct or indirect, (i)
to purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness or other obligation, (ii) to purchase or lease property,
securities or services for the purpose of assuring the obligee in respect of
such Indebtedness or other obligation of the payment or performance of such
Indebtedness or other obligation, (iii) to maintain working capital, equity
capital or any other financial statement condition or liquidity or level of
income or cash flow of the primary obligor so as to enable the primary obligor
to pay such Indebtedness or other obligation, or (iv) entered into for the
purpose of assuring in any other manner the obligee in respect of such
Indebtedness or other obligation of the payment or performance thereof or to
protect such obligee against loss in respect thereof (in whole or in part), or
(b) Lien on any assets of such Person securing any Indebtedness or other
obligation of any other Person, whether or not such Indebtedness or other
obligation is assumed by such Person.  The amount of any Guarantee shall be
deemed to be an amount equal to the stated or determinable amount of the related
primary obligation, or portion thereof, in respect of which such Guarantee is
made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof as determined by the guaranteeing Person in good
faith.  The term “Guarantee” as a verb has a corresponding meaning.
 
“Guarantor” means the Subsidiaries of Borrowers, now or hereafter in existence
to the extent Administrative Agent does not require any such Subsidiary to
execute the Joinder Agreement to be added as a Borrower hereunder.
 
“Guaranty” means the Guaranty made by any Guarantor in favor of Administrative
Agent and for the benefit of the Banks in the form attached hereto as Exhibit F.
 
“Hazardous Materials” means all explosive or radioactive substances or wastes
and all hazardous or toxic substances, wastes or other pollutants, including
petroleum or petroleum distillates, asbestos or asbestos-containing materials,
polychlorinated biphenyls, radon gas, infectious or medical wastes and all other
substances or wastes of any nature regulated pursuant to any Environmental Law.
 
“HBS” means Husch Blackwell Sanders LLP.
 
“HBS Contingent Liability Amount” means an amount up to $500,000 for HBS legal
fees owed by Borrowers which amount is being contested by Borrowers in good
faith as of the Closing Date.
 
“HBS Liability Amount” means that portion of the HBS Contingent Liability Amount
determined to be owed by Borrowers to HBS as a result of an adjudication,
arbitration or settlement.
 
“Hydrocarbons” means crude oil, condensate, natural gas (including coal seam
gas), natural gas liquids and other liquid and gaseous hydrocarbons produced or
to be produced in conjunction therewith from a well bore and all products,
by-products, and other substances derived therefrom or the processing thereof,
and all other minerals and substances produced in conjunction with such
substances.
 
“Indebtedness” means, as to any Person at a particular time, without duplication
(whether contingent or otherwise), all obligations required by GAAP to be
classified upon such Person’s balance sheet as liabilities, including all of the
following, whether or not included as indebtedness or liabilities in accordance
with GAAP:
 
 
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(a)           all indebtedness for borrowed money (whether as a direct obligor
on a promissory note, a bond, debenture, loan agreement or other similar
instruments or a reimbursement obligor on a letter of credit, a guarantor, or
otherwise) of such Person;
 
(b)           all direct or contingent obligations of such Person arising under
letters of credit (including standby and commercial), bankers’ acceptances, bank
guaranties, surety bonds and similar instruments;
 
(c)           net obligations of such Person under any Swap Contract;
 
(d)           all obligations of such Person to pay the deferred purchase price
of property or services (other than trade accounts payable in the ordinary
course of business);
 
(e)           indebtedness (excluding prepaid interest thereon) secured by a
Lien on property owned or being purchased by such Person (including indebtedness
arising under conditional sales or other title retention agreements), whether or
not such indebtedness shall have been assumed by such Person or is limited in
recourse;
 
(f)           capital leases obligations; and
 
(g)           all Guarantees of such Person in respect of any of the foregoing.
 
For all purposes hereof, the Indebtedness of any Person shall include the
Indebtedness of any partnership or joint venture (other than a joint venture
that is itself a corporation or limited liability company) in which such Person
is a general partner or a joint venturer, unless such Indebtedness is expressly
made non-recourse to such Person.  The amount of any net obligation under any
Swap Contract on any date shall be the Swap Termination Value thereof as of such
date.  The amount of any capital lease as of any date shall be deemed to be the
amount of the capitalized amount thereof that would appear on the balance sheet
of such Person prepared in accordance with GAAP as of such date.
 
“Indemnified Liabilities” has the meaning specified in Section 10.05.
 
“Indemnitees” has the meaning specified in Section 10.05.
 
“Intercreditor Agreement” means (a) that certain Intercreditor Agreement dated
September 4, 2008 (as amended by that certain First Amendment thereto dated as
of the Closing Date) by and among Administrative Agent, Borrowers and BP
Corporation North America Inc. and (b) any other Intercreditor Agreement among
Administrative Agent, a Borrower and an Approved Counterparty, executed in
connection with Permitted Swap Contracts on terms and conditions satisfactory to
Administrative Agent providing for, amongst other things, the sharing of pari
passu Liens on the Collateral to secure the Total Obligations, which form of
Intercreditor Agreement shall be in form mutually agreeable to Administrative
Agent, a Borrower and an Approved Counterparty.
 
 
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“Interest Expense” means, for any period, for Borrowers and their Subsidiaries
on a consolidated basis, the sum of all interest (including cash interest),
premium payments, letter of credit fees, debt discount, fees, charges and
related expenses of Borrowers and their Subsidiaries which are classified as
interest in conformity with GAAP, incurred in connection with any Funded Debt
for such period.
 
“Interest Period” means as to each Loan based on the Eurodollar Rate, the period
commencing on the date such Loan is disbursed or continued as a Eurodollar Loan
based on the Eurodollar Rate and ending on the date one, two, three or six
months thereafter (subject to availability), as selected by Borrowers in their
Request for Credit Extension; provided that:
 
(a)           any Interest Period that would otherwise end on a day that is not
a Business Day shall be extended to the next succeeding Business Day unless,
such Business Day falls in another calendar month, in which case such Interest
Period shall end on the next preceding Business Day;
 
(b)           any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall end on the last
Business Day of the calendar month at the end of such Interest Period; and
 
(c)           no Interest Period shall extend beyond the Maturity Date.
 
“Investment” means, as to any Person, any direct or indirect acquisition or
investment by such Person, whether by means of (a) the purchase or other
acquisition of capital stock or other securities of another Person, (b) a loan,
advance or capital contribution to, Guarantee or assumption of debt of, or
purchase or other acquisition of any other debt or equity participation or
interest in, another Person, including any partnership or joint venture interest
in such other Person, or (c) the purchase or other acquisition (in one
transaction or a series of transactions) of assets of another Person that
constitute a business unit.  For purposes of covenant compliance, the amount of
any Investment shall be the amount actually invested, without adjustment for
subsequent increases or decreases in the value of such Investment.
 
“IRS” means the United States Internal Revenue Service.
 
“Joinder Agreement” means the Joinder Agreement in the form attached hereto as
Exhibit G executed pursuant to Administrative Agent’s request that a
newly-created Subsidiary of any Borrower join this Agreement as a Borrower.
 
“Laws” means, collectively, all international, foreign, federal, state and local
statutes, treaties, rules, guidelines, regulations, ordinances, codes and
administrative or judicial precedents or authorities, including the
interpretation or administration thereof by any Governmental Authority charged
with the enforcement, interpretation or administration thereof, and all
applicable administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any Governmental Authority,
in each case whether or not having the force of law.
 
 
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“L/C Advance” means an extension of credit resulting from a drawing under any
Letter of Credit which has not been reimbursed on the date when made; provided
that, if a Base Rate Loan is available and is made to reimburse such draw on any
Letter of Credit, then such drawing shall not constitute a L/C Advance from and
after the making of the Base Rate Loan.
 
“L/C Credit Extension” means, with respect to any Letter of Credit, the issuance
thereof or extension of the expiry date thereof, or the renewal or increase of
the amount thereof.
 
“L/C Issuer” means Texas Capital Bank, NA as the issuer of the Letters of Credit
under this Agreement.
 
“L/C Obligations” means, as at any date of determination, the aggregate undrawn
available amount of all outstanding Letters of Credit plus the aggregate of all
L/C Advances.
 
“Leases” means all oil and gas leases and all oil, gas and mineral leases
constituting any part of the Borrowing Base Oil and Gas Properties.
 
“Lending Office” means the office or offices of the Administrative Agent and the
Banks described as such on Schedule 10.02, or such other office or offices as
the Administrative Agent may from time to time notify Borrower and the Banks.
 
“Letter of Credit” means, individually, any standby letter of credit issued or
deemed issued under Section 2.03 of this Agreement and “Letters of Credit” means
all such letters of credit, collectively.
 
“Letter of Credit Application” means an application and agreement for the
issuance or amendment of a Letter of Credit in the form from time to time in use
by the L/C Issuer.
 
“Letter of Credit Expiration Date” means the earlier of: (a) the requested date
of expiration under a Letter of Credit Application and (b) the later of (ii) the
Commitment Termination Date or (ii) to the extent the Letter of Credit is
required to be Cash Collateralized under Section 2.03(e) at the Commitment
Termination Date, the date that is twelve (12) months after the Commitment
Termination Date.
 
“Letter of Credit Limit” means with regard to the Letters of Credit issued under
Section 2.03, an amount equal to $750,000.
 
“Lien” means any mortgage, pledge, hypothecation, collateral assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge, or preference,
priority or other security interest or preferential arrangement of any kind or
nature whatsoever (including any conditional sale or other title retention
agreement), and any financing lease having substantially the same economic
effect as any of the foregoing.
 
“Loan” means an extension of credit under Section 2.01 in the form of a
revolving loan.
 
“Loan Documents” means this Agreement, each Note, the Intercreditor Agreement,
each Collateral Document, and each Guaranty and all other agreements,
certificates, documents, instruments and writings at any time delivered in
connection herewith or therewith, as any of the foregoing may be amended,
restated, modified, renewed, extended or supplemented from time to time.
 
 
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“Loan Excess” means, at any point in time, the amount, if any, by which (i) the
outstanding balance on the Aggregate Outstanding Credit Exposure exceeds the
lesser of (a) the Borrowing Base and (b) the Aggregate Commitment Amount then in
effect, or (ii) the outstanding balance of L/C Obligations exceeds the Letter of
Credit Limit.
 
“Loan Parties” means, collectively, each Borrower, each Guarantor and each
Subsidiary of a Borrower executing a Loan Document.
 
“Margin/Fee Table” means the following table:

    Borrowing Base  
Applicable Margin
                 
Utilization
Percentage
 
Eurodollar
Margin
   
Base Rate Margin
   
Commitment
Fee
   
L/C
Fee
 
Level 1
 
> 75%
    3.000 %     0.750 %     0.500 %     2.750 %
Level 2
 
> 50% ≤ 75%
    2.750 %     0.500 %     0.500 %     2.750 %
Level 3
 
> 25% ≤ 50%
    2.500 %     0.000 %     0.500 %     2.750 %
Level 4
 
≤ 25%
    2.250 %     0.000 %     0.500 %     2.750 %

“Marketable Title” means good and marketable title, free and clear of all Liens
other than Permitted Liens.
 
“Material Adverse Change” means any change in the business, property, condition
(financial or otherwise) or results of operations, or reasonably foreseeable
prospects of Borrowers considered as a whole, which has a Material Adverse
Effect.
 
“Material Adverse Effect” means (a) a material adverse change in, or a material
adverse effect upon, the operations, business, properties, liabilities (actual
and contingent), condition (financial or otherwise) or reasonably foreseeable
prospects of Borrowers and their Subsidiaries taken as a whole; (b) a material
impairment of the ability of the Loan Parties to perform their obligations under
any Loan Document; or (c) a material adverse effect upon the legality, validity,
binding effect or enforceability against any Loan Party of any Loan Document to
which it is a party; or (d) a material adverse change in, or a material adverse
effect upon, any one or more Borrowing Base Oil and Gas Properties or any
portion of other Collateral that in either case materially impairs the ability
of the Loan Parties to perform their obligations under any Loan Document.
 
“Material Agreements” means all Operating Agreements; Hydrocarbon purchase,
sales, exchange, processing, gathering, treatment, compression and
transportation agreements; farmout or farm in agreements; exploration
agreements; unitization agreements; joint venture, limited or general
partnership, dry hole, bottom hole, acreage contribution, purchase and
acquisition agreements; area of mutual interest agreements; salt water disposal
agreements, servicing contracts; easements; pooling agreements; surface leases,
permits, rights-of-way, servitudes, or other agreements; in each case, including
any of the foregoing that relate or affect the ownership, use or operation of
the Borrowing Base Oil and Gas Properties.
 
 
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“Maturity Date” means October 3, 2015.
 
“Maximum Rate” has the meaning set forth in Section 10.09.
 
“Monthly Borrowing Base Reduction” means the amount by which the Borrowing Base
shall be reduced as of the first day of each calendar month pursuant to Section
2.04.
 
“Multiemployer Plan” means any employee benefit plan of the type described in
Section 4001(a)(3) of ERISA, to which any Borrower or any ERISA Affiliate makes
or is obligated to make contributions, or during the preceding five plan years,
has made or been obligated to make contributions.
 
“Net Income” means, for any period, without duplication, the net income (or
loss) of the Loan Parties on a consolidated basis, determined in accordance with
GAAP; provided that there shall be excluded from such net income (to the extent
otherwise included therein) the following:  (i) the net income of any Person for
such period in which the Borrowers have an interest (which interest does not
cause the net income of such other Person to be consolidated with the net income
of the Loan Parties in accordance with GAAP), except to the extent of the amount
of dividends or distributions actually paid in such period by such other Person
to the Loan Parties; (ii) any extraordinary or non-recurring gains or losses for
such period (including gains or losses arising from the sale, exchange,
retirement or other disposition of capital assets not in the ordinary course of
business), (iii) effects arising from the application of FASB Statements 133 and
143, (iv) the cumulative effect of a change in GAAP, (v) any gains or losses for
such period attributable to write-ups or write downs of assets, and (vi) income
or loss of any Person for such period accrued prior to the date it becomes a
Subsidiary of any Borrower or is merged into or consolidated with a Borrower or
any of its Subsidiaries or the date that such Person’s assets are acquired by
any Borrower or any of their Subsidiaries, provided further that nothing herein
shall be construed to permit Borrowers to enter any transactions not permitted
under this Agreement.
 
“Note” and “Notes” means, individually, a promissory note issued by Borrowers
payable to the order of a Bank evidencing the Credit Extensions made by that
Bank pursuant to this Agreement and being substantially in the form of the note
attached as Exhibit C hereto, together with any and all further renewals,
extensions for any period, increases or rearrangements thereof, and means,
collectively, all of such Notes.
 
“Obligations” means all advances to, and Indebtedness, liabilities, obligations,
covenants and duties of, any Loan Party arising under any Loan Document or
otherwise with respect to any Loan or Letter of Credit, whether direct or
indirect (including those acquired by assumption), absolute or contingent, due
or to become due, now existing or hereafter arising and including interest and
fees that accrue after the commencement by or against any Loan Party or any
Affiliate thereof of any proceeding under any Debtor Relief Laws naming such
Person as the debtor in such proceeding, regardless of whether such interest and
fees are allowed claims in such proceeding.
 
 
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“Oil and Gas Properties” means fee, leasehold or other interests in or under
mineral estates or oil, gas and other liquid or gaseous hydrocarbon leases with
respect to properties situated in the United States, including, overriding
royalty and royalty interests, leasehold estate interests, net profits
interests, production payment interests and mineral fee interests, together with
contracts executed in connection therewith and all tenements, hereditaments,
appurtenances and properties, real or personal, appertaining, belonging, affixed
or incidental thereto.
 
“Operating Agreement” means (a) any (joint) operating agreements covering or
relating to any one or more of the Borrowing Base Oil and Gas Properties and
(b) any subsequently executed (joint) operating agreement covering or relating
to any one or more of the Borrowing Base Oil and Gas Properties that is executed
after the date hereof by Borrowers or any other Loan Party in the ordinary
course of business.
 
“Outstanding Credit Exposure” means, as to any Bank at any time, the sum of (i)
the aggregate principal amount of its Loans outstanding at such time, plus (ii)
an amount equal to its Percentage Share of the L/C Obligations.
 
“PBGC” means the Pension Benefit Guaranty Corporation.
 
“Pension Plan” means any “employee pension benefit plan” (as such term is
defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is
subject to Title IV of ERISA and is sponsored or maintained by Borrowers or any
ERISA Affiliate or to which Borrowers or any ERISA Affiliate contributes or has
an obligation to contribute, or in the case of a multiple employer or other plan
described in Section 4064(a) of ERISA, has made contributions at any time during
the immediately preceding five plan years.
 
“Percentage Share” means, as to any Bank, a fraction (expressed as a
percentage), the numerator of which shall be such Bank’s Commitment Amount, and
the denominator of which shall be the Aggregate Commitment Amount stated on
Schedule 1.01 attached hereto.
 
“Permitted Indebtedness” means the Indebtedness described in Section 7.03(a)
through (e).
 
“Permitted Liens” means Liens permitted under Section 7.01.
 
“Permitted Swap Contracts” means Swap Contracts permitted under Section 6.22.
 
“Person” means any individual, trustee, bank, firm, Governmental Authority or
Business Entity.
 
“Plan” means any “employee benefit plan” (as such term is defined in Section
3(3) of ERISA) established by a Borrower or, with respect to any such plan that
is subject to Section 412 of the Code or Title IV of ERISA, any ERISA Affiliate.
 
“Prohibited Transaction” means any transaction set forth in Section 406 of ERISA
or Section 4975 of the Internal Revenue Code of 1954, as amended from time to
time.
 
 
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“Proved Developed Producing Reserves” means Proved Reserves which are
categorized as both “Developed” and “Producing” in the Definitions for Oil and
Gas reserves promulgated by the Society of Petroleum Engineers (or any generally
recognized successor) as in effect at the time in question.
 
“Proved Reserves” means Proved Reserves as defined in the Definitions for Oil
and Gas reserves promulgated by the Society of Petroleum Engineers (or any
generally recognized successor) as in effect at the time in question.
 
“Purchasing Bank” shall have the meaning assigned to that term in Section 10.07
hereof.
 
“PW9” means the present worth of future net income, discounted to present value
at the simple interest rate of nine percent (9%) per year.
 
“Regulations D, T, U, and X” mean Regulations D, T, U, and X of the Federal
Reserve Board, as the same is from time to time in effect, and all official
rulings and interpretations thereunder or thereof.
 
“Reportable Event” means any of the events set forth in Section 4043 of ERISA.
 
“Request for Credit Extension” means the written or verbal (confirmed in writing
within one (1) Business Day) request by the Borrowers to the Administrative
Agent for an advance by the Banks pursuant to this Agreement, which Request for
Credit Extension shall be in substantially the form attached hereto as Exhibit B
signed by an authorized officer of the Borrowers and which shall include a
statement of the amount requested to be advanced, the date of the requested
advance and such other information as the Administrative Agent in its reasonable
discretion deems necessary.
 
“Required Banks” means, at any time, Banks holding at least sixty-six and
two-thirds percent (66 2/3%) of the Aggregate Commitment Amount or, if the
Aggregate Commitment Amount has been terminated, Banks having at least sixty-six
and two-thirds percent (66 2/3%) of the Aggregate Outstanding Credit Exposure;
provided, that, in each case, the Commitment of any Bank in default hereunder
shall be excluded from the calculation hereof.
 
“Required Number” means: in the case of notices hereunder (i) relative to
borrowings, prepayments, elections of Eurodollar Loans, selections of Interest
Periods for, or other transactions in respect of, Eurodollar Loans: by 10:00
a.m., Houston, Texas time on the third Business Day prior to the proposed
activity; or (ii) relative to all transactions in respect of Base Rate Loans:
the same Business Day by 11:00 a.m., Houston, Texas time; it being understood,
however, that in the case of notices involving transactions in respect of more
than one type of Loan (such as a change in type of Loan), “Required Number”
means that number of days, as indicated above in respect of the Loans involved,
which would constitute the longest applicable period of time.
 
 
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“Reserve Report” means a report prepared by Borrowers’ engineer (which may be an
internal engineer or an external engineer or firm of engineers selected by
Borrowers), or an independent petroleum engineer or firm of engineers
satisfactory to Administrative Agent in its reasonable discretion regarding the
Proved Reserves attributable to the Borrowing Base Oil and Gas Properties, using
the criteria and parameters required by and acceptable to the Securities and
Exchange Commission, and incorporating the present cost of appropriate plugging
and abandonment obligations to be incurred in the future, taking into account
any plugging and abandonment fund required to be accrued or established by
Borrowers out of cash flow from the Borrowing Base Oil and Gas Properties
covered by such report with respect to such future obligations.
 
“Responsible Officer” means the president, vice president, chief executive
officer or chief financial officer of a Loan Party.  Any document delivered
under this Agreement that is signed by a Responsible Officer of a Loan Party
shall be conclusively presumed to have been authorized by all necessary
Corporate Action on the part of such Loan Party and such Responsible Officer
shall be conclusively presumed to have acted on behalf of such Loan Party.
 
“Restricted Payment” means (i) any dividend or other distribution (whether in
cash, securities or other property except for a distribution in the form of
capital stock of a Borrower) with respect to any capital stock or other equity
interest of Borrowers, or any payment (whether in cash, securities or other
property except for a distribution in the form of capital stock of a Borrower),
including any sinking fund or similar deposit on account of the purchase,
redemption, retirement, acquisition, cancellation or termination of any such
capital stock or other equity interest or of any option, warrant or other right
to acquire any such capital stock or other equity interest, (ii) any payment for
interest or principal in relation to any intercompany indebtedness owed by any
Borrower to any of its Affiliates, including without limitation, to any
Guarantor, other than another Borrower and (iii) all payments with respect to
Indebtedness described as Subordinated Obligations under the Subordination
Agreement.
 
“Shell Hedge Agreement” means that certain Master Agreement between Pacer Energy
Marketing, LLC (on behalf on J&J Operating Company, a predecessor in interest to
Borrowers) and Shell Trading (US) dated July 25, 2005 and all schedules,
confirmations and transactions thereunder.
 
“Solvent” means, with respect to any Person as of the date of any determination,
that on such date (a) the fair value of the property of such Person (both at
fair valuation and at present fair saleable value) is greater than the total
liabilities, including contingent liabilities, of such Person, (b) the present
fair saleable value of the assets of such Person is not less than the amount
that will be required to pay the probable liability of such Person on its debts
as they become absolute and matured, (c) such Person is able to realize upon its
assets and pay its debts and other liabilities, contingent obligations, and
other commitments as they mature in the normal course of business, (d) such
Person does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person’s ability to pay as such debts and liabilities
mature, and (e) such Person is not engaged in business or a transaction, and is
not about to engage in business or a transaction, for which such Person’s
property would constitute unreasonably small capital after giving due
consideration to current and anticipated future capital requirements and current
and anticipated future business conduct and the prevailing practice in the
industry in which such Person is engaged. In computing the amount of contingent
liabilities at any time, such liabilities shall be computed at the amount which,
in light of the facts and circumstances existing at such time, represents the
amount that can reasonably be expected to become an actual or matured liability.
 
 
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 “Subordination Agreement” means a subordination agreement in form and content
satisfactory to Administrative Agent which subordinates any Debt owed by any
Borrower to any Guarantor, and Subsidiary or Equity Interest owner of any
Borrower, to the extent permitted hereunder, if at all.
 
“Subsidiary” of a Person means a Business Entity of which a majority of the
shares of securities or other interests having ordinary voting power for the
Governing Body (other than securities or interests having such power only by
reason of the happening of a contingency) are at the time beneficially owned, or
the management of which is otherwise controlled, directly, or indirectly through
one or more intermediaries, or both, by such Person. Unless otherwise specified,
all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a
Subsidiary or Subsidiaries of each Borrower and each Borrower shall be deemed a
Subsidiary of Parent.
 
“Swap Contract” means (a) any and all rate swap transactions, basis swaps,
credit derivative transactions, forward rate transactions, commodity swaps,
commodity options, forward commodity contracts, equity or equity index swaps or
options, bond or bond price or bond index swaps or options or forward bond or
forward bond price or forward bond index transactions, interest rate options,
forward foreign exchange transactions, cap transactions, floor transactions,
collar transactions, currency swap transactions, cross-currency rate swap
transactions, currency options, spot contracts, or any other similar
transactions or any combination of any of the foregoing (including any options
to enter into any of the foregoing), whether or not any such transaction is
governed by or subject to any master agreement, and (b) any and all transactions
of any kind, and the related confirmations, which are subject to the terms and
conditions of, or governed by, any form of master agreement published by the
International Swaps and Derivatives Association, Inc., any International Foreign
Exchange Master Agreement, or any other master agreement (any such master
agreement, together with any related schedules, a “Master Agreement”), including
any such obligations or liabilities under any Master Agreement.
 
“Swap Termination Value” means, in respect of any one or more Swap Contracts,
after taking into account the effect of any legally enforceable netting
agreement relating to such Swap Contracts, (a) for any date on or after the date
such Swap Contracts have been closed out and termination value(s) determined in
accordance therewith, such termination value(s), and (b) for any date prior to
the date referenced in clause (a), the amount(s) determined as the
mark-to-market value(s) for such Swap Contracts, as determined based upon one or
more mid-market or other readily available quotations provided by any recognized
dealer in such Swap Contracts.
 
“Taxes” has the meaning specified in Section 3.01(a).
 
“Total Obligations” means, collectively, the Obligations and the Approved
Counterparty Swap Obligations.
 
“Transfer Order Letters” means the letters in lieu of division or transfer
orders, in form reasonably acceptable to Administrative Agent.
 
 
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“Unfunded Pension Liability” means the excess of a Pension Plan’s benefit
liabilities under Section 4001(a)(16) of ERISA, over the current value of that
Pension Plan’s assets, determined in accordance with the assumptions used for
funding the Pension Plan pursuant to Section 412 of the Code for the applicable
plan year.
 
“United States” and “U.S.” means the United States of America.
 
1.02        Other Interpretive Provisions.  With reference to this Agreement and
each other Loan Document, unless otherwise specified herein or in such other
Loan Document:
 
(a)           The meanings of defined terms are equally applicable to the
singular and plural forms of the defined terms.
 
(b)           (i) The words “herein”, “hereto”, “hereof” and “hereunder” and
words of similar import when used in any Loan Document shall refer to such Loan
Document as a whole and not to any particular provision thereof;  (ii) Article,
Section, Exhibit and Schedule references are to the Loan Document in which such
reference appears; (iii) the term “including” is by way of example and not
limitation; and (iv) the term “documents” includes any and all instruments,
documents, agreements, certificates, notices, reports, financial statements and
other writings, however evidenced, whether in physical or electronic form.
 
(c)           In the computation of periods of time from a specified date to a
later specified date, the word “from” means “from and including;” the words “to”
and “until” each mean “to but excluding;” and the word “through” means “to and
including.”
 
(d)           Section headings herein and in the other Loan Documents are
included for convenience of reference only and shall not affect the
interpretation of this Agreement or any other Loan Document.
 
1.03        Accounting Terms.
 
(a)           All accounting terms not specifically or completely defined herein
shall be construed in conformity with, and all financial data (including
financial ratios and other financial calculations) required to be submitted
pursuant to this Agreement shall be prepared in conformity with, GAAP applied on
a consistent basis, as in effect from time to time, applied in a manner
consistent with that used in preparing the Current Financial Statements, except
as otherwise specifically prescribed herein. All financial ratios contemplated
by this Agreement shall be calculated on a consolidated basis for Borrowers and
their Subsidiaries.
 

(b)           If at any time any change in GAAP would affect the computation of
any financial ratio or requirement set out in any Loan Document, and either
Borrowers or Administrative Agent shall so request, Administrative Agent and
Borrowers shall negotiate in good faith to amend such ratio or requirement to
preserve the original intent thereof in light of such change in GAAP; provided
that, until so amended, (i) such ratio or requirement shall continue to be
computed in accordance with GAAP prior to such change therein and (ii) Borrowers
shall provide to Administrative Agent financial statements and other documents
required under this Agreement or as reasonably requested under this Agreement
setting forth a reconciliation between calculations of such ratio or requirement
made before and after giving effect to such change in GAAP.
 
 
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1.04           Rounding. Any financial ratios required to be maintained by any
Loan Party pursuant to this Agreement shall be calculated by dividing the
appropriate component by the other component, carrying the result to one place
more than the number of places by which such ratio is expressed herein and
rounding the result up or down to the nearest number (with a rounding-up if
there is no nearest number).
 
1.05           References to Agreements and Laws. Unless otherwise expressly
provided herein, (a) references to Governing Documentation, agreements
(including the Loan Documents) and other contractual instruments shall be deemed
to include all subsequent amendments, restatements, extensions, supplements and
other modifications thereto, but only to the extent that such amendments,
restatements, extensions, supplements and other modifications are not prohibited
by any Loan Document; and (b) references to any Law shall include all statutory
and regulatory provisions consolidating, amending, replacing, supplementing or
interpreting such Law.
 
1.06           Letter of Credit Amounts.  Unless otherwise specified, all
references herein to the amount of a Letter of Credit at any time shall be
deemed to mean the amount of such Letter of Credit that is available to be drawn
at such time after giving effect to all increases thereof contemplated by such
Letter of Credit or the Letter of Credit Application therefor.
 
ARTICLE II
THE COMMITMENT AND CREDIT EXTENSIONS.
 
2.01           Revolving Loans.  Subject to the terms and conditions set out
herein and during the Availability Period, each Bank severally agrees, on the
terms and conditions set forth in this Agreement, to (i) make Loans to the
Borrowers and (ii) participate in Letters of Credit issued upon the request of
the Borrowers, provided that, after giving effect to the making of each Loan and
the issuance of each Letter of Credit, such Bank’s Outstanding Credit Exposure
shall not exceed its Commitment Amount.  The Credit Extensions made or advanced
by each Bank to the Borrowers shall be evidenced by the Banks’ respective Notes
from the Borrowers.  Subject to the terms of this Agreement, the Borrowers may
borrow, repay and reborrow up to the Aggregate Commitment Amount.  The L/C
Issuer will issue Letters of Credit hereunder on the terms and conditions set
forth in Section 2.03.  All Commitments to extend credit hereunder shall expire
on the Commitment Termination Date.  Borrowers shall repay in full on the
Commitment Termination Date any balance of the Loans outstanding on the
Commitment Termination Date.  Any loans outstanding under the Existing Loan
Agreement as of the Closing Date shall be deemed, and shall hereafter be, Loans
outstanding under this Agreement.  Borrowers, Administrative Agent and the Banks
hereby acknowledge and agree that $6,120,077.33 of unpaid principal (and all
accrued and unpaid interest thereon) is outstanding under the Existing Loan
Agreement and such amount of principal (and all accrued and unpaid interest
thereon) shall remain outstanding under this Agreement as of the Closing Date
and shall be evidenced by the Note executed as of the Closing Date.
 
 
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2.02        Loans and Continuations of Loans.
 
(a)           Each Loan and each continuation of a Loan shall be made upon
Borrowers’ irrevocable notice to Administrative Agent, which may be given by
telephone.  Each such notice must be received by Administrative Agent not later
than 11:00 a.m., Central Time at least the Required Number of days prior to the
requested date of any Loan or continuation of a Loan.  Each telephonic notice by
Borrowers pursuant to this Section 2.02(a) must be confirmed promptly by
delivery to Administrative Agent of a written Request for Credit Extension,
appropriately completed and signed by a Responsible Officer of Borrowers.  Each
Loan or continuation of Loans shall be in a principal amount of $100,000 or a
greater integral multiple of $100,000.  Each Request for Credit Extension
(whether telephonic or written) shall specify (i) whether Borrowers are
requesting a Loan or a continuation of a Loan, (ii) the requested date of the
Loan or continuation (which shall be a Business Day), (iii) the principal amount
of Loans to be borrowed or continued, and (v) for Eurodollar Loans, the duration
of the Interest Period with respect thereto.  If Borrowers fail to give a timely
notice requesting a continuation of a Eurodollar Loan, then the applicable Loans
shall be continued for a one-month Interest Period.  If Borrowers request a Loan
or continuation of Loans in any such Request for Credit Extension, but fail to
specify an Interest Period, they will be deemed to have specified an Interest
Period of one month.
 
(b)           The Administrative Agent shall promptly advise the Banks and, if
applicable, the L/C Issuer of any Request for Credit Extension or Letter of
Credit Application given pursuant to this Section 2.02 or Section 2.03, as
applicable, of each Bank’s Percentage Share of any requested Credit Extension
and, if applicable, the amount requested for any Letter of Credit by telephone,
confirmed promptly in writing, or telecopier.  Upon satisfaction of the
applicable conditions set forth in Article IV, each Credit Extension shall be
made at the office of the Administrative Agent or L/C Issuer, as applicable, and
shall be funded prior to 1:00 p.m., Houston, Texas time, on the day so requested
in immediately available funds in the amount so requested.  Each Bank shall make
each Loan on the date of the proposed Credit Extension by wire transfer of
immediately available funds to the Administrative Agent in Houston, Texas, not
later than 10:00 a.m., Houston, Texas time, and upon fulfillment of the
applicable conditions set forth in Article IV, the Administrative Agent will
make such funds available to Borrowers as Borrowers shall direct to the
Administrative Agent from time to time or, if a Credit Extension shall not occur
on such date because any condition precedent herein specified shall not have
been met, return the amounts so received to the respective Banks as soon as
practicable.  Unless the Administrative Agent shall have received notice from a
Bank prior to the date of any proposed Credit Extension that such Bank will not
make available to the Administrative Agent such Bank’s Percentage Share of such
Credit Extension, the Administrative Agent may assume that such Bank has made
its Percentage Share available to the Administrative Agent on the date of such
Credit Extension in accordance with this Section 2.02(b) and the Administrative
Agent may, in reliance upon such assumption, make available to Borrowers on such
date a corresponding amount.  If, and to the extent that, such Bank shall not
have made its Percentage Share available to the Administrative Agent, such Bank
and Borrowers severally agree to repay to the Administrative Agent forthwith on
demand such corresponding amount together with interest thereon, for each day
from the date such amount is made available to Borrowers until the date such
amount is repaid to the Administrative Agent at (i) in the case of Borrower, the
interest rate applicable at the time to the Loans comprising such Credit
Extension and (ii) in the case of such Bank, the Federal Funds Rate.  If such
Bank shall repay to the Administrative Agent such corresponding amount, such
amount shall constitute such Bank’s Loan as part of such Credit Extension for
purposes of this Agreement.  If Borrowers shall repay to the Administrative
Agent such corresponding amount, such repayment shall not relieve the defaulting
Bank from liability to Borrowers for failure to fund such Bank’s Loan as part of
such Credit Extension.
 
 
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(c)           Except as otherwise provided herein, a Eurodollar Loan may be
continued only on the last day of an Interest Period for such Loan.  During the
existence of an Event of Default, no Eurodollar Loans may be requested or
continued, and Administrative Agent may demand that any or all of the then
outstanding Loans be converted immediately to Base Rate Loans, and Borrowers
agree to pay all amounts due under Section 3.05 in accordance with the terms
thereof due to any such conversion.
 
(d)           Administrative Agent shall notify Borrowers of the interest rate
applicable to any Interest Period for Eurodollar Loans upon determination of
such interest rate.  The determination of the Eurodollar Rate by Administrative
Agent shall be conclusive in the absence of manifest error.
 
(e)           After giving effect to all Loans and all continuations of Loans,
there shall not be more than six (6) Interest Periods in effect with respect to
Eurodollar Loans.
 
2.03        Letters of Credit.
 
(a)           The Letter of Credit Commitment.
 
(i)           Subject to the terms and conditions set out herein, L/C Issuer
agrees, from time to time on any Business Day during the Availability Period, to
issue Letters of Credit, for the account of Borrowers, and to amend or renew
such Letters of Credit previously issued by it, in accordance with Section
2.03(b) below; provided that L/C Issuer shall not be obligated to make any L/C
Credit Extension with respect to any such Letter of Credit, if as of the date of
such L/C Credit Extension, the L/C Obligations for Letters of Credit would
exceed the Letter of Credit Limit.  Within the foregoing limits, and subject to
the terms and conditions hereof, Borrowers’ ability to obtain Letters of Credit
shall be fully revolving, and, accordingly, Borrowers may, during the foregoing
period, obtain Letters of Credit to replace Letters of Credit that have expired
or that have been drawn upon and reimbursed.
 
(ii)           L/C Issuer shall be under no obligation to issue any Letter of
Credit if:
 
 
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(A)           any order, judgment or decree of any Governmental Authority or
arbitrator shall by its terms purport to enjoin or restrain L/C Issuer from
issuing such Letter of Credit, or any Law applicable to L/C Issuer or any
request or directive (whether or not having the force of law) from any
Governmental Authority with jurisdiction over L/C Issuer shall prohibit, or
request that L/C Issuer refrain from, the issuance of letters of credit
generally or such Letter of Credit in particular or shall impose upon L/C Issuer
with respect to such Letter of Credit any restriction, reserve or capital
requirement (for which L/C Issuer is not otherwise compensated under this
Agreement) not in effect on the Closing Date, or shall impose upon L/C Issuer
any unreimbursed loss, cost or expense which was not applicable on the Closing
Date and which L/C Issuer in good faith deems material to it;
 
(B)           the expiry date of such requested Letter of Credit would occur
more than twelve months after the date of issuance or last renewal, (provided
that such Letter of Credit may include provisions for automatic renewal), unless
L/C Issuer has approved such expiry date in advance;
 
(C)           the expiry date of such requested Letter of Credit would occur
after the Letter of Credit Expiration Date unless L/C Issuer has approved such
expiry date in advance; or
 
(D)           such Letter of Credit is in an initial amount less than $25,000,
or is to be denominated in a currency other than Dollars.
 
(iii)           L/C Issuer shall be under no obligation to amend any Letter of
Credit if (A) L/C Issuer would have no obligation at such time to issue such
Letter of Credit in its amended form under the terms hereof, or (B) the
beneficiary of such Letter of Credit does not accept the proposed amendment to
such Letter of Credit.
 
(b)           Procedures for Issuance and Amendment of Letters of Credit.
 
(i)           Each Letter of Credit shall be issued or amended, as the case may
be, upon the request of Borrowers delivered to L/C Issuer in the form of a
Letter of Credit Application, appropriately completed and signed by a
Responsible Officer of Borrowers.  Such Letter of Credit Application must be
received by L/C Issuer not later than 11:00 a.m., Central Time, at least two
Business Days (or such later date and time as L/C Issuer may agree in a
particular instance in its sole discretion) prior to the proposed issuance date
or date of amendment, as the case may be.
 
(ii)           Promptly after receipt of any Letter of Credit Application by L/C
Issuer at the address set out in Schedule 10.02 for receiving Letter of Credit
Applications and related correspondence, if the requested issuance or amendment
is permitted in accordance with the terms hereof, then, subject to the terms and
conditions hereof, L/C Issuer shall, on the requested date, issue a Letter of
Credit for the account of Borrowers or enter into the applicable amendment, as
the case may be, in each case in accordance with L/C Issuer’s usual and
customary business practices.

 
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(iii)           Promptly after its delivery of any Letter of Credit or any
amendment to a Letter of Credit to an advising bank with respect thereto or to
the beneficiary thereof, L/C Issuer will also deliver to Borrowers a true and
complete copy of such Letter of Credit or amendment.
 
(iv)           If Borrowers so request in any applicable Letter of Credit
Application, L/C Issuer may, in it sole and absolute discretion, agree to issue
a Letter of Credit that has automatic renewal provisions (each, an “Auto-Renewal
Letter of Credit”); provided that any such Auto-Renewal Letter of Credit must
permit L/C Issuer to prevent any such renewal at least once in each twelve-month
period (commencing with the date of issuance of such Letter of Credit) by giving
prior notice to Borrowers and the beneficiary thereof not later than a day (the
“Nonrenewal Notice Date”) in each such twelve-month period to be agreed upon at
the time such Letter of Credit is issued; provided that such Nonrenewal Notice
Date shall not be later than the date thirty (30) days prior to the current
expiration date of such Auto-Renewal Letter of Credit unless an Event of Default
has occurred and is continuing, in which event such notice may be provided at
any time.  Unless otherwise directed by L/C Issuer, Borrowers shall not be
required to make a specific request to L/C Issuer for any such renewal.  Once an
Auto-Renewal Letter of Credit has been issued, L/C Issuer shall be deemed to
have authorized (but may not require) the renewal of such Letter of Credit at
any time to an expiry date not later than the Letter of Credit Expiration
Date.  Notwithstanding anything to the contrary contained herein, L/C Issuer
shall have no obligation to permit the renewal of any Auto-Renewal Letter of
Credit at any time.

 
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(c)           Drawings and Reimbursements.  Upon receipt from the beneficiary of
any Letter of Credit of any notice of drawing under such Letter of Credit, L/C
Issuer shall notify Borrowers thereof.  On the date of any payment by L/C Issuer
under a Letter of Credit (each such date, an “Honor Date”), Borrowers shall be
deemed to have requested a Base Rate Loan to be disbursed on the Honor Date in
an amount equal to the amount of such drawing (the “Drawing Amount”) without
regard to the minimum and multiples specified in Section 2.02, but subject to
the amount of the unutilized portion of the Aggregate Commitment Amount and the
conditions set out in Section 4.02 (other than the delivery of a Request for
Credit Extension).  L/C Issuer shall promptly notify each Bank of the Honor
Date, the Drawing Amount, and the amount of such Bank’s Percentage Share
thereof.  Any notice given by L/C Issuer pursuant to this Section 2.03(c) may be
given by telephone if immediately confirmed in writing; provided that the lack
of such an immediate confirmation shall not affect the conclusiveness or binding
effect of such notice. Each Bank shall, upon any notice pursuant to this Section
2.03(c), make funds available to L/C Issuer at L/C Issuer’s office in an amount
equal to its Percentage Share of the Drawing Amount not later than 1:00 p.m.,
Central Time (or 5:00 p.m. if the draw was made after 11:00 a.m.), on the
Business Day specified in such notice by L/C Issuer, whereupon each Bank that so
makes funds available shall be deemed to have made a Base Rate Loan to Borrowers
in such amount. With respect to any Drawing Amount that is not fully reimbursed
by a Credit Extension of Base Rate Loans because the conditions set out in
Section 4.02 cannot be satisfied or for any other reason, Borrowers shall be
deemed to have incurred from L/C Issuer an L/C Advance in the amount of the
Drawing Amount that is not so reimbursed (the “Unreimbursed Amount”), which L/C
Advance shall be due and payable on demand (together with interest) and shall
bear interest at the Default Rate.  In such event, each Bank’s payment to L/C
Issuer shall be deemed payment in respect of its participation in such L/C
Advance and shall constitute an L/C Advance from such Bank in satisfaction of
its participation obligation under this Section 2.03. Each Bank’s obligation to
make Loans or L/C Advances to reimburse L/C Issuer for amounts drawn under
Letters of Credit, shall be absolute and unconditional and shall not be affected
by any circumstance, including (i) any set-off, counterclaim, recoupment,
defense or other right which such Bank may have against L/C Issuer, Borrowers or
any other Person for any reason whatsoever; (ii) the occurrence or continuance
of a Default; or (iii) any other occurrence, event or condition, whether or not
similar to any of the foregoing.  No such making of an L/C Advance shall relieve
or otherwise impair the obligation of Borrowers to reimburse L/C Issuer for the
amount of any payment made by L/C Issuer under any Letter of Credit, together
with interest as provided herein. If any Bank fails to make available to L/C
Issuer any amount required to be paid by such Bank, L/C Issuer shall be entitled
to recover from such Bank, on demand, such amount with interest thereon for the
period from the date such payment is required to the date on which such payment
is immediately available to L/C Issuer at a rate per annum equal to the Federal
Funds Rate from time to time in effect.
 
(d)           Obligations Absolute. The obligation of Borrowers to reimburse L/C
Issuer for each drawing under each Letter of Credit, and to repay each L/C
Advance, shall be absolute, unconditional and irrevocable, and shall be paid
strictly in accordance with the terms of this Agreement under all circumstances,
including the following:
 
(i)           any lack of validity or enforceability of such Letter of Credit,
this Agreement, or any other agreement or instrument relating thereto;
 
(ii)           the existence of any claim, counterclaim, set-off, defense or
other right that Borrowers may have at any time against any beneficiary or any
transferee of such Letter of Credit (or any Person for whom any such beneficiary
or any such transferee may be acting), L/C Issuer or any other Person, whether
in connection with this Agreement, the transactions contemplated hereby or by
such Letter of Credit or any agreement or instrument relating thereto, or any
unrelated transaction;
 
(iii)           any draft, demand, certificate or other document presented under
such Letter of Credit proving to be forged, fraudulent, invalid or insufficient
in any respect or any statement therein being untrue or inaccurate in any
respect; or any loss or delay in the transmission or otherwise of any document
required in order to make a drawing under such Letter of Credit;

 
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(iv)           any payment by L/C Issuer under such Letter of Credit against
presentation of a draft or certificate that does not strictly comply with the
terms of such Letter of Credit; or any payment made by L/C Issuer under such
Letter of Credit to any Person purporting to be a trustee in bankruptcy,
debtor-in-possession, assignee for the benefit of creditors, liquidator,
receiver or other representative of or successor to any beneficiary or any
transferee of such Letter of Credit, including any arising in connection with
any proceeding under any Debtor Relief Law; or
 
(v)           any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing, including any other circumstance that might
otherwise constitute a defense available to, or a discharge of, Borrowers.
 
Borrowers shall promptly examine a copy of each Letter of Credit and each
amendment thereto that is delivered to them, and in the event of any claim of
noncompliance with Borrowers’ instructions or other irregularity, Borrowers will
immediately notify L/C Issuer.  Borrowers shall be conclusively deemed to have
waived any such claim against L/C Issuer and its correspondents unless such
notice is given as aforesaid.
 
(e)           Cash Collateral.  Upon the request of L/C Issuer, (i) if L/C
Issuer has honored any full or partial drawing request under any Letter of
Credit and such drawing has resulted in an L/C Advance, or (ii) if, as of the
Commitment Termination Date, any Letter of Credit may for any reason remain
outstanding and partially or wholly undrawn, Borrowers shall immediately Cash
Collateralize the then outstanding amount of all L/C Obligations (in an amount
equal to such outstanding amount determined as of the date of such L/C Advance
or the Commitment Termination Date, as the case may be).  For purposes hereof,
“Cash Collateralize” means to pledge and deposit with or deliver to L/C Issuer,
for the benefit of Banks, as collateral for the L/C Obligations, cash or deposit
account balances pursuant to documentation in form and content reasonably
satisfactory to L/C Issuer.  Derivatives of such term have corresponding
meanings.  Borrowers hereby grant to L/C Issuer a security interest in all such
cash, deposit accounts and all balances therein and all proceeds of the
foregoing as security for the payment of the Total Obligations.  Cash collateral
shall be maintained in blocked, non-interest bearing deposit accounts at Texas
Capital Bank.
 
(f)           Applicability of ISP98 and UCP. Unless otherwise expressly agreed
by Banks and Borrowers when a Letter of Credit is issued, (i) the rules of the
“International Standby Practices 1998” published by the Institute of
International Banking Law & Practice (or such later version thereof as may be in
effect at the time of issuance) shall apply to each Letter of Credit.
 
(g)           Letter of Credit Fees.  In addition to interest on the Note as
provided herein and all other fees payable hereunder, Borrowers agree to pay to
L/C Issuer, on the date of issuance of each Letter of Credit, a fee equal to the
greater of $750 or the per annum L/C Fee set forth in the Margin/Fee Table,
calculated on the basis of a year of 360 days and actual days elapsed (including
the first day but excluding the last day), on the amount of such Letter of
Credit available to be drawn during the period for which such Letter of Credit
is issued.  Borrower shall also pay directly to L/C Issuer the individual
customary issuance, presentation, amendment and other processing fees, and other
standard costs and charges, of L/C Issuer relating to letters of credit as from
time to time in effect.  Such customary fees and standard costs and charges are
due and payable on demand and are nonrefundable.

 
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(h)           Conflict with Letter of Credit Application.  In the event of any
conflict between the terms hereof and the terms of any Letter of Credit
Application, the terms hereof shall control.
 
(i)           Drawing Responsibility.  Each Bank and Borrowers agree that, in
paying any drawing under a Letter of Credit, L/C Issuer shall not have any
responsibility to obtain any document (other than any sight draft, certificates
and documents expressly required by the Letter of Credit) or to ascertain or
inquire as to the validity or accuracy of any such document or the authority of
the Person executing or delivering any such document.  None of L/C Issuer, nor
any of the respective correspondents, participants or assignees of L/C Issuer
shall be liable to any Bank for (i) any action taken or omitted in connection
herewith at the request or with the approval of Banks or the Required Banks, as
applicable; (ii) any action taken or omitted in the absence of gross negligence
or willful misconduct; or (iii) the due execution, effectiveness, validity or
enforceability of any document or instrument related to any Letter of Credit or
Letter of Credit Application.  Borrowers hereby assume all risks of the acts or
omissions of any beneficiary or transferee with respect to its use of any Letter
of Credit; provided that, this assumption is not intended to, and shall not,
preclude Borrowers’ pursuing such rights and remedies as it may have against the
beneficiary or transferee at law or under any other agreement.  None of L/C
Issuer, nor any of the respective correspondents, participants or assignees of
L/C Issuer, shall be liable or responsible for any of the matters described in
Section 2.03(d).  In furtherance and not in limitation of the foregoing, L/C
Issuer may accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary, and L/C Issuer shall not be responsible for the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign a Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason.
 

 
2.04
Borrowing Base Determination.

 
(a)           The Borrowing Base in effect as of the Closing Date is $7,200,000
relative to the Proved Reserves attributable to the Borrowing Base Oil and Gas
Properties and the Monthly Borrowing Base Reduction is $0.00.  The Borrowing
Base shall be automatically reduced on the first day of each month by the
Monthly Borrowing Base Reduction beginning November 1, 2011.  The Borrowing Base
and the Monthly Borrowing Base Reduction shall be re-determined from time to
time pursuant to the provisions of this Section.

 
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(b)           As soon as available but in any event on or before each April 1
and October 1, beginning with October 1, 2011, until the Maturity Date,
Borrowers shall furnish to Administrative Agent a Reserve Report, which shall
set out, as of each preceding January 1 or July 1, as applicable, the Proved
Reserves attributable to the Borrowing Base Oil and Gas Properties.  Each
October Reserve Report may be prepared by Borrowers’ chief petroleum engineer
and shall be certified by a Responsible Officer of Borrowers.  Each April
Reserve Report shall be a complete report prepared by independent petroleum
engineers or firm of engineers reasonably acceptable to Administrative Agent
relating to the Proved Reserves attributable to the Borrowing Base Oil and Gas
Properties.  Upon receipt of each such Reserve Report or any Reserve Report
delivered pursuant to Borrowers’ election under Section 2.04(c) below,
Administrative Agent shall make a determination in its sole discretion of the
Borrowing Base and the Monthly Borrowing Base Reduction which shall become
effective upon approval by the Required Banks (if such determination will
decrease the existing Borrowing Base) or all Banks (if such determination will
increase or maintain the existing Borrowing Base) and subsequent written
notification from Administrative Agent to Borrowers, and which, subject to the
other provisions of this Agreement, shall be the Borrowing Base and the Monthly
Borrowing Base Reduction until the effective date of the next redetermination of
the Borrowing Base and the Monthly Borrowing Base Reduction as set out in this
Section 2.04.  A Bank’s failure to disapprove of Administrative Agent’s
determination within fifteen (15) days by delivery of an alternative proposed
Borrowing Base and Monthly Borrowing Base Reduction shall be deemed such Bank’s
approval of Administrative Agent’s determination.  For any Oil and Gas
Properties which are being acquired by Loan Parties to be included as Borrowing
Base Oil and Gas Properties, Administrative Agent shall be satisfied in its
reasonable discretion that Borrowers are acquiring Marketable Title in addition
to satisfying all other conditions relating to ownership and transfer of
Borrowing Base Oil and Gas Properties.  Administrative Agent may, subject to
approval of the Required Banks, and must, upon the request of the Required
Banks, redetermine the Borrowing Base and the Monthly Borrowing Base Reduction
at any time, and from time to time, which redetermination shall be at
Administrative Agent’s sole discretion and shall become effective upon approval
by the Required Bank (if such determination will decrease the existing Borrowing
Base) or all Banks (if such determination will increase or maintain the existing
Borrowing Base) and subsequent written notification from Administrative Agent to
Borrowers and which, subject to the other provisions of this Agreement, shall be
the Borrowing Base and the Monthly Borrowing Base Reduction until the effective
date of the next redetermination of the Borrowing Base and the Monthly Borrowing
Base Reduction, as set out in this Section 2.04; provided that Administrative
Agent shall not request more than one (1) unscheduled Borrowing Base and the
Monthly Borrowing Base Reduction redetermination between the scheduled
redetermination dates and, provided further, that a Bank’s failure to disapprove
of Administrative Agent’s determination within fifteen (15) days by delivery of
an alternative proposed Borrowing Base and Monthly Borrowing Base Reduction
shall be deemed such Bank’s approval of Administrative Agent’s
determination.  With respect to any unscheduled Borrowing Base and Monthly
Borrowing Base Reduction redetermination, Administrative Agent may request in
writing that the Borrowers provide a Reserve Report regarding the Proved
Reserves attributable to the Borrowing Base Oil and Gas Properties with an
effective date not more than ninety (90) days prior to Borrowers’ delivery of
such Reserve Report to Administrative Agent, and such Reserve Report shall be
delivered to Administrative Agent within ninety (90) days after Borrowers’
receipt of such written request.

 
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(c)           Borrowers shall have the right to request, by written notice to
Administrative Agent, one unscheduled redetermination of the Borrowing Base and
the Monthly Borrowing Base Reduction between the scheduled redetermination dates
described in Section 2.04(b).  For unscheduled redeterminations requested by
Borrowers of the Borrowing Base and the Monthly Borrowing Base Reduction,
Administrative Agent shall request in writing that Borrowers provide an
unscheduled Reserve Report regarding the Proved Reserves attributable to the
Borrowing Base Oil and Gas Properties with an effective date not more than
ninety days prior to Borrowers’ delivery of such Reserve Report to
Administrative Agent, and such Reserve Report shall be delivered to
Administrative Agent within thirty days after Borrower’s receipt of such written
request.  Immediately upon redetermination of the Borrowing Base by
Administrative Agent under Section 2.04, Borrowers shall pay to Administrative
Agent an engineering fee as set forth in Section 2.08(c).
 
(d)           If at any time the Required Banks or all the Banks, as the case
may be, cannot otherwise agree on a redetermination of the Borrowing Base, then
the Borrowing Base shall be set (i) on the basis of the lowest Borrowing Base
approved by a Bank and communicated to Administrative Agent in writing if such
lowest approved Borrowing Base increases the Borrowing Base; or (ii) on the
basis of the highest approved Borrowing Base acceptable to a sufficient number
of Banks to constitute Required Banks without increasing the Borrowing Base, as
applicable.  If the Borrowing Base is set based on the lowest approved Borrowing
Base, such redetermination shall be deemed to be approved by all of the Banks,
and if the Borrowing Base is set based on the highest approved Borrowing Base
acceptable to a sufficient number of Banks to constitute Required Banks, such
redetermination shall be deemed to be approved by the Required Banks.  However,
the amount of the Borrowing Base shall never be (y) increased or reaffirmed at
any time without the unanimous consent or deemed consent of the Banks or
(z) increased above the Administrative Agent’s proposed Borrowing Base,
notwithstanding anything in this Agreement to the contrary.  Determinations of
the Borrowing Base shall be conclusive as to the Banks and the Borrowers.  There
is no duty, implied or explicit, of the Banks ever to increase the Borrowing
Base.
 
(e)           The Borrowing Base determined in accordance with this Section 2.04
based on the Administrative Agent’s and the Banks’ customary lending practices
shall represent the maximum Loan amount that may be supported by the Borrowing
Base Oil and Gas Properties, and the Borrowers acknowledge, for purposes of this
Agreement, same.  In exercising their discretion in redetermination of the
Borrowing Base and the Monthly Borrowing Base Reduction, the Administrative
Agent and the other Banks shall consistently apply the parameters and other
credit factors then generally being utilized by the Administrative Agent and
each such Bank, respectively, for Borrowing Base redeterminations at the time
for other similarly situated borrowers based, in part, upon the Reserve Report
with respect to the Borrowing Base Oil and Gas Properties. The Borrowers, the
Banks and the Administrative Agent acknowledge that (i) due to the uncertainties
of the oil and gas extraction process, the Borrowing Base Oil and Gas Properties
are not subject to evaluation with a high degree of accuracy and are subject to
potential rapid deterioration in value, and (ii) for this reason and the
difficulties and expenses involved in liquidating and collecting against the
Borrowing Base Oil and Gas Properties, the Administrative Agent’s determination
of the maximum Loan amount with respect to the Borrowing Base Oil and Gas
Properties contains an equity cushion, which equity cushion is acknowledged by
the Borrowers as essential for the adequate protection of the Banks.

 
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(f)           Borrowers may, from time to time upon written notice to
Administrative Agent, propose to add Oil and Gas Properties of Loan Parties to
the Borrowing Base Oil and Gas Properties.  Any such proposal to add Oil and Gas
Properties of Loan Parties to the Borrowing Base Oil and Gas Properties shall be
accompanied by a Reserve Report applicable to such properties that conforms to
the requirements of this Section 2.04, and evidence sufficient to establish that
Loan Parties have, or concurrently with the increase in the Borrowing Base will
have Marketable Title to such Oil and Gas Properties, and any such addition
shall become effective at such time as: (i) Administrative Agent has made a
determination of the amount by which the Borrowing Base would be increased as
the result of such addition, (ii) the conditions set out in Article IV hereof,
to the extent they are applicable to such additional Oil and Gas Properties of
Loan Parties, have been satisfied, and (iii) unanimous approval of all the
Banks.  In determining the increase in the Borrowing Base pursuant to this
Section, Administrative Agent and the Banks shall apply the parameters and other
credit factors set out in this Section 2.04.
 

 
2.05
Prepayments.

 
(a)           Borrowers may, upon notice to Administrative Agent, at any time or
from time to time voluntarily prepay Loans in whole or in part without premium
or penalty; provided that (i) such notice must be received by Administrative
Agent not later than 11:00 a.m., Central Time, two Business Days prior to any
date of prepayment of Loans and (ii) any prepayment shall be in a principal
amount of $100,000 or a greater integral multiple of $100,000, or, if less, the
entire principal amount thereof then outstanding.  Each such notice shall
specify the date and amount of such prepayment.  If such notice is given by
Borrowers, Borrowers shall make such prepayment and the payment amount specified
in such notice shall be due and payable on the date specified therein.  Any
prepayment shall be accompanied by all accrued interest thereon, together with
any additional amounts required pursuant to Section 3.05.

 
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(b)           Except as provided in the last sentence of this Section 2.05(b)
and in Section 2.05(c) below, if for any reason (including a redetermination of
the Borrowing Base) a Loan Excess exists, Borrowers shall, after Borrowers’
receipt of written notice from the Administrative Agent regarding such Loan
Excess, take any of the following actions (and the failure of Borrowers to take
such actions to remedy such Loan Excess shall constitute an Event of Default):
(i) prepay Loans and/or Cash Collateralize the L/C Obligations in an aggregate
amount equal to such Loan Excess within thirty days after the date such excess
notice is received by Borrowers from the Administrative Agent, (ii) add to the
Borrowing Base Oil and Gas Properties additional Oil and Gas Properties of
Borrowers or another Loan Party sufficient in value, as determined pursuant to
Section 2.04, to eliminate such Loan Excess within thirty days after the date
such excess notice is received by Borrowers from the Administrative Agent or
(iii) elect by written notice delivered to the Administrative Agent by Borrowers
within twenty days after Borrowers’ receipt of Administrative Agent’s excess
notice to repay the Loan Excess in not more than three installments, each in the
amount of at least one third (1/3) of the original amount of the Loan Excess (or
the remaining unpaid balance of such Loan Excess, if less than one third thereof
remains), pay the first of such three installments on the date that is thirty
days after the date such written notice is received by Borrowers from the
Administrative Agent, and pay each of the next two installments on or before the
expiration of thirty days and sixty days, respectively, after the date that the
first installment is due.  Notwithstanding the foregoing, however, any Loan
Excess that results or would result from an automatic reduction in the Borrowing
Base due to the application of the Monthly Borrowing Base Reduction shall be due
and shall be repaid by Borrowers on or before the occurrence of such Loan
Excess.
 
(c)           On each date on which Loan Parties makes a Disposition of any of
the Borrowing Base Oil and Gas Properties as permitted hereunder, the Borrowing
Base shall be automatically reduced to the maximum Loan amount (determined in
accordance with the procedures for determining the Borrowing Base) of the
remaining Borrowing Base Oil and Gas Properties, and Borrowers shall be required
immediately to make the prepayment, if any, required pursuant to
Section 2.05(b).  This Section 2.05(c) shall not be deemed a consent of
Administrative Agent to any such Disposition of any Borrowing Base Oil and Gas
Properties.
 
(d)           Upon the Required Number of days written notice to the
Administrative Agent, the Borrowers may voluntarily convert any Base Rate Loan
into a Eurodollar Loan or any Eurodollar Loan into a Base Rate Loan, as
applicable,  prior to the termination of the applicable Interest Period in whole
or in part, from time to time.  Any conversion of Base Rate Loans shall be made
in the sum of not less than $100,000, and any conversion of Eurodollar Loans
shall be made in the sum of not less than $100,000 or any $100,000 increment in
addition thereto.  With respect to any such conversion of any Eurodollar Loan
the Borrowers agree to pay to the Banks upon the request of the Administrative
Agent such amount or amounts as will compensate the Banks for Breakage
Costs.  The payment of any such Breakage Costs to the Banks shall be made within
thirty (30) days of a request therefor from Administrative Agent; provided that
such request is made within ninety (90) days of such conversion.  If the
Eurodollar Rate cannot be determined on the date of such conversion, the
Administrative Agent shall calculate the Eurodollar Rate by interpolating the
Eurodollar Rate in effect immediately prior to the conversion and the Eurodollar
Rate in effect immediately after the conversion.
 
2.06        Repayment of Loans.  Borrower shall repay to Administrative Agent,
for the ratable benefit of the Banks, on the Commitment Termination Date the
aggregate principal amount of Loans outstanding on such date, together with all
accrued and unpaid interest and fees.

 
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2.07
Interest.

 
(a)           Subject to the provisions of subsection (b) below, each Loan shall
bear interest on the outstanding principal amount thereof for each Interest
Period at a rate per annum equal to the Floating Rate based on the Eurodollar
Rate, except to the extent such Loans have converted to Base Rate Loans.  To the
extent the Loans are converted to Base Rate Loans, each Loan shall bear interest
on the outstanding principal thereof at a rate per annum equal to the Floating
Rate for Base Rate Loans.
 
(b)           If any amount payable by Borrowers under any Loan Document is not
paid when due (without regard to any applicable grace periods), whether at
stated maturity by acceleration or otherwise, such amount shall thereafter bear
interest at a fluctuating interest rate per annum at all times equal to the
Default Rate to the fullest extent permitted by applicable Laws.  Furthermore,
while any Event of Default exists (or after acceleration), Borrowers shall pay
interest on the principal amount of all outstanding Obligations at a fluctuating
interest rate per annum at all times equal to the Default Rate to the fullest
extent permitted by applicable Laws.  Accrued and unpaid interest on past due
amounts (including interest on past due interest) shall be due and payable upon
demand.
 
(c)           Interest on each Base Rate Loan shall be due and payable in
arrears on the last day of each month and at such other times as may be
specified herein.  Interest on each Eurodollar Loan shall be due and payable in
arrears on last day of each Interest Period applicable thereto, provided that,
for any Interest Period that exceeds three months, interest will be payable on
the respective dates that fall every three months after the beginning of such
Interest Period.  Interest hereunder shall be due and payable in accordance with
the terms hereof before and after judgment, and before and after the
commencement of any proceeding under any Debtor Relief Law.
 
2.08        Fees.  In addition to certain fees described in Section 2.03(g),
Borrowers shall pay the following fees to Administrative Agent, for the account
of the Banks:
 
(a)           A commitment fee equal to the Commitment Fee per annum percent set
forth in the Margin/Fee Table times the average actual daily Available
Amount.  The commitment fee shall accrue at all times during the Availability
Period, including at any time during which one or more conditions in Article IV
is not met, and shall be calculated and shall be due and payable quarterly in
arrears on the last Business Day of each March, June, September and December,
commencing with the first such date to occur after the Closing Date, and on the
Maturity Date.
 
(b)           A facility fee in an amount equal to 0.75% of the amount of the
initial Borrowing Base of $7,200,000.00 shall be due on the Closing Date, and an
additional facility fee of 0.5% of the incremental amount of any increases in
the Borrowing Base subsequent to the Closing Date above the highest preceding
Borrowing Base shall be due upon such increased Borrowing Base becoming
effective.

 
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(c)           Engineering fees in the amount of $3,500 for the initial Reserve
Report review prior to the Closing Date and $2,500 for subsequent Reserve Report
reviews following the Closing Date in connection with scheduled Borrowing Base
redeterminations and unscheduled Borrowing Base redeterminations.
 
2.09        Computation of Interest and Fees.  All other computations of
interest and all fees shall be made on the basis of a year of 360 days and the
actual number of days elapsed (which results in more fees or interest, as
applicable, being paid than if computed on the basis of a 365 day
year).  Interest shall accrue on each Loan for the day on which the Loan is
made, and shall not accrue on a Loan, or any portion thereof, for the day on
which the Loan or such portion is paid, provided that any Loan that is repaid on
the same day on which it is made shall, subject to Section 2.11(a), bear
interest for one day.
 
2.10        Evidence of Debt.  The Credit Extensions made by Banks shall be
evidenced by one or more accounts or records maintained by Administrative Agent
in the ordinary course of business.  The accounts or records maintained by
Administrative Agent shall be conclusive absent manifest error of the amount of
the Credit Extensions made by Banks to Borrowers and the interest and payments
thereon.  Any failure to so record or any error in doing so shall not, however,
limit or otherwise affect the obligation of Borrowers hereunder to pay any
amount owing with respect to the Obligations.  Upon the request of
Administrative Agent, Borrowers shall execute and deliver to each Bank a Note,
which shall evidence the Loans, in addition to such accounts or records.  Each
Bank may attach schedules to the Note and endorse thereon the date, amount and
maturity of the applicable Loans and payments with respect thereto.
 
2.11        Payments Generally.
 
(a)           (i)           All payments to be made by Borrowers shall be made
without condition or deduction for any counterclaim, defense, recoupment or
setoff.  Except as otherwise expressly provided herein, all payments by
Borrowers hereunder shall be made to Administrative Agent at the Lending Office
in Dollars and in immediately available funds not later than 2:00 p.m., Central
Time, on the date specified herein.  All payments received by Administrative
Agent after 2:00 p.m., Central Time, shall be deemed received on the next
succeeding Business Day and any applicable interest or fee shall continue to
accrue.
 
(ii)           On each date when the payment of any principal, interest or fees
are due hereunder or under any Note, Borrowers agree to maintain on deposit in
an ordinary checking account maintained by Borrowers with Administrative Agent
(as such account shall be designated by Borrowers in a written notice to
Administrative Agent from time to time, the “Borrower Account”) an amount
sufficient to pay such principal, interest or fees in full on such
date.  Borrowers hereby authorize Administrative Agent, upon notice to Borrowers
(which notice may be by telephone, confirmed in writing) (A) to deduct
automatically all principal, interest or fees when due hereunder or under any
Note from the Borrower Account, and (B) if and to the extent any payment of
principal, interest or fees under this Agreement or any Note is not made when
due to automatically deduct any such amount from any or all of the accounts
(other than trust accounts and joint operating accounts, to the extent any such
funds therein are not owned solely by any Borrower) of Borrowers maintained with
Administrative Agent.  Administrative Agent agrees to provide written notice to
Borrower of any automatic deduction made pursuant to this Section 2.11(a)(ii)
showing in reasonable detail the amounts of such deduction.

 
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(b)           If any payment to be made by Borrowers shall come due on a day
other than a Business Day, payment shall be made on the next following Business
Day, and such extension of time shall be reflected in computing interest or
fees, as the case may be.
 
2.12        Pro Rata Treatment and Payments.  Each Credit Extension by Banks to
the Borrowers hereunder, each payment by Borrowers on account of any fee
hereunder (except as expressly provided otherwise hereunder or under any fee
letter) and any reduction of the Commitments of the Banks shall be made pro rata
according to the respective Percentage Shares of the Banks.  Each payment
(including each prepayment) by Borrowers on account of principal of and interest
on the Loans shall be made pro rata according to the respective outstanding
principal amounts of the Loans then held by the Banks.  The Administrative Agent
shall distribute such payments to the Banks promptly upon receipt in like funds
as received.
 
2.13        Sharing of Payments and Setoffs.  Each Bank agrees that if it shall,
through the exercise of a right of banker’s lien, setoff or counterclaim against
any Borrower (pursuant to Section 10.08 or otherwise, including, but not limited
to, a secured claim under Section 506 of Title 11 of the United States
Bankruptcy Code or other security or interest arising from, or in lieu of, such
secured claim, received by such Bank under any applicable Debtor Relief Laws or
otherwise, or by similar means, obtain payment (voluntary or involuntary) in
respect of any Loan or Loans (other than pursuant to Section 3.02) as a result
of which the unpaid principal portion of its Loans shall be proportionately less
than the unpaid principal portion of the Loans of any other Bank, it shall
simultaneously purchase from such other Banks at face value a participation in
the Loans of such other Banks, so that the aggregate unpaid principal amount of
Loans and participations in Loans held by each Bank shall be in the same
proportion to the aggregate unpaid principal amount of all Loans then
outstanding as the principal amount of its Loans prior to such exercise of
banker’s lien, setoff, counterclaim or other event was to the principal amount
of all Loans outstanding prior to such exercise of banker’s lien, setoff,
counterclaim or other event; provided, however, that if any such purchase or
purchases or adjustments shall be made pursuant to this Section 2.13 and the
payment giving rise thereto shall thereafter be recovered, such purchase or
purchases or adjustments shall be rescinded to the extent of such recovery and
the purchase price or prices or adjustment restored without interest.
 
2.14        Adjustment to Aggregate Commitment Amount.  At any time that
Borrowers propose to increase the Borrowing Base by adding additional Oil and
Gas Properties to the Borrowing Base Oil and Gas Properties pursuant to Section
2.04, Borrowers may also request that Banks increase the amount of the Aggregate
Commitment Amount.  At any time that Borrowers make such a request it shall
promptly provide Administrative Agent with such financial and other information
as Administrative Agent may request to assist the Administrative Agent in
evaluating such request.  Following the receipt of such information from
Borrowers, the Administrative Agent shall, with the unanimous approval of the
Banks in each Bank’s sole discretion, make a redetermination of the Aggregate
Commitment Amount, which shall become effective upon written notification from
the Administrative Agent to Borrowers of the new Aggregate Commitment
Amount.  The Borrowers may upon written notice to Administrative Agent, not
sooner than ninety (90) days subsequent to the last such action by Borrowers,
amend the definition of the Aggregate Commitment Amount by reducing the amount
set forth in such definition.  Upon such reduction, the Banks shall not be
obligated to make Credit Extensions in excess of such reduced Aggregate
Commitment Amount.  If and when the Banks change the Aggregate Commitment Amount
at Borrowers’ request, the commitment fee, as determined pursuant to Section
2.08 of this Agreement, shall be calculated using such changed amount for all of
the calculation period in which such Aggregate Commitment Amount was changed.

 
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ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY
 

 
3.01
Taxes.

 
(a)           Any and all payments by Borrowers to or for the account of the
Banks under any Loan Document shall be made free and clear of and without
deduction for any and all present or future taxes, duties, levies, imposts,
deductions, assessments, fees, withholdings or similar charges, and all
liabilities with respect thereto, excluding, in the case of the Banks, taxes
imposed on or measured by its overall net income, and franchise taxes imposed on
it (in lieu of net income taxes), by the jurisdiction (or any political
subdivision thereof) under the Laws of which any Bank is organized or maintains
a lending office (all such non-excluded taxes, duties, levies, imposts,
deductions, assessments, fees, withholdings or similar charges, and liabilities
being hereinafter referred to as “Taxes”).  If Borrowers shall be required by
any Laws to deduct any Taxes from or in respect of any sum payable under any
Loan Document to the Banks, (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), each Bank receives an amount
equal to the sum it would have received had no such deductions been made, (ii)
Borrowers shall make such deductions, (iii) Borrowers shall pay the full amount
deducted to the relevant taxation authority or other authority in accordance
with applicable Laws, and (iv) within thirty days after the date of such
payment, Borrowers shall furnish to Administrative Agent the original or a
certified copy of a receipt evidencing payment thereof or, if the relevant
taxation authority or other authority has not provided Borrowers with such a
receipt, other evidence of payment thereof.
 
(b)           In addition, Borrowers agree to pay any and all present or future
stamp, court or documentary taxes and any other excise or property taxes or
charges or similar levies which arise from any payment made under any Loan
Document or from the execution, delivery, performance, enforcement or
registration of, or otherwise with respect to, any Loan Document (hereinafter
referred to as “Other Taxes”).
 
(c)           If Borrowers shall be required to deduct or pay any Taxes or Other
Taxes from or in respect of any sum payable under any Loan Document to any Bank,
Borrowers shall also pay to such Bank, at the time interest is paid, such
additional amount that such Bank specifies is necessary to preserve the
after-tax yield (after factoring in all taxes, including taxes imposed on or
measured by net income) that such Bank would have received if such Taxes or
Other Taxes had not been imposed.

 
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(d)           Borrowers agree to indemnify the Banks for (i) the full amount of
Taxes and Other Taxes (including any Taxes or Other Taxes imposed or asserted by
any jurisdiction on amounts payable under this Section) paid by the Banks, and
(ii) amounts payable under Section 3.01(c) and (iii) any liability (including
additions to tax, penalties, interest and expenses) arising therefrom or with
respect thereto, in each case whether or not such Taxes or Other Taxes were
correctly or legally imposed or asserted by the relevant Governmental Authority
and provided that such Bank has made demand therefor within sixty (60) days
following the imposition thereof.  Payment under this subsection (d) shall be
made within thirty days after the date any such Bank makes a demand
therefor.  To the extent Borrowers pay such Taxes or reimburse any Bank for such
Taxes or Other Taxes, and such Bank subsequently receives a refund of such Taxes
or Other Taxes, such Bank shall pay to Borrowers the refunded amount of such
Taxes or Other Taxes paid or reimbursed by Borrowers.
 
3.02        Illegality.  If any Bank determines that any Law has made it
unlawful, or that any Governmental Authority has asserted that it is unlawful,
for such Bank or its applicable Lending Office to make, maintain or fund
Eurodollar Loans, or to determine or charge interest rates based upon the
Eurodollar Rate, then, on notice thereof by any such Bank to Borrowers, any
obligation of any such Bank to make or continue Eurodollar Loans shall be
suspended and, until such Bank notifies Borrowers that the circumstances giving
rise to such determination no longer exist, the Loans outstanding shall be
converted to Base Rate Loans, either on the last day of the Interest Period
therefor, if such Bank may lawfully continue to maintain such Eurodollar Loans
to such day, or immediately, if such Bank may not lawfully continue to maintain
such Eurodollar Loans.  Upon any such conversion, Borrowers shall also pay
accrued interest on the amount so converted and all amounts due under Section
3.05 in accordance with the terms thereof due to such conversion.  During any
periods during which it is unlawful for any Bank to make Eurodollar Loans,
subject to all other terms and conditions relating to making any Loans,
Borrowers may request only Base Rate Loans.
 
3.03        Inability to Determine Rates.  If any Bank determines in connection
with any request for a Eurodollar Loan or continuation thereof for any reason
that (a) Dollar deposits are not being offered to banks in the London interbank
Eurodollar market for the applicable amount and Interest Period of such Loan,
(b) adequate and reasonable means do not exist for determining the Eurodollar
Rate for any requested Interest Period with respect to a proposed Loan, or (c)
the Eurodollar Rate for any requested Interest Period with respect to a proposed
Loan does not adequately and fairly reflect the cost to any Bank of funding such
Loan, such Bank will promptly so notify Borrowers.  Thereafter, the obligation
of such Bank to make or maintain Loans shall be suspended until such Bank
revokes such notice.  Upon receipt of such notice, Borrowers may revoke any
pending request for a Eurodollar Loan of or continuation of Eurodollar Loans or,
failing that, will be deemed to have converted such request into a request for a
Base Rate Loan in the amount specified therein.

 
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3.04
Increased Cost and Reduced Return; Capital Adequacy; Reserves on Eurodollar
Loans.

 
(a)           If any Bank determines that as a result of the introduction of or
any change in or in the interpretation of any Law, or any Bank’s compliance
therewith, there shall be any increase in the cost to such Bank of agreeing to
make or making, funding or maintaining Eurodollar Loans or (as the case may be)
issuing Letters of Credit, or a reduction in the amount received or receivable
by such Bank in connection with any of the foregoing (excluding for purposes of
this subsection (a) any such increased costs or reduction in amount resulting
from (i) Taxes or Other Taxes as to which Section 3.01 shall govern, (ii)
changes in the basis of taxation of overall net income or overall gross income
by the United States or any foreign jurisdiction or any political subdivision of
either thereof under the Laws of which such Bank is organized or has its Lending
Office, and (iii) reserve requirements utilized, as to Eurodollar Loans, in the
determination of the Eurodollar Rate), then from time to time upon demand of
such Bank, Borrowers shall pay to such Bank such additional amounts as will
compensate such Bank for such increased cost or reduction; provided that such
Bank has made demand therefor within sixty (60) days following such introduction
or change.
 
(b)           If such Bank determines that the introduction of any Law regarding
capital adequacy or any change therein or in the interpretation thereof, or
compliance by such Bank (or its Lending Office) therewith, has the effect of
reducing the rate of return on the capital of such Bank or any corporation
controlling such Bank as a consequence of such Bank’s obligations hereunder
(taking into consideration its policies with respect to capital adequacy and
such Bank’s desired return on capital), then from time to time upon demand of
such Bank, Borrowers shall pay to such Bank such additional amounts as will
compensate such Bank for such reduction; provided that such Bank has made demand
therefor within sixty (60) days following such introduction or change.
 
3.05        Funding Losses.  Upon demand of any Bank from time to time,
Borrowers shall promptly compensate such Bank for and hold such Bank harmless
from any loss, cost or expense incurred by it as a result of:
 
(a)           any continuation, conversion, payment or prepayment of any Loan
other than a Base Rate Loan on a day other than the last day of the Interest
Period for such Loan (whether voluntary, mandatory, automatic, by reason of
acceleration, or otherwise); or
 
(b)           any failure by Borrowers (for a reason other than the failure of
any Bank to make a Loan) to prepay, borrow, continue or convert any Loan other
than a Base Rate Loan on the date or in the amount notified by Borrowers;
 
including any loss of anticipated profits and any loss or expense arising from
the liquidation or reemployment of funds obtained by it to maintain such Loan or
from fees payable to terminate the deposits from which such funds were
obtained.  Borrowers shall also pay any customary administrative fees charged by
such Bank in connection with the foregoing.
 
For purposes of calculating amounts payable by Borrowers to Banks under this
Section 3.05, each Bank shall be deemed to have funded each Eurodollar Loan made
by it at the Floating Rate based on the Eurodollar Rate for such Loan by a
matching deposit or other borrowing in the London interbank Eurodollar market
for a comparable amount and for a comparable period, whether or not such
Eurodollar Loan was in fact so funded.

 
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3.06        Matters Applicable to all Requests for Compensation.  A certificate
of any Bank claiming compensation under this Article III and setting forth in
reasonable detail the calculation of the additional amount or amounts to be paid
to it hereunder shall be conclusive in the absence of manifest error.  In
determining such amount, such Bank may use any reasonable averaging and
attribution methods.
 
3.07        Survival.  All of Borrowers’ obligations under this Article III
shall survive termination of the Commitments and repayment of all other
Obligations hereunder.
 
3.08        Replacement of Banks.  If any Bank requests compensation under, or
if Borrowers are required to pay any additional amount to any Bank or any
Governmental Authority for the account of any Bank pursuant to Section 3.01 or
3.04, or if any Bank is unable to fund Eurodollar Loans under Section 3.02, or
if any Bank defaults in its obligation to fund Loans hereunder, then upon notice
to such Bank and Administrative Agent, Borrowers may require such Bank to sell
and assign all of its interests, rights and obligations under this Agreement and
the other Loan Documents to one or more Persons reasonably acceptable to
Borrowers (after all of the Banks not requesting or entitled to indemnification
or reimbursement hereunder or that are defaulting Banks under Sections 2.02 or
2.03 have declined to acquire such additional interests, rights and obligations
or portion thereof), with the consent of the Administrative Agent (not to be
unreasonably withheld or delayed); provided that such Bank shall have received
payment of an amount equal to the outstanding principal amount of its Loans and
all accrued interest, fees and other amounts payable with respect thereto
through the date of sale.  Such sale and assignment shall be consummated
pursuant to an executed Commitment Transfer Supplement pursuant to and in
accordance with Section 10.07(c).
 
ARTICLE IV
CONDITIONS PRECEDENT TO CREDIT EXTENSIONS
 
4.01        Conditions of Initial Credit Extension.  The obligation of each Bank
to make its initial Credit Extension hereunder is subject to satisfaction of the
following conditions precedent:
 
(a)           Administrative Agent’s receipt of the following, each of which
shall be originals or facsimiles (followed promptly by originals) unless
otherwise specified, each properly executed by a Responsible Officer of the
signing Loan Party, each dated the Closing Date (or, in the case of certificates
of governmental officials, a recent date before the Closing Date) and each in
form and content satisfactory to Administrative Agent and its legal counsel:
 
(i)           executed counterparts of this Agreement, and all Collateral
Documents, including, without limitation, the Collateral Documents covering the
Borrowing Base Oil and Gas Properties and related Collateral, and all other Loan
Documents sufficient in number for distribution to the Banks and Borrowers;
 
(ii)           the Notes executed by Borrowers;

 
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(iii)           such certificates of resolutions or other action, incumbency
certificates and/or other certificates of Responsible Officers of each Loan
Party as Administrative Agent may require evidencing the identity, authority and
capacity of each Responsible Officer thereof authorized to act as a Responsible
Officer in connection with this Agreement and the other Loan Documents to which
such Loan Party is a party;
 
(iv)           such documents and certificates as Administrative Agent may
reasonably require to evidence that each Loan Party is duly organized or formed,
including Certificates of Formation, and that Borrowers are, validly existing,
in good standing and qualified to engage in business in each jurisdiction where
its ownership, lease or operation of properties or the conduct of its business
requires such qualification;
 
(v)           a certificate of a Responsible Officer of each Loan Party either
(A) attaching copies of all consents, licenses and approvals required in
connection with the execution, delivery and performance by such Loan Party and
the validity against such Loan Party of the Loan Documents to which it is a
party, and such consents, licenses and approvals shall be in full force and
effect, or (B) stating that no such consents, licenses or approvals are so
required;
 
(vi)           a certificate signed by a Responsible Officer of Borrowers
certifying (A) that the conditions specified in Sections 4.02(a) and (b) have
been satisfied, and (B) that there has been no event or circumstance since the
date of the Current Financial Statements that had or could reasonably be
expected to have a Material Adverse Effect; and
 
(vii)          Transfer Order Letters applicable to the production of
Hydrocarbons from all Borrowing Base Oil and Gas Properties.
 
(viii)         executed counterparts to an amendment to that certain
Intercreditor Agreement dated September 4, 2008 among Borrowers, Administrative
Agent and BP Corporation North America Inc., as Approved Counterparty.

(b)           Administrative Agent shall have received:
 
(i)           evidence that all insurance required to be maintained pursuant to
the Loan Documents has been obtained and is in effect;
 
(ii)          evidence, satisfactory to Administrative Agent in its sole
discretion, that as of the execution, delivery, filing and recording of the
Collateral Documents, Administrative Agent shall hold a perfected, first
priority Lien (subject to Permitted Liens) in all Collateral for the Loan;
 
(iii)         evidence, satisfactory to Administrative Agent, that Borrowers,
each other applicable Loan Party and the Borrowing Base Oil and Gas Properties
will comply in all material respects with all Environmental Laws and the
applicable Laws and, to the extent applicable, regulations of the Department of
Interior, Bureau of Land Management, the Bureau of Indian Affairs and the State
of Kansas;

 
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(iv)           the results of a Uniform Commercial Code search showing all
financing statements and other documents or instruments on file against
Borrowers and each other Loan Party in the Offices of the Secretary of State of
the state of formation of Borrowers and each other Loan Party and each State in
which any of the Borrowing Base Oil and Gas Properties are located or deemed to
be located, such search to be as of a date no more than ten days prior to the
Closing Date;
 
(v)           copies of all Material Agreements, Debt Instruments and other
agreements described in Section 5.24 or listed on Schedule 5.24;
 
(vi)           such other assurances, certificates, documents, consents,
evidence of perfection of all Liens securing the Obligations or opinions as
Administrative Agent reasonably may require; and
 
(vii)           a favorable opinion of counsel (including local counsel with
respect to the Collateral Documents) to the Loan Parties acceptable to
Administrative Agent, addressed to Administrative Agent, as to such matters
concerning the Loan Parties and the Loan Documents in form and content
satisfactory to Administrative Agent.
 
(c)           Any fees required to be paid on or before the Closing Date shall
have been paid, including, without limitation, any legal fees invoiced to the
Loan Parties prior to the Closing Date in connection with the delivery of the
opinions of counsel set forth in Section 4.01(b)(vii) above.
 
(d)           Borrowers shall have paid all Attorney Costs of Administrative
Agent to the extent invoiced prior to or on the Closing Date, plus such
additional amounts of Attorney Costs of Administrative Agent as shall constitute
Administrative Agent’s reasonable estimate of Attorney Costs of Administrative
Agent incurred or to be incurred by Administrative Agent through the closing
proceedings (provided that such estimate shall not thereafter preclude a final
settling of accounts between Borrowers and Administrative Agent).
 
4.02        Conditions to all Credit Extensions and Continuations.  The
obligation of Banks to honor any Request for Credit Extension is subject to the
following conditions precedent:
 
(a)           The representations and warranties of Borrowers and each other
Loan Party contained in Article V or any other Loan Document, or which are
contained in any document furnished at any time under or in connection herewith,
shall be true and correct in all material respects on and as of the date of such
Credit Extension or continuation, except to the extent that such representations
and warranties specifically refer to an earlier date, in which case they shall
be true and correct in all material respects as of such earlier date, and except
that for purposes of this Section 4.02, the representations and warranties
contained in subsections (a) and (b) of Section 5.05 shall be deemed to refer to
the most recent Financial Statements furnished pursuant to clauses (a) and (b),
respectively, of Section 6.01.

 
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(b)           No Default shall have occurred and be continuing, or would result
from such proposed Credit Extension or continuation.
 
(c)           Administrative Agent shall have received a Request for Credit
Extension in accordance with the requirements hereof.
 
(d)           Administrative Agent shall have been, and shall continue to be,
satisfied, in its good faith discretion, that Borrowers hold Marketable Title to
the Borrowing Base Oil and Gas Properties, and that such ownership includes
record title to an undivided net revenue interest in the production from each
such Borrowing Base Oil and Gas Property that is not less than, as well as an
undivided working interest in each Borrowing Base Oil and Gas Property that is
not greater than (unless there is a corresponding increase in the net revenue
interest attributed to such party therein), the net revenue interest therein and
the working interest therein, respectively, attributed to Borrower on Exhibit A,
subject to the limitations and qualifications on such exhibit (or attributed to
Borrowers in any Collateral Document applicable to any Oil and Gas Property that
is added to the Borrowing Base Oil and Gas Properties in connection with any
subsequent funding after the Closing Date); provided that, for purposes of
closing and thereafter, unless an Event of Default has occurred and is
continuing, Administrative Agent shall have confirmed, to its satisfaction, the
status of Borrowers’ title to Borrowing Base Oil and Gas Properties comprising a
minimum of eighty percent (80%) of the PW9 (based on the most recent Borrowing
Base evaluation by Administrative Agent) of the Proved Reserves that are
attributable to those Borrowing Base Oil and Gas Properties that are made
subject to Collateral Documents in favor of Administrative Agent. Such
determination by Administrative Agent, however, shall not relieve Borrowers from
the ongoing obligation to comply with all of its representations, warranties and
covenants herein and in the Collateral Documents regarding Borrowers’ title to
all Borrowing Base Oil and Gas Properties.  The applicable Collateral Documents
shall cover at all times a minimum of eighty percent (80%) of the PW9 (based on
the most recent Borrowing Base evaluation by Administrative Agent) of the Proved
Reserves that are attributable to those Borrowing Base Oil and Gas Properties as
security for the Total Obligations.
 
(e)           As of the time of funding any additional advances to Borrowers
that are made in conjunction with the addition of Oil and Gas Properties owned
by Borrowers or other Loan Parties to the Borrowing Base Oil and Gas Properties
in accordance with this Agreement, Borrowers and each other applicable Loan
Party shall have duly delivered to Administrative Agent: (i) the Collateral
Documents that are necessary or appropriate, in the reasonable opinion of
Administrative Agent, relating to such additional Oil and Gas Properties, (ii)
Transfer Order Letters applicable to the production of oil and gas from such
additional Borrowing Base Oil and Gas Properties, and (iii) evidence, reasonably
satisfactory to Administrative Agent in its sole discretion, that Borrowers and
the Borrowing Base Oil and Gas Properties will be in material compliance with
all Environmental Laws.  Furthermore, Administrative Agent shall have completed
its title due diligence confirming that Loan Parties have Marketable Title to
such Oil and Gas Properties.

 
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(f)           Administrative Agent shall have received, in form and content
satisfactory to it, such other assurances, certificates, documents or consents
related to the foregoing as Administrative Agent reasonably may require.
 
Each Request for Credit Extension submitted by Borrowers shall be deemed to be a
representation and warranty that the conditions specified in Sections 4.02(a)
and (b) have been satisfied on and as of the date of the applicable Credit
Extension.
 
ARTICLE V
REPRESENTATIONS AND WARRANTIES
 
Borrowers, jointly and severally, represent and warrant to Administrative Agent,
L/C Issuer, and Banks that:
 
5.01        Existence, Qualification and Power; Compliance with Laws.  Each Loan
Party (a) is duly organized or formed, validly existing and in good standing
under the Laws of the jurisdiction of its incorporation or organization and (b)
has all Corporate Power and authority and all requisite governmental licenses,
authorizations, consents and approvals to (i) own its assets and carry on its
business as presently conducted and (ii) execute, deliver, and perform its
obligations under the Loan Documents to which it is a party, except to the
extent the failure to have such governmental licenses, authorizations, consents
and approvals could not reasonably be expected to have a Material Adverse
Effect.
 
5.02        Authorization; No Contravention.  The execution, delivery and
performance by each Loan Party of each Loan Document to which such Person is
party, have been duly authorized by all necessary Corporate Action, and do not
and will not (a) contravene the terms of any of such Person’s Governing
Documentation; (b) conflict with or result in any breach or contravention of, or
the creation of any Lien under, (i) any Contractual Obligation to which such
Person is a party or (ii) any order, injunction, writ or decree of any
Governmental Authority or any arbitral award to which such Person or its
property is subject except to the extent such conflict could not reasonably be
expected to have a Material Adverse Effect; or (c) violate any Law except to the
extent such violation could not reasonably be expected to have a Material
Adverse Effect.
 
5.03        Governmental Authorization.  No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority or any other Person is necessary or required in
connection with the execution, delivery or performance by, or enforcement
against, any Loan Party of this Agreement or any other Loan Document except to
the extent that the failure to obtain any such approval, consent, exemption,
authorization or other action by, to provide any such notice to, or to make any
such filing could not reasonably be expected to have a Material Adverse Effect.
 
5.04        Binding Effect.  This Agreement has been, and each other Loan
Document, when delivered hereunder, will have been, duly executed and delivered
by each Loan Party that is a party thereto.  This Agreement constitutes, and
each other Loan Document when so delivered will constitute, a legal, valid and
binding obligation of each Loan Party that is party hereto or thereto, as
applicable, enforceable against each Loan Party that is party thereto in
accordance with its terms except as such enforcement may be limited by Debtor
Relief Laws.

 
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5.05        Financial Statements; No Material Adverse Effect.
 
(a)           The Current Financial Statements (i) were prepared in accordance
with GAAP consistently applied throughout the periods covered thereby, except as
otherwise expressly noted therein; (ii) fairly present the financial condition
of Borrowers and their Subsidiaries, if any, as of the date thereof and their
results of operations for the period covered thereby in accordance with GAAP
consistently applied throughout the periods covered thereby, except as otherwise
expressly noted therein, subject in the case of unaudited Financial Statements,
to the absence of footnotes and to normal year-end audit adjustments; and (iii)
show all material indebtedness and other liabilities, direct or contingent, of
Borrowers and their Subsidiaries, if any, as of the date thereof, including
liabilities for taxes, material commitments and Indebtedness.
 
(b)           Since the date of the current Financial Statements, there has been
no event or circumstance, either individually or in the aggregate, that has had
or could reasonably be expected to have a Material Adverse Effect.
 
5.06        Litigation.  Except as specifically disclosed in Schedule 5.06
hereto, there are no actions, suits, proceedings, claims or disputes pending or,
to the knowledge of Borrowers after due and diligent investigation, threatened
or contemplated, at law, in equity, in arbitration or before any Governmental
Authority, by or against Borrowers or any of their Subsidiaries or against any
of their properties or revenues that (a) purport to affect or pertain to this
Agreement or any other Loan Document, or any of the transactions contemplated
hereby, or (b) either individually or in the aggregate, if determined adversely,
could reasonably be expected to have a Material Adverse Effect.
 
5.07        No Default.  Neither Borrowers nor any Subsidiary is in default
under or with respect to any Contractual Obligation that could either
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.  No Default has occurred and is continuing or would result from
the consummation of the transactions contemplated by this Agreement or any other
Loan Document.
 
5.08        Title; Liens; Priority of Liens.  Borrowers (a) have Marketable
Title to, or valid leasehold interests in, all real property necessary or used
in the ordinary conduct of their business, except for such defects in title as
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect, (b) own the personal property granted by them as
Collateral under the Collateral Documents, free and clear of any and all Liens
in favor of third parties other than Permitted Liens, and (c) have Marketable
Title to the working and net revenue interests in the Borrowing Base Oil and Gas
Properties as set out on Exhibit A.  Except as set out in the instruments and
agreements, if any, more particularly described in Exhibit A hereto, all such
shares of production which Borrowers and each other applicable Loan Party are
entitled to receive, and shares of expenses which Borrowers are obligated to
bear as set forth on Exhibit A, are not subject to change, except for changes
attributable to future elections by Borrowers or such Loan Party not to
participate in operations proposed pursuant to customary forms of applicable
joint operating agreements, and except for changes attributable to changes in
participating areas under any federal units wherein participating areas may be
formed, enlarged or contracted in accordance with the rules and regulations of
the applicable Governmental Authority.  Upon the proper filing of UCC financing
statements, the recording of mortgages, and the taking of the other actions
required by Administrative Agent, the Liens granted in property pursuant to the
Collateral Documents will constitute valid and enforceable first, prior and
perfected Liens on the Collateral in favor of Administrative Agent, for the
benefit of the Banks, other than Permitted Liens.  The property of Borrowers and
their Subsidiaries is subject to no Liens, other than Permitted Liens.

 
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5.09        Environmental Compliance.  Borrowers and their Subsidiaries conduct
in the ordinary course of business a review of the effect of existing
Environmental Laws and claims alleging potential liability or responsibility for
violation of any Environmental Law on their respective businesses, operations
and properties, and as a result thereof Borrowers have reasonably concluded
that, except as specifically disclosed in Schedule 5.09 hereto, such
Environmental Laws and claims could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
 
5.10        Insurance.  The properties of Borrowers and their Subsidiaries are
insured with insurance companies, which to Borrowers’ knowledge are financially
sound and reputable, not Affiliates of Borrowers, in such amounts, after giving
effect to any self-insurance compatible with the following standards, with such
deductibles and covering such risks as are customarily carried by companies
engaged in similar businesses and owning similar properties in localities where
Borrowers or the applicable Subsidiaries operate.
 
5.11        Taxes.  Borrowers and their Subsidiaries have filed all federal,
state and other material tax returns and reports required to be filed, and have
paid all federal, state and other material taxes, assessments, fees and other
governmental charges levied or imposed upon them or their properties, income or
assets otherwise due and payable, except those which are being contested in good
faith by appropriate proceedings diligently conducted and for which adequate
reserves have been provided in accordance with GAAP.  There is no proposed tax
assessment against Borrowers that would, if made, have a Material Adverse
Effect.
 
5.12        ERISA Compliance.
 
(a)           Each Plan is in compliance in all material respects with the
applicable provisions of ERISA, the Code and other federal or state Laws.  Each
Plan that is intended to qualify under Section 401(a) of the Code has received a
favorable determination letter from the IRS or an application for such a letter
is currently being processed by the IRS with respect thereto and, to the best
knowledge of Borrowers, nothing has occurred which would prevent, or cause the
loss of, such qualification.  Borrowers and each ERISA Affiliate have made all
required contributions to each Plan subject to Section 412 of the Code, and no
application for a funding waiver or an extension of any amortization period
pursuant to Section 412 of the Code has been made with respect to any Plan.

 
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(b)           There are no pending or, to the best knowledge of Borrowers,
threatened claims, actions or lawsuits, or action by any Governmental Authority,
with respect to any Plan that could reasonably be expected to have a Material
Adverse Effect.  There has been no prohibited transaction or violation of the
fiduciary responsibility rules with respect to any Plan that has resulted or
could reasonably be expected to result in a Material Adverse Effect.
 
(c)           (i) No ERISA Event has occurred or is reasonably expected to
occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither
Borrowers nor any ERISA Affiliate has incurred, or reasonably expects to incur,
any liability under Title IV of ERISA with respect to any Pension Plan (other
than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither
Borrowers nor any ERISA Affiliate has incurred, or reasonably expects to incur,
any liability (and no event has occurred which, with the giving of notice under
Section 4219 of ERISA, would result in such liability) under Sections 4201 or
4243 of ERISA with respect to a Multiemployer Plan; and (v) neither Borrowers
nor any ERISA Affiliate has engaged in a transaction that could be subject to
Sections 4069 or 4212(c) of ERISA.
 
5.13        Subsidiaries.  As of the Closing Date, Borrowers have no
Subsidiaries other than those specifically disclosed in Schedule 5.13.
 
5.14        Disclosure.  Borrowers have disclosed to Administrative Agent all
material agreements, instruments and corporate or other restrictions to which
they or any of their Subsidiaries is subject, including, without limitation, the
material agreements filed by Parent with the Securities and Exchange Commission
and all other matters known to them, that, individually or in the aggregate,
could reasonably be expected to result in a Material Adverse Effect.  No report,
financial statement, certificate or other information furnished (whether in
writing or orally) by or on behalf of any Loan Party in connection with any Loan
Document to Administrative Agent or any Bank in connection with the transactions
contemplated hereby and the negotiation of this Agreement or delivered hereunder
(as modified or supplemented by other information so furnished) contains any
material misstatement of fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein in light of the
circumstances under which they were made, not misleading.
 
5.15        Compliance with Laws.  Each Borrower and each other Loan Party is in
compliance in all material respects with the requirements of all Laws and all
orders, writs, injunctions and decrees applicable to it or to its properties,
except in such instances in which (a) such requirement of Law or order, writ,
injunction or decree is being contested in good faith by appropriate proceedings
diligently conducted or (b) the failure to comply therewith, either individually
or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
 
5.16        Suspended Revenues.  None of the revenues derived from any of the
wells identified on Exhibit A attached hereto are being held in suspense by any
party except for immaterial amounts of revenues that could not reasonably be
expected to have a Material Adverse Effect.

 
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5.17        Tax Shelter Regulations.  Borrowers do not intend to treat the Loans
and/or Letters of Credit and related transactions as being a “reportable
transaction” (within the meaning of Treasury Regulation Section 1.6011-4).  In
the event any Borrower determines to take any action inconsistent with such
intention, it will promptly notify Administrative Agent thereof.  Accordingly,
if any Borrower so notifies Administrative Agent, such Borrower acknowledges
that the Banks may treat their Loans and/or Letters of Credit as part of a
transaction that is subject to Treasury Regulation Section 301.6112-1, and each
Bank will maintain the lists and other records required by such Treasury
Regulation.
 
5.18        Oil and Gas Leases.  The Leases which constitute any part of the
Borrowing Base Oil and Gas Properties are in full force and effect as to those
portions thereof that comprise the Borrowing Base Oil and Gas Properties except
to the extent the failure to be in full force and effect could not reasonably be
expected to have a Material Adverse Effect.
 
5.19        Oil and Gas Contracts.  Except: (a) as set out on Schedule 5.19
attached hereto, and (b) as may subsequently occur and be disclosed by Borrowers
in the next Compliance Certificate delivered by Borrowers after such occurrence,
Borrowers are not obligated, by virtue of any prepayment under any contract
providing for the sale by Borrowers of Hydrocarbons which contains a
“take-or-pay” clause or under any similar prepayment agreement or arrangement,
including, “gas balancing agreements”, to deliver a material amount of
Hydrocarbons produced from the Borrowing Base Oil and Gas Properties at some
future time without then or thereafter receiving full payment therefor (i.e., in
the case of oil, not in excess of sixty days, and in the case of gas, not in
excess of ninety days).  Except: (a) as set out on Schedule 5.19 attached
hereto, and (b) as may subsequently occur and be disclosed by Borrowers in the
next Compliance Certificate delivered by Borrowers after such occurrence, the
Borrowing Base Oil and Gas Properties are not subject to any contractual, or
other arrangement for the sale of crude oil which cannot be canceled on ninety
days’ (or less) notice, unless the price provided for therein is equal to or
greater than the prevailing market price in the vicinity. To the best of
Borrowers’ knowledge, the Borrowing Base Oil and Gas Properties are not subject
to any regulatory refund obligation and no facts exist which might cause the
same to be imposed.
 
5.20        Producing Wells.  All producing wells that constitute part of the
Borrowing Base Oil and Gas Properties: (a) have been, during all times that any
such wells were operated by Borrowers or their Subsidiaries, and (b) to the
knowledge of Borrowers, have been at all other times; drilled, operated and
produced in conformity with all applicable Laws, rules, regulations and orders
of all regulatory authorities having jurisdiction, are subject to no penalties
on account of past production, and are bottomed under and are producing from,
and the well bores are wholly within, the Borrowing Base Oil and Gas Properties,
or on Oil and Gas Properties which have been pooled, unitized or communitized
with the Borrowing Base Oil and Gas Properties, except to the extent that any
noncompliance with the representations set out in this Section would not have a
Material Adverse Effect.
 
5.21        Purchasers of Production.  The names and business addresses of the
Persons who: (a) have purchased any of Borrowers’ interests in oil and gas
produced from the Borrowing Base Oil and Gas Properties during the six calendar
months preceding the Closing Date, or (b) are considered by Borrowers to be
potential future purchasers of Borrowers’ interest in oil and gas produced from
the Borrowing Base Oil and Gas Properties, are identified on Schedule 5.21
attached hereto.

 
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5.22        Swap Contracts.  Schedule 5.22 sets forth, as of the date of this
Agreement, a true and complete list of all Swap Contracts of Borrowers and their
Subsidiaries and the counterparty to each such agreement.  For the avoidance of
doubt, the aforementioned Swap Contracts are hereby deemed to be Permitted Swap
Contracts; provided, however, in the event such Swap Contracts do not comply
with Section 6.22 as of the Closing Date, such non-compliance shall not
constitute a waiver of Banks’ right to insist on future compliance with Section
6.22.
 
5.23        Solvency and Insurance. As of the Closing Date, Borrowers, and their
respective Subsidiaries and each Guarantor is Solvent.
 
5.24        Material Agreements; Debt Instruments.
 
(a)           Schedule 5.24 sets forth a complete and correct list of all
Material Agreements, Debt Instruments and other agreements (other than Leases)
that in each case, as of the date of this Agreement, require or could in the
future require (i) payments by Borrowers and any other Loan Party in excess of
$100,000 or (ii) any Disposition of any interest in any Borrowing Base Oil and
Gas Property.  Except for industry standard provisions in Operating Agreements
and Leases, Borrowers are not party to any Material Agreement which, upon the
breach or default of any of its obligations thereunder, will or could in the
future (i) subject Borrower’s Oil and Gas Properties to foreclosure (whether
judicial or non-judicial) or forfeiture, or (ii) result in or create an
encumbrance or Lien (except for Permitted Liens) upon Borrowers’ Borrowing Base
Oil and Gas Properties.
 
(b)           Borrowers have heretofore delivered to the Administrative Agent
and the Banks complete and correct copies of all Material Agreements described
in the first sentence of Section 5.24 and Debt Instruments relating to
Indebtedness in excess of $100,000, including any amendments, restatements or
modifications thereto, as in effect on the Closing Date.  With respect to the
Material Agreements, they (a) all are in full force and effect in all material
respects in accordance with their terms and constitute valid and binding
obligations, except as limited by applicable Debtor Relief Laws and by general
equitable principles, (b) to Borrowers’ knowledge no other party thereto (or any
successor in interest to that party) is in breach or default with respect to any
of its obligations thereunder that could be expected to result in a Material
Adverse Change, and (c) no party thereto has given written notice or, to the
Borrowers’ knowledge, has threatened to give notice of any action to terminate,
cancel, rescind or procure a judicial reformation thereunder that could be
expected to have a Material Adverse Change.
 
(c)           With respect to the Material Agreements and the Debt Instruments,
the execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement will not result in a material breach
of or a default under the provisions thereunder.

 
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ARTICLE VI
AFFIRMATIVE COVENANTS
 
So long as any Bank shall have any Commitment hereunder, or any Loan or other
Obligation shall remain unpaid or unsatisfied, or any Letter of Credit shall
remain outstanding, Borrowers, and with respect to Sections 6.01 and 6.02, each
Guarantor, shall, and shall (except in the case of the covenants set out in
Sections 6.03 and 6.22) cause each Subsidiary to:
 
6.01        Financial Statements.  Deliver to Administrative Agent copies of the
following, in form and detail satisfactory to Administrative Agent:
 
(a)           as soon as available, but in any event within 90 days after the
end of each fiscal year of Borrowers, a consolidated balance sheet of Borrowers
and their Subsidiaries as at the end of such fiscal year, and the related
consolidated statements of income or operations, stockholders equity and cash
flows for such fiscal year, setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail and prepared in
accordance with GAAP, audited and accompanied by a report and opinion of an
independent certified public accountant of nationally or regionally recognized
standing reasonably acceptable to Administrative Agent, which report and opinion
shall be prepared in accordance with generally accepted auditing standards and
shall not be subject to any “going concern” or like qualification or exception
or any qualification or exception as to the scope of such audit; and
 
(b)           as soon as available, but in any event within 60 days after the
end of each fiscal quarter of each fiscal year of Borrowers, a consolidated
balance sheet of Borrowers and their Subsidiaries as at the end of such fiscal
quarter, and the related consolidated statements of income or operations,
stockholders’ equity and cash flows for such fiscal quarter and for the portion
of Borrowers’ fiscal year then ended, setting forth in each case in comparative
form the figures for the corresponding fiscal quarter of the previous fiscal
year and the corresponding portion of the previous fiscal year, all in
reasonable detail and certified by a Responsible Officer of Borrowers as fairly
presenting the financial condition, results of operations, stockholders’ equity
and cash flows of Borrowers and their Subsidiaries in accordance with GAAP,
subject only to normal year-end audit adjustments and the absence of footnotes.
 
6.02        Certificates; Other Information.  Deliver to Administrative Agent
copies of the following, in form and detail satisfactory to Administrative
Agent:
 
(a)           concurrently with the delivery of the financial statements
referred to in Sections 6.01(a) and (b), a duly completed Compliance Certificate
signed by a Responsible Officer of Borrowers;
 
(b)           promptly after any request by Administrative Agent, copies of any
audit reports, management letters or recommendations submitted to the board of
directors (or the audit committee of the board of directors) of Borrowers by
independent accountants in connection with the accounts or books of Borrowers;

 
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(c)           promptly after Borrowers have notified Administrative Agent of any
intention by Borrowers to treat the Loans and/or Letters of Credit and related
transactions as being a “reportable transaction” (within the meaning of Treasury
Regulation Section 1.6011-4), a duly completed copy of IRS Form 8886 or any
successor form;
 
(d)           commencing on the Closing Date and continuing thereafter on the
last day of each September and March, a report of Borrower’s commodity hedge
position at the end of each such 6-month period;
 
(e)           federal income tax returns for Borrowers and each Guarantor within
30 days after the date such returns are required to be filed with the IRS;
provided that, if such date is extended in accordance with the Code or IRS rules
and regulations, then Borrowers or such Guarantor shall deliver such federal
income tax returns within thirty (30) days after the last day of such extension;
and
 
(f)           the Reserve Reports required pursuant to Section 2.04(b) on the
semiannual delivery dates specified therein and such other information as may be
reasonably requested by Administrative Agent with respect to the Borrowing Base
Oil and Gas Properties.
 

 
6.03
Notices.

 
Promptly notify Administrative Agent:

(a)           of the occurrence of any Default;
 
(b)           of any matter that has resulted or could reasonably be expected to
result in a Material Adverse Effect, including (i) breach or non-performance of,
or any default under, a Contractual Obligation of Borrowers or any Subsidiary
(ii) any dispute, litigation, investigation, proceeding or suspension between
Borrowers or any Subsidiary and any Governmental Authority which could
reasonably be expected to result in a judgment (or expressly asserts a claim)
against any Borrowers or any Subsidiary in the amount of $100,000 or more; or
(iii) the commencement of, or any material development in, any litigation or
proceeding affecting Borrowers or any Subsidiary, including pursuant to any
applicable Environmental Laws which could reasonably be expected to result in a
judgment (or expressly asserts a claim) against any Borrowers or any Subsidiary
in the amount of $100,000 or more;
 
(c)           of the occurrence of any ERISA Event; and
 
(d)           of any material change in accounting policies or financial
reporting practices by Borrowers or any Subsidiary.
 
Each notice pursuant to this Section shall be accompanied by a statement of a
Responsible Officer of Borrowers setting forth details of the occurrence
referred to therein and stating what action Borrowers have taken and proposes to
take with respect thereto.  Each notice pursuant to Section 6.03(a) shall
describe in reasonable detail any and all provisions of this Agreement and any
other Loan Document that have been breached.

 
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6.04        Payment of Obligations.  Pay and discharge as the same shall become
due and payable, all its obligations and liabilities to the extent the failure
to pay and discharge such obligations and liabilities could reasonably be
expected to have a Material Adverse Effect, including (a) all tax liabilities,
assessments and governmental charges or levies upon it or its properties or
assets, unless the same are being contested in good faith by appropriate
proceedings diligently conducted and adequate reserves in accordance with GAAP
are being maintained by Borrowers, such Subsidiary or Loan Party; (b) all lawful
claims which, if unpaid, would by law become a Lien upon its property, unless
the same are being contested in good faith by appropriate proceedings diligently
conducted and adequate reserves in accordance with GAAP are being maintained by
Borrowers; and (c) all Indebtedness, as and when due and payable, but subject to
any subordination provisions contained in any instrument or agreement evidencing
such Indebtedness.
 
6.05        Preservation of Existence, Etc.  (a) Preserve, renew and maintain in
full force and effect its legal existence and good standing under the Laws of
the jurisdiction of its organization; (b) take all reasonable action to maintain
all rights, privileges, permits, licenses and franchises necessary or desirable
in the normal conduct of its business, except to the extent that failure to do
so could not reasonably be expected to have a Material Adverse Effect; and (c)
preserve or renew all of its registered patents, trademarks, trade names and
service marks, the non-preservation of which could reasonably be expected to
have a Material Adverse Effect.
 
6.06        Maintenance of Properties.  Use commercial reasonable efforts as a
non-operator to (a) maintain, preserve and protect all of its properties and
equipment necessary in the operation of its business in good working order and
condition, ordinary wear and tear excepted; (b) make all necessary repairs
thereto and renewals and replacements thereof except where the failure to do so
could not reasonably be expected to have a Material Adverse Effect; (c) use the
standard of care typical in the industry in the operation and maintenance of its
facilities; and (d) cause its tangible property relating to the Borrowing Base
Oil and Gas Properties to be maintained in good repair and condition, cause all
necessary replacements thereof to be made, and cause such property to be
operated in a good and workmanlike manner in accordance with standard industry
practices, unless the failure to do so could not reasonably be expected to have
a Material Adverse Effect.
 
6.07        Maintenance of Insurance.  Maintain with financially sound and
reputable insurance companies not Affiliates of Borrowers, insurance with
respect to its properties and business against loss or damage of the kinds
customarily insured against by Persons engaged in the same or similar business,
of such types and in such amounts (after giving effect to any self-insurance
compatible with the following standards) as are customarily carried under
similar circumstances by such other Persons and providing for not less than
thirty days’ prior notice to Administrative Agent of termination, lapse or
cancellation of such insurance.
 
6.08        Compliance with Laws.  Comply in all material respects with the
requirements of all Laws, and all orders, writs, injunctions and decrees
applicable to it or to its business (including continuing its qualification with
the Bureau of Ocean Energy Management, Regulation and Enforcement, the Bureau of
Land Management and the Bureau of Indian Affairs, if applicable) or property
(including the Borrowing Base Oil and Gas Properties), except in such instances
in which (a) such requirement of Law or order, writ, injunction or decree is
being contested in good faith by appropriate proceedings diligently conducted;
or (b) the failure to comply therewith could not reasonably be expected to have
a Material Adverse Effect.

 
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6.09        Books and Records.  Maintain proper books of record and account, in
which full, true and correct entries in conformity with GAAP consistently
applied shall be made of all financial transactions and matters involving the
assets and business of Borrowers or such Subsidiary, as the case may be; and
maintain such books of record and account in material conformity with all
applicable requirements of any Governmental Authority having regulatory
jurisdiction over Borrowers or such Subsidiary, as the case may be.  Borrowers
shall maintain at all times books and records pertaining to the Collateral in
such detail, form and scope as Administrative Agent shall reasonably require.
 
6.10        Inspection Rights.  Permit representatives and independent
contractors of Administrative Agent to visit and inspect any of its properties,
to examine its corporate, financial and operating records, and make copies
thereof or abstracts therefrom, and to discuss its affairs, finances and
accounts with its directors, officers, and independent public accountants, and
make all financial records and other records relating to the Borrowing Base Oil
& Gas Properties available for inspection, all at the expense of Borrowers and
at such reasonable times during normal business hours and as often as may be
reasonably desired, upon reasonable advance notice to Borrowers; provided
that, unless an Event of Default exists, no more than one inspection during any
calendar year shall be at Borrowers’ expense.  When an Event of Default exists
Administrative Agent (or any of its respective representatives or independent
contractors) may do any of the foregoing at the expense of Borrowers at any time
during normal business hours and upon reasonable advance notice.
 
6.11        Use of Proceeds.  Use the proceeds of the Loans for (a) the
transaction costs, fees and expenses related to this Agreement and the
transactions contemplated hereby, (b) the acquisition, development and
exploration of the Borrowing Base Oil and Gas Properties, (c) capital
expenditures, (d) general corporate purposes that are of customary, recurring
types in the oil and gas exploration and production business and (e) Letters of
Credit, in each case, not in contravention of any Law or of any Loan Document.
 
6.12        Accounts.  Maintain with Administrative Agent all of its primary
deposit accounts, cash management and collection and lockbox services.
 
6.13        Additional Borrowers and New Guarantors.  Notify Administrative
Agent at the time that any Business Entity becomes a Subsidiary of any Borrower,
and promptly thereafter (and in any event within thirty days), cause such Person
(a) at Administrative Agent’s option, in its sole discretion, to either become
(i) a Borrower hereunder by executing and delivering to Administrative Agent a
counterpart of the Joinder Agreement or such other document as Administrative
Agent shall deem appropriate; provided that such other document does not alter
or affect Borrowers’ right and obligations hereunder or (ii) a Guarantor by
executing and delivering to Administrative Agent a counterpart of the Guaranty
or such other document as Administrative Agent and Borrowers shall deem
appropriate for such purpose, and (b) deliver to Administrative Agent documents
of the types and in substantially the same form as the documents referred to in
clauses (iii) and (iv) of Section 4.01(a) and favorable opinions of counsel to
such Business Entity (which shall cover, among other things, the legality,
validity, binding effect and enforceability of the documentation referred to in
clause (a)), all in form, content and scope reasonably satisfactory to
Administrative Agent.

 
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6.14        Collateral Records.  Execute and deliver promptly, and to cause each
other Loan Party to execute and deliver promptly, to Administrative Agent, from
time to time, solely for Administrative Agent’s convenience in maintaining a
record of the Collateral, such written statements and schedules as
Administrative Agent may reasonably require designating, identifying or
describing the Collateral. The failure by Borrowers or any other Loan Party,
however, to promptly give Administrative Agent such statements or schedules
shall not affect, diminish, modify or otherwise limit the Liens on the
Collateral granted pursuant to the Collateral Documents.
 
6.15        Security Interests.  Defend, and cause each other Loan Party to
defend, the Collateral against all claims and demands of all Persons at any time
claiming the same or any interest therein.  Borrowers shall, and shall cause
each other Loan Party to, comply with the requirements of all state and federal
laws in order to grant to Administrative Agent valid and perfected first
priority security interests in the Collateral, with perfection, in the case of
any investment property being effected by giving Administrative Agent control of
such investment property, rather than by the filing of a UCC financing statement
with respect to such investment property.  Administrative Agent is hereby
authorized by Borrowers to file any UCC financing statements covering the
Collateral whether or not Borrowers’ signatures appear thereon.  Borrowers
shall, and shall cause each other Loan Party, to do whatever Administrative
Agent may reasonably request, from time to time, to effect the purposes of this
Agreement and the other Loan Documents, including filing notices of liens, UCC
financing statements, fixture filings and amendments, renewals and continuations
thereof; cooperating with Administrative Agent’s representatives; keeping stock
or ownership records; obtaining waivers from landlords and mortgagees and from
warehousemen and their landlords and mortgages; and, paying claims which might,
if unpaid, become a Lien on the Collateral.  Within fourteen (14) days following
the Closing Date, Borrowers shall release, or cause the release of, the Lien
described in Section 7.01(j).
 
6.16        Title Defects.  Cure any title defects to the Borrowing Base Oil and
Gas Properties material in value, in the reasonable opinion of Administrative
Agent, within ninety days after receipt of written notice thereof from
Administrative Agent and, in the event any title defects are not cured in a
timely manner, pay all related costs and fees reasonably incurred by
Administrative Agent in curing any such title defects.  In the event that
Borrowers are unable to cure a title defect, Borrowers shall have the ability to
substitute additional collateral; provided that Borrowers’ ability to substitute
such collateral is subject to the full satisfaction of Administrative Agent,
including, without limitation in full compliance with the requirements described
in Section 2.04.  Furthermore, after identification and prior to the cure of any
such title defect, Administrative Agent may redetermine the Borrowing Base to
reflect the amount of such title defect.
 
6.17        Maintenance of Tangible Property.  Use commercial reasonable efforts
as a non-operator to maintain all of its tangible property relating to the
Borrowing Base Oil and Gas Properties in good repair and condition and make all
necessary replacements thereof and operate such property in a prudent and
workmanlike manner in accordance with standard industry practices, unless the
failure to do so would not have a Material Adverse Effect on any Borrower or the
value of any Borrowing Base Oil and Gas Property.

 
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6.18        Inspection of Tangible Assets/Right of Audit.  Permit any authorized
representative of Administrative Agent to visit and inspect (at the risk of
Administrative Agent) the Borrowing Base Oil and Gas Properties, and/or to audit
the books and records of Borrowers or any other Loan Party related to the
Borrowing Base Oil and Gas Properties during normal business hours, at the
expense of Administrative Agent and during normal business hours following
reasonable advance notice.
 
6.19        Leases.  Keep and continue all Leases comprising the Borrowing Base
Oil and Gas Properties and related contracts and agreements relating thereto in
full force and effect in accordance with the terms thereof and not permit the
same to lapse or otherwise become impaired for failure to comply with the
obligations thereof, whether express or implied; provided, however, that this
provision shall not prevent Borrowers from abandoning and releasing any such
Leases upon their termination as the result of cessation of production in paying
quantities that did not result from Borrowers’ failure to maintain such
production as a reasonably prudent operator.  Subject to the approval by
Administrative Agent, Borrowers shall have the right to replace Leases that
lapse or become impaired.
 
6.20        Operation of Borrowing Base Oil and Gas Properties.  Operate or, to
the extent that the right of operation is vested in others, exercise all
reasonable efforts to require the operator to operate the Borrowing Base Oil and
Gas Properties and all wells drilled thereon and that may hereafter be drilled
thereon, continuously and in a prudent and workmanlike manner and in accordance
with all Laws of the State in which the Borrowing Base Oil and Gas Properties
are situated and the United States of America, as well as all rules,
regulations, and Laws of any governmental agency having jurisdiction to regulate
the manner in which the operation of the Borrowing Base Oil and Gas Properties
shall be carried on, and comply with all terms and conditions of the Leases it
now holds, and any assignment or contract obligating Borrowers in any way with
respect to the Borrowing Base Oil and Gas Properties, except for any such
non-compliance that could not reasonably be expected to have a Material Adverse
Effect; but nothing herein shall be construed to empower Borrowers to bind
Administrative Agent or any Bank to any contract obligation, or render
Administrative Agent or any Bank in any way responsible or liable for bills or
obligations incurred by Borrower.
 
6.21        Change of Purchasers of Production.  Concurrently with the delivery
of (and as part of) the annual Compliance Certificate, and at any other time
that Administrative Agent may reasonably request in writing, Borrowers shall
notify Administrative Agent in writing of the identity and address of each
Person who: (a) has purchased any of Borrowers’ interests in oil and gas
produced from the Borrowing Base Oil and Gas Properties during the six calendar
months preceding such anniversary of the Closing, or (b) are considered by
Borrowers to be potential future purchasers of Borrowers’ interest in oil and
gas produced from the Borrowing Base Oil and Gas Properties and, if requested by
Administrative Agent, shall provide Administrative Agent with Transfer Order
Letters executed by Borrowers and addressed to such purchasers of production.

 
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6.22        Hedging.  Subject to the terms of this Agreement, enter into and
maintain at all times during the term of this Agreement, Swap Contracts,
acceptable to Administrative Agent in its sole discretion, that:
 
(a)           are with or through an Approved Counterparty;
 
(b)           cover, in the aggregate, among all such Swap Contracts, (i) with
regard to oil and gas production, not more than eighty-five percent (85%) and
not less than fifty percent (50%) of the Proved Developed Producing Reserves
that are (y) attributable to Borrowers' interest in the Borrowing Base Oil and
Gas Properties, as reflected in the most recently delivered Reserve Report
pursuant to Section 2.04, and (z) projected by the Administrative Agent to be
produced during the term(s) of such Swap Contract(s); provided, however, that
such Swap Contracts include minimum strike prices that are equal to or greater
than the price assumptions incorporated by Administrative Agent in the
calculation of the current Borrowing Base and no such Swap Contracts shall be
for a period (A) exceeding three (3) years or such longer period unless
consented to in writing by the Administrative Agent and (B) less than two (2)
years, and (ii) with regard to interest rates, not more than eighty percent
(80%) of Aggregate Outstanding Credit Exposure may be subject to the notional
principal amounts under such Swap Contracts;
 
(c)           provide for the Indebtedness thereunder owed by Borrowers or any
of their Subsidiaries to be secured only by the Collateral Documents;
 
(d)           other than as provided in the Shell Hedge Agreement but subject at
all times to Section 6.26, shall not obligate Borrowers or any Subsidiary to any
margin call requirements or require the providing of adequate protection; and
 
(e)           are not for speculative purposes.
 
6.23        Title and Liens.  Satisfy at all times the requirements set forth in
Section 4.02(d) with regard to title and the Liens covering the Borrowing Base
Oil and Gas Properties.
 
6.24        Material Agreements.  Subject to the terms of this Agreement, comply
in all material respects with all terms, conditions, or covenants of any
Material Agreement in accordance with prudent industry practices.
 
6.25        Production Reports.  As soon as available and in any event on or
before the tenth (10th) day of each month, beginning October 10, 2011, a report
certified by a Responsible Officer of Borrowers, in form and content
satisfactory to the Administrative Agent prepared by Borrowers covering each of
the Borrowing Base Oil and Gas Properties and detailing on a monthly basis (i)
the production volumes and sales and associated lease operating statements for
the Borrowing Base Oil and Gas Properties containing Proved Reserves, together
with a certificate signed by a Responsible Officer of Borrowers as to the truth
and accuracy of such analyses in all material respects; (ii) any adverse
material changes to any producing reservoir, production equipment, or producing
well from the report delivered for the preceding month and (iii) any sales of
the Borrowing Base Oil and Gas Properties since the delivery of the report for
the preceding month and the effects thereof.

 
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6.26       Post-Closing Hedge Requirement.  Within thirty (30) days of the
Closing Date, Borrowers shall have either (a) terminated the Shell Hedge
Agreement and liquidated the hedge transactions thereunder but only to the
extent Borrowers are in a positive cash position at the time of such termination
and liquidation or (b) novated the Shell Hedge Agreement and the hedge
transactions thereunder pursuant to a novation agreement between Shell Trading
(US) and BP Corporation North America Inc.  At all times prior to the occurrence
of (a) or (b) above, Borrowers shall not permit the occurrence of a material
adverse event under or with respect to such Shell Hedge Agreement.
 
ARTICLE VII
NEGATIVE COVENANTS
 
So long as any Bank shall have any Commitment hereunder, any Loan or other
Obligation hereunder shall remain unpaid or unsatisfied, or any Letter of Credit
shall remain outstanding, Borrowers shall not, nor shall they permit any
Subsidiary to, directly or indirectly:
 
7.01       Liens.     Create, incur, assume or suffer to exist, any Lien upon
any of its Borrowing Base Oil and Gas Properties, or any of its property, assets
or revenues, whether now owned or hereafter acquired, other than the following
(“Permitted Liens”):
 
(a)           Liens granted under a Loan Document and securing the Total
Obligations;
 
(b)           Liens existing on the date hereof and listed on Schedule 7.01
hereto and Liens on the same assets in connection with refinancings permitted by
Section 7.03(b);
 
(c)           Liens for taxes, assessments, or other governmental charges or
levies not yet due or which are being contested in good faith and by appropriate
proceedings diligently conducted, if adequate reserves with respect thereto are
maintained on the books of the applicable Person in accordance with GAAP;
 
(d)           operators,’ non-operators,’ vendors,’ carriers,’ warehousemen’s,
mechanics,’ materialmen’s, repairmen’s or other like Liens arising in the
ordinary course of business or which are incident to the exploration,
development, operation, and maintenance of the Borrowing Base Oil and Gas
Properties, not overdue for a period of more than thirty days or which are being
contested in good faith and by appropriate proceedings diligently conducted, if
adequate reserves with respect thereto are maintained on the books of the
applicable Person in accordance with GAAP;
 
(e)           pledges or deposits in the ordinary course of business or Liens in
connection with workers’ compensation, unemployment insurance and other social
security legislation, other than any Lien imposed by ERISA;
 
(f)           deposits to secure the performance of bids, trade contracts and
leases (other than Indebtedness), statutory obligations, surety bonds (other
than bonds related to judgments or litigation), performance bonds and other
obligations of a like nature incurred in the ordinary course of business;
 
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(g)           easements, rights-of-way, restrictions, servitudes, permits,
conditions, covenants, exceptions, or reservations and other similar
encumbrances, defects, irregularities, and deficiencies in title affecting real
property which, in the aggregate, are not substantial in amount, and which do
not in any case materially detract from the value of the property subject
thereto or materially interfere with the ordinary conduct of the business of the
applicable Person;
 
(h)           Liens securing Indebtedness permitted under Section 7.03(d);
provided that, (i) such Liens do not at any time encumber any property other
than the property sold to the Loan Party by the seller of the property financed
by such Indebtedness and (ii) the Indebtedness secured thereby does not exceed
the cost or fair market value, whichever is lower, of the property being
acquired on the date of acquisition;
 
(i)           Liens securing Indebtedness permitted under Section 7.03(e); and
 
(j)           for the fourteen (14) day period following the Closing Date, that
certain Lien granted by EnerJex Kansas in favor of Commercial Capital Company,
LLC, as more particularly described in that certain UCC Financing Statement
recorded with the Nevada Secretary of State on August 28, 2008 at Document
Number 2008026811-7.

provided, that Liens described in clauses (b) through (j) above shall not
constitute Permitted Liens upon the initiation of any foreclosure proceedings
with regard to the property encumbered by such Liens and; provided further, no
intention to subordinate the first priority Lien granted in favor of the
Administrative Agent is hereby implied or expressed or is to be inferred by the
permitted existence of such Permitted Liens.
 
7.02       Investments; Acquisitions. Make any Investments or acquisitions
(including pursuant to the terms of any Material Agreement), except:
 
(a)           Investments held by Borrowers in the form of cash equivalents or
short-term marketable debt securities;
 
(b)           Investments consisting of a certificate of deposit held by
Administrative Agent to support that certain $25,000 letter of credit issued to
and in favor of the Texas Railroad Commission;
 
(c)           advances to officers, directors and employees of any Borrower in
an aggregate amount not to exceed $50,000 at any time outstanding, for travel,
entertainment, relocation and analogous ordinary business purposes;
 
(d)           subject to the terms hereof, Investments of any Borrowers in any
wholly-owned Subsidiary and Investments of any wholly-owned Subsidiary in any
Borrower or in another wholly-owned Subsidiary;
 

 
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(e)           Investments consisting of extensions of credit in the nature of
accounts receivable or notes receivable arising from the grant of trade credit
in the ordinary course of business, and Investments received in satisfaction or
partial satisfaction thereof from financially troubled account debtors to the
extent reasonably necessary in order to prevent or limit loss; and
 
(f)           subject to Administrative Agent’s prior written consent,
acquisitions or options to acquire Oil and Gas Properties.
 
7.03       Indebtedness.  Create, incur, assume or suffer to exist any
Indebtedness, except:
 
(a)           Indebtedness under the Loan Documents;
 
(b)           Indebtedness outstanding on the date hereof and listed on Schedule
7.03 hereto and refinancings thereof; provided that the principal amount of such
Indebtedness may not be increased at any time;
 
(c)           Indebtedness of Borrowers arising under Permitted Swap Contracts;
 
(d)           Indebtedness in respect of capital leases and purchase money
obligations for fixed assets within the limitations set out in Section 7.01(h);
provided that, the aggregate amount of all such Indebtedness at any one time
outstanding may not exceed $100,000; and
 
(e)           Indebtedness associated with bonds, surety obligations or sinking
funds required by any Governmental Authority or operators in connection with the
operation of the Borrowing Base Oil and Gas Properties; and
 
(f)           Indebtedness in an aggregate amount not to exceed $100,000 at any
time owed by Loan Parties to other Loan Parties to the extent such Indebtedness
is unsecured and no payments of principal or interest thereunder are made
without the consent of the Required Banks.
 
7.04       Fundamental Changes.  Merge, dissolve, liquidate, consolidate with or
into, another Person, or Dispose of (whether in one transaction or in a series
of transactions) all or substantially all of its assets (whether now owned or
hereafter acquired) to or in favor of any Person or permit a Change of Control
to occur with regard to any Loan Party; provided that, with the Administrative
Agent’s prior written consent (not to be unreasonably withheld), Loan Parties
may merge or consolidate with and into other Loan Parties, so long as a Borrower
is the surviving entity resulting from any merger or consolidation involving
such Borrower.
 
7.05       Dispositions.  Make any Disposition or enter into any agreement to
make any Disposition, except for the following:
 
(a)           Dispositions of obsolete or worn out property, whether now owned
or hereafter acquired, in the ordinary course of business;
  
 
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(b)           Dispositions of, in one or any series of related transactions
(including pursuant to any Material Agreement), any portion of the Borrowing
Base Oil and Gas Properties, whether now owned or hereafter acquired, including
transfers to Affiliates, which, in the aggregate, do not exceed $250,000 during
any period beginning on the date of Administrative Agent’s written notice to
Borrowers pursuant to Section 2.04 of a Borrowing Base redetermination
(including the most recent redetermination under the Existing Loan Agreement)
and ending on the date of the next such written notice from Administrative Agent
to Borrowers;
 
(c)           Dispositions of Hydrocarbons in the ordinary course of business;
 
(d)           Dispositions of equipment or real property to the extent that (i)
such property is exchanged for credit against the purchase price of similar
replacement property, or (ii) the proceeds of such Disposition are reasonably
promptly applied to the purchase price of such replacement property; and
 
(e)           Dispositions of property by any Borrower or Subsidiary to any
Borrower or to a wholly-owned Subsidiary, provided that, if the transferor of
such property is a Borrower or a Guarantor, the transferee thereof must either
be a Borrower or a Guarantor and each such party has contemporaneously therewith
executed and delivered all Collateral Documents requested by Administrative
Agent.
 
provided that any Disposition pursuant to clauses (a) through (e) shall be for
fair market value.
 
7.06       Restricted Payments.  Declare or make, directly or indirectly, any
Restricted Payment, or incur any obligation (contingent or otherwise) to do so,
except that if no Default or Event of Default has occurred both before and after
giving effect to the making of such Restricted Payment, Parent may make
Restricted Payments to its Series A Preferred Stock holders but only to the
extent permitted in the Designation.
 
7.07       Change in Nature of Business; Material Agreements. (a) Engage in any
material line of business substantially different from those lines of businesses
is conducted by Borrowers and their Subsidiaries on the date hereof or
reasonably related lines of businesses or (b) without the prior written consent
of the Administrative Agent, amend, restate or otherwise modify any Debt
Instrument or Material Agreements so as to (i) release, qualify, limit, make
contingent or otherwise adversely affect the rights and benefits of the
Administrative Agent or any Bank under or acquired pursuant to any Loan Document
or (ii) otherwise conflict with any other specific provision in this Agreement
or any other Loan Document or (c) amend, restate or otherwise modify Borrowers’
Governing Documentation.
 
7.08       Transactions with Affiliates.  Enter into any transaction of any kind
with any Affiliate of any Borrower, whether or not in the ordinary course of
business, other than on fair and reasonable terms substantially as favorable to
Borrowers or such Subsidiary as would be obtainable by Borrowers or such
Subsidiary at the time in a comparable arm’s length transaction with a Person
other than an Affiliate, except employment agreements with Borrowers’ officers
and directors on terms approved by the applicable Governing Body.
 
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7.09       Margin Regulations.  (a) Use the proceeds of any Credit Extension,
whether directly or indirectly, and whether immediately, incidentally or
ultimately, to purchase or carry margin stock (within the meaning of Regulation
U of the Federal Reserve Board) or to extend credit to others for the purpose of
purchasing or carrying margin stock or to refund indebtedness originally
incurred for such purpose or (b) take any action which might cause any of the
Loan Documents to violate Regulations D, T, U or X or any other regulation of
the Federal Reserve 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, including without limitation, the use
of the proceeds of any Loan or Letters of Credit to purchase or carry any margin
stock in violation of Regulations D, T, U or X.
 
7.10       Pooling or Unitization.  Voluntarily pool or unitize all or any part
of the Borrowing Base Oil and Gas Properties where the pooling or unitization
would result in any diminution of any Borrower’s net revenue interest in
production from the pooled or unitized lands, without Administrative Agent’s
prior consent.  Any unitization, pooling or communitization or other action or
instrument in violation of this Section 7.10 shall be of no force or effect
against Administrative Agent or any Bank.
 
7.11       Hedging.  Enter into or maintain in effect during the term of this
Agreement, Swap Contracts except for Permitted Swap Contracts.
 
7.12       Financial Covenants
 
(a)           Current Ratio.  Permit as of September 30, 2011, and as of the
last day of each fiscal quarter thereafter, its ratio of Borrowers’ and their
Subsidiaries’ consolidated Current Assets plus the Available Amount to
Borrowers’ and their Subsidiaries’ to consolidated Current Liabilities (but
excluding any Current Liabilities that constitute Obligations), calculated in
accordance with the GAAP, to be less than 1.00 to 1.00; provided, however, for
purposes of calculating the foregoing ratio, Current Liabilities shall not
include the HBS Contingent Liability Amount; provided that Current Liabilities
shall include, as and when determined, the HBS Liability Amount but only to the
extent such amount or any portion thereof is not subject to a long-term payoff
schedule.

(b)           Funded Debt to EBITDAX Ratio. For the quarterly periods ending
September 30, 2011 and December 31, 2011, permit the ratio of Funded Debt to
Borrowers’ and their Subsidiaries’ consolidated EBITDAX for that preceding
quarter to be greater than 4.75:1.00; or for the fiscal quarter ending March 31,
2012 and each fiscal quarter thereafter, permit the ratio of Funded Debt to
Borrowers’ and their Subsidiaries’ consolidated EBITDAX for that preceding
quarter to be greater than 4.50:1.00.  For the purpose of calculating the
foregoing ratio, EBITDAX will be annualized by: (i) multiplying by 4 for the
three-month period ending September 30, 2011, (ii) multiplying by 2 for the
six-month period ending December 31, 2011, and (iii) multiplying by 1.33 for the
nine-month period ending March 31, 2012.  For the twelve-month period ending
June 30, 2012, and for each period thereafter, EBITDAX will be calculated based
on actual EBITDAX for the previous four fiscal quarters.
 
(c)           Interest Coverage Ratio.  Permit the ratio of Borrowers’ and their
Subsidiaries’ consolidated EBITDAX for each fiscal quarter ending on
September 30, 2011 and the last day of each fiscal quarter thereafter to
Interest Expense for that quarter to be less than 3.00:1.00.
 
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7.13       Agreements Restricting Liens.
 
.  (a) Create, incur, assume or permit to exist any contract, agreement,
arrangement or understanding (other than this Agreement and the other Loan
Documents) that in any way prohibits or restricts the granting, conveying,
creation or imposition of any Lien on any of their assets, whether now owned or
hereafter acquired, to secure the Total Obligations or that requires the consent
of or notice to other Persons in connection therewith; provided that, the
foregoing shall not apply to restrictions and conditions imposed by applicable
Law or (b) discount any of its accounts receivable.

7.14       Compliance with ERISA.
 
(a)           Engage in, or permit any Subsidiary to engage in, any transaction
in connection with which any Borrower or any Controlled Group member could be
subjected to either a civil penalty assessed pursuant to section 502(c), (i) or
(l) of ERISA or a tax imposed by Chapter 43 of Subtitle D of the Code;
 
(b)           Terminate, or permit any Subsidiary to terminate, any Plan in a
manner, or take any other action with respect to any Plan, which could result in
any liability to any Borrower or any Controlled Group member to the PBGC;
 
(c)           Fail to make, or permit any Subsidiary to fail to make, full
payment when due of all amounts which, under the provisions of any Plan,
agreement relating thereto or applicable Law, any Borrower or any Controlled
Group member is required to pay as contributions thereto;
 
(d)           Permit to exist, or allow any Subsidiary 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 Subsidiary to permit, the actuarial present
value of the benefit liabilities (as “actuarial present value of the benefit
liabilities” shall have the meaning specified in section 4041 of ERISA) under
any Plan maintained by any Borrower or any Controlled Group member 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;
 
(f)           Assume an obligation to contribute to, or permit any Subsidiary to
assume an obligation to contribute to, any Multiemployer Plan;
 
(g)           Subject to Section 7.06, acquire, or permit any Subsidiary to
acquire, an interest in any Person 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, (1) any Multiemployer Plan, or (2)
any other Plan that is subject to Title IV of ERISA, and in either case, 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, and
the withdrawal liability, if assessed, could be expected to result in a Material
Adverse Change;
 
(h)           Incur, or permit any Subsidiary to incur, a liability to or on
account of a Plan under sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA;
 
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(i)           Assume an obligation to contribute to, or permit any Subsidiary to
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 without any material
liability;
 
(j)           Amend or permit any Subsidiary to amend, a Plan resulting in an
increase in current liability such that any Borrower or any Controlled Group
member is required to provide security to such Plan under section 401(a)(29) of
the Code; or
 
(k)           Permit to exist any occurrence of any Reportable Event (as defined
in Title IV of ERISA), or any other event or condition, which presents a
material (in the opinion of the Required Banks) risk of such a termination by
the PBGC of any Plan.

ARTICLE VIII
THE AGENTS
 
8.01       Authorization and Action. Each Bank hereby irrevocably appoints and
authorizes Administrative Agent to act on its behalf and to exercise such powers
under this Agreement and the other Loan Documents as are specifically delegated
to or required of Administrative Agent by the terms hereof and thereof, together
with such powers as are reasonably incidental thereto.  As to any matters not
expressly provided for by this Agreement or the other Loan Documents (including,
without limitation, enforcement or collection of the Notes), Administrative
Agent shall not be required to exercise any discretion or take any action, but
shall be required to act or to refrain from acting (and, as between such
Administrative Agent and the Banks, shall be fully protected in so acting or
refraining from acting) upon the instructions of the Required Banks, and such
instructions shall be binding upon all Banks and all holders of Notes; provided,
however, that Administrative Agent shall not be required to take any action
which exposes Administrative Agent to personal liability or which is contrary to
this Agreement, the other Loan Documents or applicable law.
 

 
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8.02       Administrative Agent’s Reliance, Etc.  NEITHER ANY ADMINISTRATIVE
AGENT NOR ANY OF ITS DIRECTORS, OFFICERS, AGENTS OR EMPLOYEES SHALL BE LIABLE TO
ANY BANK FOR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY IT UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS (I) WITH THE CONSENT
OR AT THE REQUEST OF THE REQUIRED BANKS OR (II) IN THE ABSENCE OF ITS OR THEIR
OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT (IT BEING THE EXPRESS INTENTION OF
THE PARTIES THAT NEITHER ADMINISTRATIVE AGENT NOR ITS DIRECTORS, OFFICERS,
AGENTS AND EMPLOYEES SHALL HAVE ANY LIABILITY FOR ACTIONS AND OMISSIONS UNDER
THIS SECTION 8.02 RESULTING FROM THEIR SOLE ORDINARY OR CONTRIBUTORY
NEGLIGENCE).  Without limitation of the generality of the foregoing,
Administrative Agent: (i) may treat the payee of each Note as the holder thereof
until Administrative Agent receives written notice of the assignment or transfer
thereof signed by such payee and in form satisfactory to such Administrative
Agent; (ii) may consult with legal counsel (including counsel for Borrowers or
any of their Subsidiaries), independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (iii) makes no warranty or representation to any Bank
and shall not be responsible to any Bank for any statements, warranties or
representations made in or in connection with this Agreement or the other Loan
Documents; (iv) except as otherwise expressly provided herein, shall not have
any duty to ascertain or to inquire as to the performance or observance of any
of the terms, covenants or conditions of this Agreement or the other Loan
Documents or to inspect the property (including the books and records) of
Borrowers and their Subsidiaries; (v) shall not be responsible to any Bank for
the due execution, legality, validity, enforceability, genuineness, sufficiency
or value of this Agreement or the other Loan Documents or any other instrument
or document furnished pursuant hereto or thereto; and (vi) shall incur no
liability under or in respect of this Agreement or the other Loan Documents by
acting upon any notice, consent, certificate or other instrument or writing
(which may be by telegram, telecopier, cable or telex) reasonably believed by it
to be genuine and signed or sent by the proper party or parties; and (vii) the
provisions of this Section 8.02 shall survive the termination of this Agreement
and/or the payment or assignment of any of the Indebtedness under this
Agreement.
 
8.03       Administrative Agent and its Affiliates.  With respect to its
Commitment, the Credit Extensions made by it and the Note issued to it as a
Bank, Administrative Agent shall have the same rights and powers under this
Agreement or the other Loan Documents as any other Bank and may exercise the
same as though it were not Administrative Agent.  The term “Bank” or “Banks”
shall, unless otherwise expressly indicated, include each Administrative Agent
in its individual capacity.  Administrative Agent and its Affiliates may accept
deposits from, lend money to, act as trustee under indentures of, and generally
engage in any kind of business with Borrowers, any of their respective
Subsidiaries and any Person who may do business with or own securities of
Borrowers, any of its respective Subsidiaries, all as if Administrative Agent
were not Administrative Agent and without any duty to account therefor to the
Banks.

8.04       Bank Credit Decision. Each Bank acknowledges and agrees that it has,
independently and without reliance upon the Administrative Agent and based on
the Financial Statements referred to in Section 5.05 and such other documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement.  Each Bank also acknowledges and agrees
that it will, independently and without reliance upon the Administrative Agent
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement and the other Loan Documents.
 
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8.05       Administrative Agent Indemnity.  Administrative Agent shall not be
required to take any action hereunder or to prosecute or defend any suit in
respect of this Agreement or the other Loan Documents unless indemnified to
Administrative Agent’s satisfaction by the Banks against loss, cost, liability
and expense.  If any indemnity furnished to Administrative Agent shall become
impaired, it may call for additional indemnity and cease to do the acts
indemnified against until such additional indemnity is given. IN ADDITION, THE
BANKS AGREE TO PROTECT, DEFEND, INDEMNIFY AND HOLD HARMLESS ADMINISTRATIVE AGENT
(TO THE EXTENT NOT REIMBURSED BY BORROWERS), RATABLY ACCORDING TO THE RESPECTIVE
PRINCIPAL AMOUNTS OF THE NOTES THEN HELD BY EACH OF THEM (OR IF NO NOTES ARE AT
THE TIME OUTSTANDING, RATABLY ACCORDING TO EITHER (I) THE RESPECTIVE AMOUNTS OF
THEIR COMMITMENTS, OR (II) IF NO COMMITMENTS ARE OUTSTANDING, THE RESPECTIVE
AMOUNTS OF THE COMMITMENTS IMMEDIATELY PRIOR TO THE TIME THE COMMITMENTS CEASED
TO BE OUTSTANDING), FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS,
LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR
DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED
BY, OR ASSERTED AGAINST ADMINISTRATIVE AGENT IN ANY WAY RELATING TO OR ARISING
OUT OF THIS AGREEMENT OR ANY ACTION TAKEN OR OMITTED BY ADMINISTRATIVE AGENT
UNDER THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS (INCLUDING, WITHOUT LIMITATION,
ANY ACTION TAKEN OR OMITTED UNDER ARTICLE II OF THIS AGREEMENT); PROVIDED, THAT
NO BANK SHALL BE LIABLE FOR ANY PORTION OF SUCH LIABILITIES, OBLIGATIONS,
LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR
DISBURSEMENTS RESULTING FROM ADMINISTRATIVE AGENT’S GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.  Each Bank agrees, however, that it expressly intends, under this
Section 8.05, to indemnify Administrative Agent ratably as aforesaid for all
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses and disbursements arising out of or resulting from
Administrative Agent’s ordinary or contributory negligence.  Without limitation
of the foregoing, each Bank agrees to reimburse Administrative Agent promptly
upon demand for its ratable share of any out of pocket expenses (including
reasonable counsel fees) incurred by Administrative Agent in connection with the
preparation, execution, administration, or enforcement of, or legal advice in
respect of rights or responsibilities under, this Agreement and the other Loan
Documents to the extent that Administrative Agent is not reimbursed for such
expenses by Borrowers.  The provisions of this Section 8.05 shall survive the
termination of this Agreement and/or the payment or assignment of any of the
Indebtedness under this Agreement.

8.06       Successor Agents. Administrative Agent may resign at any time by
giving written notice thereof to the Banks and Borrowers and may be removed as
Administrative Agent under this Agreement and the other Loan Documents at any
time with or without cause by the Required Banks. Upon any such resignation or
removal, the Required Banks shall have the right to appoint a successor
Administrative Agent.  If no successor Administrative Agent shall have been so
appointed by the Required Banks, and shall have accepted such appointment,
within thirty (30) calendar days after the retiring Administrative Agent’s
giving of notice of resignation or the Required Banks’ removal of the retiring
Administrative Agent, then the retiring Administrative Agent may, on behalf of
the Banks, appoint a successor Administrative Agent.  Upon the acceptance of any
appointment as Administrative Agent hereunder and under the other Loan Documents
by a successor Administrative Agent, such successor Administrative Agent shall
thereupon 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 under this Agreement
and the other Loan Documents.  After any retiring Administrative Agent’s
resignation or removal as Administrative Agent hereunder and under the other
Loan Documents, the provisions of this Article VIII shall inure to its benefit
as to any actions taken or omitted to be taken by it while it was Administrative
Agent under this Agreement and the other Loan Documents.
 
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8.07       Notice of Default.  Administrative Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default hereunder unless
Administrative Agent shall have received notice from a Bank or Borrowers
referring to this Agreement, describing such Default and stating that such
notice is a “notice of default.” If Administrative Agent receives such a notice,
Administrative Agent shall give notice thereof to the Banks; provided, however,
if such notice is received from a Bank, Administrative Agent also shall give
notice thereof to Borrowers.  The Administrative Agent shall be entitled to take
action or refrain from taking action with respect to such Default as provided in
Section 8.01 and Section 8.02.
 
ARTICLE IX
EVENTS OF DEFAULT AND REMEDIES
 
9.01       Events of Default.  Any of the following shall constitute an Event of
Default:
 
(a)           Non-Payment.  Borrowers or any other Loan Party fail to (i) cure
any Loan Excess in accordance with Section 2.05, or (ii) pay when and as
required to be paid herein, any amount of principal or interest on any Loan, or
any L/C Obligation or any fee due hereunder, or within three (3) Business Days
after notice from Administrative Agent for any other amount payable hereunder or
under any other Loan Document; or
 
(b)           Specific Covenants.  Borrowers fail to perform or observe any
term, covenant or agreement contained in any of Section 6.01, 6.02, 6.03, 6.05,
6.10, 6.22, 6.26 or Article VII; or
 
(c)           Other Covenants.  Any Loan Party fails to perform or observe any
other covenant or agreement (not specified in subsection (a) or (b) above)
contained in any Loan Document on its part to be performed or observed and such
failure continues for thirty days after Borrowers receive written notice thereof
from Administrative Agent or any event of default occurs and is continuing under
any other Loan Document for thirty (30) days after Borrowers receive written
notice thereof from Administrative Agent; or
 
(d)           Representations and Warranties. Any representation, warranty,
certification or statement of fact made or deemed made by or on behalf of
Borrowers or any other Loan Party herein, in any other Loan Document, or in any
document delivered by or on behalf of a Loan Party in connection herewith or
therewith shall be incorrect or misleading in any material respect when made or
deemed; or
 
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(e)           Cross-Default.  (i) Borrowers or any other Loan Party (A) fail to
make any payment when due (whether by scheduled maturity, required prepayment,
acceleration, demand, or otherwise) and after any applicable grace period, in
respect of any Indebtedness or Guarantee (other than Indebtedness hereunder)
having an aggregate principal amount (including undrawn committed or available
amounts and including amounts owing to all creditors under any combined or
syndicated credit arrangement) of more than $100,000 or (B) fail to observe or
perform any other agreement or condition relating to any such Indebtedness or
Guarantee or contained in any instrument or agreement evidencing, securing or
relating thereto, or any other event occurs, and, as a result thereof, the
holder or holders of such Indebtedness or the beneficiary or beneficiaries of
such Guarantee (or a trustee or Administrative Agent on behalf of such holder or
holders or beneficiary or beneficiaries) cause such Indebtedness to be demanded
or to become due or to be repurchased, prepaid, defeased or redeemed
(automatically or otherwise), or an offer to repurchase, prepay, defease or
redeem such Indebtedness to be made prior to its stated maturity, or such
Guarantee to become payable or cash collateral in respect thereof to be
demanded; or (ii) there occurs under any Permitted Swap Contract an Early
Termination Date (as defined in such Permitted Swap Contract) resulting from any
event of default under such Swap Contract as to which any Borrower or any
Subsidiary is the Defaulting Party (as defined in such Permitted Swap Contract)
or (B) any Termination Event (as so defined) under such Swap Contract as to
which any Borrower or any subsidiary is an Affected Party (as so defined) and,
in either event, the Swap Termination Value owed by any Borrower or such
Subsidiary as a result thereof is greater than $100,000; or
 
(f)           Insolvency Proceedings, Etc.  Any Loan Party institutes or
consents to the institution of any proceeding under any Debtor Relief Law, or
makes an assignment for the benefit of creditors; or applies for or consents to
the appointment of any receiver, trustee, custodian, conservator, liquidator,
rehabilitator or similar officer for it or for all or any material part of its
property; or any receiver, trustee, custodian, conservator, liquidator,
rehabilitator or similar officer is appointed without the application or consent
of such Person and the appointment continues undischarged or unstayed for sixty
calendar days; or any proceeding under any Debtor Relief Law relating to any
such Person or to all or any material part of its property is instituted without
the consent of such Person and continues undismissed or unstayed for sixty
calendar days, or an order for relief is entered in any such proceeding; or
 
(g)           Inability to Pay Debts; Attachment.  (i) Any Loan Party becomes
unable or admits in writing its inability or fails generally to pay its debts as
they become due, or (ii) any writ or warrant of attachment or execution or
similar process is issued or levied against all or any material part of the
property of any such Person and is not released, vacated or fully bonded within
thirty days after its issue or levy; or
 
(h)           Judgments.  There is entered against any Loan Party (i) one or
more final, non-appealable, judgments or orders for the payment of money in an
aggregate amount exceeding $500,000 (to the extent not covered by independent
third-party insurance as to which the insurer does not dispute coverage), or
(ii) any one or more non-monetary final judgments that have, or could reasonably
be expected to have, individually or in the aggregate, a Material Adverse Effect
and, in either case, (A) enforcement proceedings are commenced by any creditor
upon such judgment or order, or (B) there is a period of thirty (30) consecutive
days during which a stay of enforcement of such judgment, by reason of a pending
appeal or otherwise, is not in effect; or
 
(i)           ERISA.  (i) An ERISA Event occurs with respect to a Pension Plan
or Multiemployer Plan which has resulted or could reasonably be expected to
result in liability of any Borrower under Title IV of ERISA to the Pension Plan,
Multiemployer Plan or the PBGC in an aggregate amount in excess of $100,000, or
(ii) any Borrower or any ERISA Affiliate fails to pay when due, after the
expiration of any applicable grace period, any installment payment with respect
to its withdrawal liability under Section 4201 of ERISA under a Multiemployer
Plan in an aggregate amount in excess of $100,000; or
 
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(j)           Invalidity of Loan Documents.  Any Loan Document, at any time
after its execution and delivery and for any reason other than as expressly
permitted hereunder or prior to satisfaction in full of all the Obligations,
ceases to be in full force and effect; or any Loan Party contests in any manner
the validity or enforceability of any Loan Document; or any Loan Party denies
that it has any further liability or obligation under any Loan Document, or
purports to revoke, terminate or rescind any Loan Document, or any Lien with
respect to any portion of the Collateral intended to be secured thereby ceases
to be, or, subject to Section 7.01, is not, valid, perfected and prior to all
other Liens or is terminated other than in accordance with the Loan Documents,
revoked or declared void; or
 
(k)           Change of Control.  There occurs any Change of Control with
respect to any Loan Party; or
 
(l)           Material Adverse Effect.  There occurs any event or circumstance
that has a Material Adverse Effect.
 
9.02       Remedies Upon Event of Default.  If any Event of Default occurs,
Administrative Agent may take any or all of the following actions:
 
(a)           declare the commitment of the Banks to make Loans and any
obligation of the L/C Issuer to make L/C Credit Extensions to be terminated,
whereupon such commitments and obligation shall be terminated;
 
(b)           declare the unpaid principal amount of all outstanding Loans, all
interest accrued and unpaid thereon, all L/C Obligations and all other amounts
owing or payable hereunder or under any other Loan Document to be immediately
due and payable, without presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived by Borrowers;
 
(c)           require that Borrowers Cash Collateralize the then-outstanding
amount of the L/C Obligations as security for the Total Obligations; and
 
(d)           exercise all rights and remedies available to it under the Loan
Documents or applicable law;
 
provided that, upon the occurrence of an Event of Default pursuant to Section
9.01(f), the obligation of the Banks to make Loans and any obligation of the L/C
Issuer to make L/C Credit Extensions shall automatically terminate, the unpaid
principal amount of all outstanding Loans and all interest and other amounts as
aforesaid shall automatically become due and payable, and the obligation of
Borrowers to Cash Collateralize the L/C Obligations as aforesaid shall
automatically become effective, in each case without further act of
Administrative Agent.
 
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9.03       Application of Funds.  After the exercise of remedies provided for in
Section 9.02 (or after the Loans have automatically become immediately due and
payable and the L/C Obligations have automatically been required to be Cash
Collateralized as set out in the proviso to Section 9.02), and subject to the
terms of any Intercreditor Agreement, any amounts received on account of the
Total Obligations shall be applied by Administrative Agent in the following
order:
 
(a)           First, to payment of that portion of the Obligations constituting
fees, indemnities, expenses and other amounts (including Attorney Costs and
amounts payable under Article III) payable to Administrative Agent under the
Loan Documents;
 
(b)           Second, to payment of that portion of the Obligations constituting
accrued and unpaid interest and fees on the Loans and L/C Advances;
 
(c)           Third, pari passu to payment (i) of that portion of the
Obligations constituting unpaid principal of the Loans and L/C Advances and to
Cash Collateralize that portion of L/C Obligations comprised of the aggregate
undrawn amount of Letters of Credit and (ii) of the Approved Counterparty Swap
Obligations under any Permitted Swap Contract;
 
(d)           Last, the balance, if any, after all of the Total Obligations have
been indefeasibly paid in full, to Borrowers or as otherwise required by Law.
 
Subject to Section 2.03(e), amounts used to Cash Collateralize the aggregate
undrawn amount of Letters of Credit pursuant to clause (c) above shall be
applied to satisfy drawings under such Letters of Credit as they occur.  If any
amount remains on deposit as Cash Collateral after all Letters of Credit have
either been fully drawn or expired, such remaining amount shall be applied to
the other Total Obligations, if any, in the order set out above.
 
ARTICLE X
MISCELLANEOUS
 
10.01     Amendments, Etc.  Subject to Section 10.18, no amendment or waiver of
any provision of this Agreement or any other Loan Document, and no consent to
any departure by Borrowers or any other Loan Party therefrom, shall be effective
unless in writing signed by Administrative Agent, the Required Banks and
Borrowers or the applicable Loan Party, as the case may be, and each such waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given.
 
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10.02     Notices and Other Communications; Facsimile Copies.
 
(a)           General.  Unless otherwise expressly provided herein, all notices
and other communications provided for hereunder shall be in writing (including
by facsimile transmission). All such written notices shall be mailed, faxed or
delivered, to the applicable address, facsimile number or (subject to subsection
(c) below) electronic mail address, and all notices and other communications
expressly permitted hereunder to be given by telephone shall be made to the
applicable telephone number, specified for such Person on Schedule 10.02 or to
such other address, facsimile number, electronic mail address or telephone
number as shall be designated by such party in a notice to the other
parties.  All such notices and other communications shall be deemed to be given
or made upon the earlier to occur of (i) actual receipt by the relevant party
hereto and (ii) (A) if delivered by hand or by courier, upon delivery; (B) if
delivered by mail, four Business Days after deposit in the mails, postage
prepaid; (C) if delivered by facsimile, when sent and the sender has received
electronic confirmation of error free receipt; and (D) if delivered by
electronic mail (which form of delivery is subject to the provisions of
subsection (c) below), when delivered; provided, however, that notices and other
communications to Administrative Agent pursuant to Article II shall not be
effective until actually received by Administrative Agent.  In no event shall a
voicemail message be effective as a notice, communication or confirmation
hereunder.  Notwithstanding anything to the contrary under this Agreement, any
provision relating to any notices, requests and other communications to be made
by Administrative Agent to any Borrower shall only be required to be made to
Parent, and Administrative Agent shall only be required to rely on notices,
requests and other communications from Parent on behalf of itself and the other
Borrowers and not from any other Borrower.
 
(b)           Effectiveness of Facsimile Documents and Signatures.  Loan
Documents may be transmitted and/or signed by facsimile.  The effectiveness of
any such documents and signatures shall, subject to applicable Law, have the
same force and effect as manually-signed originals and shall be binding on all
Loan Parties, the Banks and Administrative Agent.  Administrative Agent may also
require that any such documents and signatures be confirmed by a manually-signed
original thereof; provided, however, that the failure to request or deliver the
same shall not limit the effectiveness of any facsimile document or signature.
 
(c)           Limited Use of Electronic Mail. Electronic mail and internet and
intranet websites may be used only to distribute routine communications, such as
financial statements, and to distribute Loan Documents for execution by the
parties thereto, and may not be used for any other purpose.
 
(d)           Reliance by Administrative Agent. Administrative Agent shall be
entitled to rely and act upon any notices (including telephonic Request for
Credit Extension) purportedly given by or on behalf of Borrowers even if (i)
such notices were not made in a manner specified herein, were incomplete or were
not preceded or followed by any other form of notice specified herein, or (ii)
the terms thereof, as understood by the recipient, varied from any confirmation
thereof. BORROWERS SHALL PROTECT, DEFEND, INDEMNIFY AND HOLD HARMLESS
ADMINISTRATIVE AGENT AND ITS AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES,
COUNSEL, BANKS AND ATTORNEYS-IN-FACT FROM ALL LOSSES, COSTS, EXPENSES AND
LIABILITIES RESULTING FROM THE RELIANCE BY SUCH PERSON ON EACH SUCH REQUEST
PURPORTEDLY GIVEN BY OR ON BEHALF OF BORROWERS.  All telephonic notices to and
other communications with Administrative Agent may be recorded by Administrative
Agent, and each of the parties hereto hereby consents to such recording.
 
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10.03     No Waiver; Cumulative Remedies.  No failure by Administrative Agent or
any Bank to exercise, and no delay by Administrative Agent or any Bank in
exercising, any right, remedy, power or privilege hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege.  The rights,
remedies, powers and privileges herein provided are cumulative and not exclusive
of any rights, remedies, powers and privileges provided by law.
 
10.04     Attorney Costs and Expenses. Borrowers agree (a) to pay or reimburse
Administrative Agent for all reasonable costs and expenses incurred in
connection with the development, preparation, negotiation and execution of this
Agreement and the other Loan Documents and any amendment, waiver, consent or
other modification of the provisions hereof and thereof (whether or not the
transactions contemplated hereby or thereby are consummated), and the
consummation and administration of the transactions contemplated hereby and
thereby, including all Attorney Costs, and (b) to pay or reimburse
Administrative Agent for all reasonable costs and expenses incurred in
connection with the enforcement, attempted enforcement, or preservation of any
rights or remedies under this Agreement or the other Loan Documents (including
all such reasonable costs and expenses incurred during any “workout” or
restructuring in respect of the Obligations and during any legal proceeding,
including any proceeding under any Debtor Relief Law), including all Attorney
Costs of Administrative Agent, the L/C Issuer and the Banks.  The foregoing
costs and expenses shall include all search, filing, recording, and fees and
taxes related thereto, and other reasonable out-of-pocket expenses related
thereto incurred by Administrative Agent and the reasonable cost of independent
public accountants and other outside experts retained by Administrative Agent in
connection therewith.  The agreements in this Section shall survive the
termination of the Commitment and repayment of all other Obligations.
 

 
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10.05     Indemnification by Borrowers.  WHETHER OR NOT THE TRANSACTIONS
CONTEMPLATED HEREBY ARE CONSUMMATED, BORROWERS SHALL PROTECT, DEFEND, INDEMNIFY
AND HOLD HARMLESS ADMINISTRATIVE AGENT AND ITS AFFILIATES, DIRECTORS, OFFICERS,
EMPLOYEES, COUNSEL, BANKS AND ATTORNEYS-IN-FACT (COLLECTIVELY THE “INDEMNITEES”)
FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES,
PENALTIES, CLAIMS, DEMANDS, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES AND
DISBURSEMENTS (INCLUDING ATTORNEY COSTS OF SUCH INDEMNITEE) OF ANY KIND OR
NATURE WHATSOEVER WHICH MAY AT ANY TIME BE IMPOSED ON, INCURRED BY OR ASSERTED
AGAINST ANY SUCH INDEMNITEE IN ANY WAY RELATING TO OR ARISING OUT OF OR IN
CONNECTION WITH (A) THE EXECUTION, DELIVERY, ENFORCEMENT, PERFORMANCE OR
ADMINISTRATION OF ANY LOAN DOCUMENT OR ANY OTHER AGREEMENT, LETTER OR INSTRUMENT
DELIVERED BY OR ON BEHALF OF A LOAN PARTY IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED THEREBY OR THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED
THEREBY, (B) ANY COMMITMENT, LOAN OR LETTER OF CREDIT OR THE USE OR PROPOSED USE
OF THE PROCEEDS THEREFROM (INCLUDING ANY REFUSAL BY THE L/C ISSUER 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), (C) ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS MATERIALS
ON OR FROM ANY PROPERTY CURRENTLY OR FORMERLY OWNED OR OPERATED BY BORROWERS OR
ANY OTHER LOAN PARTY, OR ANY ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO
BORROWERS OR ANY OTHER LOAN PARTY, OR (D) ANY ACTUAL OR PROSPECTIVE CLAIM,
LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE FOREGOING,
WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY (INCLUDING ANY INVESTIGATION
OF, PREPARATION FOR, OR DEFENSE OF ANY PENDING OR THREATENED CLAIM,
INVESTIGATION, LITIGATION OR PROCEEDING) AND REGARDLESS OF WHETHER INDEMNITEE IS
A PARTY THERETO (ALL THE FOREGOING, COLLECTIVELY, THE “INDEMNIFIED
LIABILITIES”); PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO ANY INDEMNITEE, BE
AVAILABLE TO THE EXTENT THAT SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES,
PENALTIES, CLAIMS, DEMANDS, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR
DISBURSEMENTS 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.  NO INDEMNITEE SHALL BE LIABLE FOR ANY INDIRECT
OR CONSEQUENTIAL DAMAGES RELATING, DIRECTLY OR INDIRECTLY, TO THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT OR ARISING OUT OF ITS ACTIVITIES IN CONNECTION HEREWITH
OR THEREWITH (WHETHER BEFORE OR AFTER THE CLOSING DATE). THE AGREEMENTS IN THIS
SECTION SHALL SURVIVE THE TERMINATION OF THE COMMITMENT AND THE REPAYMENT,
SATISFACTION OR DISCHARGE OF ALL THE OTHER OBLIGATIONS. ALL AMOUNTS DUE UNDER
THIS SECTION 10.05 SHALL BE PAYABLE WITHIN TEN BUSINESS DAYS AFTER DEMAND
THEREFOR.
 
10.06     Payments Set Aside.  To the extent that any payment by or on behalf of
Borrowers is made to a Bank, or a Bank exercises its right of set-off, and such
payment or the proceeds of such set-off or any part thereof is subsequently
invalidated, declared to be fraudulent or preferential, set aside or required
(including pursuant to any settlement entered into by a Bank in its discretion)
to be repaid to a trustee, receiver or any other party, in connection with any
proceeding under any Debtor Relief Law or otherwise, then to the extent of such
recovery, the obligation or part thereof originally intended to be satisfied
shall be revived and continued in full force and effect as if such payment had
not been made or such set-off had not occurred.
 
10.07     Successors and Assigns; Participation; Purchasing Banks.
 
(a)           Whenever in this Agreement any of the parties hereto is referred
to, such reference shall be deemed to include the successors and permitted
assigns of such party; and all covenants, promises and agreements by or on
behalf of Borrowers, the Administrative Agent or the Banks that are contained in
this Agreement shall bind and inure to the benefit of their respective
successors and permitted assigns.  Borrowers may not assign or transfer any of
their rights or obligations hereunder without the written consent of all the
Banks.
 
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(b)           Each Bank may, without the consent of, but with notice to,
Borrowers, sell participations to one or more banks or other financial
institutions in all or a portion of its rights and obligations under this
Agreement and the other Loan Documents (including, without limitation, all or a
portion of its Commitment, the Loans owing to it, and the Notes held by it);
provided, however, that (i) the selling Bank’s obligations under this Agreement
and the other Loan Documents shall remain unchanged, (ii) such Bank shall remain
solely responsible to the other parties hereto for the performance of such
obligations, (iii) Borrowers, the Administrative Agent, and the other Banks
shall continue to deal solely and directly with the selling Bank in connection
with such Bank’s rights and obligations under this Agreement and the other Loan
Documents, (iv) the selling Bank shall remain the holder of its Note(s) for all
purposes of this Agreement, and (v) no participant under any such participation
shall have any right to approve any amendment or waiver of any provision of this
Agreement or any Note, or any consent to any departure by the Borrowers
therefrom, except to the extent that such amendment, waiver or consent would
reduce to the principal of, or interest on, the Notes or any fees or other
amounts payable hereunder, in each case to the extent subject to such
participation, or postpone any regularly scheduled payment of principal of, or
interest on, the Notes or any fees or other amounts payable hereunder, in each
case to the extent subject to such participation.  Borrowers agree that each
participant shall be entitled to the benefits of Sections 3.01, 3.04 and 3.05 to
the same extent as if it were a Bank.  A participant shall not be entitled to
receive any greater payment under Section 3.01 or 3.04 than a Bank 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 Borrower’s prior written consent.
   
(c)           With the prior written consent of Borrowers and the Administrative
Agent, each Bank may assign to one or more banks or other financial institutions
(a “Purchasing Bank”), all or a portion of its interests, rights and obligations
under this Agreement and the other Loan Documents (including, without
limitation, all or a portion of its Commitment and the same portion of the Loans
at the time owing to it and the Notes held by it); provided, however, that (i)
each such Bank must first offer to Administrative Agent the right to purchase
such interests, rights and obligations as a Purchasing Bank before any such Bank
offers or agrees to assign such rights to another Bank, or any other bank or
entity, (ii) each such assignment shall be of a constant, and not a varying,
percentage of all the assigning Bank’s rights and obligations under this
Agreement and the other Loan Documents, (iii) after giving effect to such
assignment, the Purchasing Bank’s Commitment must be at least $5,000,000 (either
solely as the result of such assignment or as the result of multiple assignments
from two or more assigning Banks), (iv) the parties to each such assignment
shall execute and deliver to the Administrative Agent a Commitment Transfer
Supplement together with any Notes subject to such Commitment Transfer
Supplement, (v) the assigning Bank shall pay to Administrative Agent an
assignment fee of $3,500, (vi) an assigning Bank shall not assign a portion of
such Bank’s Commitment in an amount less than an amount equal to the lesser of
such Bank’s Commitment hereunder and $2,500,000 and (vii) if the assigning Bank
has retained any Commitment hereunder, such assigning Bank’s Commitment shall be
at least $5,000,000 after giving effect to such assignment.  Upon such execution
and delivery, from and after the effective date specified in each Commitment
Transfer Supplement, which effective date shall be at least five Business Days
after the execution thereof (x) the Purchasing Bank thereunder shall be a party
hereto and, to the extent provided in such assignment, shall have the rights and
obligations of a Bank hereunder and (y) the assignor Bank thereunder shall, to
the extent provided in such assignment, be released from its obligations under
this Agreement and the other Loan Documents (and, in the case of a Commitment
Transfer Supplement covering all of the remaining portion of an assigning Bank’s
rights and obligations under this Agreement and the other Loan Documents, such
Bank shall cease to be a party hereto).  Such Commitment Transfer Supplement
shall be deemed to amend this Agreement to the extent, and only to the extent,
necessary to reflect the addition of such Purchasing Bank and the resulting
adjustment of Percentage Shares arising from the purchase by such Purchasing
Bank of all or a portion of the rights and obligations of such assigning Bank
under this Agreement, the Notes and the other Loan Documents.  Notwithstanding
anything to the contrary in this Section 10.07 or in the form of Commitment
Transfer Supplement, the Borrowers’ approval of the transfer from any Bank to
any Purchasing Bank of all or a portion of the assigning Bank’s interests,
rights and obligations under this Agreement and the other Loan Documents shall
not be necessary at any time following the Closing Date.
 

 
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(d)           The Administrative Agent shall maintain at its office a copy of
each Commitment Transfer Supplement delivered to it and a register for the
recordation of the names and addresses of the Banks and the Commitment Amount
of, and principal amount of the Loans owing to, each Bank from time to time (the
“Register”).  The entries in the Register shall be conclusive, in the absence of
manifest error, and Borrowers, the Administrative Agent, and the Banks may treat
each Person whose name is recorded in the Register as a Bank hereunder for all
purposes of this Agreement.  The Register shall be available for inspection by
Borrowers or any Bank at any reasonable time and from time to time upon
reasonable prior notice.
 
(e)           Upon its receipt of a Commitment Transfer Supplement executed by
an assigning Bank and a Purchasing Bank together with any Notes subject to such
Commitment Transfer Supplement and the written consent of Borrowers, if
required, and Administrative Agent to such Commitment Transfer Supplement, the
Administrative Agent shall (i) accept such Commitment Transfer Supplement, (ii)
record the information contained therein in the Register and (iii) give prompt
notice thereof to the Banks and Borrowers.  Within five (5) Business Days after
receipt of such notice, Borrowers shall, at their own expense, execute and
deliver to the Administrative Agent, in exchange for the surrendered Notes,
replacement Notes dated as of the effective date of such surrendered Notes and
otherwise substantially in the form of the Notes replaced thereby payable to the
order of such Purchasing Bank in an amount equal to the Commitment assumed by it
pursuant to such Commitment Transfer Supplement and, if the assigning Bank has
retained any Commitment hereunder, replacement Notes dated as of the effective
date of the surrendered Notes and otherwise substantially in the form of the
Notes replaced thereby payable to the order of the assigning Bank in an amount
equal to the Commitment of such assigning Bank retained by it hereunder.  Such
replacement Notes shall be in an aggregate principal amount equal to the
aggregate principal amount of such surrendered Notes.  Contemporaneously with
the delivery of the replacement Notes, the canceled Notes shall be returned to
Borrowers marked “Replaced.”
 
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(f)           Each Bank, L/C Issuer and Administrative Agent agrees to hold any
confidential information which it may receive from the Borrowers pursuant to
this Agreement in confidence, except for disclosure (i) to its Affiliates and to
other Banks and their respective Affiliates, (ii) to legal counsel, accountants,
and other professional advisors to such Bank, (iii) to regulatory officials,
(iv) to any Person as such Bank, L/C Issuer or Administrative Agent reasonably
believes it is compelled to disclose to  pursuant to law, regulation, or legal
process, (v) to any Person in connection with any legal proceeding with respect
to the Loans, Loan Documents or transaction contemplated thereby to which such
Bank is a party, (vi) to such Bank’s direct or indirect contractual
counterparties in swap agreements or to legal counsel, accountants and other
professional advisors to such counterparties, and (vii) permitted by this
Section; provided, with respect to clauses (i), (ii) and (vi), that such Persons
are informed of the confidential nature thereof and instructed to keep such
information confidential.  Notwithstanding any other provision herein, any Bank
may, in connection with any assignment or participation or proposed assignment
or participation pursuant to this Section 10.07, disclose to the assignee or
participant or proposed assignee or participant, any information relating to
Borrowers or any other Subsidiary of Borrowers furnished to such Bank by or on
behalf of Borrowers or any other Subsidiary of Borrowers; provided, that prior
to any such disclosure, each such assignee or participant or proposed assignee
or participant shall agree to preserve the confidentiality of any confidential
information relating to Borrowers and any of its Subsidiaries received from such
Bank to the same extent as required by this Section.
 
(g)           Any Bank may at any time pledge or assign a security interest in
all or any portion of its rights under this Agreement (including under its Note,
if any) to secure obligations of such Bank, including any pledge or assignment
to secure obligations to a Federal Reserve Bank; provided that no such pledge or
assignment shall release such Bank from any of its obligations hereunder or
substitute any such pledgee or assignee for such Bank as a party hereto.
 
(h)           Notwithstanding anything to the contrary contained herein, if at
any time Administrative Agent assigns all of its Commitment and Loans,
Administrative Agent may, upon thirty days’ notice to Borrowers and Banks,
resign in its capacity as L/C Issuer, if Administrative Agent is also the L/C
Issuer at such time.  In the event of any such resignation as L/C Issuer,
Borrowers shall be entitled to appoint from among Banks a successor L/C Issuer
hereunder; provided that, no failure by Borrowers to appoint any such successor
shall affect the resignation of Administrative Agent as L/C Issuer, as the case
may be.  If Administrative Agent resigns as L/C Issuer, it shall retain all the
rights and obligations of the L/C Issuer hereunder with respect to all Letters
of Credit outstanding as of the effective date of its resignation as L/C Issuer
and all L/C Obligations with respect thereto (including the right to require
Banks to make Base Rate Loans or fund risk participations in Unreimbursed
Amounts pursuant to Section 2.03.
 
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10.08     Set-off.  In addition to any rights and remedies of the Banks provided
by law, upon the occurrence and during the continuance of any Event of Default,
each Bank is authorized at any time and from time to time, without prior notice
to Borrowers or any other Loan Party, any such notice being waived by Borrowers
(on their own behalf and on behalf of each Loan Party) 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 by, and other
indebtedness at any time owing by, such Bank to or for the credit or the account
of the respective Loan Parties against any and all Obligations owing to such
Bank hereunder or under any other Loan Document, now or hereafter existing,
irrespective of whether or not any such Bank shall have made demand under this
Agreement or any other Loan Document and although such Obligations may be
contingent or unmatured or denominated in a currency different from that of the
applicable deposit or Indebtedness.  Each such Bank agrees to notify Borrowers
after any such set-off and application made by any such Bank; provided that, the
failure to give such notice shall not affect the validity of such set-off and
application.  This Section 10.08 is subject to the provisions of Section 2.13.
 
10.09     Interest Rate Limitation.  Notwithstanding anything to the contrary
contained in any Loan Document, the interest paid or agreed to be paid under the
Loan Documents shall not exceed the maximum rate of non-usurious interest
permitted by applicable Law (the “Maximum Rate”).  If any Bank shall receive
interest in an amount that exceeds the Maximum Rate, the excess interest shall
be applied to the principal of the Loans or, if it exceeds such unpaid
principal, refunded to Borrowers.  In determining whether the interest
contracted for, charged, or received by any Bank exceeds the Maximum Rate, such
Person may, to the extent permitted by applicable Law, (a) characterize any
payment that is not principal as an expense, fee, or premium rather than
interest, (b) exclude voluntary prepayments and the effects thereof, and (c)
amortize, prorate, allocate, and spread in equal or unequal parts the total
amount of interest throughout the contemplated term of the Obligations
hereunder.
 
10.10     Counterparts.  This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
 
10.11     INTEGRATION; FINAL AGREEMENT. THIS AGREEMENT, TOGETHER WITH THE OTHER
LOAN DOCUMENTS, COMPRISES THE COMPLETE AND INTEGRATED AGREEMENT OF THE PARTIES
ON THE SUBJECT MATTER HEREOF AND THEREOF AND SUPERSEDES ALL PRIOR AGREEMENTS,
WRITTEN OR ORAL, ON SUCH SUBJECT MATTER.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.  IN THE EVENT OF ANY CONFLICT BETWEEN THE PROVISIONS OF
THIS AGREEMENT AND THOSE OF ANY OTHER LOAN DOCUMENT, THE PROVISIONS OF THIS
AGREEMENT SHALL CONTROL; PROVIDED THAT THE INCLUSION OF SUPPLEMENTAL RIGHTS OR
REMEDIES IN FAVOR OF ADMINISTRATIVE AGENT OR ANY BANK IN ANY OTHER LOAN DOCUMENT
SHALL NOT BE DEEMED A CONFLICT WITH THIS AGREEMENT.  EACH LOAN DOCUMENT WAS
DRAFTED WITH THE JOINT PARTICIPATION OF THE RESPECTIVE PARTIES THERETO AND SHALL
BE CONSTRUED NEITHER AGAINST NOR IN FAVOR OF ANY PARTY, BUT RATHER IN ACCORDANCE
WITH THE FAIR MEANING THEREOF.
 
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10.12     Survival of Representations and Warranties. All representations and
warranties made hereunder and in any other Loan Document or other document
delivered pursuant hereto or thereto or in connection herewith or therewith
shall survive the execution and delivery hereof and thereof.  Such
representations and warranties have been or will be relied upon by the Banks,
regardless of any investigation made by the Banks or on their behalf and
notwithstanding that such Bank may have had notice or knowledge of any Default
at the time of any Credit Extension, and shall continue in full force and effect
as long as any Loan or any other Obligation hereunder shall remain unpaid or
unsatisfied.
 
10.13     Severability.  If any provision of this Agreement or the other Loan
Documents is held to be illegal, invalid or unenforceable, (a) the legality,
validity and enforceability of the remaining provisions of this Agreement and
the other Loan Documents shall not be affected or impaired thereby and (b) the
parties shall endeavor in good faith negotiations to replace the illegal,
invalid or unenforceable provisions with valid provisions the economic effect of
which comes as close as possible to that of the illegal, invalid or
unenforceable provisions.  The invalidity of a provision in a particular
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
 
10.14     Governing Law; Submission to Jurisdiction.
 
(a)           THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF TEXAS APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED ENTIRELY WITHIN SUCH STATE; PROVIDED THAT THE ADMINISTRATIVE AGENT AND
THE BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
 
(b)           ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS
SITTING IN HOUSTON OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF SUCH
STATE, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, ADMINISTRATIVE AGENT,
BORROWERS AND THE BANKS CONSENT, FOR THEMSELVES AND IN RESPECT OF THEIR
PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS.  BORROWERS, THE
BANKS AND ADMINISTRATIVE AGENT IRREVOCABLY WAIVE ANY OBJECTION, INCLUDING 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 ACTION OR
PROCEEDING IN SUCH JURISDICTION IN RESPECT OF ANY LOAN DOCUMENT OR OTHER
DOCUMENT RELATED THERETO. BORROWERS, THE BANKS AND ADMINISTRATIVE AGENT WAIVE
PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE
BY ANY OTHER MEANS PERMITTED BY THE LAW OF SUCH STATE.
 
10.15     DISPUTE RESOLUTION; WAIVER OF JURY TRIAL; CLASS ACTION WAIVER;
ARBITRATION; RELIANCE; DAMAGES.
 
 
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(a)           DISPUTE RESOLUTION.  THIS SECTION CONTAINS A JURY WAIVER,
ARBITRATION CLAUSE, AND A CLASS ACTION WAIVER.  READ IT CAREFULLY.
   
THIS DISPUTE RESOLUTION PROVISION SHALL SUPERSEDE AND REPLACE ANY PRIOR “JURY
WAIVER,” “JUDICIAL REFERENCE,” “CLASS ACTION WAIVER,” “ARBITRATION,” “DISPUTE
RESOLUTION,” OR SIMILAR ALTERNATIVE DISPUTE AGREEMENT OR PROVISION BETWEEN OR
AMONG THE PARTIES.

(b)           JURY TRIAL WAIVER; CLASS ACTION WAIVER.  AS PERMITTED BY
APPLICABLE LAW, EACH PARTY WAIVES THEIR RESPECTIVE RIGHTS TO A TRIAL BEFORE A
JURY IN CONNECTION WITH ANY DISPUTE (AS “DISPUTE” IS HEREINAFTER DEFINED), AND
DISPUTES SHALL BE RESOLVED BY A JUDGE SITTING WITHOUT A JURY.  IF A COURT
DETERMINES THAT THIS PROVISION IS NOT ENFORCEABLE FOR ANY REASON AND AT ANY TIME
PRIOR TO TRIAL OF THE DISPUTE, BUT NOT LATER THAN 30 DAYS AFTER ENTRY OF THE
ORDER DETERMINING THIS PROVISION IS UNENFORCEABLE, ANY PARTY SHALL BE ENTITLED
TO MOVE THE COURT FOR AN ORDER COMPELLING ARBITRATION AND STAYING OR DISMISSING
SUCH LITIGATION PENDING ARBITRATION (“ARBITRATION ORDER”).  IF PERMITTED BY
APPLICABLE LAW, EACH PARTY ALSO WAIVES THE RIGHT TO LITIGATE IN COURT OR AN
ARBITRATION PROCEEDING ANY DISPUTE AS A CLASS ACTION, EITHER AS A MEMBER OF A
CLASS OR AS A REPRESENTATIVE, OR TO ACT AS A PRIVATE ATTORNEY GENERAL.
 
(c)           ARBITRATION.  IF A CLAIM, DISPUTE, OR CONTROVERSY ARISES WITH
RESPECT TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, ANY RELATED AGREEMENTS, OR
ANY OTHER AGREEMENT OR BUSINESS RELATIONSHIP WHETHER OR NOT RELATED TO THE
SUBJECT MATTER OF THIS AGREEMENT (ALL OF THE FOREGOING, A “DISPUTE”), AND ONLY
IF A JURY TRIAL WAIVER IS NOT PERMITTED BY APPLICABLE LAW OR RULING BY A COURT,
EITHER PARTY MAY REQUIRE THAT THE DISPUTE BE RESOLVED BY BINDING ARBITRATION
BEFORE A SINGLE ARBITRATOR.  BY AGREEING TO ARBITRATE A DISPUTE, EACH PARTY
GIVES UP ANY RIGHT THAT PARTY MAY HAVE TO A JURY TRIAL, AS WELL AS OTHER RIGHTS
THAT PARTY WOULD HAVE IN COURT THAT ARE NOT AVAILABLE OR ARE MORE LIMITED IN
ARBITRATION, SUCH AS THE RIGHTS TO DISCOVERY AND TO APPEAL.
 
 
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ARBITRATION SHALL BE COMMENCED BY FILING A PETITION WITH, AND IN ACCORDANCE WITH
THE APPLICABLE ARBITRATION RULES OF, JAMS OR NATIONAL ARBITRATION FORUM
(“ADMINISTRATOR”) AS SELECTED BY THE INITIATING PARTY.  IF THE PARTIES AGREE,
ARBITRATION MAY BE COMMENCED BY APPOINTMENT OF A LICENSED ATTORNEY WHO IS
SELECTED BY THE PARTIES AND WHO AGREES TO CONDUCT THE ARBITRATION WITHOUT AN
ADMINISTRATOR.  DISPUTES INCLUDE MATTERS (I) RELATING TO A DEPOSIT ACCOUNT,
APPLICATION FOR OR DENIAL OF CREDIT, ENFORCEMENT OF ANY OF THE OBLIGATIONS
EITHER PARTY HAS TO THE OTHER, COMPLIANCE WITH APPLICABLE LAWS AND/OR
REGULATIONS, PERFORMANCE OR SERVICES PROVIDED UNDER ANY AGREEMENT BY ANY PARTY,
(II) BASED ON OR ARISING FROM AN ALLEGED TORT, OR (III) INVOLVING EITHER PARTY’S
EMPLOYEES, AGENTS, AFFILIATES, OR ASSIGNS. HOWEVER, DISPUTES DO NOT INCLUDE THE
VALIDITY, ENFORCEABILITY, MEANING, OR SCOPE OF THIS ARBITRATION PROVISION AND
SUCH MATTERS MAY BE DETERMINED ONLY BY A COURT.  IF A THIRD PARTY IS A PARTY TO
A DISPUTE, EACH PARTY CONSENTS TO INCLUDING THE THIRD PARTY IN THE ARBITRATION
PROCEEDING FOR RESOLVING THE DISPUTE WITH THE THIRD PARTY.  VENUE FOR THE
ARBITRATION PROCEEDING SHALL BE AT A LOCATION DETERMINED BY MUTUAL AGREEMENT OF
THE PARTIES OR, IF NO AGREEMENT, IN THE CITY AND STATE WHERE LENDER OR THE BANK
IS HEADQUARTERED.
 
If a court orders arbitration of a Dispute, the party to the Dispute that did
not seek the Arbitration Order shall commence arbitration.  The party that
sought the Arbitration Order may commence arbitration, but shall have no
obligation to do so, and shall not in any way be adversely prejudiced by
initiating or participating in litigation or electing not to commence
arbitration.  The arbitrator shall (i) hear and rule on appropriate dispositive
motions for judgment on the pleadings, for failure to state a claim, or for full
or partial summary judgment; (ii) render a decision and any award applying
applicable law; (iii) give effect to any limitations period in determining any
Dispute or defense; (iv) enforce the doctrines of compulsory counterclaim, res
judicata, and collateral estoppel, if applicable; (v) with regard to motions and
the arbitration hearing, apply rules of evidence governing civil cases; and (vi)
apply the law of the state specified in the agreement giving rise to the
Dispute.  Filing of a petition for arbitration shall not prevent any party from
(i) seeking and obtaining from a court of competent jurisdiction
(notwithstanding ongoing arbitration) provisional or ancillary remedies
including but not limited to injunctive relief, property preservation orders,
foreclosure, eviction, attachment, replevin, garnishment, and/or the appointment
of a receiver, (ii) pursuing non-judicial foreclosure, or (iii) availing itself
of any self-help remedies such as setoff and repossession.  The exercise of such
rights shall not constitute a waiver of the right to submit any Dispute to
arbitration.
 
Judgment upon an arbitration award may be entered in any court having
jurisdiction, except that, if the arbitration award exceeds $4,000,000, any
party shall be entitled to a de novo appeal of the award before a panel of three
arbitrators.  To allow for such appeal, if the award (including Administrator,
arbitrator, and attorney’s fees and costs) exceeds $4,000,000, the arbitrator
will issue a written, reasoned decision supporting the award, including a
statement of authority and its application to the Dispute.  A request for de
novo appeal must be filed with the arbitrator within 30 days following the date
of the arbitration award; if such a request is not made within that time period,
the arbitration decision shall become final and binding.  On appeal, the
arbitrators shall review the award de novo, meaning that they shall reach their
own findings of fact and conclusions of law rather than deferring in any manner
to the original arbitrator.  Appeal of an arbitration award shall be pursuant to
the rules of the Administrator or, if the Administrator has no such rules, then
the JAMS arbitration appellate rules shall apply.
 
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Arbitration under this provision concerns a transaction involving interstate
commerce and shall be governed by the Federal Arbitration Act, 9 U.S.C. § 1 et
seq.  This arbitration provision shall survive any termination, amendment, or
expiration of this Agreement.  If the terms of this provision vary from the
Administrator’s rules, this arbitration provision shall control.
 
(d)           RELIANCE.  Each party (i) certifies that no one has represented to
such party that the other party would not seek to enforce jury and class action
waivers in the event of suit, and (ii) acknowledges that it and the other party
have been induced to enter into this Agreement by, among other things, the
mutual waivers, agreements, and certifications in this section.

(e)           DAMAGES. BORROWERS, EACH LOAN PARTY AND BANK, EACH PARTICIPANT,
AND EACH SWAP COUNTERPARTY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE MAXIMUM
EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY
SUCH ACTION AGAINST ANOTHER PARTY, ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES.
 
10.16     USA Patriot Act Notice.  The Banks hereby notify the Borrowers that
pursuant to the requirements of the USA Patriot Act (Title III of Pub. L.
107-56) signed into law October 26, 2001 (the “USA Patriot Act”), it is required
to obtain, verify and record information that identifies the Borrowers, which
information includes the name and address of the Borrowers and other information
that will allow the Banks to identify the Borrowers in accordance with the USA
Patriot Act.
 
10.17     Time of the Essence.  Time is of the essence of the Loan Documents.
 
10.18     Amendments or Modifications.  Subject to the provisions of this
Section, the Required Banks (or the Administrative Agent with the consent in
writing of the Required Banks) and the Borrowers may enter into agreements
supplemental hereto for the purpose of adding, deleting or otherwise modifying
any provisions of the Loan Documents or changing in any manner the rights of the
Banks or the Borrower hereunder or waiving any Event of Default hereunder or
consenting to any departure of a Loan Party therefrom; provided, however, that:
 
(a)           no such supplemental agreement shall, without the consent of all
of the Banks, and, to the extent provided in any Intercreditor Agreement, the
Approved Counterparty:
 
(i)           Extend the final maturity of any Loan or extend the expiry date of
any Letter of Credit beyond the Letter of Credit Expiration Date, postpone any
regularly scheduled payment of principal of any Loan, forgive all or any portion
of the principal amount thereof, or reduce the rate or extend the time of
payment of interest or fees thereon or reduce the amount of any L/C Obligation
or fees thereon.
 
(ii)           Reduce the percentage specified in the definition of Required
Banks.
 
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(iii)           Extend the Letter of Credit Expiration Date, or reduce the
amount or extend the payment date for, the mandatory payments required under
Section 2.05, or increase the Aggregate Commitment Amount or the Commitment of
any Bank hereunder, or permit the Borrowers to assign their rights under this
Agreement.
 
(iv)           Amend the requirement that the Borrowing Base may be increased or
reaffirmed only with the consent of all Banks.
 
(v)           Release any Guarantor of any Loan or, except as provided in the
Collateral Documents, release all or substantially all of the Borrowing Base Oil
and Gas Properties.
 
(vi)           Amend this Section 10.18.
 
(b)           No amendment of any provision of this Agreement relating to the
Administrative Agent shall be effective without the written consent of the
Administrative Agent.
 
(c)           If, in connection with any proposed amendment, modification,
waiver or consent (a “Proposed Change”) requiring the consent of all Banks but
only the consent of Required Banks is obtained (any such Bank whose consent is
not obtained, a “Non-Consenting Bank”), then, upon notice to such Non-Consenting
Banks and Administrative Agent, Borrowers may require such Non-Consenting Banks
to sell and assign all of their interests, rights and obligations under this
Agreement and the other Loan Documents to one or more Persons reasonably
acceptable to Borrowers (after all of the consenting Banks have declined to
acquire such additional interests, rights and obligations or portion thereof),
with the consent of the Administrative Agent (not to be unreasonably withheld or
delayed); provided that such Non-Consenting Banks shall have received payment of
an amount equal to the outstanding principal amount of their respective Loans
and all accrued interest, fees and other amounts payable with respect thereto
through the date of sale.  Such sale and assignment shall be consummated
pursuant to executed Commitment Transfer Supplements pursuant to and in
accordance with Section 10.07(c).
 
(d)           Subject to the terms of any Intercreditor Agreement, Banks hereby
irrevocably authorize Administrative Agent, at its option and in its discretion,
to release any Lien granted to or held by Administrative Agent upon any
Collateral (x) on the date that the Commitments hereunder have been terminated
and all Obligations have been paid and discharged in full, or (y) constituting
property being sold or disposed of by any Loan Party in compliance with the
provisions of this Agreement or any other Loan Document.
 
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10.19     Amendment and Restatement.  The parties hereto agree that this
Agreement amends, rearranges and restates the Existing Loan Agreement in its
entirety, and shall thereafter be evidenced and governed by the terms of this
Agreement.  The Borrowers agree that according to their terms, Borrowers’
obligations (and the Liens granted by the Borrowers) under the Existing
Collateral Documents (as amended and restated in connection herewith) to which
they are a party will continue in full force and effect to secure the Total
Obligations.
 
10.20     Controlling Provision Upon Conflict.  Except as may be expressly
provided otherwise in this Agreement, in the event of a conflict between the
provisions of this Agreement and those of any other Loan Document or any other
instrument referred to in this Agreement or executed in connection with this
Agreement, the provisions of this Agreement shall control.
 
[Signature pages follow]

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

 
ENERJEX RESOURCES, INC.
       
By:
     
Robert G. Watson, Jr.
   
Chief Executive Officer
       
ENERJEX KANSAS, INC.
       
By:
     
Robert G. Watson, Jr.
   
Chief Executive Officer
       
DD ENERGY, INC.
       
By:
     
Robert G. Watson, Jr.
   
Chief Executive Officer
       
WORKING INTEREST, LLC
       
By:
     
Robert G. Watson, Jr.
   
Chief Executive Officer
       
BLACK SABLE ENERGY, LLC
       
By:
     
Robert G. Watson, Jr.
   
Chief Executive Officer
       
as Borrowers

Signature Page to Credit Agreement
 

 
 

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

 

 
TEXAS CAPITAL BANK, N.A.,
 
as Administrative Agent and a Bank
       
By:
     
W. David McCarver IV
   
Vice President

Signature Page to Credit Agreement
 

 
 

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SCHEDULE 1.01
 
COMMITMENT AMOUNTS
AND AGGREGATE COMMITMENT AMOUNT

 
Bank
 
Percentage
Share
   
Commitment
Amount
   
Percentage Share of Letters of 
Credit under the Letter of 
Credit Limit
 
Texas Capital Bank, N.A.
    100.0 %   $ 50,000,000       100.0 %
Aggregate Commitment Amount:
          $ 50,000,000          

Schedule 1.01
 

 
 

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SCHEDULE 5.06
 
LITIGATION
 
None.

Schedule 5.06
 

 
 

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SCHEDULE 5.09
 
ENVIRONMENTAL MATTERS
 
None.

Schedule 5.09
 

 
 

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SCHEDULE 5.13
 
SUBSIDIARIES
 
Subsidiaries of EnerJex Resources, Inc.
 
 
1.
EnerJex Kansas, Inc.

 
2.
DD Energy, Inc.

 
3.
Working Interest, LLC

 
4.
Black Sable Energy, LLC

Subsidiaries of EnerJex Kansas, Inc.

None.

Subsidiaries of DD Energy, Inc.

None.

Subsidiaries of Working Interest, LLC
 
None.
 
Subsidiaries of Black Sable Energy, LLC
 
None.

Schedule 5.13

 
 

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SCHEDULE 5.19
 
OIL AND GAS CONTRACTS

 
1.
Letter Agreement with Shell Trading (US) Company dated April 1, 2008.

Schedule 5.19

 
 

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SCHEDULE 5.21
 
PURCHASERS OF PRODUCTION
 
 
1.
For Kansas Production:

Coffeyville Resources, LLC
A CVR Energy Company
10 E. Cambridge Circle, Ste. 250
Kansas City, KS 66103
(913) 982-0499

 
2.
For Kansas Production:

Pacer Energy Marketing, LLC
P.O. Box 4470
Tulsa, OK 74159-0470
(800) 444-9728

 
3.
For Texas Production:

Shell Trading (US) Company
P.O. Box 4604
Houston, TX 77210-4604

Schedule 5.21

 
 

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SCHEDULE 5.22
 
SWAP CONTRACTS

I.
ISDA 1992 Master Agreement dated as of July 3, 2008, by and among Parent,
EnerJex Kansas and DD Energy and BP Corporation North America Inc., as Approved
Counterparty, together with the schedules, annexes and exhibits attached thereto
and each relevant transaction confirmation thereunder to the extent such parties
have disclosed the material terms thereof to Administrative Agent.

 
II.
From time to time after the Closing Date and during the term of this Agreement,
Borrowers agree to enter into Swap Contracts and transactions thereunder, which
are permitted under the terms of this Agreement.

 
Schedule 5.22

 
 

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SCHEDULE 5.24
 
MATERIAL AGREEMENTS; DEBT INSTRUMENTS

1.
Option and Joint Development Agreement, as amended, dated August 11, 2011 among
EnerJex Resources, MorMeg, LLC and Haas Petroleum, LLC and the Joint Operating
Agreement associated therewith, as amended.

2.
Joint Development Agreement, as amended, dated December 31, 2010 among EnerJex
Resources, Haas Petroleum and Mormeg, LLC and the Joint Operating Agreement
associated therewith, as amended.

3.
Participation Agreement, as amended, dated January 1, 2010 among Black Sable
Energy and various other participants and the Joint Operating Agreement
associated therewith, as amended.

4.
Participation Agreement, as amended, dated May 1, 2009 among Black Sable Energy
and various other participants and the Joint Operating Agreement associated
therewith, as amended.

Schedule 5.24

 
 

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SCHEDULE 7.01
 
EXISTING LIENS

 
1.
Liens securing the Vehicle Notes Payable listed on Schedule 7.03.

Schedule 7.01

 
 

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SCHEDULE 7.03
 
EXISTING INDEBTEDNESS

 
1.
Promissory notes in an aggregate principal amount not exceeding $125,000
incurred for the purchase of vehicles (“Vehicle Notes Payable”).

Schedule 7.03

 
 

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SCHEDULE 10.02
 
ADDRESSES FOR NOTICES
 
ENERJEX RESOURCES, INC.
4040 Broadway, Suite 305
San Antonio, Texas 78209

Attn: 
Robert G. Watson, Jr., Chief Executive Officer

Telephone: (210) 451-5545
Electronic Mail: robert.watson@blacksableenergy.com
 
With copy to:
 
Reicker, Pfau, Pyle & McRoy LLP
1421 State Street, Suite B
Santa Barbara, CA  93101

Attn: 
Michael E. Pfau

Telephone: (805) 966-2440 ext. 444
Facsimile: (805)966-3320
Electronic Mail: mpfau@rppmh.com

TEXAS CAPITAL BANK, N.A.
One Riverway, Suite 2100
Houston, Texas 77056

Attn:
W. David McCarver IV

 
Telephone: (832) 308-7059

 
Facsimile: (832) 308-7042

 
Electronic Mail: david.mccarver@texascapitalbank.com

 
With a copy to:

PORTER HEDGES LLP
1000 Main St., 36th Floor
Houston, Texas 77002

Attn: 
Ephraim del Pozo

Telephone: (713) 226-6660
Facsimile: (713) 226-6260
Electronic Mail: edelpozo@porterhedges.com
 
Schedule 10.02

 
 

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SCHEDULE 10.07
 
COMMITMENT TRANSFER SUPPLEMENT
 
THIS COMMITMENT TRANSFER SUPPLEMENT (this “Commitment Transfer Supplement”)
dated as of the date set forth in Item 1 of Schedule I hereto, is among the
Transferor Bank set forth in Item 2 of Schedule I hereto (the “Transferor
Bank”), each Purchasing Bank set forth in Item 3 of Schedule 1 (each a
“Purchasing Bank”), and TEXAS CAPITAL BANK, N.A., as Administrative Agent for
the Banks under, and as defined in, the Credit Agreement described below (in
such capacity, the “Administrative Agent”) and is consented to and acknowledged
by ENERJEX RESOURCES, INC., ENERJEX KANSAS, INC., DD ENERGY, INC., WORKING
INTEREST, LLC and BLACK SABLE ENERGY, LLC (collectively, the “Borrowers”), but
only to the extent required under Section 10.07 of the Credit Agreement, defined
below.
 
RECITALS
 
WHEREAS, this Commitment Transfer Supplement is being executed and delivered in
accordance with Section 10.07(c) of the Amended and Restated Credit Agreement
dated effective as of October 3, 2011, by and among the Borrowers, Transferor
Bank and the other Banks party thereto and the Administrative Agent (as from
time to time amended, supplemented, restated or otherwise modified in accordance
with the terms thereof, the “Credit Agreement”; terms defined therein being used
herein as therein defined);
 
WHEREAS, each Purchasing Bank (if it is not already a Bank party to the Credit
Agreement) wishes to become a Bank party to the Credit Agreement; and
 
WHEREAS, the Transferor Bank is selling and assigning to each Purchasing Bank,
rights, obligations and commitments under the Credit Agreement;
 
NOW, THEREFORE, the parties hereto agree as follows:
 
GENERAL TERMS
 
Section 1.  Upon receipt by the Administrative Agent of five counterparts of
this Commitment Transfer Supplement, to each of which is attached a fully
completed Schedule I and Schedule II, and each of which has been executed by the
Transferor Bank, each Purchasing Bank (and any other person required by the
Credit Agreement to execute this Commitment Transfer Supplement), the
Administrative Agent will transmit to the Borrowers, the Transferor Bank and
each Purchasing Bank a Transfer Effective Notice, substantially in the form of
Schedule III to this Commitment Transfer Supplement (a “Transfer Effective
Notice”).  Such Transfer Effective Notice shall set forth, inter alia, the date
on which the transfer effected by this Commitment Transfer Supplement shall
become effective (the “Transfer Effective Date”), which date shall be at least
five (5) Business Days following the date of such Transfer Effective
Notice.  From and after the Transfer Effective Date each Purchasing Bank shall
be a Bank party to the Credit Agreement for all purposes thereof.
 

 
Schedule 10.07 - 1

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Section 2.  At or before 12:00 Noon, local time of the Transferor Bank, on the
Transfer Effective Date, each Purchasing Bank shall pay to the Transferor Bank,
in immediately available funds, an amount equal to the purchase price, as agreed
between the Transferor Bank and such Purchasing Bank (the “Purchase Price”), of
the portion being purchased by such Purchasing Bank (such Purchasing Bank’s
“Purchased Percentage”) of the outstanding Credit Extensions and other amounts
owing to the Transferor Bank under the Credit Agreement and the
Notes.  Effective upon receipt by the Transferor Bank of the Purchase Price from
a Purchasing Bank, the Transferor Bank hereby irrevocably sells, assigns and
transfers to such Purchasing Bank, without recourse, representation or warranty,
and each Purchasing Bank hereby irrevocably purchases, takes and assumes from
the Transferor Bank, such Purchasing Bank’s Purchased Percentage of the
Commitment of the Transferor Bank and the presently outstanding Credit
Extensions and other amounts owing to the Transferor Bank under the Credit
Agreement and the Notes together with all instruments, documents and collateral
security pertaining thereto.
 
Section 3.  The Transferor Bank has made arrangements with each Purchasing Bank
with respect to (a) the portion, if any, to be paid, and the date or dates for
payment, by the Transferor Bank to such Purchasing Bank of any fees heretofore
received by the Transferor Bank pursuant to the Credit Agreement prior to the
Transfer Effective Date, and (b) the portion, if any, to be paid, and the date
or dates for payment, by such Purchasing Bank to the Transferor Bank of fees or
interest received by such Purchasing Bank pursuant to the Credit Agreement from
and after the Transfer Effective Date.
 
Section 4.  (a) All principal payments that would otherwise be payable from and
after the Transfer Effective Date to or for the account of the Transferor Bank
pursuant to the Credit Agreement and the Notes shall, instead, be payable to or
for the account of the Transferor Bank and the Purchasing Banks, as the case may
be, in accordance with their respective interests as reflected in this
Commitment Transfer Supplement.
 
(b)           All interest, fees and other amounts that would otherwise accrue
for the account of the Transferor Bank from and after the Transfer Effective
Date pursuant to the Credit Agreement and the Notes shall, instead, accrue for
the account of, and be payable to, the Transferor Bank and the Purchasing Banks,
as the case may be, in accordance with their respective interests as reflected
in this Commitment Transfer Supplement.
 
(c)           In the event that any amount of interest, fees or other amounts
accruing prior to the Transfer Effective Date was included in the Purchase Price
paid by any Purchasing Bank, the Transferor Bank and each Purchasing Bank will
make appropriate arrangements for payment by the Transferor Bank to such
Purchasing Bank of such amount upon receipt thereof from the Borrowers.
 
Section 5.  On or prior to the Transfer Effective Date, the Transferor Bank will
deliver to the Administrative Agent its Note.  Within five (5) Business Days
after Borrowers’ receipt of notice from Administrative Agent of Administrative
Agent’s receipt of this Commitment Transfer Supplement, the Borrowers will
deliver to the Administrative Agent, in exchange for the surrendered Note from
the Transferor Bank, a new Note for each Purchasing Bank and the Transferor
Bank, to the extent the Transferor Bank has retained any of its Commitment, in
each case in principal amounts reflecting, in accordance with the Credit
Agreement, their respective Commitment Amounts (as adjusted pursuant to this
Commitment Transfer Supplement).  As provided in Section 10.07(e) of the Credit
Agreement, each such new Note shall be dated the date of the original Note
delivered pursuant to the Credit Agreement (the “Effective Date”).  Promptly
after the Transfer Effective Date, the Administrative Agent will send to each of
the Transferor Bank and the Purchasing Banks its new Note and will send to the
Borrowers the superseded Note of the Transferor Bank, marked “Canceled” or
“Replaced” as appropriate.
 

 
Schedule 10.07 - 2

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Section 6.  Concurrently with the execution and delivery hereof, the Transferor
Bank will provide to each Purchasing Bank (if it is not already a Bank party to
the Credit Agreement) conformed copies of all documents in the Transferor Bank’s
possession that were delivered to the Administrative Agent on the Effective Date
in satisfaction of the conditions precedent set forth in the Credit Agreement.
 
Section 7.  Each of the parties to this Commitment Transfer Supplement agrees
that at any time and from time to time upon the written request of any other
party, it will execute and deliver such further documents and do such further
acts and things as such other party may reasonably request in order to effect
the purposes of this Commitment Transfer Supplement.
 
Section 8.  By executing and delivering this Commitment Transfer Supplement, the
Transferor Bank and each Purchasing Bank confirm to and agree with each other
and the Administrative Agent and the Banks as follows:  (i) other than the
representation and warranty that it is the legal and beneficial owner of the
interest being assigned hereby free and clear of any adverse claim, the
Transferor Bank makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Credit
Agreement, the Notes, any other Loan Document or any other instrument or
document furnished pursuant thereto; (ii) the Transferor Bank makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of the Borrowers, any Subsidiary of either of the Borrowers
or the performance or observance by the Borrowers or any Subsidiary of either of
the Borrowers of any of their respective obligations under the Credit Agreement,
the Notes, any other Loan Document or any other instrument or document furnished
pursuant hereto; (iii) each Purchasing Bank confirms that it has received a copy
of the Credit Agreement, together with copies of the Financial Statements
referred to in Section 6.01(a), the Financial Statements delivered pursuant to
Section 6.01(b) if any, and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
this Commitment Transfer Supplement; (iv) each Purchasing Bank will,
independently and without reliance upon the Administrative Agent, the Transferor
Bank or any other Bank 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 Credit Agreement; (v) each Purchasing Bank
appoints and authorizes the Administrative Agent to take such action as
Administrative Agent on its behalf and to exercise such powers under the Credit
Agreement as are delegated to the Administrative Agent by the terms thereof,
together with such powers as are reasonably incidental thereto, all in
accordance with Article IV of the Credit Agreement; and (vi) each Purchasing
Bank agrees that it will perform in accordance with their terms all of the
obligations which by the terms of the Credit Agreement are required to be
performed by it as a Bank.
 

 
Schedule 10.07 - 3

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Section 9.  Each party hereto represents and warrants to and agrees with the
Administrative Agent that it is aware of and will comply with the provision of
Section 10.08 of the Credit Agreement.

Section 10.  Schedule II hereto sets forth the revised Commitment Amounts and
Percentage Shares of the Transferor Bank and each Purchasing Bank as well as
administrative information with respect to each Purchasing Bank.
 
SECTION 11.  THIS COMMITMENT TRANSFER SUPPLEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
 
IN WITNESS WHEREOF, the parties hereto have caused this Commitment Transfer
Supplement to be executed by their respective duly authorized officers on
Schedule I hereto as of the date set forth in Item I of Schedule I hereto.
 

 
Schedule 10.07 - 4

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Schedule I to
Commitment Transfer Supplement

COMPLETION OF INFORMATION AND
SIGNATURES FOR COMMITMENT
TRANSFER SUPPLEMENT
 
 
Re:
Amended and Restated Credit Agreement dated effective as of October 3, 2011,
among EnerJex Resources, Inc., EnerJex Kansas, Inc., DD Energy, Inc., Working
Interest, LLC and Black Sable Energy, LLC, the Banks, and Texas Capital Bank,
N.A., as Administrative Agent for the Banks thereunder.

 
Item 1
(Date of Commitment Transfer
   
Supplement):
[Insert date of Commitment Transfer Supplement]
     
Item 2
(Transferor Bank):
[Insert name of Transferor Bank]
     
Item 3
(Purchasing Bank[s]):
[Insert name[s] of Purchasing Bank[s]]
     
Item 4
(Signatures of Parties
   
to Commitment Transfer
   
Supplement):
_________________________, as Transferor Bank

 
By
   
Title:
         
_________________________, as Purchasing Bank
       
By
   
Title:
         
_________________________, as Purchasing Bank
       
By
   
Title:
         
_________________________, as Purchasing Bank

 
 
 Schedule 10.07 - 5

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CONSENTED TO AND ACKNOWLEDGED:
     
ENERJEX RESOURCES, INC.
       
By:
   
Name:
   
Title:
         
ENERJEX KANSAS, INC.
       
By:
   
Name:
   
Title:
         
DD ENERGY, INC.
       
By:
   
Name:
   
Title:
         
WORKING INTEREST, LLC
       
By:
   
Name:
   
Title:
         
BLACK SABLE ENERGY, LLC
       
By:
   
Name:
   
Title:
         
TEXAS CAPITAL BANK, N.A.
 
as Administrative Agent
       
By:
   
Name:
   
Title:
   

[Borrowers’ consent only
required to the extent set forth
in Section 10.07 of the Credit
Agreement.]
 

 
Schedule 10.07 - 6

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ACCEPTED FOR RECORDATION
 
IN REGISTER:
       
TEXAS CAPITAL BANK, N.A.
 
as Administrative Agent
       
By:
   
Name:
   
Title:
   

 
Schedule 10.07 - 7

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Schedule II to
Commitment Transfer Supplement

LIST OF LENDING OFFICES, ADDRESSES
FOR NOTICES AND COMMITMENT AMOUNTS

[Name of Transferor Bank]
     
Revised Commitment Amount:
$______________
       
Revised Commitment Percentage:
______________
     
[Name of Purchasing Bank]
           
New Commitment Amount:
$______________
       
New Commitment Percentage:
______________

Address for Notices:
 
[address]
 
Attention:                                                                 
Telex:                                                                       
Answer back:                                                           
Telephone:                                                               
Telecopier:                                                               

Lending Office:

           

 

 
Schedule 10.07 - 8

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[Form of Transfer Effective Notice]

Schedule III to
Commitment Transfer Supplement

 
To:
EnerJex Resources, Inc., EnerJex Kansas, Inc., DD Energy, Inc., Working
Interest, LLC and Black Sable Energy, LLC [Insert Name of Transferor Bank and
each Purchasing Bank]

 
The undersigned, as Administrative Agent under the Amended and Restated Credit
Agreement dated effective as of October 3, 2011, among EnerJex Resources, Inc.,
EnerJex Kansas, Inc., DD Energy, Inc., Working Interest, LLC and Black Sable
Energy, LLC (collectively, “Borrowers”), the Banks and other financial
institutions from time to time parties thereto and Texas Capital Bank, N.A., as
Administrative Agent, acknowledges receipt of five executed counterparts of a
completed Commitment Transfer Supplement, as described in Schedule I
hereto.  [Note:  attach copy of Schedule I from Commitment Transfer
Supplement.]  Terms defined in such Commitment Transfer Supplement are used
herein as therein defined.
 
1.           Pursuant to such Commitment Transfer Supplement, you are advised
that the Transfer Effective Date will be [Insert fifth Business Day following
date of Transfer Effective Notice].
2.           Pursuant to such Commitment Transfer Supplement, the Transferor
Bank is required to deliver its Note to the Administrative Agent on or before
the Transfer Effective Date.
3.           Pursuant to such Commitment Transfer Supplement, the Borrowers are
required to deliver to the Administrative Agent on or before the fifth (5th)
Business Day from its receipt of this notice, in return for the Note surrendered
to the Administrative Agent by the Transferor Bank, the following Notes
[Describe each Note for Transferor Bank and Purchasing Bank as to principal
amount and payee], dated October 3, 2011.
4.           Pursuant to such Commitment Transfer Supplement each Purchasing
Bank is required to pay its Purchase Price to the Transferor Bank at or before
12:00 Noon on the Transfer Effective Date in immediately available funds.
 

 
Very truly yours,
     
TEXAS CAPITAL BANK, N.A.,
 
as Administrative Agent
       
By:
   
Name:
   
Title:
 

 

 
Schedule 10.07 - 9

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EXHIBIT A
 
BORROWING BASE OIL AND GAS PROPERTIES
 
[See following pages]
 
Borrowing Base Oil and Gas Properties
 
A - 1

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EXHIBIT B
 
FORM OF REQUEST FOR CREDIT EXTENSION
 
Date:  ___________, 20__
To: 
Texas Capital Bank, N.A., as Administrative Agent

 
Ladies and Gentlemen:
 
Reference is made to that certain Amended and Restated Credit Agreement, dated
as of October 3, 2011 (as amended, restated, extended, supplemented or otherwise
modified in writing from time to time, the “Credit Agreement;” the terms defined
therein being used herein as therein defined), between EnerJex Resources, Inc.,
EnerJex Kansas, Inc., DD Energy, Inc., Working Interest, LLC and Black Sable
Energy, LLC (collectively, “Borrowers”), Texas Capital Bank, N.A.
(“Administrative Agent”) and the other Banks party thereto.
 
The undersigned hereby requests (select one):
 
o  A Loan                            o  A continuation of Loans

 
1.
On ____________________________ (a Business Day).

 
2.
In the amount of $ ___________________________.

 
3.
Unless not permitted under the Credit Agreement, a Eurodollar Loan with an
Interest Period of _______ months.

 
4.
The Loan requested herein complies with the proviso to the first sentence of
Section 2.01 of the Credit Agreement.

 
ENERJEX RESOURCES, INC.
       
By:
   
Name:
   
Title:
         
ENERJEX KANSAS, INC.
       
By:
   
Name:
   
Title:
         
DD ENERGY, INC.
       
By:
   
Name:
   
Title:
 

Form of Request for Credit Extension
 
B - 1

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WORKING INTEREST, LLC
       
By:
   
Name:
   
Title:
         
BLACK SABLE ENERGY, LLC
       
By:
   
Name:
   
Title:
 

Form of Request for Credit Extension
 
B - 2

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EXHIBIT C
 
FORM OF AMENDED AND RESTATED NOTE
 
$______________________
October 3, 2011

FOR VALUE RECEIVED, ENERJEX RESOURCES, INC., ENERJEX KANSAS, INC., DD ENERGY,
INC., WORKING INTEREST, LLC and BLACK SABLE ENERGY, LLC (collectively,
“Borrowers”), jointly and severally, hereby promise to pay to the order of
_________________________, or its registered assigns (“Bank”), in accordance
with the provisions of the Agreement (as hereinafter defined) the principal
amount of _____ MILLION AND NO/100 DOLLARS ($__________________) or so much
thereof as may be outstanding from time to time, pursuant to the terms and
conditions of that certain Amended and Restated Credit Agreement, dated as of
even date herewith (as the same may be amended, restated, extended, or
supplemented from time to time, the “Agreement”), among Borrowers, Texas Capital
Bank, N.A., as Administrative Agent and the Banks party thereto from time to
time.  Capitalized terms used but not defined in this Note have the meanings
given them in the Agreement.
 
Borrowers promise to pay interest on the unpaid principal amount of each Loan
from the date of such Loan until such principal amount is paid in full, at such
interest rates and at such times as provided in the Agreement.  All payments of
principal and interest shall be made to Bank in Dollars in immediately available
funds at Bank’s Lending Office.  If any amount is not paid in full when due
hereunder, such unpaid amount shall bear interest, to be paid upon demand, from
the due date thereof until the date of actual payment (and before as well as
after judgment) computed at the per annum rate set out in the Agreement.
 
This Note is the “Note” referred to in the Agreement and may be prepaid in whole
or in part subject to the terms and conditions provided therein. This Note is
also entitled to the benefits of and is secured by the Collateral.  Upon the
occurrence and continuation of one or more of the Events of Default specified in
the Agreement, all amounts then remaining unpaid on this Note shall become, or
may be declared to be, immediately due and payable all as provided in the
Agreement.  Loans made by Bank shall be evidenced by one or more Loan accounts
or records maintained by Bank in the ordinary course of business.  Bank may also
attach schedules to this Note and endorse thereon the date, amount and maturity
of its Loans and payments with respect thereto.
 
This Note is issued as a renewal, extension and modification of, but not a
novation of, or an accord and satisfaction of, that certain promissory note
dated July 3, 2008 executed by EnerJex Resources, Inc., EnerJex Kansas, Inc. and
DD Energy, Inc. and made payable to the order of Texas Capital Bank, N.A. in the
original face amount of $50,000,000.00.
 
Borrowers, for themselves, and their respective successors and assigns, hereby
waive diligence, presentment, protest and demand and notice of protest, demand,
dishonor and non-payment of this Note.
 
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS.
 
Form of Amended and Restated Note
 
C - 1

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

 
 

 
ENERJEX RESOURCES, INC.
       
By:
     
Robert G. Watson, Jr.
   
Chief Executive Officer
       
ENERJEX KANSAS, INC.
       
By:
     
Robert G. Watson, Jr.
   
Chief Executive Officer
       
DD ENERGY, INC.
       
By:
     
Robert G. Watson, Jr.
   
Chief Executive Officer
       
WORKING INTEREST, LLC
       
By:
     
Robert G. Watson, Jr.
   
Chief Executive Officer
       
BLACK SABLE ENERGY, LLC
       
By:
     
Robert G. Watson, Jr.
   
Chief Executive Officer

Form of Amended and Restated Note
 
C - 2

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

 

LOANS AND PAYMENTS WITH RESPECT THERETO
 
Date
 
Type of
Loan
Made
 
Amount of
Loan
Made
 
End of
Interest
Period
 
Amount of
Principal
or Interest
Paid This
Date
 
Outstanding
Principal
Balance
This Date
 
Notation
Made By
                                                                               
                                                                               
                                                                               
                                                                               
                                                                               
                                                                   

 
Form of Amended and Restated Note
 
C - 3

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

 

EXHIBIT D
 
FORM OF COMPLIANCE CERTIFICATE
 
Financial Statement Date:_________ ,
To: 
Texas Capital Bank, N.A., as Administrative Agent

 
Ladies and Gentlemen:
 
Reference is made to that certain Amended and Restated Credit Agreement, dated
as of October 3, 2011 (as amended, restated, extended, supplemented or otherwise
modified in writing from time to time, the “Agreement;” the terms defined
therein being used herein as therein defined), between EnerJex Resources, Inc.,
EnerJex Kansas, Inc., DD Energy, Inc., Working Interest, LLC and Black Sable
Energy, LLC (collectively, “Borrowers”), and Texas Capital Bank, N.A.
(“Administrative Agent”) and the other Banks party thereto.
 
The undersigned Responsible Officer hereby certifies as of the date hereof that
he/she is the ___________________________________ of Borrowers, and that, as
such, he/she is authorized to execute and deliver this Compliance Certificate to
Administrative Agent on behalf of Borrowers, and that:
 
[Use following for fiscal year-end financial statements]
1.           Attached hereto as Schedule 1 are the year-end audited financial
statements required by Section 6.01(a) of the Agreement for the fiscal year of
Borrowers ended as of the above date, together with the report and opinion of an
independent certified public accountant required by such section.
 
[Use following for fiscal quarter-end financial statements]
1.           Attached hereto as Schedule 1 are the unaudited financial
statements required by Section 6.01(b) of the Agreement for the fiscal quarter
of Borrowers ended as of the above date.  Such financial statements fairly
present the financial condition, results of operations and cash flows of
Borrowers and their Subsidiaries in accordance with GAAP as at such date and for
such period, subject only to normal year-end audit adjustments and the absence
of footnotes.
 
2.           The undersigned has reviewed and is familiar with the terms of the
Agreement and has made, or has caused to be made under his/her supervision, a
detailed review of the transactions and condition (financial or otherwise) of
Borrowers during the accounting period covered by the attached financial
statements.
 
3.           A review of the activities of Borrowers during such fiscal period
has been made under the supervision of the undersigned with a view to
determining whether during such fiscal period Borrowers performed and observed
all their Obligations under the Loan Documents, and
 
[select one:]
[to the best knowledge of the undersigned during such fiscal period, Borrowers
performed and observed each covenant and condition of the Loan Documents
applicable to them.]
 
Form of Compliance Certificate
 
D - 1

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

 

—or—
[the following covenants or conditions have not been performed or observed and
the following is a list of each such Default and its nature and status:]
 
4.           The representations and warranties of Borrowers contained in
Article V of the Agreement, or which are contained in any document furnished at
any time under or in connection with the Loan Documents, are true and correct on
and as of the date hereof, except to the extent that such representations and
warranties specifically refer to an earlier date, in which case they are true
and correct as of such earlier date, and except that for purposes of this
Compliance Certificate, the representations and warranties contained in
subsections (a) and (b) of Section 5.05 of the Agreement shall be deemed to
refer to the most recent statements furnished pursuant to clauses (a) and (b),
respectively, of Section 6.01 of the Agreement, including the statements in
connection with which this Compliance Certificate is delivered.
 
5.           The financial covenant analyses and information set out on Schedule
2 attached hereto are true and accurate on and as of the date of this Compliance
Certificate.
 
6.           Attached hereto as Schedule 3 is a list of purchasers and potential
purchasers required by Section 6.21 of the Agreement.  [Insert this section if
fiscal year-end financial statements only.]
 
IN WITNESS WHEREOF, the undersigned have executed this Compliance Certificate as
of the ____ day of ___________________, 20__.

 
ENERJEX RESOURCES, INC.
       
By:
   
Name:
   
Title:
         
ENERJEX KANSAS, INC.
       
By:
   
Name:
   
Title:
         
DD ENERGY, INC.
       
By:
   
Name:
   
Title:
 

Form of Compliance Certificate
 
D - 2

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

 

 
WORKING INTEREST, LLC
       
By:
   
Name:
   
Title:
         
BLACK SABLE ENERGY, LLC
       
By:
   
Name:
   
Title:
 

Form of Compliance Certificate
 
D - 3

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

 

For the Quarter/Year ended__________________(“Statement Date”)
 
SCHEDULE 2
TO THE COMPLIANCE CERTIFICATE
($ IN 000’S)
 
Form of Compliance Certificate
 
D - 4

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

 
 
SCHEDULE 3
TO THE COMPLIANCE CERTIFICATE
 
Form of Compliance Certificate
 
D - 5

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

 

EXHIBIT E
 
COLLATERAL DOCUMENTS
 
The Collateral Documents securing Borrowers’ Obligations and Indebtedness to
Administrative Agent for the benefit of the Banks shall include the following,
each in form and content satisfactory to Administrative Agent:
 
1.           (KANSAS) SECOND AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT,
FINANCING STATEMENT AND ASSIGNMENT OF PRODUCTION AND REVENUES (or such other
similarly entitled documents) granting Administrative Agent a first priority
security interest in all of EnerJex Kansas’ and DD Energy’s Borrowing Base Oil
and Gas Properties, and all products and proceeds thereof.
 
2.           (KANSAS) AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT,
FINANCING STATEMENT AND ASSIGNMENT OF PRODUCTION AND REVENUES (or such other
similarly entitled documents) granting Administrative Agent a first priority
security interest in all of Working Interest’s Borrowing Base Oil and Gas
Properties, and all products and proceeds thereof.
 
3.           AMENDED AND RESTATED SECURITY AGREEMENT granting Administrative
Agent a first priority security interest in all of Borrowers’ personal property,
and all products and proceeds thereof.
 
4.           FINANCING STATEMENTS in connection with the Collateral Documents
described in the preceding paragraphs, in form and number satisfactory to
Administrative Agent as it may specify (including additional or supplemental
financing statements, amendments thereto, and continuation statements thereof).
 
5.           OTHER COLLATERAL DOCUMENTS.  Such other instruments or documents as
are necessary or appropriate from time to time, in the opinion of Administrative
Agent, to perfect to the satisfaction of Administrative Agent, Administrative
Agent’s liens, security interests, and other rights in the Borrowing Base Oil
and Gas Properties and in any and all other collateral covered by or described
in (or, as evidenced by the Credit Agreement, intended to have been covered by)
any of the other Collateral Documents described above.
 
Collateral Documents
 
E - 1

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

 

EXHIBIT F
 
FORM OF GUARANTY
 
Form of Guaranty
 
F - 1

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

 

EXHIBIT G
 
FORM OF JOINDER AGREEMENT
 
Form of Joinder Agreement
 
G - 1

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