Exhibit 10.1

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

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 Sole Lead Arranger and Sole Bookrunner
 
CIT Capital Securities LLC
 
 
 

 
 

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TABLE OF CONTENTS
 
 
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS

   
Page
Section 1.01
Terms Defined Above
1
Section 1.02
Certain Defined Terms
1
Section 1.03
Types of Loans and Borrowings
22
Section 1.04
Terms Generally; Rules of Construction
22
Section 1.05
Accounting Terms and Determinations; GAAP
23

 
ARTICLE II
THE CREDITS

     
Section 2.01
Commitments
23
Section 2.02
Loans and Borrowings.
23
Section 2.03
Requests for Borrowings
24
Section 2.04
Interest Elections; Conversions.
25
Section 2.05
Funding of Borrowings.
27
Section 2.06
Termination and Reduction of Aggregate Maximum Credit Amounts.
27
Section 2.07
Borrowing Base.
28
Section 2.08
Letters of Credit.
30

 
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES

     
Section 3.01
Repayment of Loans
34
Section 3.02
Interest.
34
Section 3.03
Alternate Rate of Interest
35
Section 3.04
Prepayments.
35
Section 3.05
Fees.
37

 
ARTICLE IV
PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS

 

     
Section 4.01
Payments Generally; Pro Rata Treatment; Sharing of Set-offs.
38
Section 4.02
Presumption of Payment by the Borrower
39
Section 4.03
Certain Deductions by the Administrative Agent
40
Section 4.04
Disposition of Proceeds
40

 
ARTICLE V
INCREASED COSTS; BREAK FUNDING PAYMENTS; TAXES

     
Section 5.01
Increased Costs.
40
Section 5.02
Break Funding Payments
41
Section 5.03
Taxes.
41
Section 5.04
Designation of Different Lending Office
42

 
 
 
 
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ARTICLE VI
CONDITIONS PRECEDENT

     
Section 6.01
Effective Date
43
Section 6.02
Each Credit Event
45

 
ARTICLE VII
REPRESENTATIONS AND WARRANTIES

     
Section 7.01
Organization; Powers
46
Section 7.02
Authority; Enforceability
47
Section 7.03
Approvals; No Conflicts
47
Section 7.04
Financial Condition; No Material Adverse Change
47
Section 7.05
Litigation
48
Section 7.06
Environmental Matters
48
Section 7.07
Compliance with the Laws and Agreements; No Defaults
49
Section 7.08
Investment Company Act
50
Section 7.09
Taxes
50
Section 7.10
ERISA
50
Section 7.11
Disclosure; No Material Misstatements
50
Section 7.12
Insurance
51
Section 7.13
Restriction on Liens
51
Section 7.14
Subsidiaries
51
Section 7.15
Location of Business and Offices
51
Section 7.16
Properties; Titles, Etc.
52
Section 7.17
Maintenance of Properties
53
Section 7.18
Gas Imbalances, Prepayments
53
Section 7.19
Marketing of Production
53
Section 7.20
Swap Agreements
54
Section 7.21
Use of Loans and Letters of Credit
54
Section 7.22
Solvency
54
Section 7.23
Casualty Events
54
Section 7.24
Material Agreements
54
Section 7.25
No Brokers
55
Section 7.26
Reliance
55
Section 7.27
Payments by Purchasers of Production
55
Section 7.28
Existing Accounts Payable
55
Section 7.29
Development Plan
56

 
 
ARTICLE VIII
AFFIRMATIVE COVENANTS

     
Section 8.01
Financial Statements; Ratings Change; Other Information
56
Section 8.02
Notices of Material Events
59
Section 8.03
Existence; Conduct of Business
59
Section 8.04
Payment of Obligations
59
Section 8.05
Operation and Maintenance of Properties
60
Section 8.06
Insurance
60
Section 8.07
Books and Records; Inspection Rights
61
Section 8.08
Compliance with Laws
61
Section 8.09
Environmental Matters
61
Section 8.10
Further Assurances
62

 
 
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Section 8.11
Reserve Reports
62
Section 8.12
Title Information
63
Section 8.13
Additional Collateral; Additional Guarantors
64
Section 8.14
ERISA Compliance
65
Section 8.15
Swap Agreements
65
Section 8.16
Marketing Activities
66
Section 8.17
Modifications to Development Plan
66
Section 8.18
Operating Account, Deposit Accounts and Securities Accounts
66
Section 8.19
Performance of Obligations under Loan Documents
67

 
ARTICLE IX
NEGATIVE COVENANTS

     
Section 9.01
Financial Covenants
67
Section 9.02
Debt
68
Section 9.03
Liens
68
Section 9.04
Dividends, Distributions and Redemptions
69
Section 9.05
Investments, Loans and Advances
70
Section 9.06
Nature of Business
71
Section 9.07
Limitation on Leases
71
Section 9.08
Proceeds of Notes
71
Section 9.09
ERISA Compliance
72
Section 9.10
Sale or Discount of Receivables
72
Section 9.11
Mergers, Etc
72
Section 9.12
Sale of Properties
72
Section 9.13
Environmental Matters
73
Section 9.14
Transactions with Affiliates
73
Section 9.15
Subsidiaries
73
Section 9.16
Negative Pledge Agreements; Dividend Restrictions
74
Section 9.17
Gas Imbalances, Take-or-Pay or Other Prepayments
74
Section 9.18
Swap Agreements
74
Section 9.19
Development Plan
74

 
ARTICLE X
EVENTS OF DEFAULT; REMEDIES

     
Section 10.01
Events of Default
75
Section 10.02
Remedies
77

 
 
ARTICLE XI
THE ADMINISTRATIVE AGENT

     
Section 11.01
Appointment; Powers
78
Section 11.02
Duties and Obligations of Administrative Agent
78
Section 11.03
Action by Administrative Agent
79
Section 11.04
Reliance by Administrative Agent
80
Section 11.05
Subagents
80
Section 11.06
Resignation or Removal of Administrative Agent
80
Section 11.07
Administrative Agent as Lender
81
Section 11.08
No Reliance
81

 
 
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Section 11.09
Administrative Agent May File Proofs of Claim
82
Section 11.10
Authority of Administrative Agent to Release Collateral and Liens
82
Section 11.11
The Arranger
82

 
ARTICLE XII
MISCELLANEOUS

     
Section 12.01
Notices
83
Section 12.02
Waivers; Amendments
83
Section 12.03
Expenses, Indemnity; Damage Waiver
84
Section 12.04
Successors and Assigns
87
Section 12.05
Survival; Revival; Reinstatement
90
Section 12.06
Counterparts; Integration; Effectiveness
90
Section 12.07
Severability
91
Section 12.08
Right of Setoff
91
Section 12.09
GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS.
91
Section 12.10
Headings
93
Section 12.11
Confidentiality
93
Section 12.12
Interest Rate Limitation
93
Section 12.13
EXCULPATION PROVISIONS
94
Section 12.14
Collateral Matters; Swap Agreements
95
Section 12.15
No Third Party Beneficiaries
95
Section 12.16
USA Patriot Act Notice
95
Section 12.17
Intercreditor Agreement
95

 
 
 
 
 
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ANNEXES, EXHIBITS AND SCHEDULES
 
 
 
Annex I
List of Maximum Credit Amounts
   
Exhibit A
Form of Note
Exhibit B
Form of Borrowing Request
Exhibit C
Form of Interest Election Request
Exhibit D
Form of Compliance Certificate
Exhibit E
Development Plan
Exhibit F
Security Instruments
Exhibit G
Form of Assignment and Assumption
 
     
Schedule 1.02
Approved Counterparties
Schedule 7.05
Litigation
Schedule 7.14
Subsidiaries and Partnerships
Schedule 7.18
Gas Imbalances
Schedule 7.19
Marketing Contracts
Schedule 7.20
Swap Agreements
Schedule 7.24
Material Agreements
Schedule 7.28
Existing Accounts Payable
Schedule 8.13
Additional Oil & Gas Properties
Schedule 9.12
Oil & Gas Properties subject to the Assignment of Overriding Royalty Interest

 

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

Section 1.01      Terms Defined Above.  As used in this Agreement, each term
defined above has the meaning indicated above.
 
Section 1.02  Certain Defined Terms.  As used in this Agreement, the following
terms have the meanings specified below:
 
“ABR”, when used in reference to any Loan or Borrowing, refers to whether such
Loan, or the Loans comprising such Borrowing, are bearing interest at a rate
determined by reference to the Alternate Base Rate.
 
“Adjusted LIBO Rate” means, with respect to any Eurodollar Borrowing for any
Interest Period, an interest rate per annum (rounded upwards, if necessary, to
the next 1/100 of 1%) equal to (a) the LIBO Rate for such Interest Period
multiplied by (b) the Statutory Reserve Rate.
 
“Affiliate” means, with respect to a specified Person, another Person that
directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
 
“Aggregate Maximum Credit Amounts” at any time shall equal the sum of the
Maximum Credit Amounts, as the same may be reduced or terminated pursuant to
Section 2.06.
 
“Agreement” means this Credit Agreement, as the same may from time to time be
amended, modified, supplemented or restated.
 
“Alternate Base Rate” means, for any day, a rate per annum equal to the greater
of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective
Rate in effect on such day plus ½ of 1%.  Any change in the Alternate Base Rate
due to a change in the Prime Rate or the Federal Funds Effective Rate shall be
effective from and including the effective date of such change in the Prime Rate
or the Federal Funds Effective Rate, respectively.
 
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“Applicable Margin” means, for any day, with respect to any ABR Loan or
Eurodollar Loan, or with respect to the Commitment Fee Rate, as the case may be,
the rate per annum set forth in the Borrowing Base Utilization Grid below based
upon the Borrowing Base Utilization Percentage then in effect:

Borrowing Base Utilization Grid
       
Borrowing Base Utilization
< 33.33%
≥ 33.33%
≥66.66%
Percentage  
< 66.66%
 
Eurodollar Loans
2.000%
2.250%
2.500%
ABR Loans
1.000%
1.250%
1.500%
Commitment Fee Rate
0.375%
0.375%
0.500%

Each change in the Applicable Margin or Commitment Fee Rate shall apply during
the period commencing on the effective date of such change and ending on the
date immediately preceding the effective date of the next such change, provided,
however, that if at any time the Borrower fails to deliver a Reserve Report
pursuant to Section 8.11(a), then the “Applicable Margin” and the “Commitment
Fee Rate” means the rate per annum set forth on the grid when the Borrowing Base
Utilization Percentage is at its highest level, provided further that, upon the
delivery of such Reserve Report, the “Applicable Margin” and the “Commitment Fee
Rate” means the rate per annum applicable immediately prior to the rate increase
as a result of the failure to deliver such Reserve Report.
 
“Applicable Percentage” means, with respect to any Lender, the percentage of the
Aggregate Maximum Credit Amounts represented by such Lender’s Maximum Credit
Amount as such percentage is set forth on Annex I.
 
“Approved Counterparty” means (a) any Lender or any Affiliate of a Lender at
such time the Swap Agreements were entered into; (b) any other Person whose long
term senior unsecured debt rating is A-/A3 by S&P or Moody’s (or their
equivalent) or higher or (c) with regard to Swap Agreements in respect of
commodities, and subject to the conditions set forth therein, any other Person
listed on Schedule 1.02 or approved by the Lenders in writing hereafter,
provided that, with respect to (b) and (c) above, such Person shall have
executed an intercreditor agreement in form and substance reasonably acceptable
to the Administrative Agent.
 
“Approved Fund” means (i) any Person (other than a natural person) engaged in
making, purchasing, holding, or investing in commercial loans and similar
extensions of credit and that is advised, administered, or managed by a Lender,
an Affiliate of a Lender (or an entity or an Affiliate of an entity that
administers, advises or manages a Lender); (ii) with respect to any Lender that
is an investment fund, any other investment fund that invests in loans and that
is advised, administered or managed by the same investment advisor as such
Lender or by an Affiliate of such investment advisor; and (iii) any third party
which provides “warehouse financing” to a Person described in the preceding
clause (i) or (ii) (and any Person described in said clause (i) or (ii) shall
also be deemed an Approved Fund with respect to such third party providing such
warehouse financing).
 
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“Approved Petroleum Engineers” means (a) Cawley, Gillespie & Associates, Inc.,
(b) DeGolyer and MacNaughton, (c) Ryder Scott Company, L.P., (d) Netherland,
Sewell & Associates, Inc., and (e) any other independent petroleum engineers
reasonably acceptable to the Administrative Agent.
 
“Arranger” means CIT Capital Securities LLC, in its capacities as the sole lead
arranger and sole bookrunner hereunder.
 
“Assignment and Assumption” means an assignment and assumption entered into by a
Lender and an assignee (with the consent of any party whose consent is required
by Section 12.04(a)), and accepted by the Administrative Agent, in the form of
Exhibit G or any other form approved by the Administrative Agent.
 
“Availability Period” means the period from and including the Effective Date to
but excluding the Termination Date.
 
“Board” means the Board of Governors of the Federal Reserve System of the United
States of America or any successor Governmental Authority.
 
“Borrowing” means Loans of the same Type, made, converted or continued on the
same date and, in the case of Eurodollar Loans, as to which a single Interest
Period is in effect.
 
“Borrowing Base” means at any time an amount equal to the amount determined in
accordance with Section 2.07, as the same may be adjusted from time to time
pursuant to Section 8.12(c) and Section 9.12(d).
 
“Borrowing Base Deficiency” occurs if at any time the total Revolving Credit
Exposure exceeds the Borrowing Base then in effect.
 
“Borrowing Base Utilization Percentage” means, as of any day, the fraction
expressed as a percentage, the numerator of which is the sum of the Revolving
Credit Exposures of the Lenders on such day, and the denominator of which is the
Borrowing Base in effect on such day.
 
“Borrowing Request” means a request by the Borrower for a Borrowing in
accordance with Section 2.03.
 
“Business Day” means any day that is not a Saturday, Sunday or other day on
which commercial banks in New York City or Houston, Texas are authorized or
required by law to remain closed; and if such day relates to a Borrowing or
continuation of, a payment or prepayment of principal of or interest on, or a
conversion of or into, or the Interest Period for, a Eurodollar Loan or a notice
by the Borrower with respect to any such Borrowing or continuation, payment,
prepayment, conversion or Interest Period, any day which is also a day on which
banks are open for dealings in dollar deposits in the London interbank market.
 
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“Capital Expenditures” means, in respect of any Person, for any period, the
aggregate (determined without duplication) of all exploration and development
expenditures and costs that should be capitalized in accordance with GAAP and
any other expenditures that are capitalized on the balance sheet of such Person
in accordance with GAAP.
 
“Capital Leases” means, in respect of any Person, all leases which shall have
been, or should have been, in accordance with GAAP, recorded as capital leases
on the balance sheet of the Person liable (whether contingent or otherwise) for
the payment of rent thereunder.
 
“Cash Receipts” means all cash or cash equivalents received by or on behalf of
the Borrower and its Subsidiaries with respect to the following: (a) sales from
the Oil and Gas Properties (including any other working interest owner receipts
received by Borrower or its Affiliates as operator of Oil and Gas Properties),
(b) cash representing operating revenue earned or to be earned by the Borrower
and its Subsidiaries, (c) any insurance proceeds received by the Borrower or its
Subsidiaries, (d) any net proceeds from Swap Agreements and (e) any other cash
or cash equivalents received by the Borrower or its Subsidiaries from whatever
source; provided that advances under the Loans, and any capital contributions or
transfers made to the Borrower by any of its members, or by the Borrower to any
of its Subsidiaries, shall not constitute “Cash Receipts”.
 
 “Casualty Event” means any loss, casualty or other insured damage to, or any
nationalization, taking under power of eminent domain or by condemnation or
similar proceeding of, any Property of the Borrower or any of its Subsidiaries,
in each case having a fair market of value to such Property in excess of
$250,000.
 
“Change in Control” means the occurrence of the following events (a) the
acquisition of ownership, directly or indirectly, beneficially or of record, by
any Person or group of Equity Interests representing more than 30% of the
aggregate ordinary voting power represented by the issued and outstanding Equity
Interests of the Borrower, (b) occupation of a majority of the seats (other than
vacant seats) on the board of directors of the Borrower by Persons who were
neither (i) nominated by the board of directors of the Borrower nor (ii)
appointed by directors so nominated, (c) the management of the Borrower is, in
the reasonable opinion of the Lenders, substantially diminished as a result of
the departure of Donald L. Kirkendall or Wayne P. Hall, (d) Eagle Operating Inc.
is no longer the operator of the Oil and Gas Properties located in the Williston
Basin in North Dakota or (e) Approach Resources Inc. is no longer the operator
of the Oil and Gas Properties located in West Texas.
 
“Change in Law” means (a) the adoption of any law, rule or regulation after the
date of this Agreement by any Governmental Authority, (b) any change in any law,
rule or regulation or in the interpretation or application thereof by any
Governmental Authority after the date of this Agreement or (c) compliance by any
Lender or the Issuing Bank (or, for purposes of Section 5.01(b)), by any lending
office of such Lender or by such Lender’s or the Issuing Bank’s holding company,
if any) with any request, guideline or directive (whether or not having the
force of law) of any Governmental Authority made or issued after the date of
this Agreement.
 
“Code” means the Internal Revenue Code of 1986, as amended from time to time,
and any successor statute.
 
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“Collateral” means any and all (a) Oil and Gas Properties of the Borrower and
its Subsidiaries of whatsoever kind or description (whether now owned or
hereafter acquired), (b) of the issued and outstanding Equity Interests of all
existing or future acquired or created Subsidiaries of the Borrower and (c)
other Properties of whatsoever kind or description, in each case, in which an
interest is granted or pledged under a Security Instrument.
 
“Commitment” means, with respect to each Lender, the commitment of such Lender
to make Loans and to acquire participations in Letters of Credit hereunder,
expressed as an amount representing the maximum aggregate amount of such
Lender’s Revolving Credit Exposure hereunder, as such commitment may be (a)
modified from time to time pursuant to Section 2.06 and (b) modified from time
to time pursuant to assignments by or to such Lender pursuant to Section
12.04.  The amount representing each Lender’s Commitment shall at any time be
the lesser of such Lender’s Maximum Credit Amount and such Lender’s Applicable
Percentage of the then effective Borrowing Base.
 
“Commitment Fee Rate” has the meaning set forth in the definition of “Applicable
Margin”.
 
“Consolidated Net Income” means with respect to the Borrower and the
Consolidated Subsidiaries, for any period, the aggregate of the net income (or
loss) of the Borrower and the Consolidated Subsidiaries after allowances for
taxes for such period determined on a consolidated basis in accordance with
GAAP; provided that there shall be excluded from such net income (to the extent
otherwise included therein) the following: (a) the net income of any Person in
which the Borrower or any Consolidated Subsidiary has an interest (which
interest does not cause the net income of such other Person to be consolidated
with the net income of the Borrower and its Consolidated Subsidiaries in
accordance with GAAP), except to the extent of the amount of dividends or
distributions actually paid in cash during such period by such other Person to
the Borrower or to a Consolidated Subsidiary, as the case may be; (b) the net
income (but not loss) during such period of any Consolidated Subsidiary to the
extent that the declaration or payment of dividends or similar distributions or
transfers or loans by that Consolidated Subsidiary is not at the time permitted
by operation of the terms of its charter or any agreement, instrument or
Governmental Requirement applicable to such Consolidated Subsidiary or is
otherwise restricted or prohibited, in each case determined in accordance with
GAAP; (c) the net income (or loss) of any Person acquired in a
pooling-of-interests transaction for any period prior to the date of such
transaction; (d) any extraordinary gains or losses during such period; (e)
non-cash gains, losses or adjustments under FASB Statement Nos. 133 or 143; and
(f) any gains or losses attributable to writeups or writedowns of assets,
including ceiling test writedowns and writedowns under FASB Statements Nos. 19,
142 and 144; and provided further that if the Borrower or any Consolidated
Subsidiary shall acquire or dispose of any Property during such period, then
Consolidated Net Income shall be calculated after giving pro forma effect to
such acquisition or disposition, as if such acquisition or disposition had
occurred on the first day of such period.
 
“Consolidated Subsidiaries” means each Subsidiary of the Borrower (whether now
existing or hereafter created or acquired) the financial statements of which
shall be (or should have been) consolidated with the financial statements of the
Borrower in accordance with GAAP.
 
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“Control” means the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or otherwise.  For the
purposes of this definition, and without limiting the generality of the
foregoing, any Person that owns directly or indirectly 10% or more of the Equity
Interests having ordinary voting power for the election of the directors or
other governing body of a Person (other than as a limited partner of such other
Person) will be deemed to “control” such other Person.  “Controlling” and
“Controlled” have meanings correlative thereto.
 
“Debt” means, for any Person, without duplication and on a consolidated basis,
the sum of the following (without duplication): (a) all obligations of such
Person for borrowed money or evidenced by bonds, bankers’ acceptances,
debentures, notes or other similar instruments; (b) all obligations of such
Person (whether contingent or otherwise) in respect of letters of credit, surety
or other bonds and similar instruments; (c) all accounts payable and all accrued
expenses, liabilities or other obligations of such Person to pay the deferred
purchase price of Property or services incurred in the ordinary course of
business, in each case which are greater than ninety (90) days past the date of
invoice or delinquent; (d) all obligations under Capital Leases; (e) all
obligations under Synthetic Leases; (f) all Debt (as defined in the other
clauses of this definition) of others secured by (or for which the holder of
such Debt has an existing right, contingent or otherwise, to be secured by) a
Lien on any Property of such Person, whether or not such Debt is assumed by such
Person, to the extent of the value of such Property; (g) all Debt (as defined in
the other clauses of this definition) of others guaranteed by such Person or in
which such Person otherwise assures a creditor against loss of the Debt
(howsoever such assurance shall be made) to the extent of the lesser of the
amount of such Debt and the maximum stated amount of such guarantee or assurance
against loss; (h) all obligations or undertakings of such Person to maintain or
cause to be maintained the financial position or covenants of others or to
purchase the Debt or Property of others; (i) obligations to deliver commodities,
goods or services, including, without limitation, Hydrocarbons, in consideration
of one or more advance payments, other than gas balancing arrangements in the
ordinary course of business; (j) obligations to pay for goods or services
whether or not such goods or services are not actually received or utilized by
such Person; (k) any Debt of a partnership for which such Person is liable
either by agreement, by operation of law or by a Governmental Requirement but
only to the extent of such liability; (l) Disqualified Capital Stock of such
Person; and (m) the undischarged balance of any production payment created by
such Person or for the creation of which such Person directly or indirectly
received payment.  The Debt of any Person shall include all obligations of such
Person of the character described above to the extent such Person remains
legally liable in respect thereof notwithstanding that any such obligation is
not included as a liability of such Person under GAAP.  Notwithstanding anything
herein to the contrary, Debt shall not include obligations of any Person under,
or in respect of, any Swap Agreements.  For the avoidance of doubt, any amount
owing in respect of the Eagle PSA shall not be considered Debt.
 
“Default” means any event or condition which constitutes an Event of Default or
that upon notice, lapse of time or both would, unless cured or waived, become an
Event of Default.
 
“Development Plan” shall mean the Borrower’s Plan of Development for the Oil and
Gas Properties and the related Hydrocarbon Interests as of the Effective Date
attached hereto as Exhibit E, as approved by Administrative Agent and as updated
pursuant to Section 8.01(k)(iii) and from time to time pursuant to Section 9.19.
 
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“Disqualified Capital Stock” means any Equity Interest that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable) or upon the happening of any event, matures or is mandatorily
redeemable for any consideration other than other Equity Interests (which would
not constitute Disqualified Capital Stock), pursuant to a sinking fund
obligation or otherwise, or is convertible or exchangeable for Debt or
redeemable for any consideration other than other Equity Interests (which would
not constitute Disqualified Capital Stock) at the option of the holder thereof,
in whole or in part, on or prior to the date that is one year after Termination
Date.
 
“dollars” or “$” refers to lawful money of the United States of America.
 
“Eagle PSA” means that certain Purchase and Sale Agreement, dated as of December
11, 2006, by and between Eagle Operating Inc. and the Borrower.
 
“EBITDAX” means, for any period, the sum of Consolidated Net Income for such
period plus the following expenses or charges to the extent deducted from
Consolidated Net Income in such period: interest, income taxes, depreciation,
depletion, amortization, exploration expenses and other similar noncash charges
(including, without limitation, accretion related to non-cash stock based
compensation), minus all noncash income added to Consolidated Net Income;
provided that EBITDAX for the fiscal quarters ending December 31, 2008, March
31, 2009 and June 30, 2009 shall be calculated as follows:
 
(a)           for the fiscal quarter ending December 31, 2008, EBITDAX shall be
EBITDAX for such quarter multiplied by four;
 
(b)           for the fiscal quarter ending March 31, 2009, EBITDAX shall be
EBITDAX for the six-month period ending on such date multiplied by two.
 
(c)           for the fiscal quarter ending June 30, 2009, EBITDAX shall be
EBITDAX for the nine-month period ending on such date multiplied by four/thirds.
 
Thereafter, EBITDAX shall be calculated using EBITDAX for the period of four
fiscal quarters ending on the last day of the fiscal quarter immediately
preceding the date of determination for which financial statements are
available.
 
“Effective Date” means the date on which the conditions specified in Section
6.01 are satisfied (or waived in accordance with Section 12.02).
 
“Engineering Reports” has the meaning assigned such term in Section 2.07(c)(i).
 
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“Environmental Laws” means any and all Governmental Requirements pertaining in
any way to health, safety, the environment, the preservation or reclamation of
natural resources, or the management, Release or threatened Release of any
Hazardous Materials, in effect in any and all jurisdictions in which the
Borrower or any Subsidiary is conducting, or at any time has conducted,
business, or where any Property of the Borrower or any Subsidiary is located,
including without limitation, the Oil Pollution Act of 1990 (“OPA”), as amended,
the Clean Air Act, as amended, the Comprehensive Environmental, Response,
Compensation, and Liability Act of 1980 (“CERCLA”), as amended, the Federal
Water Pollution Control Act, as amended, the Occupational Safety and Health Act
of 1970, as amended, the Resource Conservation and Recovery Act of 1976
(“RCRA”), as amended, the Safe Drinking Water Act, as amended, the Toxic
Substances Control Act, as amended, the Superfund Amendments and Reauthorization
Act of 1986, as amended, the Hazardous Materials Transportation Law, as amended,
and other environmental conservation or protection Governmental Requirements.
The term “oil” shall have the meaning specified in OPA, the terms “hazardous
substance” and “release” (or “threatened release”) have the meanings specified
in CERCLA, the terms “solid waste” and “disposal” (or “disposed”) have the
meanings specified in RCRA and the term “oil and gas waste” shall have the
meaning specified in Section 91.1011 of the Texas Natural Resources Code
(“Section 91.1011”); provided, however, that (a) in the event either OPA,
CERCLA, RCRA or Section 91.1011 is amended so as to broaden the meaning of any
term defined thereby, such broader meaning shall apply subsequent to the
effective date of such amendment and (b) to the extent the laws of the state or
other jurisdiction in which any Property of the Borrower or any Subsidiary is
located establish a meaning for “oil,” “hazardous substance,” “release,” “solid
waste,” “disposal” or “oil and gas waste” which is broader than that specified
in either OPA, CERCLA, RCRA or Section 91.1011, such broader meaning shall
apply.
 
“Environmental Permit” means any permit, registration, license, notice,
approval, consent, exemption, variance, or other authorization required under or
issued pursuant to applicable Environmental Laws.
 
“Equity Interests” means shares of capital stock, partnership interests,
membership interests in a limited liability company, beneficial interests in a
trust or other equity ownership interests in a Person, and any warrants, options
or other rights entitling the holder thereof to purchase or acquire any such
Equity Interest.
 
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
and any successor statute.
 
“ERISA Affiliate” means each trade or business (whether or not incorporated)
which together with the Borrower or a Subsidiary would be deemed to be a “single
employer” within the meaning of section 4001(b)(1) of ERISA or subsections (b),
(c), (m) or (o) of section 414 of the Code.
 
“Eurodollar”, when used in reference to any Loan or Borrowing, refers to whether
such Loan, or the Loans comprising such Borrowing, are bearing interest at a
rate determined by reference to the Adjusted LIBO Rate.
 
“Event of Default” has the meaning assigned such term in Section 10.01.
 
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“Excepted Liens” means:  (a) Liens for Taxes, assessments or other governmental
charges or levies which are not delinquent or which are being contested in good
faith by appropriate action and for which adequate reserves have been maintained
in accordance with GAAP; (b) Liens in connection with workers’ compensation,
unemployment insurance or other social security, old age pension or public
liability obligations which are not delinquent or which are being contested in
good faith by appropriate action and for which adequate reserves have been
maintained in accordance with GAAP; (c) statutory landlord’s liens, operators’,
vendors’, carriers’, warehousemen’s, repairmen’s, mechanics’, suppliers’,
workers’, materialmen’s, construction or other like Liens arising by operation
of law in the ordinary course of business or incident to the exploration,
development, operation and maintenance of Oil and Gas Properties each of which
is in respect of obligations that are not delinquent or which are being
contested in good faith by appropriate action and for which adequate reserves
have been maintained in accordance with GAAP; (d) contractual Liens which arise
in the ordinary course of business under operating agreements, joint venture
agreements, oil and gas partnership agreements, oil and gas leases, farm-out
agreements, division orders, contracts for the sale, transportation or exchange
of oil and natural gas, unitization and pooling declarations and agreements,
area of mutual interest agreements, overriding royalty agreements, marketing
agreements, processing agreements, net profits agreements, development
agreements, gas balancing or deferred production agreements, injection,
repressuring and recycling agreements, salt water or other disposal agreements,
seismic or other geophysical permits or agreements, and other agreements which
are usual and customary in the oil and gas business and are for claims which are
not delinquent or which are being contested in good faith by appropriate action
and for which adequate reserves have been maintained in accordance with GAAP,
provided that any such Lien referred to in this clause does not materially
impair the use of the Property covered by such Lien for the purposes for which
such Property is held by the Borrower or any Subsidiary or materially impair the
value of such Property subject thereto; (e) Liens arising solely by virtue of
any statutory or common law provision relating to banker’s liens, rights of
set-off or similar rights and remedies and burdening only deposit accounts or
other funds maintained with a creditor depository institution, provided that no
such deposit account is a dedicated cash collateral account or is subject to
restrictions against access by the depositor in excess of those set forth by
regulations promulgated by the Board and no such deposit account is intended by
Borrower or any of its Subsidiaries to provide collateral to the depository
institution; (f) easements, restrictions, servitudes, permits, conditions,
covenants, exceptions or reservations in any Property of the Borrower or any
Subsidiary for the purpose of roads, pipelines, transmission lines,
transportation lines, distribution lines for the removal of gas, oil, coal or
other minerals or timber, and other like purposes, or for the joint or common
use of real estate, rights of way, facilities and equipment, that do not secure
any monetary obligations and which in the aggregate do not materially impair the
use of such Property for the purposes of which such Property is held by the
Borrower or any Subsidiary or materially impair the value of such Property
subject thereto; (g) Liens on cash or securities pledged to secure performance
of tenders, surety and appeal bonds, government contracts, performance and
return of money bonds, bids, trade contracts, leases, statutory obligations,
regulatory obligations and other obligations of a like nature incurred in the
ordinary course of business and (h) judgment and attachment Liens not giving
rise to an Event of Default, provided that any appropriate legal proceedings
which may have been duly initiated for the review of such judgment shall not
have been finally terminated or the period within which such proceeding may be
initiated shall not have expired and no action to enforce such Lien has been
commenced; provided, further that Liens described in clauses (a) through (e)
shall remain “Excepted Liens” only for so long as no action to enforce such Lien
has been commenced and no intention to subordinate the first priority Lien
granted in favor of the Administrative Agent and the Lenders is to be hereby
implied or expressed by the permitted existence of such Excepted Liens.
 
“Excess Cash Flow” for any period shall mean EBITDAX for such period less cash
payments for (a) taxes during such period, (b) any changes in working capital
from the preceding period (as determined in accordance with GAAP) made during
such period, (c) budgeted General and Administrative Costs approved by the
Lenders and (d) Capital Expenditures made during such period that are approved
by the Lenders or are otherwise permitted under this Agreement.
 
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“Excluded Taxes” means, with respect to the Administrative Agent, any Lender,
the Issuing Bank or any other recipient of any payment to be made by or on
account of any obligation of the Borrower or any Guarantor hereunder or under
any other Loan Document, (a) income or franchise taxes imposed on (or measured
by) its net income by the United States of America or such other jurisdiction
under the laws of which such recipient is organized or in which its principal
office is located or, in the case of any Lender, in which its applicable lending
office is located, (b) any branch profits taxes imposed by the United States of
America or any similar tax imposed by any other jurisdiction in which the
Borrower or any Guarantor is located, and (c) in the case of a Foreign Lender,
any withholding tax that is imposed on amounts payable to such Foreign Lender at
the time such Foreign Lender becomes a party to this Agreement (or designates a
new lending office) or is attributable to such Foreign Lender’s failure to
comply with Section 5.03(e), except to the extent that such Foreign Lender (or
its assignor, if any) was entitled, at the time of designation of a new lending
office (or assignment), to receive additional amounts with respect to such
withholding tax pursuant to Section 5.03(a) or Section 5.03(c).
 
“Existing Credit Agreement” means that certain Credit Agreement, dated as of
February 16, 2007, among PRC Williston LLC, D.B. Zwirn Special Opportunities
Fund, L.P., and the lenders party thereto.
 
“Federal Funds Effective Rate” means, for any day, the weighted average (rounded
upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published on the next succeeding Business Day by
the Federal Reserve Bank of New York, or, if such rate is not so published for
any day that is a Business Day, the average (rounded upwards, if necessary, to
the next 1/100 of 1%) of the quotations for such day for such transactions
received by JPMorgan Chase Bank, N.A. from three Federal funds brokers of
recognized standing selected by it.
 
“Fee Letter” means that certain Fee letter, dated as of September 9, 2008, by
and between the Borrower and the Administrative Agent.
 
“Financial Officer” means, for any Person, the chief financial officer,
principal accounting officer, treasurer or controller of such Person.  Unless
otherwise specified, all references herein to a Financial Officer means a
Financial Officer acting on behalf of the Borrower.
 
“Financial Statements” means the financial statement or statements of the
Borrower and its Consolidated Subsidiaries referred to in Section 7.04(a).
 
“Foreign Lender” means any Lender that is organized under the laws of a
jurisdiction other than that in which the Borrower is located.  For purposes of
this definition, the United States of America, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.
 
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“Foreign Subsidiary” means any Subsidiary that is not organized under the laws
of the United States of America or any state thereof or the District of
Columbia.
 
“GAAP” means generally accepted accounting principles in the United States of
America as in effect from time to time subject to the terms and conditions set
forth in Section 1.05.
 
“General and Administrative Costs” means reasonable, normal and customary
expenses and costs paid or payable that are classified as general and
administrative costs, including salaries and all other compensation to the
management of the Borrower, consulting fees, salary, rent, supplies, travel and
entertainment, insurance, accounting, legal, engineering and broker related
fees, required to manage the affairs of the Borrower.
 
“Governmental Authority” means the government of the United States of America,
any other nation or any political subdivision thereof, whether state or local,
and any agency, authority, instrumentality, regulatory body, court, central bank
or other entity exercising executive, legislative, judicial, taxing, regulatory
or administrative powers or functions of or pertaining to government over the
Borrower, any Subsidiary, any of their Properties, the Administrative Agent or
any Lender.
 
“Governmental Requirement” means any law, statute, code, ordinance, order,
determination, rule, regulation, judgment, decree, injunction, franchise,
permit, certificate, license, authorization or other directive or requirement
(whether or not having the force of law), whether now or hereinafter in effect,
including, without limitation, Environmental Laws, energy regulations and
occupational, safety and health standards or controls, of any Governmental
Authority.
 
“Guarantors” means PRC Williston LLC and each other Subsidiary of the Borrower
that guarantees the Indebtedness pursuant to Section 8.13(c).

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

“Intercreditor Agreement” means that certain Intercreditor Agreement by and
among the Borrower, the Administrative Agent and the administrative agent to the
Second Lien Term Loan Agreement, dated as of the date hereof, as the same may
from time to time be amended, modified, supplemented or restated in accordance
with the provisions thereof and Section 9.04(b).
 
“Interest Election Request” means a request by the Borrower to convert or
continue a Borrowing in accordance with Section 2.04.
 
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“Interest Expense” means, for any period, the sum (determined without
duplication) of the aggregate gross interest expense of the Borrower and the
Consolidated Subsidiaries for such period, including to the extent included in
interest expense under GAAP:  (a) amortization of debt discount (other than
those expenses associated with the Existing Credit Agreement), (b) capitalized
interest and (c) the portion of any payments or accruals under Capital Leases
allocable to interest expense, plus the portion of any payments or accruals
under Synthetic Leases allocable to interest expense whether or not the same
constitutes interest expense under GAAP; provided that Interest Expense for the
fiscal quarters ending December 31, 2008, March 31, 2009 and June 30, 2009 shall
be calculated as follows:
 
(a)           for the fiscal quarter ending December 31, 2008, Interest Expense
shall be Interest Expense for such quarter multiplied by four;
 
(b)           for the fiscal quarter ending March 31, 2009, Interest Expense
shall be Interest Expense for the six-month period ending on such date
multiplied by two.
 
(c)           for the fiscal quarter ending June 30, 2009, Interest Expense
shall be Interest Expense for the nine-month period ending on such date
multiplied by four/thirds.
 
Thereafter, Interest Expense shall be calculated using Interest Expense for the
period of four fiscal quarters ending on the last day of the fiscal quarter
immediately preceding the date of determination for which financial statements
are available.
 
“Interest Payment Date” means (a) with respect to any ABR Loan, the last day of
each March, June, September and December and (b) with respect to any Eurodollar
Loan, the last day of the Interest Period applicable to the Borrowing of which
such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest
Period of more than three months’ duration, each day prior to the last day of
such Interest Period that occurs at intervals of three months’ duration after
the first day of such Interest Period.
 
“Interest Period” means with respect to any Eurodollar Borrowing, the period
commencing on the date of such Borrowing and ending on the numerically
corresponding day in the calendar month that is one, two, three or six months
thereafter, as the Borrower may elect; provided, that (a) if any Interest Period
would end on a day other than a Business Day, such Interest Period shall be
extended to the next succeeding Business Day unless such next succeeding
Business Day would fall in the next calendar month, in which case such Interest
Period shall end on the next preceding Business Day and (b) any Interest Period
pertaining to a Eurodollar Borrowing that commences on the last Business Day of
a calendar month (or on a day for which there is no numerically corresponding
day in the last calendar month of such Interest Period) shall end on the last
Business Day of the last calendar month of such Interest Period.  For purposes
hereof, the date of a Borrowing initially shall be the date on which such
Borrowing is made and thereafter shall be the effective date of the most recent
conversion or continuation of such Borrowing.
 
“Interim Redetermination” has the meaning assigned such term in Section 2.07(b).
 
“Interim Redetermination Date” means the date on which a Borrowing Base that has
been redetermined pursuant to an Interim Redetermination becomes effective as
provided in Section 2.07(d).
 
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“Investment” means, for any Person: (a) the acquisition (whether for cash,
Property, services or securities or otherwise) of Equity Interests of any other
Person, the contribution of capital to any other Person, or any agreement to
make any such acquisition (including, without limitation, any “short sale” or
any sale of any securities at a time when such securities are not owned by the
Person entering into such short sale) or capital contribution; (b) the making of
any deposit with, or advance, loan or capital contribution to, purchase or other
acquisition of any Debt or equity participation or interest in, or other
extension of credit to, any other Person (including the purchase of Property
from another Person subject to an understanding or agreement, contingent or
otherwise, to resell such Property to such Person, but excluding any such
advance, loan or extension of credit having a term not exceeding ninety (90)
days representing the purchase price of inventory or supplies sold by such
Person in the ordinary course of business); or (c) the purchase or acquisition
(in one or a series of transactions) of Property of another Person that
constitutes a business unit.
 
“Issuing Bank” means JPMorgan Chase Bank, N.A., in its capacity as the issuer of
Letters of Credit or any other Person named as an Issuing Bank by the
Administrative Agent.
 
“LC Commitment” at any time means five hundred thousand dollars ($500,000).
 
“LC Disbursement” means a payment made by the Issuing Bank pursuant to a Letter
of Credit.
 
“LC Exposure” means, at any time, the sum of (a) the aggregate undrawn amount of
all outstanding Letters of Credit at such time plus (b) the aggregate amount of
all LC Disbursements that have not yet been reimbursed by or on behalf of the
Borrower at such time.  The LC Exposure of any Lender at any time shall be its
Applicable Percentage of the total LC Exposure at such time.
 
“Lenders” means the Persons listed on Annex I and any Person that shall have
become a party hereto pursuant to an Assignment and Assumption, other than any
such Person that ceases to be a party hereto pursuant to an Assignment and
Assumption.
 
“Letter of Credit” means any letter of credit issued or deemed issued pursuant
to this Agreement.
 
“LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest
Period, the rate appearing on Reuters Screen LIBOR01 Page (or on any successor
or substitute page of such service, or any successor to or substitute for such
service, providing rate quotations comparable to those currently provided on
such page of such service, as determined by the Administrative Agent from time
to time for purposes of providing quotations of interest rates applicable to
dollar deposits in the London interbank market) at approximately 11:00 a.m.,
London time, two Business Days prior to the commencement of such Interest
Period, as the rate for dollar deposits with a maturity comparable to such
Interest Period.  In the event that such rate is not available at such time for
any reason, then the “LIBO Rate” with respect to such Eurodollar Borrowing for
such Interest Period shall be the rate at which dollar deposits of an amount
comparable to such Eurodollar Borrowing and for a maturity comparable to such
Interest Period are offered by the principal London office of a banking
institution selected by the Administrative Agent in immediately available funds
in the London interbank market at approximately 11:00 a.m., London time, two (2)
Business Days prior to the commencement of such Interest Period.
 
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“Lien” means any interest in Property securing an obligation owed to, or a claim
by, a Person other than the owner of the Property, whether such interest is
based on the common law, statute or contract, and whether such obligation or
claim is fixed or contingent, and including but not limited to (a) the lien or
security interest arising from a mortgage, encumbrance, pledge, security
agreement, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes or (b) production payments and the like payable out of Oil
and Gas Properties.  The term “Lien” shall include easements, restrictions,
servitudes, exceptions or reservations. For the purposes of this Agreement, the
Borrower and its Subsidiaries shall be deemed to be the owner of any Property
which it has acquired or holds subject to a conditional sale agreement, or
leases under a financing lease or other arrangement pursuant to which title to
the Property has been retained by or vested in some other Person in a
transaction intended to create a financing.
 
“Loan Documents” means this Agreement, the Notes, the Fee Letter, the Letters of
Credit, the Intercreditor Agreement, the Macquarie Intercreditor Agreement and
the Security Instruments.
 
“Loans” means the loans made by the Lenders to the Borrower pursuant to this
Agreement.
 
“Macquarie Intercreditor Agreement” means that certain Intercreditor and
Collateral Agency Agreement by and among the Borrower, Macquarie Bank Limited,
the Administrative Agent and the Administrative Agent, as collateral agent
thereunder, dated as of the date hereof, as the same may from time to time be
amended, modified, supplemented or restated in accordance with the provisions
thereof.
 
“Majority Lenders” means, at any time while no Loans  or LC Exposure is
outstanding, Lenders having more than fifty percent (50%) of the Aggregate
Maximum Credit Amounts; and at any time while any Loans or LC Exposure is
outstanding, Lenders holding more than fifty percent (50%) of the outstanding
aggregate principal amount of the Loans and participation interests in Letters
of Credit (without regard to any sale by a Lender of a participation in any Loan
under Section 12.04(c)); provided, that if there are only two Lenders, both
Lenders shall be required to constitute the “Majority Lenders”.
 
“Material Adverse Effect” means a material adverse change in, or material
adverse effect on (a) the business, operations, Property or condition (financial
or otherwise) of the Borrower and its Subsidiaries taken as a whole, (b) the
ability of the Borrower, any Subsidiary or any Guarantor to perform any of its
obligations under any Loan Document, (c) the validity or enforceability of any
Loan Document or (d) the rights and remedies of or benefits available to the
Administrative Agent, the Issuing Bank or any Lender under any Loan Document.
 
“Material Agreements” has the meaning assigned such term in Section 7.24.
 
“Material Indebtedness” means Debt (other than the Loans and Letters of Credit),
or obligations in respect of one or more Swap Agreements, of any one or more of
the Borrower and its Subsidiaries in an aggregate principal amount exceeding
$500,000.  For purposes of determining Material Indebtedness, the “principal
amount” of the obligations of the Borrower or any Subsidiary in respect of any
Swap Agreement at any time shall be the Swap Termination Value.
 
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“Maximum Credit Amount” means, as to each Lender, the amount set forth opposite
such Lender’s name on Annex I under the caption “Maximum Credit Amounts”, as the
same may be (a) reduced or terminated from time to time in connection with a
reduction or termination of the Aggregate Maximum Credit Amounts pursuant to
Section 2.06(b) or (b) modified from time to time pursuant to any assignment
permitted by Section 12.04.
 
“Moody’s” means Moody’s Investors Service, Inc. and any successor thereto that
is a nationally recognized rating agency.
 
“Mortgaged Property” means any Property owned by the Borrower or any Guarantor
which is subject to the Liens existing and to exist under the terms of the
Security Instruments.
 
“Multiemployer Plan” means a Plan which is a multiemployer plan as defined in
section 3(37) or 4001 (a)(3) of ERISA.
 
“Net Debt” means, at any date, all Debt of the Borrower and the Consolidated
Subsidiaries on a consolidated basis, excluding cash on the balance sheet of the
Borrower and the Consolidated Subsidiaries.
 
“New Borrowing Base Notice” has the meaning assigned such term in Section
2.07(d).
 
“Nexen Contract” means, collectively, those certain Crude Oil Purchase
Contracts, dated as of March 8, 2007, by and between PRC Williston, LLC and
Nexen Marketing U.S.A. Inc. bearing the Nexen Contract Numbers: P07030486L,
P07030487L and P07030488L.
 
“Notes” means the promissory notes of the Borrower described in Section 2.02(d)
and being substantially in the form of Exhibit A, together with all amendments,
modifications, replacements, extensions and rearrangements thereof.
 
“Oil and Gas Properties” means (a) Hydrocarbon Interests; (b) the Properties now
or hereafter pooled or unitized with Hydrocarbon Interests; (c) all presently
existing or future unitization, pooling agreements and declarations of pooled
units and the units created thereby (including without limitation all units
created under orders, regulations and rules of any Governmental Authority) which
may affect all or any portion of the Hydrocarbon Interests; (d) all operating
agreements, contracts and other agreements, including production sharing
contracts and agreements, which relate to any of the Hydrocarbon Interests or
the production, sale, purchase, exchange or processing of Hydrocarbons from or
attributable to such Hydrocarbon Interests; (e) all Hydrocarbons in and under
and which may be produced and saved or attributable to the Hydrocarbon
Interests, including all oil in tanks, and all rents, issues, profits, proceeds,
products, revenues and other incomes from or attributable to the Hydrocarbon
Interests; (f) all tenements, hereditaments, appurtenances and Properties in any
manner appertaining, belonging, affixed or incidental to the Hydrocarbon
Interests and (g) all Properties, rights, titles, interests and estates
described or referred to above, including any and all Property, real or
personal, now owned or hereafter acquired and situated upon, used, held for use
or useful in connection with the operating, working or development of any of
such Hydrocarbon Interests or Property (excluding drilling rigs, automotive
equipment, rental equipment or other personal Property which may be on such
premises for the purpose of drilling a well or for other similar temporary uses)
and including any and all oil wells, gas wells, injection wells or other wells,
buildings, structures, fuel separators, liquid extraction plants, plant
compressors, pumps, pumping units, field gathering systems, tanks and tank
batteries, fixtures, valves, fittings, machinery and parts, engines, boilers,
meters, apparatus, equipment, appliances, tools, implements, cables, wires,
towers, casing, tubing and rods, surface leases, rights-of-way, easements and
servitudes together with all additions, substitutions, replacements, accessions
and attachments to any and all of the foregoing.
 
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“Operating Account” means the deposit account #0750275588 maintained at the
Borrower’s expense with the Operating Account Bank.

“Operating Account Bank” means Whitney National Bank or such other financial
institution selected by the Borrower and notified to the Administrative Agent in
writing.
 
“Organizational Documents” means, with respect to any Person, (a) in the case of
any corporation, the certificate of incorporation and by-laws (or similar
documents) of such Person, (b) in the case of any limited liability company, the
certificate of formation and limited liability company agreement (or similar
documents) of such Person, (c) in the case of any limited partnership, the
certificate of formation and limited partnership agreement (or similar
documents) of such Person, (d) in the case of any general partnership, the
partnership agreement (or similar document) of such Person and (e) in any other
case, the functional equivalent of the foregoing.
 
“Other Taxes” means any and all present or future stamp or documentary taxes or
any other excise or Property taxes, charges or similar levies arising from any
payment made hereunder or from the execution, delivery or enforcement of, or
otherwise with respect to, this Agreement and any other Loan Document.
 
“Participant” has the meaning assigned such term in Section 12.04(c)(i).
 
“Patriot Act” has the meaning assigned such term in Section 12.16.
 
“Person” means any natural person, corporation, limited liability company,
trust, joint venture, association, company, partnership, Governmental Authority
or other entity.
 
“PetroBridge Participation Agreement” means, collectively, that certain
Participation Agreement, dated as of February 16, 2007, by and between PRC
Williston LLC and Drawbridge Special Opportunities Fund LP, that certain
Participation Agreement, dated as of February 16, 2007, by and between PRC
Williston LLC and D.B. Zwirn Special Opportunities Fund, L.P. and that certain
Letter Agreement, dated as of February 16, 2007, by and among PRC Williston LLC,
Drawbridge Special Opportunities Fund LP and D.B. Zwirn Special Opportunities
Fund, L.P.
 
“Plan” means any employee pension benefit plan, as defined in section 3(2) of
ERISA, which (a) is currently or hereafter sponsored, maintained or contributed
to by the Borrower, a Subsidiary or an ERISA Affiliate or (b) was at any time
during the six calendar years preceding the date hereof, sponsored, maintained
or contributed to by the Borrower or a Subsidiary or an ERISA Affiliate.
 
“Post Default Rate” shall mean, in respect of the principal of any Loan or any
other amount payable by the Borrower under this Agreement or any other Loan
Document, a rate per annum during the period commencing on the date of
occurrence of an Event of Default until such amount is paid in full or all
Events of Default are cured or waived equal to the applicable interest rate plus
two percent 2% per annum, but in no event to exceed the Highest Lawful Rate.
 
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“Prime Rate” means the rate of interest per annum publicly announced from time
to time by JPMorgan Chase Bank, N.A. as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as being
effective.  Such rate is set by the JPMorgan Chase Bank, N.A. as a general
reference rate of interest, taking into account such factors as the JPMorgan
Chase Bank, N.A. may deem appropriate; it being understood that many of the
JPMorgan Chase Bank, N.A.’s commercial or other loans are priced in relation to
such rate, that it is not necessarily the lowest or best rate actually charged
to any customer and that the JPMorgan Chase Bank, N.A. may make various
commercial or other loans at rates of interest having no relationship to such
rate.
 
“Property” means any interest in any kind of property or asset, whether real,
personal or mixed, or tangible or intangible, including, without limitation,
cash, securities, accounts and contract rights.
 
“Proposed Borrowing Base” has the meaning assigned to such term in Section
2.07(c)(i).
 
“Proposed Borrowing Base Notice” has the meaning assigned to such term in
Section 2.07(c)(ii).
 
“Proved Reserves” means “Proved Reserves” as defined in the Definitions for Oil
and Gas Reserves (in this paragraph, the “Definitions”) promulgated by the
Society of Petroleum Engineers (or any generally recognized successor) as in
effect at the time in question.  “Proved Developed Producing Reserves” means
Proved Reserves which are categorized as both “Developed” and “Producing” in the
Definitions, “Proved Developed Nonproducing Reserves” means Proved Reserves
which are categorized as both “Developed” and “Nonproducing” in the Definitions,
and “Proved Undeveloped Reserves” means Proved Reserves which are categorized as
“Undeveloped” in the Definitions
 
“Redemption” means with respect to any Debt, the repurchase, redemption,
permanent prepayment, repayment, defeasance or any other acquisition or
retirement for value (or the segregation of funds with respect to any of the
foregoing) of such Debt.  “Redeem” has the correlative meaning thereto.
 
“Redetermination Date” means, with respect to any Scheduled Redetermination or
any Interim Redetermination, the date that the redetermined Borrowing Base
related thereto becomes effective pursuant to Section 2.07(d).
 
“Register” has the meaning assigned such term in Section 12.04(b)(iv).
 
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“Regulation D” means Regulation D of the Board, as the same may be amended,
supplemented or replaced from time to time.
 
“Related Parties” means, with respect to any specified Person, such Person’s
Affiliates and the respective directors, officers, employees, agents and
advisors (including attorneys, accountants and experts) of such Person and such
Person’s Affiliates.
 
“Release” means any depositing, spilling, leaking, pumping, pouring, placing,
emitting, discarding, abandoning, emptying, discharging, migrating, injecting,
escaping, leaching, dumping, or disposing.
 
“Remedial Work” has the meaning assigned such term in Section 8.09(a).
 
“Required Lenders” means, at any time while no Loans or LC Exposure is
outstanding, Lenders having at least sixty-six and two-thirds percent (66 2/3%)
of the Aggregate Maximum Credit Amounts; and at any time while any Loans or LC
Exposure is outstanding, Lenders holding at least sixty-six and two-thirds
percent (66 2/3%) of the outstanding aggregate principal amount of the Loans or
participation interests in such Letters of Credit (without regard to any sale by
a Lender of a participation in any Loan under Section 12.04(c)) provided, that
if there are only two Lenders, both Lenders shall be required to constitute the
“Required Lenders”.
 
“Reserve Report” means a report, in form and substance reasonably satisfactory
to the Administrative Agent, setting forth, as of each January 1st or July 1st
(or such other date in the event of an Interim Redetermination) the proved oil
and gas reserves attributable to the Oil and Gas Properties of the Borrower and
the Subsidiaries, together with a projection of the rate of production and
future net income, taxes, operating expenses and Capital Expenditures with
respect thereto as of such date, based upon the economic assumptions consistent
with the Administrative Agent’s lending requirements at the time.
 
“Responsible Officer” means, as to any Person, the Chief Executive Officer, the
President, any Financial Officer or any Vice President of such Person.  Unless
otherwise specified, all references to a Responsible Officer herein shall mean a
Responsible Officer of the Borrower.
 
“Restricted Payment” means any dividend or other distribution (whether in cash,
securities or other Property) with respect to any Equity Interests in the
Borrower or any of its Subsidiaries, or any payment (whether in cash, securities
or other Property), including any sinking fund or similar deposit, on account of
the purchase, redemption, retirement, acquisition, cancellation or termination
of any such Equity Interests in the Borrower or any of its Subsidiaries or any
option, warrant or other right to acquire any such Equity Interests in the
Borrower or any of its Subsidiaries.
 
“Revolving Credit Exposure” means, with respect to any Lender at any time, the
sum of the outstanding principal amount of such Lender’s Loans and its LC
Exposure at such time.
 
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“Scheduled Redetermination” has the meaning assigned such term in Section
2.07(b).
 
“Scheduled Redetermination Date” means the date on which a Borrowing Base that
has been redetermined pursuant to a Scheduled Redetermination becomes effective
as provided in Section 2.07(d).
 
“SEC” means the Securities and Exchange Commission or any successor Governmental
Authority.
 
“Second Lien Notes” means the $15,000,000 Second Lien Term Notes issued pursuant
to the Second Lien Term Loan Agreement, together with all amendments,
modifications, replacements, extensions and rearrangements thereof permitted by
Section 9.04(b).
 
“Second Lien Term Loan Agreement” means that certain Second Lien Term Loan
Agreement dated as of the date hereof among the Borrower, CIT, as the Second
Lien Administrative Agent, and the lenders party thereto, together with all
amendments, modifications and supplements thereto permitted by Section 9.04(b).
 
“Second Lien Term Loan Documents” means the Second Lien Term Loan Agreement, the
Second Lien Notes and any “Loan Documents” (as defined therein), in each case,
together with all amendments, modifications and supplements thereto permitted by
Section 9.04(b).
 
“Security Instruments” means the Guaranty Agreement, mortgages, deeds of trust
and other agreements, instruments or certificates described or referred to in
Exhibit F, and any and all other agreements, guarantees, instruments, consents
or certificates now or hereafter executed and delivered by the Borrower or any
other Person (other than Swap Agreements with the Lenders or any Affiliate of a
Lender or participation or similar agreements between any Lender and any other
lender or creditor with respect to any Indebtedness pursuant to this Agreement)
in connection with, or as security for the payment or performance of the
Indebtedness, the Notes,  this Agreement, or reimbursement obligations under the
Letters of Credit, as such agreements may be amended, modified, supplemented or
restated from time to time.
 
“S&P” means Standard & Poor’s Ratings Group, a division of The McGraw-Hill
Companies, Inc., and any successor thereto that is a nationally recognized
rating agency.
 
“Statutory Reserve Rate” means a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board to which the Administrative Agent is subject with
respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred
to as “Eurocurrency Liabilities” in Regulation D of the Board).  Such reserve
percentages shall include those imposed pursuant to such Regulation
D.  Eurodollar Loans shall be deemed to constitute eurocurrency funding and to
be subject to such reserve requirements without benefit of or credit for
proration, exemptions or offsets that may be available from time to time to any
Lender under such Regulation D or any comparable regulation.  The Statutory
Reserve Rate shall be adjusted automatically on and as of the effective date of
any change in any reserve percentage.
 
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“Subsidiary” means: (a) any Person of which at least a majority of the
outstanding Equity Interests having by the terms thereof ordinary voting power
to elect a majority of the board of directors, managers or other governing body
of such Person (irrespective of whether or not at the time Equity Interests of
any other class or classes of such Person shall have or might have voting power
by reason of the happening of any contingency) is at the time directly or
indirectly owned or controlled by the Borrower or one or more of its
Subsidiaries or by the Borrower and one or more of its Subsidiaries and (b) any
partnership of which the Borrower or any of its Subsidiaries is a general
partner.  Unless otherwise indicated herein, each reference to the term
“Subsidiary” shall mean a Subsidiary of the Borrower.
 
“Swap Agreement” means any agreement with respect to any swap, forward, future
or derivative transaction or option or similar agreement, whether exchange
traded, “over-the-counter” or otherwise, involving, or settled by reference to,
one or more interest rates, currencies, commodities, equity or debt instruments
or securities, or economic, financial or pricing indices or measures of
economic, financial or pricing risk or value or any similar transaction or any
combination of these transactions; provided that no phantom stock or similar
plan providing for payments only on account of services provided by current or
former directors, officers, employees or consultants of the Borrower or the
Subsidiaries shall be a Swap Agreement.
 
“Swap Termination Value” means, in respect of any one or more Swap Agreements,
after taking into account the effect of any legally enforceable netting
agreement relating to such Swap Agreements, (a) for any date on or after the
date such Swap Agreements have been closed out and termination value(s)
determined in accordance therewith, such termination value(s) and (b) for any
date prior to the date referenced in clause (a), the amount(s) determined as the
mark-to-market value(s) for such Swap Agreements, as determined by the
counterparties to such Swap Agreements.
 
“Synthetic Leases” means, in respect of any Person, all leases which shall have
been, or should have been, in accordance with GAAP, treated as operating leases
on the financial statements of the Person liable (whether contingently or
otherwise) for the payment of rent thereunder and which were properly treated as
indebtedness for borrowed money for purposes of U.S. federal income taxes, if
the lessee in respect thereof is obligated to either purchase for an amount in
excess of, or pay upon early termination an amount in excess of, 80% of the
residual value of the Property subject to such operating lease upon expiration
or early termination of such lease.
 
“Taxes” means any and all present or future taxes, levies, imposts, duties,
deductions, charges or withholdings imposed by any Governmental Authority.
 
“Termination Date” means the earlier to occur of (i) three years from the
Effective Date or (ii) the date that the Aggregate Maximum Credit Amount is
sooner terminated pursuant to Section 2.06 or Section 10.02.
 
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“Total Reserve Value” means, with respect to any Proved Reserves expected to be
produced from any Oil and Gas Properties, the net present value, discounted at
10% per annum, of the future net revenues expected to accrue to the Borrower’s
and its Subsidiaries’ collective interests in such reserves during the remaining
expected economic lives of such reserves.  Each calculation of such expected
future net revenues shall be made in accordance with the then existing standards
of the Society of Petroleum Engineers, provided that in any event (a)
appropriate deductions shall be made for severance and ad valorem taxes, and for
operating, gathering, transportation and marketing costs required for the
production and sale of such reserves, (b) the pricing assumptions used in
determining Total Reserve Value for any particular reserves shall be based upon
(i) annual quotations on the New York Mercantile Exchange for Henry Hub (natural
gas) or Cushing, Oklahoma (oil) futures on the date of the relevant Reserve
Report for each calendar year to the extent such quotations are available for
future periods, provided that with respect to quotations for calendar years
after the fifth calendar year, the quotation for the fifth calendar year shall
be applied, (ii) with respect to future periods for which quotations are not
available on the New York Mercantile Exchange, constant pricing for such periods
based on the quotation for the last period for which a quotation is available on
the New York Mercantile Exchange for Henry Hub (natural gas) or Cushing,
Oklahoma (oil), (c) operating expenses shall be held constant, (d) future
Capital Expenditures shall be expressed in current year dollars (i.e., inflation
shall not be assumed), and (e) to the extent basis Swap Agreements are not in
place, the cash-flows derived from the pricing assumptions set forth in clause
(b) above shall be further adjusted to account for the historical basis
differentials for each month during the preceding 12-month period calculated by
comparing realized crude oil and natural gas prices to Cushing, Oklahoma and
Henry Hub NYMEX prices for each month during such period.
 
“Touradji Preferred Equity” means the shares of Series A Convertible Preferred
Stock of the Borrower issued or issuable in the aggregate to Touradji DeepRock
Master Fund, Ltd. and Touradji Global Resources Master Fund, Ltd. pursuant to
that certain Securities Purchase Agreement, dated as of April 2, 2007, by and
among the Borrower, Touradji DeepRock Master Fund, Ltd. and Touradji Global
Resources Master Fund, Ltd.
 
“Transactions” means, with respect to (a) the Borrower, the execution, delivery
and performance by the Borrower of this Agreement and each other Loan Document
to which it is a party, the borrowing of Loans, the use of the proceeds thereof
and the issuance of Letters of Credit hereunder, and the grant of Liens by the
Borrower on Mortgaged Properties and other Properties pursuant to the Security
Instruments and (b) each Guarantor, the execution, delivery and performance by
such Guarantor of each Loan Document to which it is a party, the guaranteeing of
the Indebtedness and the other obligations under the Guaranty Agreement by such
Guarantor and such Guarantor’s grant of the security interests and provision of
collateral under the Security Instruments, and the grant of Liens by such
Guarantor on Mortgaged Properties and other Properties pursuant to the Security
Instruments.
 
“Type”, when used in reference to any Loan or Borrowing, refers to whether the
rate of interest on such Loan, or on the Loans comprising such Borrowing, is
determined by reference to the Alternate Base Rate or the Adjusted LIBO Rate.
 
Section 1.03 Types of Loans and Borrowings.  For purposes of this Agreement,
Loans and Borrowings, respectively, may be classified and referred to by Type
(e.g., a “Eurodollar Loan” or a “Eurodollar Borrowing”).
 
Section 1.04 Terms Generally; Rules of Construction.  The definitions of terms
herein shall apply equally to the singular and plural forms of the terms
defined.  Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms.  
 
 
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The words “include”, “includes” and “including” shall be deemed to be followed
by the phrase “without limitation”.  The word “will” shall be construed to have
the same meaning and effect as the word “shall”.  Unless the context requires
otherwise (a) any definition of or reference to any agreement, instrument or
other document herein shall be construed as referring to such agreement,
instrument or other document as from time to time amended, supplemented or
otherwise modified (subject to any restrictions on such amendments, supplements
or modifications set forth in the Loan Documents), (b) any reference herein to
any law shall be construed as referring to such law as amended, modified,
codified or reenacted, in whole or in part, and in effect from time to time, (c)
any reference herein to any Person shall be construed to include such Person’s
successors and assigns (subject to the restrictions contained in the Loan
Documents), (d) the words “herein”, “hereof” and “hereunder”, and words of
similar import, shall be construed to refer to this Agreement in its entirety
and not to any particular provision hereof, (e) with respect to the
determination of any time period, the word “from” means “from and including” and
the word “to” means “to and including” and (f) any reference herein to Articles,
Sections, Annexes, Exhibits and Schedules shall be construed to refer to
Articles and Sections of, and Annexes, Exhibits and Schedules to, this
Agreement.  No provision of this Agreement or any other Loan Document shall be
interpreted or construed against any Person solely because such Person or its
legal representative drafted such provision.
 
Section 1.05 Accounting Terms and Determinations; GAAP.  Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all financial statements and certificates and reports as to financial matters
required to be furnished to the Administrative Agent or the Lenders hereunder
shall be prepared, in accordance with GAAP, applied on a basis consistent with
the Financial Statements except for changes in which the Borrower’s independent
certified public accountants concur and which are disclosed to the
Administrative Agent on the next date on which financial statements are required
to be delivered to the Lenders pursuant to Section 8.01(a); provided that,
unless the Borrower and the Majority Lenders shall otherwise agree in writing,
no such change shall modify or affect the manner in which compliance with the
covenants contained herein is computed such that all such computations shall be
conducted utilizing financial information presented consistently with prior
periods.
 
ARTICLE II
The Credits
 
Section 2.01 Commitments.  Subject to the terms and conditions set forth herein,
each Lender agrees to make Loans to the Borrower during the Availability Period
in an aggregate principal amount that will not result in (a) such Lender’s
Revolving Credit Exposure exceeding such Lender’s Commitment or (b) the total
Revolving Credit Exposures exceeding the total Commitments.  Within the
foregoing limits and subject to the terms and conditions set forth herein, the
Borrower may borrow, repay and reborrow the Loans.
 
Section 2.02 Loans and Borrowings.
 
(a) Borrowings; Several Obligations.  Each Loan shall be made as part of a
Borrowing consisting of Loans made by the Lenders ratably in accordance with
their respective Commitments.  The failure of any Lender to make any Loan
required to be made by it shall not relieve any other Lender of its obligations
hereunder; provided that the Commitments are several and no Lender shall be
responsible for any other Lender’s failure to make Loans as required.
 
 
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(b) Types of Loans.  Subject to Section 3.03, each Borrowing shall be comprised
entirely of ABR Loans or Eurodollar Loans, as the Borrower may request in
accordance herewith.  Each Lender at its option may fund any Eurodollar Loan by
causing any domestic or foreign branch or Affiliate of such Lender to fund such
Loan; provided that any exercise of such option shall not affect the obligation
of the Borrower to repay such Loan in accordance with the terms of this
Agreement.
 
(c) Minimum Amounts; Limitation on Number of Borrowings.  At the commencement of
each Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an
aggregate amount that is an integral multiple of $500,000 and not less than
$500,000.  At the time that each ABR Borrowing is made, such Borrowing shall be
in an aggregate amount that is an integral multiple of $500,000 and not less
than $500,000; provided that an ABR Borrowing may be in an aggregate amount that
is equal to the entire unused balance of the total Commitments or that is
required to finance the reimbursement of an LC Disbursement as contemplated by
Section 2.08(e).  Borrowings of more than one Type may be outstanding at the
same time, provided that there shall not at any time be more than a total of six
(6) Eurodollar Borrowings outstanding.  Notwithstanding any other provision of
this Agreement, the Borrower shall not be entitled to request, or to elect to
convert or continue, any Borrowing if the Interest Period requested with respect
thereto would end after the Termination Date.
 
(d) Notes.  The Loans made by each Lender shall be evidenced by a single
promissory note of the Borrower in substantially the form of Exhibit A, dated,
in the case of (i) any Lender party hereto as of the date of this Agreement, as
of the date of this Agreement or (ii) any Lender that becomes a party hereto
pursuant to an Assignment and Assumption, as of the effective date of the
Assignment and Assumption payable to the order of such Lender in a principal
amount equal to its Maximum Credit Amount as in effect on such date, and
otherwise duly completed.  In the event that any Lender’s Maximum Credit Amount
increases or decreases for any reason (whether pursuant to Section 2.06, Section
12.04 or otherwise), the Borrower shall deliver or cause to be delivered on the
effective date of such increase or decrease, a new Note payable to the order of
such Lender in a principal amount equal to its Maximum Credit Amount after
giving effect to such increase or decrease, and otherwise duly completed.  The
date, amount, Type, interest rate and, if applicable, Interest Period of each
Loan made by each Lender, and all payments made on account of the principal
thereof, shall be recorded by such Lender on its books for its Note, and, prior
to any transfer, may be endorsed by such Lender on a schedule attached to such
Note or any continuation thereof or on any separate record maintained by such
Lender.  Failure to make any such notation or to attach a schedule shall not
affect any Lender’s or the Borrower’s rights or obligations in respect of such
Loans or affect the validity of such transfer by any Lender of its Note.  
 
Section 2.03 Requests for Borrowings.  To request a Borrowing, the Borrower
shall notify the Administrative Agent of such request by telephone (a) in the
case of a Eurodollar Borrowing, not later than 12:00 noon, New York City time,
three Business Days before the date of the proposed Borrowing or (b) in the case
of an ABR Borrowing, not later than 12:00 noon, New York City time, one Business
Day before the proposed Borrowing; provided that no such notice shall be
required for any deemed request of an ABR Borrowing to finance the reimbursement
of an LC Disbursement as provided in Section 2.08(e).  Each such telephonic
Borrowing Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Borrowing Request
in substantially the form of Exhibit B and signed by the Borrower.  Each such
telephonic and written Borrowing Request shall specify the following information
in compliance with Section 2.02:
 
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(i) the aggregate amount of the requested Borrowing;
 
(ii) the date of such Borrowing, which shall be a Business Day;
 
(iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar
Borrowing;
 
(iv) in the case of a Eurodollar Borrowing, the initial Interest Period to be
applicable thereto, which shall be a period contemplated by the definition of
the term “Interest Period”;
 
(v) the amount of the then effective Borrowing Base, the current total Revolving
Credit Exposures (without regard to the requested Borrowing) and the pro forma
total Revolving Credit Exposures (giving effect to the requested Borrowing); and
 
(vi) the location and number of the Borrower’s account to which funds are to be
disbursed, which shall comply with the requirements of Section 2.05.
 
If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be an ABR Borrowing.  If no Interest Period is specified with
respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed
to have selected an Interest Period of one month’s duration.
 
Each Borrowing Request shall constitute a representation that the amount of the
requested Borrowing shall not cause the total Revolving Credit Exposures to
exceed the total Commitments (i.e., the lesser of the Aggregate Maximum Credit
Amounts and the then effective Borrowing Base).
 
Promptly following receipt of a Borrowing Request in accordance with this
Section 2.03, the Administrative Agent shall advise each Lender of the details
thereof and of the amount of such Lender’s Loan to be made as part of the
requested Borrowing.
 
Section 2.04 Interest Elections; Conversions.
 
(a) Conversion and Continuance.  Each Borrowing initially shall be of the Type
specified in the applicable Borrowing Request and, in the case of a Eurodollar
Borrowing, shall have an initial Interest Period as specified in such Borrowing
Request.  Thereafter, the Borrower may elect to convert such Borrowing to a
different Type or to continue such Borrowing and, in the case of a Eurodollar
Borrowing, may elect Interest Periods therefor, all as provided in this Section
2.04.  The Borrower may elect different options with respect to different
portions of the affected Borrowing, in which case each such portion shall be
allocated ratably among the Lenders holding the Loans comprising such Borrowing,
and the Loans comprising each such portion shall be considered a separate
Borrowing.
 
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(b) Interest Election Requests; Conversion Requests.  To make an election or
conversion, as the case maybe, pursuant to this Section 2.04, the Borrower shall
notify the Administrative Agent of such election by telephone by the time that a
Borrowing Request would be required under Section 2.03 if the Borrower was
requesting a Borrowing of the Type resulting from such election to be made on
the effective date of such election.  Each such telephonic Interest Election
Request shall be irrevocable and shall be confirmed promptly by hand delivery or
telecopy to the Administrative Agent of a written Interest Election Request in
substantially the form of Exhibit C and signed by the Borrower.
 
(c) Information in Interest Election Requests.  Each telephonic and written
Interest Election Request shall specify the following information in compliance
with Section 2.02:
 
(i) the Borrowing to which such Interest Election Request applies and, if
different options are being elected with respect to different portions thereof,
the portions thereof to be allocated to each resulting Borrowing (in which case
the information to be specified pursuant to Section 2.04(c)(iii) and (iv) shall
be specified for each resulting Borrowing);
 
(ii) the effective date of the election made pursuant to such Interest Election
Request, which shall be a Business Day;
 
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar
Borrowing; and
 
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period
to be applicable thereto after giving effect to such election, which shall be a
period contemplated by the definition of the term “Interest Period”.
 
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month’s duration.
 
(d) Notice to Lenders by the Administrative Agent.  Promptly following receipt
of an Interest Election Request, the Administrative Agent shall advise each
Lender of the details thereof and of such Lender’s portion of each resulting
Borrowing.
 
(e) Effect of Failure to Deliver Timely Interest Election Request and Events of
Default and Borrowing Base Deficiencies on Interest Election.  If the Borrower
fails to deliver a timely Interest Election Request with respect to a Eurodollar
Borrowing prior to the end of the Interest Period applicable thereto, then,
unless such Borrowing is repaid as provided herein, at the end of such Interest
Period such Borrowing shall be converted to an ABR Borrowing.  Notwithstanding
any contrary provision hereof, if an Event of Default or a Borrowing Base
Deficiency has occurred and is continuing:  (i) no outstanding Borrowing may be
converted to or continued as a Eurodollar Borrowing (and any Interest Election
Request that requests the conversion of any Borrowing to, or continuation of any
Borrowing as, a Eurodollar Borrowing shall be ineffective) and (ii) unless
repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the
end of the Interest Period applicable thereto.
 
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Section 2.05 Funding of Borrowings.
 
(a) Funding by Lenders.  Each Lender shall make each Loan to be made by it
hereunder on the funding date in the Borrowing Request by wire transfer of
immediately available funds by 1:00 p.m., New York City time, to the account of
the Administrative Agent most recently designated by it for such purpose by
notice to the Lenders.  The Administrative Agent will make such Loans available
to the Borrower by promptly crediting the amounts so received, in like funds, to
an account designated by the Borrower in the applicable Borrowing Request;
provided that ABR Loans made to finance the reimbursement of an LC Disbursement
as provided in Section 2.08(e) shall be remitted by the Administrative Agent to
the Issuing Bank.  Nothing herein shall be deemed to obligate any Lender to
obtain the funds for its Loan in any particular place or manner or to constitute
a representation by any Lender that it has obtained or will obtain the funds for
its Loan in any particular place or manner.
 
(b) Presumption of Funding by the Lenders.  Unless the Administrative Agent
shall have received notice from a Lender prior to the proposed date of any
Borrowing that such Lender will not make available to the Administrative Agent
such Lender’s share of such Borrowing, the Administrative Agent may assume that
such Lender has made such share available on such date in accordance with
Section 2.05(a) and may, in reliance upon such assumption, make available to the
Borrower a corresponding amount.  In such event, if a Lender has not in fact
made its share of the applicable Borrowing available to the Administrative
Agent, then the applicable Lender and the Borrower severally agrees to pay to
the Administrative Agent forthwith on demand such corresponding amount with
interest thereon, for each day from and including the date such amount is made
available to the Borrower to but excluding the date of payment to the
Administrative Agent, at (i) in the case of such Lender, the greater of the
Federal Funds Effective Rate and a rate determined by the Administrative Agent
in accordance with banking industry rules on interbank compensation or (ii) in
the case of the Borrower, the interest rate applicable to ABR Loans.  If such
Lender pays such amount to the Administrative Agent, then such amount shall
constitute such Lender’s Loan included in such Borrowing.
 
Section 2.06 Termination and Reduction of Aggregate Maximum Credit Amounts.
 
(a) Scheduled Termination of Commitments.  Unless previously terminated, the
Commitments shall terminate on the Termination Date.  If at any time the
Aggregate Maximum Credit Amounts are terminated or reduced to zero, then the
Commitments shall terminate on the effective date of such termination or
reduction.
 
(b) Optional Termination and Reduction of Aggregate Credit Amounts.
 
(i) The Borrower may at any time terminate, or from time to time reduce, the
Aggregate Maximum Credit Amounts; provided that (A) each reduction of the
Aggregate Maximum Credit Amounts shall be in an amount that is an integral
multiple of $500,000 and not less than $500,000 and (B) the Borrower shall not
terminate or reduce the Aggregate Maximum Credit Amounts if, after giving effect
to any concurrent prepayment of the Loans in accordance with Section 3.04(a),
the total Revolving Credit Exposures would exceed the total Commitments.
 
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(ii) The Borrower shall notify the Administrative Agent of any election to
terminate or reduce the Aggregate Maximum Credit Amounts under Section
2.06(b)(i) at least three Business Days prior to the effective date of such
termination or reduction, specifying such election and the effective date
thereof.  Promptly following receipt of any notice, the Administrative Agent
shall advise the Lenders of the contents thereof.  Each notice delivered by the
Borrower pursuant to this Section 2.06(b)(ii) shall be irrevocable.  Any
termination or reduction of the Aggregate Maximum Credit Amounts shall be
permanent and may not be reinstated.  Each reduction of the Aggregate Maximum
Credit Amounts shall be made ratably among the Lenders in accordance with each
Lender’s Applicable Percentage.
 
Section 2.07 Borrowing Base.
 
(a) Initial Borrowing Base.  For the period from and including the Effective
Date to but excluding the first Redetermination Date, the amount of the
Borrowing Base shall be $17,000,000.  Notwithstanding the foregoing, the
Borrowing Base may be subject to further adjustments from time to time pursuant
to Section 8.12(c) or Section 9.12.
 
(b) Scheduled and Interim Redeterminations.  The Borrowing Base shall be
redetermined semi-annually in accordance with this Section 2.07 (a “Scheduled
Redetermination”), and, subject to Section 2.07(d), such redetermined Borrowing
Base shall become effective and applicable to the Borrower, the Issuing Bank and
the Lenders on May 1st and November 1st of each year, commencing November 1,
2008.  In addition, the Borrower may, by notifying the Administrative Agent
thereof, and the Administrative Agent may, at the direction of the Required
Lenders, by notifying the Borrower thereof, one time during any 6-month period
between Scheduled Redeterminations, each elect to cause the Borrowing Base to be
redetermined (an “Interim Redetermination”) in accordance with this Section
2.07.
 
(c) Scheduled and Interim Redetermination Procedure.
 
(i) Each Scheduled Redetermination and each Interim Redetermination shall be
effectuated as follows:  Upon receipt by the Administrative Agent of (A) the
Reserve Report and the certificate required to be delivered by the Borrower to
the Administrative Agent, (1) in the case of a Scheduled Redetermination,
pursuant to Section 8.11(a) and (c), and (2) in the case of an Interim
Redetermination, pursuant to Section 8.11(b) and (c), and (B) such other
reports, data and supplemental information, including, without limitation, the
information provided pursuant to Section 8.11(c), as may, from time to time, be
reasonably requested by the Majority Lenders (the Reserve Report, such
certificate and such other reports, data and supplemental information being the
“Engineering Reports”), the Administrative Agent shall evaluate the information
contained in the Engineering Reports and shall, in good faith, propose a new
Borrowing Base (the “Proposed Borrowing Base”) based upon such information and
such other information (including, without limitation, the status of title
information with respect to the Oil and Gas Properties as described in the
Engineering Reports and the existence of any other Debt) as the Administrative
Agent deems appropriate in its sole discretion and consistent with its normal
oil and gas lending criteria as it exists at the particular time.  In no event
shall the Proposed Borrowing Base exceed the Aggregate Maximum Credit Amounts.
 
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(ii) The Administrative Agent shall notify the Borrower and the Lenders of the
Proposed Borrowing Base (the “Proposed Borrowing Base Notice”):
 
(A) in the case of a Scheduled Redetermination (1) if the Administrative Agent
shall have received the Engineering Reports required to be delivered by the
Borrower pursuant to Section 8.11(a) and (c) in a timely and complete manner,
then on or before the April 15th and October 15th of such year following the
date of delivery or (2) if the Administrative Agent shall not have received the
Engineering Reports required to be delivered by the Borrower pursuant to Section
8.11(a) and (c) in a timely and complete manner, then promptly after the
Administrative Agent has received complete Engineering Reports from the Borrower
and has had a reasonable opportunity to determine the Proposed Borrowing Base in
accordance with Section 2.07(c)(i); and
 
(B) in the case of an Interim Redetermination, promptly, and in any event,
within fifteen (15) days after the Administrative Agent has received the
required Engineering Reports.
 
(iii) Any Proposed Borrowing Base that would increase the Borrowing Base then in
effect must be approved or deemed to have been approved by all of the Lenders as
provided in this Section 2.07(c)(iii); and any Proposed Borrowing Base that
would decrease or maintain the Borrowing Base then in effect must be approved or
be deemed to have been approved by the Majority Lenders as provided in this
Section 2.07(c)(iii).  Upon receipt of the Proposed Borrowing Base Notice, each
Lender shall have fifteen (15) days to agree with the Proposed Borrowing Base or
disagree with the Proposed Borrowing Base by proposing an alternate Borrowing
Base.  If, at the end of such fifteen (15) days, any Lender has not communicated
its approval or disapproval in writing to the Administrative Agent, such silence
shall be deemed to be an approval of the Proposed Borrowing Base.  If, at the
end of such 15-day period, all of the Lenders, in the case of a Proposed
Borrowing Base that would increase the Borrowing Base then in effect, or the
Majority Lenders, in the case of a Proposed Borrowing Base that would decrease
or maintain the Borrowing Base then in effect, have approved or deemed to have
approved, as aforesaid, then the Proposed Borrowing Base shall become the new
Borrowing Base, effective on the date specified in Section 2.07(d).  If,
however, at the end of such 15-day period, all of the Lenders or the Majority
Lenders, as applicable, have not approved or deemed to have approved, as
aforesaid, then the Administrative Agent shall poll the Lenders to ascertain the
highest Borrowing Base then acceptable to a number of Lenders sufficient to
constitute the Majority Lenders for purposes of this Section 2.07 and, so long
as such amount does not increase the Borrowing Base then in effect, such amount
shall become the new Borrowing Base, effective on the date specified in Section
2.07(d).
 
(iv) In connection with any Scheduled Redetermination or Interim
Redetermination, the Administrative Agent and the Lenders may propose a new
definition for “Applicable Margin”.  If the Borrower agrees to such new
definition, such definition shall be in effect until the next Redetermination
Date.  If the Borrower does not agree to any proposed definition of “Applicable
Margin”, then the definition of “Applicable Margin” shall remain the same and
the Borrowing Base shall not be increased at the Redetermination Date.
 
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(d) Effectiveness of a Redetermined Borrowing Base.  After a redetermined
Borrowing Base is approved or is deemed to have been approved by all of the
Lenders or Majority Lenders, as applicable, pursuant to Section 2.07(c)(iii),
the Administrative Agent shall notify the Borrower and the Lenders of the amount
of the redetermined Borrowing Base (the “New Borrowing Base Notice”), and such
amount shall become the new Borrowing Base, effective and applicable to the
Borrower, the Administrative Agent, the Issuing Bank and the Lenders:
 
(i) in the case of a Scheduled Redetermination, (A) if the Administrative Agent
shall have received the Engineering Reports required to be delivered by the
Borrower pursuant to Section 8.11(a) and (c) in a timely and complete manner,
then on the May 1st or November 1st, as applicable, following such notice, or
(B) if the Administrative Agent shall not have received the Engineering Reports
required to be delivered by the Borrower pursuant to Section 8.11(a) and (c) in
a timely and complete manner, then on the Business Day next succeeding delivery
of such notice; and
 
(ii) in the case of an Interim Redetermination, on the Business Day next
succeeding delivery of such notice.
 
Such amount shall then become the Borrowing Base until the next Scheduled
Redetermination Date, the next Interim Redetermination Date or the next
adjustment to the Borrowing Base under Section 8.12(c) or Section 9.12,
whichever occurs first.  Notwithstanding the foregoing, no Scheduled
Redetermination or Interim Redetermination shall become effective until the New
Borrowing Base Notice related thereto is received by the Borrower.
 
Section 2.08 Letters of Credit.
 
(a) General.  Subject to the terms and conditions set forth herein, the Borrower
may request the issuance of dollar denominated Letters of Credit for its own
account or for the account of any of its Subsidiaries, in a form reasonably
acceptable to the Administrative Agent, at any time and from time to time during
the Availability Period; provided that the Borrower may not request the
issuance, amendment, renewal or extension of Letters of Credit hereunder if a
Borrowing Base Deficiency exists at such time or would exist as a result
thereof.  The Administrative Agent shall have the right to have the Issuing Bank
or another entity issue the Letter of Credit on its behalf.
 
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions.  To
request the issuance of a Letter of Credit (or the amendment, renewal or
extension of an outstanding Letter of Credit), the Borrower shall hand deliver
or telecopy to the Administrative Agent (not less than seven (7) Business Days
in advance of the requested date of issuance, amendment, renewal or extension) a
notice:
 
(i) requesting the issuance of a Letter of Credit or identifying the Letter of
Credit to be amended, renewed or extended;
 
(ii) specifying the date of issuance, amendment, renewal or extension (which
shall be a Business Day);
 
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(iii) specifying the date on which such Letter of Credit is to expire (which
shall comply with Section 2.08(c));
 
(iv) specifying the amount of such Letter of Credit;
 
(v) specifying the name and address of the beneficiary thereof and such other
information as shall be necessary to prepare, amend, renew or extend such Letter
of Credit; and
 
(vi) specifying the amount of the then effective Borrowing Base and whether a
Borrowing Base Deficiency exists at such time, the current total Revolving
Credit Exposures (without regard to the requested Letter of Credit or the
requested amendment, renewal or extension of an outstanding Letter of Credit)
and the pro forma total Revolving Credit Exposures (giving effect to the
requested Letter of Credit or the requested amendment, renewal or extension of
an outstanding Letter of Credit).
 
Each notice shall constitute a representation that after giving effect to the
requested issuance, amendment, renewal or extension, as applicable, (i) the LC
Exposure shall not exceed the LC Commitment and (ii) the total Revolving Credit
Exposures shall not exceed the total Commitments (i.e. the lesser of the
Aggregate Maximum Credit Amounts and the then effective Borrowing Base).
 
The Administrative Agent shall then arrange for the Letter of Credit to be
issued on the Borrower’s behalf.
 
(c) Expiration Date.  Each Letter of Credit shall expire at or prior to the
close of business on the earlier of (i) the date one year after the date of the
issuance of such Letter of Credit (or, in the case of any renewal or extension
thereof, one year after such renewal or extension) and (ii) September 9, 2011.
 
(d) Participations.  By the issuance of a Letter of Credit (or an amendment to a
Letter of Credit increasing the amount thereof) and without any further action
on the part of the Issuing Bank or the Lenders, the Administrative Agent hereby
grants to each Lender, and each Lender hereby acquires from the Administrative
Agent, a participation in the Administrative Agent’s and any of its Affiliates’
rights and obligations in respect of such Letter of Credit equal to such
Lender’s Applicable Percentage of the aggregate amount available to be drawn
under such Letter of Credit.  In consideration and in furtherance of the
foregoing, each Lender hereby absolutely and unconditionally agrees to pay to
the Administrative Agent such Lender’s Applicable Percentage of each LC
Disbursement made by the Issuing Bank and not reimbursed by the Borrower on the
date due as provided in Section 2.08(e), or of any reimbursement payment
required to be refunded to the Borrower for any reason.  Each Lender
acknowledges and agrees that its obligation to acquire participations pursuant
to this Section 2.08(d) in respect of Letters of Credit is absolute and
unconditional and shall not be affected by any circumstance whatsoever,
including any amendment, renewal or extension of any Letter of Credit or the
occurrence and continuance of a Default, the existence of a Borrowing Base
Deficiency or reduction or termination of the Commitments, and that each such
payment shall be made without any offset, abatement, withholding or reduction
whatsoever.
 
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(e) Reimbursement.  If the Issuing Bank shall make any LC Disbursement in
respect of a Letter of Credit, the Borrower shall reimburse the Administrative
Agent (for itself or any of its Affiliates) such LC Disbursement by paying to
the Administrative Agent an amount equal to such LC Disbursement (i) if the
Borrower shall have received notice of such LC Disbursement prior to 10:00 a.m.,
New York City time, on the date that such LC Disbursement is made, not later
than 12:00 noon, New York City time, on such date, or (ii) if such notice has
not been received by the Borrower prior to such time on such date, then not
later than 12:00 noon, New York City time, on (A) the Business Day that the
Borrower receives such notice, if such notice is received prior to 10:00 a.m.,
New York City time, on the day of receipt, or (B) the Business Day immediately
following the day that the Borrower receives such notice, if such notice is not
received prior to 10:00 a.m., New York City time on the day of receipt; provided
that any such LC Disbursement shall, subject to the conditions to Borrowing set
forth herein, be deemed to have requested, and the Borrower does hereby request
under such circumstances, that such payment be financed with an ABR Borrowing in
an equivalent amount and, to the extent so financed, the Borrower’s obligation
to make such payment shall be discharged and replaced by the resulting ABR
Borrowing.  If the Borrower fails to make such payment when due, the
Administrative Agent shall notify each Lender of the applicable LC Disbursement,
the payment then due from the Borrower in respect thereof and such Lender’s
Applicable Percentage thereof.  Promptly following receipt of such notice, each
Lender shall pay to the Administrative Agent its Applicable Percentage of the
payment then due from the Borrower, in the same manner as provided in Section
2.05 with respect to Loans made by such Lender (and Section 2.05 shall apply,
mutatis mutandis, to the payment obligations of the Lenders), and the
Administrative Agent shall promptly pay to the Issuing Bank the amounts so
received by it from the Lenders.  Promptly following receipt by the
Administrative Agent of any payment from the Borrower pursuant to this Section
2.08(e), the Administrative Agent shall distribute such payment to any Lenders
that have made payments pursuant to this Section 2.08(e) to reimburse the
Administrative Agent.  Any payment made by a Lender pursuant to this Section
2.08(e) to reimburse the Administrative Agent for any LC Disbursement (other
than the funding of ABR Loans as contemplated above) shall not constitute a Loan
and shall not relieve the Borrower of its obligation to reimburse such LC
Disbursement.
 
(f) Obligations Absolute.  The Borrower’s obligation to reimburse LC
Disbursements as provided in Section 2.08(e) shall be absolute, unconditional
and irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement under any and all circumstances whatsoever and irrespective of
(i) any lack of validity or enforceability of this Agreement, or any term or
provision therein, (ii) any draft or other document presented under a Letter of
Credit proving to be forged, fraudulent or invalid in any respect or any
statement therein being untrue or inaccurate in any respect, (iii) payment by
the Issuing Bank under a Letter of Credit against presentation of a draft or
other document that does not strictly comply with the terms of such Letter of
Credit, or (iv) any other event or circumstance whatsoever, whether or not
similar to any of the foregoing, that might, but for the provisions of this
Section 2.08(f), constitute a legal or equitable discharge of, or provide a
right of setoff against, the Borrower’s obligations hereunder.  Neither the
Administrative Agent, the Lenders nor the Issuing Bank, nor any of their Related
Parties shall have any liability or responsibility by reason of or in connection
with the issuance or transfer of any Letter of Credit or any payment or failure
to make any payment thereunder (irrespective of any of the circumstances
referred to in the preceding sentence), or any error, omission, interruption,
loss or delay in transmission or delivery of any draft, notice or other
communication under or relating to any Letter of Credit (including any document
required to make a drawing thereunder), any error in interpretation of technical
terms or any consequence arising from causes beyond the control of the Issuing
Bank or the Administrative Agent.
 
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(g) Interim Interest.  If the Issuing Bank shall make any LC Disbursement, then,
until the Borrower shall have reimbursed the Issuing Bank for such LC
Disbursement (either with its own funds or a Borrowing under Section 2.08(e)),
the unpaid amount thereof shall bear interest, for each day from and including
the date such LC Disbursement is made to but excluding the date that the
Borrower reimburses such LC Disbursement, at the rate per annum then applicable
to ABR Loans.  Interest accrued pursuant to this Section 2.08(g) shall be for
the account of the Administrative Agent, except that interest accrued on and
after the date of payment by any Lender pursuant to Section 2.08(e) to reimburse
the Administrative Agent shall be for the account of such Lender to the extent
of such payment.
 
(h) Cash Collateralization.  If (i) any Event of Default shall occur and be
continuing and the Borrower receives notice from the Administrative Agent or the
Majority Lenders demanding the deposit of cash collateral pursuant to this
Section 2.08(h), or (ii) the Borrower is required to pay to the Administrative
Agent the excess attributable to an LC Exposure in connection with any
prepayment pursuant to Section 3.04(c), then the Borrower shall deposit, in an
account designated by the Administrative Agent, in the name of the
Administrative Agent and for the benefit of the Lenders, an amount in cash equal
to, in the case of an Event of Default, the LC Exposure, and in the case of a
payment required by Section 3.04(c), the amount of such excess as provided in
Section 3.04(c), as of such date plus any accrued and unpaid interest thereon;
provided that the obligation to deposit such cash collateral shall become
effective immediately, and such deposit shall become immediately due and
payable, without demand or other notice of any kind, upon the occurrence of any
Event of Default with respect to the Borrower or any Subsidiary described in
Section 10.01(h) or Section 10.01(i).  The Borrower hereby grants to the
Administrative Agent, for the benefit of it and the Lenders, an exclusive first
priority and continuing perfected security interest in and Lien on such account
and all cash, checks, drafts, certificates and instruments, if any, from time to
time deposited or held in such account, all deposits or wire transfers made
thereto, any and all investments purchased with funds deposited in such account,
all interest, dividends, cash, instruments, financial assets and other Property
from time to time received, receivable or otherwise payable in respect of, or in
exchange for, any or all of the foregoing, and all proceeds, products,
accessions, rents, profits, income and benefits therefrom, and any substitutions
and replacements therefor.  The Borrower’s obligation to deposit amounts
pursuant to this Section 2.08(h) shall be absolute and unconditional, without
regard to whether any beneficiary of any such Letter of Credit has attempted to
draw down all or a portion of such amount under the terms of a Letter of Credit,
and, to the fullest extent permitted by applicable law, shall not be subject to
any defense or be affected by a right of set-off, counterclaim or recoupment
which the Borrower or any of its Subsidiaries may now or hereafter have against
any such beneficiary, the Issuing Bank, the Administrative Agent, the Lenders or
any other Person for any reason whatsoever.  Such deposit shall be held as
collateral securing the payment and performance of the Borrower’s and the
Guarantor’s obligations under this Agreement and the other Loan Documents.  The
Administrative Agent shall have exclusive dominion and control, including the
exclusive right of withdrawal, over such account.  Other than any interest
earned on the investment of such deposits, which investments shall be made at
the option and sole discretion of the Administrative Agent and at the Borrower’s
risk and expense, such deposits shall not bear interest.  Interest or profits,
if any, on such investments shall accumulate in such account.  Moneys in such
account shall be applied by the Administrative Agent to reimburse the Issuing
Bank for LC Disbursements for which it has not been reimbursed and, to the
extent not so applied, shall be held for the satisfaction of the reimbursement
obligations of the Borrower for the LC Exposure at such time or, if the maturity
of the Loans has been accelerated, be applied to satisfy other obligations of
the Borrower and the Guarantors under this Agreement or the other Loan
Documents.  So long as no Event of Default exists, the Administrative Agent
shall release to the Borrower, at the Borrower’s written request, any funds held
in such account in excess of the amount required to be on deposit to secure LC
Exposure in connection with a prepayment required by Section 3.04(c).
 
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ARTICLE III
Payments of Principal and Interest; Prepayments; Fees
 
Section 3.01 Repayment of Loans.  The Borrower hereby unconditionally promises
to pay to the Administrative Agent for the account of each Lender the then
unpaid principal amount of each Loan in full in cash on the Termination Date.
 
Section 3.02 Interest.
 
(a) ABR Loans.  The Loans comprising each ABR Borrowing shall bear interest at
the Alternate Base Rate plus the Applicable Margin, but in no event to exceed
the Highest Lawful Rate.
 
(b) Eurodollar Loans.  The Loans comprising each Eurodollar Borrowing shall bear
interest at the Adjusted LIBO Rate for the Interest Period in effect for such
Borrowing plus the Applicable Margin, but in no event to exceed the Highest
Lawful Rate.
 
(c) Post-Default Rate.  Notwithstanding the foregoing, (i) if an Event of
Default has occurred and is continuing, or if any principal of or interest on
any Loan or any fee or other amount payable by the Borrower or any Guarantor
hereunder or under any other Loan Document is not paid when due, whether at
stated maturity, upon acceleration or otherwise, and including any payments in
respect of a Borrowing Base Deficiency under Section 3.04(c), then all Loans
outstanding, in the case of an Event of Default, and such overdue amount, in the
case of a failure to pay amounts when due, shall bear interest, after as well as
before judgment, at the Post Default Rate, but in no event to exceed the Highest
Lawful Rate, and (ii)  during any Borrowing Base Deficiency, all Loans
outstanding at such time shall bear interest, after as well as before judgment,
at the Post Default Rate, but in no event to exceed the Highest Lawful Rate.
 
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(d) Interest Payment Dates.  Accrued interest on each Loan shall be payable in
arrears on each Interest Payment Date for such Loan and on the Termination Date;
provided that (i) interest accrued pursuant to Section 3.02(c) shall be payable
on demand, (ii) in the event of any repayment or prepayment of any Loan (other
than an optional prepayment of an ABR Loan prior to the Termination Date),
accrued interest on the principal amount repaid or prepaid shall be payable on
the date of such repayment or prepayment, and (iii) in the event of any
conversion of any Eurodollar Loan prior to the end of the current Interest
Period therefor, accrued interest on such Loan shall be payable on the effective
date of such conversion.
 
(e) Interest Rate Computations.  All interest hereunder shall be computed on the
basis of a year of 360 days, unless such computation would exceed the Highest
Lawful Rate, in which case interest shall be computed on the basis of a year of
365 days (or 366 days in a leap year), except that interest computed by
reference to the Alternate Base Rate at times when the Alternate Base Rate is
based on the Prime Rate shall be computed on the basis of a year of 365 days (or
366 days in a leap year), and in each case shall be payable for the actual
number of days elapsed (including the first day but excluding the last
day).  The applicable Alternate Base Rate, Adjusted LIBO Rate or LIBO Rate shall
be determined by the Administrative Agent, and such determination shall be
conclusive absent manifest error, and be binding upon the parties hereto.
 
Section 3.03 Alternate Rate of Interest.  If prior to the commencement of any
Interest Period for a Eurodollar Borrowing:
 
(a) the Administrative Agent determines (which determination shall be conclusive
absent manifest error) that adequate and reasonable means do not exist for
ascertaining the Adjusted LIBO Rate or LIBO Rate for such Interest Period; or
 
(b) the Administrative Agent is advised by the Majority Lenders that the
Adjusted LIBO Rate or LIBO Rate, as applicable, for such Interest Period will
not adequately and fairly reflect the cost to such Lenders of making or
maintaining their Loans included in such Borrowing for such Interest Period;
 
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective,
and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such
Borrowing shall be made as an ABR Borrowing.
 
Section 3.04 Prepayments.
 
(a) Optional Prepayments.  Subject to any break funding costs payable pursuant
to Section 5.02 and prior notice in accordance with Section 3.04(b), the
Borrower shall have the right at any time and from time to time to prepay any
Borrowing in whole or in part, in minimum increments of $250,000 or, if less
than $250,000, the remaining balance of the Loans.
 
(b) Notice and Terms of Prepayment.  The Borrower shall notify the
Administrative Agent by telephone (confirmed by telecopy) of any optional or
mandatory prepayment hereunder (i) in the case of prepayment of a Eurodollar
Borrowing, not later than 12:00 noon, New York City time, three Business Days
before the date of prepayment, or (ii) in the case of prepayment of an ABR
Borrowing, not later than 12:00 noon, New York City time, one Business Day
before the date of prepayment.  Each such notice shall be irrevocable and shall
specify the prepayment date and the principal amount of each Borrowing or
portion thereof to be prepaid.  Promptly following receipt of any such notice
relating to a Borrowing, the Administrative Agent shall advise the Lenders of
the contents thereof.  Each prepayment of a Borrowing shall be applied ratably
to the Loans included in the prepaid Borrowing.  Prepayments shall be
accompanied by accrued interest to the extent required by Section 3.02.
 
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(c) Mandatory Prepayments.
 
(i) If, after giving effect to any termination or reduction of the Aggregate
Maximum Credit Amounts pursuant to Section 2.06(b), the total Revolving Credit
Exposures exceeds the total Commitments, then the Borrower shall prepay the
Borrowings on the date of such termination or reduction in an aggregate
principal amount equal to such excess, and if any excess remains after prepaying
all of the Borrowings as a result of LC Exposure, pay to the Administrative
Agent on behalf of the Lenders an amount equal to such excess to be held as cash
collateral as provided in Section 2.08(h).
 
(ii) Upon any redetermination of or adjustment to the amount of the Borrowing
Base in accordance with Section 2.07, Section 8.12(c) or Section 9.12, if the
total Revolving Credit Exposures exceeds the redetermined or adjusted Borrowing
Base, then the Borrower shall:
 
(A)  (1) within sixty (60) days following its receipt of the New Borrowing Base
Notice in accordance with Section 2.07(d) or the date the adjustment occurs,
prepay the Borrowings in an aggregate principal amount equal to such excess; or
 
(2) within sixty (60) days following its receipt of the New Borrowing Base
Notice in accordance with Section 2.07(d) or the date the adjustment occurs,
pledge additional collateral to the Administrative Agent having a value equal to
at least the amount of the deficiency or otherwise satisfactory to the
Administrative Agent such that the total Revolving Credit Exposures are less
than or equal to the Borrowing Base  as redetermined or adjusted;
 
 and
 
(B)   cause, for so long as any Borrowing Base Deficiency continues to exist,
100% of Excess Cash Flow to be used to prepay the Borrowings in an amount not to
exceed such Borrowing Base Deficiency, such amounts to be paid to the
Administrative Agent within one (1) Business Day of each delivery of an Excess
Cash Flow report required by Section 8.01(l)(ii).
 
Notwithstanding the foregoing, all payments required to be made pursuant to
this Section 3.04(c)(ii) must be made on or prior to the Termination Date.
 
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(iii) If a Borrowing Base Deficiency exists, or during an Event of Default, the
Borrower shall prepay the Borrowings with all proceeds received from sales and
other dispositions of Properties.
 
(iv) Each prepayment of Borrowings pursuant to this Section 3.04(c) shall be
applied, first, ratably to any ABR Borrowings then outstanding, and, second, to
any Eurodollar Borrowings then outstanding, and if more than one Eurodollar
Borrowing is then outstanding, to each such Eurodollar Borrowing in order of
priority beginning with the Eurodollar Borrowing with the least number of days
remaining in the Interest Period applicable thereto and ending with the
Eurodollar Borrowing with the most number of days remaining in the Interest
Period applicable thereto.
 
(v) Each prepayment of Borrowings shall be applied ratably to the Loans of each
Lender included in the prepaid Borrowings.  Prepayment pursuant to this Section
3.04(c) shall be accompanied by accrued interest to the extent required by
Section 3.02.
 
(d) No Premium or Penalty.  Prepayments permitted or required under this Section
3.04 shall be without premium or penalty, except as required under Section 5.02.
 
Section 3.05 Fees.
 
(a) Commitment Fees.  The Borrower agrees to pay to the Administrative Agent for
the account of each Lender a commitment fee, which shall accrue at the
applicable Commitment Fee Rate on the average daily amount of the unused amount
of the Commitment of such Lender during the period from and including the date
of this Agreement to but excluding the Termination Date.  Accrued commitment
fees shall be payable in arrears on the last day of March, June, September and
December of each year and on the Termination Date, commencing on the first such
date to occur after the date hereof.  All commitment fees shall be computed on
the basis of a year of 360 days, unless such computation would exceed the
Highest Lawful Rate, in which case interest shall be computed on the basis of a
year of 365 days (or 366 days in a leap year), and shall be payable for the
actual number of days elapsed (including the first day but excluding the last
day).
 
(b) Letter of Credit Fees.  The Borrower agrees to pay (i) to the Administrative
Agent for the account of each Lender a participation fee with respect to its
participations in Letters of Credit, which shall accrue at the same Applicable
Margin used to determine the interest rate applicable to Eurodollar Loans on the
average daily amount of such Lender’s LC Exposure (excluding any portion thereof
attributable to unreimbursed LC Disbursements) during the period from and
including the date of this Agreement to but excluding the later of the date on
which such Lender’s Commitment terminates and the date on which such Lender
ceases to have any LC Exposure, (ii) to the Administrative Agent a fronting fee,
which shall accrue at the rate of 0.325% per annum on the average daily amount
of the LC Exposure (excluding any portion thereof attributable to unreimbursed
LC Disbursements) during the period from and including the date of this
Agreement to but excluding the later of the date of termination of the
Commitments and the date on which there ceases to be any LC Exposure, provided
that in no event shall such fee be less than $500 during any quarter, and (iii)
to the Administrative Agent for its own account, the standard fees charged to it
by the Issuing Bank with respect to the issuance, amendment, renewal or
extension of any Letter of Credit or processing of drawings
thereunder.  Participation fees and fronting fees accrued through and including
the last day of March, June, September and December of each year shall be
payable on the third Business Day following such last day, commencing on the
first such date to occur after the date of this Agreement; provided that all
such fees shall be payable on the Termination Date and any such fees accruing
after the Termination Date shall be payable on demand.  Any other fees payable
pursuant to this Section 3.05(b) shall be payable within 10 days after
demand.  All participation fees and fronting fees shall be computed on the basis
of a year of 360 days, unless such computation would exceed the Highest Lawful
Rate, in which case interest shall be computed on the basis of a year of 365
days (or 366 days in a leap year), and shall be payable for the actual number of
days elapsed (including the first day but excluding the last day).
 
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(c) Administrative Agent Fees.  The Borrower agrees to pay to the Administrative
Agent, for its own account, fees payable in the amounts and at the times
separately agreed upon between the Borrower and the Administrative Agent as
outlined in the Fee Letter.
 
(d) Borrowing Base Increase Fees.  The Borrower agrees to pay to the
Administrative Agent, for the account of each Lender then party to this
Agreement, ratably in accordance with its Applicable Percentage, a Borrowing
Base increase fee to be agreed by the Lenders and the Borrower on the amount of
any increase of the Borrowing Base over the highest Borrowing Base previously in
effect, payable on the effective date of any such increase to the Borrowing
Base.
 
ARTICLE IV
Payments; Pro Rata Treatment; Sharing of Set-offs
 
Section 4.01 Payments Generally; Pro Rata Treatment; Sharing of Set-offs.
 
(a) Payments by the Borrower.  The Borrower shall make each payment required to
be made by it hereunder (whether of principal, interest, fees or reimbursement
of LC Disbursements, or of amounts payable under Section 5.01, Section 5.02,
Section 5.03 or otherwise) prior to 1:00 p.m., New York City time, on the date
when due, in immediately available funds, without defense, deduction,
recoupment, set-off or counterclaim.  Fees, once paid, shall be fully earned and
shall not be refundable under any circumstances.  Any amounts received after
such time on any date may, in the discretion of the Administrative Agent, be
deemed to have been received on the next succeeding Business Day for purposes of
calculating interest thereon.  All such payments shall be made to the
Administrative Agent at its offices specified in Section 12.01, except payments
to be made directly to the Issuing Bank as expressly provided herein and except
that payments pursuant to Section 5.01, Section 5.02, Section 5.03 and Section
12.03 shall be made directly to the Persons entitled thereto.  The
Administrative Agent shall distribute any such payments received by it for the
account of any other Person to the appropriate recipient promptly following
receipt thereof.  If any payment hereunder shall be due on a day that is not a
Business Day, the date for payment shall be extended to the next succeeding
Business Day, and, in the case of any payment accruing interest, interest
thereon shall be payable for the period of such extension.  All payments
hereunder shall be made in dollars.
 
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(b) Application of Insufficient Payments.  If at any time insufficient funds are
received by and available to the Administrative Agent to pay fully all amounts
of principal, unreimbursed LC Disbursements, interest and fees then due
hereunder, such funds shall be applied (i) first, towards payment of interest
and fees then due hereunder, ratably among the parties entitled thereto in
accordance with the amounts of interest and fees then due to such parties, and
(ii) second, towards payment of principal and unreimbursed LC Disbursements then
due hereunder, ratably among the parties entitled thereto in accordance with the
amounts of principal and unreimbursed LC Disbursements then due to such parties.
 
(c) Sharing of Payments by Lenders.  If any Lender shall, by exercising any
right of set-off or counterclaim or otherwise, obtain payment in respect of any
principal of or interest on any of its Loans or participations in LC
Disbursements resulting in such Lender receiving payment of a greater proportion
of the aggregate amount of its Loans and participations in LC Disbursements and
accrued interest thereon than the proportion received by any other Lender, then
the Lender receiving such greater proportion shall purchase (for cash at face
value) participations in the Loans and participations in LC Disbursements of
other Lenders to the extent necessary so that the benefit of all such payments
shall be shared by the Lenders ratably in accordance with the aggregate amount
of principal of and accrued interest on their respective Loans and
participations in LC Disbursements; provided that (i) if any such participations
are purchased and all or any portion of the payment giving rise thereto is
recovered, such participations shall be rescinded and the purchase price
restored to the extent of such recovery, without interest, and (ii) the
provisions of this Section 4.01(c) shall not be construed to apply to any
payment made by the Borrower pursuant to and in accordance with the express
terms of this Agreement or any payment obtained by a Lender as consideration for
the assignment of or sale of a participation in any of its Loans or
participations in LC Disbursements to any assignee or participant, other than to
the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions
of this Section 4.01(c) shall apply).  The Borrower consents to the foregoing
and agrees, to the extent it may effectively do so under applicable law, that
any Lender acquiring a participation pursuant to the foregoing arrangements may
exercise against the Borrower rights of set-off and counterclaim with respect to
such participation as fully as if such Lender were a direct creditor of the
Borrower in the amount of such participation.
 
Section 4.02 Presumption of Payment by the Borrower.  Unless the Administrative
Agent shall have received notice from the Borrower prior to the date on which
any payment is due to the Administrative Agent for the account of the Lenders or
the Issuing Bank that the Borrower will not make such payment, the
Administrative Agent may assume that the Borrower has made such payment on such
date in accordance herewith and may, in reliance upon such assumption,
distribute to the Lenders or the Issuing Bank, as the case may be, the amount
due.  In such event, if the Borrower has not in fact made such payment, then
each of the Lenders or the Issuing Bank, as the case may be, severally agrees to
repay to the Administrative Agent forthwith on demand the amount so distributed
to such Lender or Issuing Bank with interest thereon, for each day from and
including the date such amount is distributed to it to but excluding the date of
payment to the Administrative Agent, at the greater of the Federal Funds
Effective Rate and a rate determined by the Administrative Agent in accordance
with banking industry rules on interbank compensation.
 
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Section 4.03 Certain Deductions by the Administrative Agent.  If any Lender
shall fail to make any payment required to be made by it pursuant to Section
2.05(b), Section 2.08(d), Section 2.08(e) or Section 4.02 then the
Administrative Agent may, in its discretion (notwithstanding any contrary
provision hereof), apply any amounts thereafter received by the Administrative
Agent for the account of such Lender to satisfy such Lender’s obligations under
such Sections until all such unsatisfied obligations are fully paid.
 
Section 4.04 Disposition of Proceeds.  The Security Instruments contain an
assignment by the Borrower and/or the Guarantors unto and in favor of the
Administrative Agent for the benefit of the Lenders of all of the Borrower’s or
each Guarantor’s interest in and to production and all proceeds attributable
thereto which may be produced from or allocated to the Mortgaged Property.  The
Security Instruments further provide in general for the application of such
proceeds to the satisfaction of the Indebtedness and other obligations described
therein and secured thereby.  Notwithstanding the assignment contained in such
Security Instruments, until the occurrence of an Event of Default, (a) the
Administrative Agent and the Lenders agree that they will neither notify the
purchaser or purchasers of such production nor take any other action to cause
such proceeds to be remitted to the Administrative Agent or the Lenders, but the
Lenders will instead permit such proceeds to be paid to the Borrower and its
Subsidiaries and (b) the Lenders hereby authorize the Administrative Agent to
take such actions as may be necessary to cause such proceeds to be paid to the
Borrower and/or such Subsidiaries.
 
ARTICLE V
Increased Costs; Break Funding Payments; Taxes
 
Section 5.01 Increased Costs.
 
(a) Eurodollar Changes in Law.  If any Change in Law shall:
 
(i) impose, modify or deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of, or credit
extended by, any Lender (except any such reserve requirement reflected in the
Adjusted LIBO Rate); or
 
(ii) impose on any Lender or the London interbank market any other condition
affecting this Agreement or Eurodollar Loans made by such Lender;
 
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to reduce the amount of any sum received or
receivable by such Lender (whether of principal, interest or otherwise), then
the Borrower will pay to such Lender such additional amount or amounts as will
compensate such Lender for such additional costs incurred or reduction suffered.
 
(b) Capital Requirements.  If any Lender or the Issuing Bank determines that any
Change in Law regarding capital requirements has or would have the effect of
reducing the rate of return on such Lender’s or the Issuing Bank’s capital or on
the capital of such Lender’s or the Issuing Bank’s holding company, if any, as a
consequence of this Agreement or the Loans made by, or participations in Letters
of Credit held by, such Lender, or the Letters of Credit issued by the Issuing
Bank, to a level below that which such Lender or the Issuing Bank or such
Lender’s or the Issuing Bank’s holding company could have achieved but for such
Change in Law (taking into consideration such Lender’s or the Issuing Bank’s
policies and the policies of such Lender’s or the Issuing Bank’s holding company
with respect to capital adequacy), then from time to time the Borrower will pay
to such Lender or the Issuing Bank, as the case may be, such additional amount
or amounts as will compensate such Lender or the Issuing Bank or such Lender’s
or the Issuing Bank’s holding company for any such reduction suffered.
 
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(c) Certificates.  A certificate of a Lender or the Issuing Bank setting forth
the amount or amounts necessary to compensate such Lender or the Issuing Bank or
its holding company, as the case may be, as specified in Section 5.01(a) or (b)
shall be delivered to the Borrower and shall be conclusive absent manifest
error.  The Borrower shall pay such Lender or the Issuing Bank, as the case may
be, the amount shown as due on any such certificate within 10 days after receipt
thereof.
 
(d) Effect of Failure or Delay in Requesting Compensation.  Failure or delay on
the part of any Lender or the Issuing Bank to demand compensation pursuant to
this Section 5.01 shall not constitute a waiver of such Lender’s or the Issuing
Bank’s right to demand such compensation; provided that the Borrower shall not
be required to compensate a Lender or the Issuing Bank pursuant to this Section
5.01 for any increased costs or reductions incurred more than 180 days prior to
the date that such Lender or the Issuing Bank, as the case may be, notifies the
Borrower of the Change in Law giving rise to such increased costs or reductions
and of such Lender’s or the Issuing Bank’s intention to claim compensation
therefor; provided further that, if the Change in Law giving rise to such
increased costs or reductions is retroactive, then the 180-day period referred
to above shall be extended to include the period of retroactive effect thereof.
 
Section 5.02 Break Funding Payments.  In the event of (a) the payment of any
principal of any Eurodollar Loan other than on the last day of an Interest
Period applicable thereto (including as a result of an Event of Default), (b)
the conversion of any Eurodollar Loan into an ABR Loan other than on the last
day of the Interest Period applicable thereto, or (c) the failure to borrow,
convert, continue or prepay any Eurodollar Loan on the date specified in any
notice delivered pursuant hereto, then, in any such event, the Borrower shall
compensate each Lender for the loss, cost and expense attributable to such
event.  In the case of a Eurodollar Loan, such loss, cost or expense to any
Lender shall be deemed to include an amount determined by such Lender to be the
excess, if any, of (i) the amount of interest which would have accrued on the
principal amount of such Loan had such event not occurred, at the Adjusted LIBO
Rate that would have been applicable to such Loan, for the period from the date
of such event to the last day of the then current Interest Period therefor (or,
in the case of a failure to borrow, convert or continue, for the period that
would have been the Interest Period for such Loan), over (ii) the amount of
interest which would accrue on such principal amount for such period at the
interest rate which such Lender would bid were it to bid, at the commencement of
such period, for dollar deposits of a comparable amount and period from other
banks in the Eurodollar market.
 
A certificate of any Lender setting forth any amount or amounts that such Lender
is entitled to receive pursuant to this Section 5.02 shall be delivered to the
Borrower and shall be conclusive absent manifest error.  The Borrower shall pay
such Lender the amount shown as due on any such certificate within 10 days after
receipt thereof.
 
Section 5.03 Taxes.
 
(a) Payments Free of Taxes.  Any and all payments by or on account of any
obligation of the Borrower or any Guarantor under any Loan Document shall be
made free and clear of and without deduction for any Indemnified Taxes or Other
Taxes; provided that if the Borrower or any Guarantor shall be required to
deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum
payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 5.03(a)), the Administrative Agent, Lender or Issuing Bank, as the
case may be, receives an amount equal to the sum it would have received had no
such deductions been made, (ii) the Borrower or such Guarantor shall make such
deductions and (iii) the Borrower or such Guarantor shall pay the full amount
deducted to the relevant Governmental Authority in accordance with applicable
law.
 
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(b) Payment of Other Taxes by the Borrower.  The Borrower shall pay any Other
Taxes to the relevant Governmental Authority in accordance with applicable law.
 
(c) Indemnification by the Borrower.  The Borrower shall indemnify the
Administrative Agent, each Lender and the Issuing Bank, within 10 days after
written demand therefor, for the full amount of any Indemnified Taxes or Other
Taxes paid by the Administrative Agent, Lender or the Issuing Bank, as the case
may be, on or with respect to any payment by or on account of any obligation of
the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or
asserted on or attributable to amounts payable under this Section 5.03) and any
penalties, interest and reasonable expenses arising therefrom or with respect
thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or
legally imposed or asserted by the relevant Governmental Authority.  A
certificate of the Administrative Agent, Lender or the Issuing Bank as to the
amount of such payment or liability under this Section 5.03 shall be delivered
to the Borrower and shall be conclusive absent manifest error.
 
(d) Evidence of Payments.  As soon as practicable after any payment of
Indemnified Taxes or Other Taxes by the Borrower or a Guarantor to a
Governmental Authority, the Borrower shall deliver to the Administrative Agent
the original or a certified copy of a receipt issued by such Governmental
Authority evidencing such payment, a copy of the return reporting such payment
or other evidence of such payment reasonably satisfactory to the Administrative
Agent.
 
(e) Foreign Lenders.  Any Foreign Lender that is entitled to an exemption from
or reduction of withholding tax under the law of the jurisdiction in which the
Borrower is located, or any treaty to which such jurisdiction is a party, with
respect to payments under this Agreement or any other Loan Document shall
deliver to the Borrower (with a copy to the Administrative Agent), at the time
or times prescribed by applicable law, such properly completed and executed
documentation prescribed by applicable law or reasonably requested by the
Borrower as will permit such payments to be made without withholding or at a
reduced rate.
 
Section 5.04 Designation of Different Lending Office.  If any Lender requests
compensation under Section 5.01, or if the Borrower is required to pay any
additional amount to any Lender or any Governmental Authority for the account of
any Lender pursuant to Section 5.03, then such Lender shall use reasonable
efforts to designate a different lending office for funding or booking its Loans
hereunder or to assign its rights and obligations hereunder to another of its
offices, branches or affiliates, if, in the judgment of such Lender, such
designation or assignment (i) would eliminate or reduce amounts payable pursuant
to Section 5.01 or Section 5.03, as the case may be, in the future and (ii)
would not subject such Lender to any unreimbursed cost or expense and would not
otherwise be disadvantageous to such Lender.  The Borrower hereby agrees to pay
all reasonable costs and expenses incurred by any Lender in connection with any
such designation or assignment.
 
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ARTICLE VI
Conditions Precedent
 
Section 6.01 Effective Date.  The obligations of the Lenders to make Loans and
of the Administrative Agent to procure Letters of Credit hereunder shall not
become effective until the date on which each of the following conditions is
satisfied (or waived in accordance with Section 12.02):
 
(a) The Administrative Agent, the Arranger and the Lenders shall have received
all commitment, facility and agency fees, including those set forth in the Fee
Letter, and all other fees and amounts due and payable on or prior to the
Effective Date, including, to the extent invoiced, reimbursement or payment of
all out-of-pocket expenses required to be reimbursed or paid by the Borrower
hereunder (including, without limitation, the reasonable fees and expenses of
Vinson & Elkins L.L.P., counsel to the Administrative Agent).
 
(b) The Administrative Agent shall have received a certificate of the
Responsible Officer of the Borrower and each Guarantor setting forth (i)
resolutions of its board of directors with respect to the authorization of the
Borrower or such Guarantor to execute and deliver the Loan Documents to which it
is a party and to enter into the transactions contemplated in those documents,
(ii) the officers of the Borrower or such Guarantor (y) who are authorized to
sign the Loan Documents to which the Borrower or such Guarantor is a party and
(z) who will, until replaced by another officer or officers duly authorized for
that purpose, act as its representative for the purposes of signing documents
and giving notices and other communications in connection with this Agreement
and the transactions contemplated hereby, (iii) specimen signatures of such
authorized officers, and (iv) the Organizational Documents of the Borrower and
such Guarantor, certified as being true and complete.  The Administrative Agent
and the Lenders may conclusively rely on such certificate until the
Administrative Agent receives notice in writing from the Borrower or such
Guarantor, as applicable, to the contrary.
 
(c) The Administrative Agent shall have received certificates of the appropriate
State agencies with respect to the existence, qualification and good standing of
the Borrower and each Guarantor.
 
(d) The Administrative Agent shall have received a compliance certificate which
shall be substantially in the form of Exhibit D, duly and properly executed by a
Responsible Officer and dated as of the date of Effective Date.
 
(e) The Administrative Agent shall have received from each party hereto
counterparts (in such number as may be requested by the Administrative Agent) of
this Agreement signed on behalf of such party.
 
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(f) The Administrative Agent shall have received duly executed Notes payable to
the order of each Lender in a principal amount equal to its Maximum Credit
Amount dated as of the date hereof.
 
(g) The Administrative Agent shall have received from each party thereto duly
executed counterparts (in such number as may be requested by the Administrative
Agent) of the Security Instruments, including the Guaranty Agreement and the
other Security Instruments described on Exhibit F, except for such documents to
be delivered after the Effective Date pursuant to Section 8.18.  In connection
with the execution and delivery of the Security Instruments, the Administrative
Agent shall:
 
(i) be reasonably satisfied that the Security Instruments create first priority,
perfected Liens (subject only to Excepted Liens identified in clauses (a) to (d)
and (f) of the definition thereof, but subject to the provisos at the end of
such definition) on at least 80% of the Total Reserve Value of the Oil and Gas
Properties evaluated in the Initial Reserve Report;
 
(ii) have received certificates, together with undated, blank stock powers for
each such certificate, representing all of the issued and outstanding Equity
Interests of each of the Guarantors, which is directly owned by either the
Borrower or a Subsidiary; and
 
(iii) be reasonably satisfied that all Property constituting security for the
Second Lien Term Loan Agreement is subject to a first priority, perfected Lien
in favor of the Administrative Agent under the Security Instruments.
 
(h) The Administrative Agent shall have received an opinion of Bracewell &
Giuliani LLP, special counsel to the Borrower, in form and substance
satisfactory to the Administrative Agent.
 
(i) The Administrative Agent shall have received a certificate of insurance
coverage of the Borrower evidencing that the Borrower is carrying insurance in
accordance with Section 7.12.
 
(j) The Administrative Agent shall have received title information as the
Administrative Agent may reasonably require satisfactory to the Administrative
Agent setting forth the status of title to at least 80% of the Total Reserve
Value of the Oil and Gas Properties evaluated in the Initial Reserve Report.
 
(k) The Administrative Agent shall be reasonably satisfied with the
environmental condition of the Oil and Gas Properties of the Borrower and its
Subsidiaries.
 
(l) The Administrative Agent shall have received a certificate of a Responsible
Officer of the Borrower certifying that the Borrower has received all consents
and approvals required by Section 7.03.
 
(m) The Administrative Agent shall have received the financial statements
referred to in Section 7.04(a) and the Initial Reserve Report accompanied by a
certificate covering the matters described in Section 8.11(c).
 
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(n) The Administrative Agent shall have received appropriate UCC search
certificates reflecting no prior Liens encumbering the Properties of the
Borrower and the Subsidiaries for each of the following
jurisdictions:  Delaware, North Dakota, Texas and any other jurisdiction
requested by the Administrative Agent; other than those being assigned or
released on or prior to the Effective Date or Liens permitted by Section 9.03.
 
(o) The Borrower and the Lenders shall have agreed upon the Development Plan,
which shall be reasonably satisfactory to the Lenders.
 
(p) The Administrative Agent shall be satisfied with the terms of the payoff
letter from D.B. Zwirn Special Opportunities Fund, L.P., evidencing payment in
full of the loans under the Existing Credit Agreement, and have received
executed copies of the same.
 
(q) The Administrative Agent shall have received evidence that the Borrower is
using the proceeds from the Loans to repay all Debt under the Existing Credit
Agreement and the Liens associated with such Debt, if any, are being released
contemporaneously with the funding under this Agreement.
 
(r) The Administrative Agent shall be satisfied that there is no litigation
seeking to enjoin or prevent the financing contemplated hereby or by the Second
Lien Term Loan Agreement.
 
(s) The Second Lien Term Documents and the Intercreditor Agreement between the
Administrative Agent and the Second Lien Administrative Agent shall have been
duly executed and delivered.
 
(t) The Administrative Agent shall have received a duly executed account control
agreement between Operating Account Bank, Borrower and the Administrative Agent,
the terms and conditions for which shall be satisfactory to the Administrative
Agent.
 
(u) The Administrative Agent shall have received such other documents as the
Administrative Agent or special counsel to the Administrative Agent may
reasonably request.
 
The Administrative Agent shall notify the Borrower and the Lenders of the
Effective Date, and such notice shall be conclusive and
binding.  Notwithstanding the foregoing, the obligations of the Lenders to make
Loans and of the Administrative Agent to procure Letters of Credit hereunder
shall not become effective unless each of the foregoing conditions is satisfied
(or waived pursuant to Section 12.02) at or prior to 2:00 p.m., New York City
time, on September 30, 2008 (and, in the event such conditions are not so
satisfied or waived, the Commitments shall terminate at such time).
 
Section 6.02 Each Credit Event.  The obligation of each Lender to make a Loan on
the occasion of any Borrowing (including the initial funding), and of the
Administrative Agent to procure or arrange to amend, renew or extend any Letter
of Credit, is subject to the satisfaction of the following conditions:
 
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(a) At the time of and immediately after giving effect to such Borrowing or the
issuance, amendment, renewal or extension of such Letter of Credit, as
applicable, no Default shall have occurred and be continuing.
 
(b) At the time of and immediately after giving effect to such Borrowing or the
issuance, amendment, renewal or extension of such Letter of Credit, as
applicable, no event, development or circumstance has occurred or shall then
exist that has resulted in, or could reasonably be expected to have, a Material
Adverse Effect.
 
(c) The representations and warranties of the Borrower and the Guarantors set
forth in this Agreement and in the other Loan Documents shall be true and
correct on and as of the date of such Borrowing or the date of issuance,
amendment, renewal or extension of such Letter of Credit, as applicable, except
to the extent any such representations and warranties are expressly limited to
an earlier date, in which case, on and as of the date of such Borrowing or the
date of issuance, amendment, renewal or extension of such Letter of Credit, as
applicable, such representations and warranties shall continue to be true and
correct as of such specified earlier date.
 
(d) The making of such Loan or the issuance, amendment, renewal or extension of
such Letter of Credit, as applicable would not conflict with, or cause any
Lender or the Issuing Bank to violate or exceed, any applicable Governmental
Requirement, and no Change in Law shall have occurred, and no litigation shall
be pending or threatened, which does or, with respect to any threatened
litigation, seeks to, enjoin, prohibit or restrain, the making or repayment of
any Loan, the issuance, amendment, renewal, extension or repayment of any Letter
of Credit or any participations therein or the consummation of the transactions
contemplated by this Agreement or any other Loan Document.
 
(e) The receipt by the Administrative Agent of a Borrowing Request in accordance
with Section 2.03 or a request for a Letter of Credit in accordance with Section
2.08(b), as applicable.
 
Each request for a Borrowing and each request for the issuance, amendment,
renewal or extension of any Letter of Credit shall be deemed to constitute a
representation and warranty by the Borrower on the date thereof as to the
matters specified in Section 6.02(a) through (e).
 
ARTICLE VII
Representations and Warranties
 
The Borrower represents and warrants to the Lenders that:
 
Section 7.01 Organization; Powers.  Each of the Borrower and the Subsidiaries is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, has all requisite power and authority, and has
all material governmental licenses, authorizations, consents and approvals
necessary, to own its assets and to carry on its business as now conducted, and
is qualified to do business in, and is in good standing in, every jurisdiction
where such qualification is required, except where failure to have such power,
authority, licenses, authorizations, consents, approvals and qualifications
could not reasonably be expected to have a Material Adverse Effect.
 
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Section 7.02 Authority; Enforceability.  The Transactions are within the
Borrower’s and each Guarantor’s corporate powers and have been duly authorized
by all necessary corporate and, if required, stockholder action (including,
without limitation, any action required to be taken by any class of directors of
the Borrower or any other Person, whether interested or disinterested, in order
to ensure the due authorization of the Transactions).  Each Loan Document to
which the Borrower and each Guarantor is a party has been duly executed and
delivered by the Borrower and such Guarantor and constitutes a legal, valid and
binding obligation of the Borrower and such Guarantor, as applicable,
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors’ rights
generally and subject to general principles of equity, regardless of whether
considered in a proceeding in equity or at law.
 
Section 7.03 Approvals; No Conflicts.  The Transactions (a) do not require any
consent or approval of, registration or filing with, or any other action by, any
Governmental Authority or any other third Person (including shareholders or any
class of directors, whether interested or disinterested, of the Borrower or any
other Person), nor is any such consent, approval, registration, filing or other
action necessary for the validity or enforceability of any Loan Document or the
consummation of the transactions contemplated thereby, except such as have been
obtained or made and are in full force and effect other than (i) the recording
and filing of the Security Instruments as required by this Agreement and (ii)
those third party approvals or consents which, if not made or obtained, would
not cause a Default hereunder, could not reasonably be expected to have a
Material Adverse Effect or do not have an adverse effect on the enforceability
of the Loan Documents, (b) will not violate any applicable law or regulation or
any Organizational Document of the Borrower or any Subsidiary or any order of
any Governmental Authority, (c) will not violate or result in a default under
any indenture or other material agreement or instrument binding upon the
Borrower or any Subsidiary or its Properties, or give rise to a right thereunder
to require any payment to be made by the Borrower or such Subsidiary and (d)
will not result in the creation or imposition of any Lien on any Property of the
Borrower or any Subsidiary (other than the Liens created by the Loan Documents).
 
Section 7.04 Financial Condition; No Material Adverse Change.
 
(a) The Borrower has heretofore furnished to the Lenders its audited or
unaudited, as applicable, consolidated balance sheet and statements of income,
stockholders equity and cash flows (i) as of and for the fiscal year ended
December 31, 2007, reported on by Malone & Bailey PC, independent public
accountants, and (ii) as of and for the fiscal quarter and the portion of the
fiscal year ended March 31, 2008, certified by a Financial Officer.  Such
financial statements present fairly, in all material respects, the financial
position and results of operations and cash flows of the Borrower and its
Consolidated Subsidiaries as of such dates and for such periods in accordance
with GAAP, subject to year-end audit adjustments and the absence of footnotes in
the case of the unaudited quarterly financial statements.
 
(b) Since December 31, 2007, (i) there has been no event, development or
circumstance that has had or could reasonably be expected to have a Material
Adverse Effect and (ii) the business of the Borrower and its Subsidiaries has
been conducted only in the ordinary course consistent with past business
practices.
 
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(c) Except as set forth in Schedule 7.04, neither the Borrower nor any
Subsidiary has on the date hereof any material Debt (including Disqualified
Capital Stock) or any contingent liabilities, off-balance sheet liabilities or
partnerships, liabilities for taxes, unusual forward or long-term commitments or
unrealized or anticipated losses from any unfavorable commitments, except as
referred to or reflected or provided for in the Financial Statements.
 
Section 7.05 Litigation.
 
(a) Except as set forth on Schedule 7.05, there are no actions, suits,
investigations or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of the Borrower, threatened
against or affecting the Borrower or any Subsidiary (i) as to which there is a
reasonable possibility of an adverse determination that, if adversely
determined, could reasonably be expected, individually or in the aggregate, to
result in a Material Adverse Effect or (ii) that involve any Loan Document or
the Transactions.
 
(b) Since the date of this Agreement, there has been no change in the status of
the matters disclosed in Schedule 7.05 that, individually or in the aggregate,
has resulted in, or materially increased the likelihood of, a Material Adverse
Effect.
 
Section 7.06 Environmental Matters.  Except for such matters that, individually
or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect on the Borrower:
 
(a) the Borrower and the Subsidiaries and each of their respective Properties
and operations thereon are, and within all applicable statute of limitation
periods have been, in compliance with all applicable Environmental Laws.
 
(b) the Borrower and the Subsidiaries have obtained all Environmental Permits
required for their respective operations and each of their Properties, with all
such Environmental Permits being currently in full force and effect, and none of
Borrower or the Subsidiaries has received any written notice or otherwise has
knowledge that any such existing Environmental Permit will be revoked or that
any application for any new Environmental Permit or renewal of any existing
Environmental Permit will be protested or denied.
 
(c) there are no claims, demands, suits, orders, inquiries, or proceedings
concerning any violation of, or any liability (including as a potentially
responsible party) under, any applicable Environmental Laws that is pending or,
to Borrower’s knowledge, threatened against the Borrower or any Subsidiary or
any of their respective Properties or as a result of any operations at such
Properties.
 
(d) none of the Properties of the Borrower or any Subsidiary contain or have
contained any:  (i) underground storage tanks; (ii) asbestos-containing
materials; (iii) landfills or dumps; (iv) hazardous waste management units as
defined pursuant to RCRA or any comparable state law; or (v) sites on or
nominated for the National Priority List promulgated pursuant to CERCLA or any
state remedial priority list promulgated or published pursuant to any comparable
state law.
 
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(e) there has been no Release or, to the Borrower’s knowledge, threatened
Release, of Hazardous Materials at, on, under or from the Borrower’s or any
Subsidiary’s Properties, there are no investigations, remediations, abatements,
removals, or monitorings of Hazardous Materials required under applicable
Environmental Laws at such Properties and, to the knowledge of the Borrower,
none of such Properties are adversely affected by any Release or threatened
Release of a Hazardous Material originating or emanating from any other real
property.
 
(f) neither the Borrower nor any Subsidiary has received any written notice
asserting an alleged liability or obligation under any applicable Environmental
Laws with respect to the investigation, remediation, abatement, removal, or
monitoring of any Hazardous Materials at, under, or Released or threatened to be
Released from any real properties offsite the Borrower’s or any Subsidiary’s
Properties and, to the Borrower’s knowledge, there are no conditions or
circumstances that could reasonably be expected to result in the receipt of such
written notice.
 
(g) there has been no exposure of any Person or Property to any Hazardous
Materials as a result of or in connection with the operations and businesses of
any of the Borrower’s or the Subsidiaries’ Properties that could reasonably be
expected to form the basis for a claim for damages or compensation.
 
(h) the Borrower and the Subsidiaries have provided to the Lenders complete and
correct copies of all environmental site assessment reports, investigations,
studies, analyses, and correspondence on environmental matters (including
matters relating to any alleged non-compliance with or liability under
Environmental Laws) that are in any of the Borrower’s or its Subsidiaries’
possession or control and relating to their respective Properties or operations
thereon.
 
Section 7.07 Compliance with the Laws and Agreements; No Defaults.
 
(a) Each of the Borrower and each Subsidiary is in compliance with all
Governmental Requirements applicable to it or its Property and all agreements
and other instruments binding upon it or its Property, and possesses all
licenses, permits, franchises, exemptions, approvals and other authorizations
granted by Governmental Authorities necessary for the ownership of its Property
and the conduct of its business, except where the failure to do so, individually
or in the aggregate, could not reasonably be expected to result in a Material
Adverse Effect.
 
(b) Neither the Borrower nor any of its Subsidiaries is in default nor has any
event or circumstance occurred which, but for the expiration of any applicable
grace period or the giving of notice, or both, would constitute a default or
would require the Borrower or a Subsidiary to Redeem or make any offer to Redeem
under any indenture, note, credit agreement or instrument pursuant to which any
Material Indebtedness is outstanding or by which the Borrower or any of its
Subsidiaries or any of their Properties is bound.
 
(c) No Default has occurred and is continuing.
 
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Section 7.08 Investment Company Act.  Neither the Borrower nor any of its
Subsidiaries is an “investment company” or a company “controlled” by an
“investment company,” within the meaning of, or subject to regulation under, the
Investment Company Act of 1940, as amended.
 
Section 7.09 Taxes.  Each of the Borrower and its Subsidiaries has timely filed
or caused to be filed all Tax returns and reports required to have been filed
and has paid or caused to be paid all Taxes required to have been paid by it,
except (a) Taxes that are being contested in good faith by appropriate
proceedings and for which the Borrower or such Subsidiary, as applicable, has
set aside on its books adequate reserves in accordance with GAAP or (b) to the
extent that the failure to do so could not reasonably be expected to result in a
Material Adverse Effect.  The charges, accruals and reserves on the books of the
Borrower and its Subsidiaries in respect of Taxes and other governmental charges
are, in the reasonable opinion of the Borrower, adequate.  No Tax Lien has been
filed and, to the knowledge of the Borrower, no claim is being asserted with
respect to any such Tax or other such governmental charge.
 
Section 7.10 ERISA.
 
(a) The Borrower, the Subsidiaries and each ERISA Affiliate have complied in all
material respects with ERISA and, where applicable, the Code regarding each
Plan.
 
(b) Each Plan is, and has been, established and maintained in substantial
compliance with its terms, ERISA and, where applicable, the Code.
 
(c) No act, omission or transaction has occurred which could result in
imposition on the Borrower, any Subsidiary or any ERISA Affiliate (whether
directly or indirectly) of (i) either a civil penalty assessed pursuant to
subsections (c), (i), (l) or (m) of section 502 of ERISA or a tax imposed
pursuant to Chapter 43 of Subtitle D of the Code or (ii) breach of fiduciary
duty liability damages under section 409 of ERISA.
 
(d) Full payment when due has been made of all amounts which the Borrower, the
Subsidiaries or any ERISA Affiliate is required under the terms of each Plan or
applicable law to have paid as contributions to such Plan as of the date hereof.
 
(e) Neither the Borrower, the Subsidiaries nor any ERISA Affiliate sponsors,
maintains, or contributes to an employee welfare benefit plan, as defined in
section 3(1) of ERISA, including, without limitation, any such plan maintained
to provide benefits to former employees of such entities, that may not be
terminated by the Borrower, a Subsidiary or any ERISA Affiliate in its sole
discretion at any time without any material liability.
 
(f) Neither the Borrower, the Subsidiaries nor any ERISA Affiliate sponsors,
maintains or contributes to, or has at any time in the six-year period preceding
the date hereof sponsored, maintained or contributed to, any employee pension
benefit plan, as defined in section 3(2) of ERISA, that is subject to Title IV
of ERISA, section 302 of ERISA or section 412 of the Code.
 
Section 7.11 Disclosure; No Material Misstatements.  The Borrower has disclosed
to the Administrative Agent and the Lenders all agreements, instruments and
corporate or other
 
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restrictions to which it or any of its Subsidiaries is subject, and all other
matters known to it, that, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect.  None of the other reports,
financial statements, certificates or other information furnished by or on
behalf of the Borrower or any Subsidiary to the Administrative Agent or any
Lender or any of their Affiliates in connection with the negotiation of this
Agreement or any other Loan Document or delivered hereunder or under any other
Loan Document (as modified or supplemented by other information so furnished)
contains any material misstatement of fact or omits to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided that, with respect to
projected financial information, the Borrower represents only that such
information was prepared in good faith based upon assumptions believed to be
reasonable at the time.  There is no fact peculiar to the Borrower or any
Subsidiary which could reasonably be expected to have a Material Adverse Effect
or in the future is reasonably likely to have a Material Adverse Effect and
which has not been set forth in this Agreement or the Loan Documents or the
other documents, certificates and statements furnished to the Administrative
Agent or the Lenders by or on behalf of the Borrower or any Subsidiary prior to,
or on, the date hereof in connection with the transactions contemplated
hereby.  There are no statements or conclusions in any Reserve Report which are
based upon or include misleading information or fail to take into account
material information regarding the matters reported therein.
 
Section 7.12 Insurance.  The Borrower has, and has caused all of its
Subsidiaries to have, (a) all insurance policies sufficient for the compliance
by each of them with all material Governmental Requirements and all material
agreements and (b) insurance coverage in at least amounts and against such risk
(including, without limitation, public liability) that are usually insured
against by companies similarly situated and engaged in the same or a similar
business for the assets and operations of the Borrower and its
Subsidiaries.  The Administrative Agent and the Lenders have been named as
additional insureds in respect of such liability insurance policies and the
Administrative Agent has been named as loss payee with respect to Property loss
insurance.
 
Section 7.13 Restriction on Liens.  Neither the Borrower nor any of the
Subsidiaries is a party to any material agreement or arrangement (other than
Capital Leases and other agreements creating Liens permitted by Section 9.03(c)
and (d), but then only on the Property subject of such Capital Lease or
agreement), or subject to any order, judgment, writ or decree, which either
restricts or purports to restrict its ability to grant Liens to the
Administrative Agent and the Lenders on or in respect of their Properties to
secure the Indebtedness and the Loan Documents.
 
Section 7.14 Subsidiaries.  Except as set forth on Schedule 7.14 or as disclosed
in writing to the Administrative Agent (which shall promptly furnish a copy to
the Lenders), which shall be a supplement to Schedule 7.14, the Borrower has no
Subsidiaries and the Borrower has no Foreign Subsidiaries.
 
Section 7.15 Location of Business and Offices.  The Borrower’s jurisdiction of
organization is Delaware; the name of the Borrower as listed in the public
records of its jurisdiction of organization is Petro Resources Corporation; and
the organizational identification number of the Borrower in its jurisdiction of
organization is 2758331 (or, in each case, as set forth in a notice delivered to
the Administrative Agent pursuant to Section 8.01(k) in accordance with Section
12.01).  The Borrower’s principal place of business and chief executive offices
are located at the address specified in Section 12.01 (or as set forth in a
notice delivered pursuant to Section 8.01(k) and Section 12.01(c)).  Each
Subsidiary’s jurisdiction of organization, name as listed in the public records
of its jurisdiction of organization, organizational identification number in its
jurisdiction of organization, and the location of its principal place of
business and chief executive office is stated on Schedule 7.15 (or as set forth
in a notice delivered pursuant to Section 8.01(k)).
 
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Section 7.16 Properties; Titles, Etc.
 
(a) Each of the Borrower and its Subsidiaries has good and defensible title to
the Oil and Gas Properties evaluated in the most recently delivered Reserve
Report and good title to all its personal Properties, in each case, free and
clear of all Liens except Liens permitted by Section 9.03.  After giving full
effect to the Excepted Liens, the Borrower or the Subsidiary specified as the
owner owns at least the net interests in production attributable to the
Hydrocarbon Interests as reflected in the most recently delivered Reserve
Report, and the ownership of such Properties shall not in any material respect
obligate the Borrower or such Subsidiary to bear the costs and expenses relating
to the maintenance, development and operations of each such Property in an
amount in excess of the working interest of each Property set forth in the most
recently delivered Reserve Report that is not offset by a corresponding
proportionate increase in the Borrower’s or such Subsidiary’s net revenue
interest in such Property.
 
(b) All material leases and agreements necessary for the conduct of the business
of the Borrower and its Subsidiaries are valid and subsisting, in full force and
effect, and there exists no default or event or circumstance which with the
giving of notice or the passage of time or both would give rise to a default
under any such lease or leases, which could reasonably be expected to have a
Material Adverse Effect.
 
(c) The rights and Properties presently owned, leased or licensed by the
Borrower and the Subsidiaries including, without limitation, all easements and
rights of way, include all rights and Properties necessary to permit the
Borrower and the Subsidiaries to conduct their business in all material respects
in the same manner as its business has been conducted prior to the date hereof.
 
(d) All of the Properties of the Borrower and the Subsidiaries which are
reasonably necessary for the operation of their businesses are in good working
condition and are maintained in accordance with prudent business standards.
 
(e) The Borrower and each Subsidiary owns, or is licensed to use, all
trademarks, tradenames, copyrights, patents and other intellectual Property
material to its business, and the use thereof by the Borrower and such
Subsidiary does not and will not infringe upon the rights of any other Person,
except for any such infringements that, individually or in the aggregate, could
not reasonably be expected to result in a Material Adverse Effect.  The Borrower
and its Subsidiaries either own or have valid licenses or other rights to use
all databases, geological data, geophysical data, engineering data, seismic
data, maps, interpretations and other technical information used in their
businesses as presently conducted, subject to the limitations contained in the
agreements governing the use of the same, which limitations are customary for
companies engaged in the business of the exploration and production of
Hydrocarbons, with such exceptions as could not reasonably be expected to have a
Material Adverse Effect.
 
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Section 7.17 Maintenance of Properties.  Except for such acts or failures to act
as could not be reasonably expected to have a Material Adverse Effect, the Oil
and Gas Properties (and Properties unitized therewith) of the Borrower and its
Subsidiaries have been maintained, operated and developed in a good and
workmanlike manner and in conformity with all Governmental Requirements and in
conformity with the provisions of all leases, subleases or other contracts
comprising a part of the Hydrocarbon Interests and other contracts and
agreements forming a part of the Oil and Gas Properties of the Borrower and its
Subsidiaries.  Specifically in connection with the foregoing, except for those
as could not be reasonably expected to have a Material Adverse Effect, (i) no
Oil and Gas Property of the Borrower or any Subsidiary is subject to having
allowable production reduced below the full and regular allowable (including the
maximum permissible tolerance) because of any overproduction (whether or not the
same was permissible at the time) and (ii) none of the wells comprising a part
of the Oil and Gas Properties (or Properties unitized therewith) of the Borrower
or any Subsidiary is deviated from the vertical more than the maximum permitted
by Governmental Requirements, and such wells are, in fact, bottomed under and
are producing from, and the well bores are wholly within, the Oil and Gas
Properties (or in the case of wells located on Properties unitized therewith,
such unitized Properties) of the Borrower or such Subsidiary.  All pipelines,
wells, gas processing plants, platforms and other material improvements,
fixtures and equipment owned in whole or in part by the Borrower or any of its
Subsidiaries that are necessary to conduct normal operations are being
maintained in a state adequate to conduct normal operations, and with respect to
such of the foregoing which are operated by the Borrower or any of its
Subsidiaries, in a manner consistent with the Borrower’s or its Subsidiaries’
past practices (other than those the failure of which to maintain in accordance
with this Section 7.17 could not reasonably be expected to have a Material
Adverse Effect).
 
Section 7.18 Gas Imbalances, Prepayments.  Except as set forth on Schedule 7.18
or on the most recent certificate delivered pursuant to Section 8.11(c), on a
net basis there are no gas imbalances, take or pay or other prepayments which
would require the Borrower or any of its Subsidiaries to deliver Hydrocarbons
produced from the Oil and Gas Properties at some future time without then or
thereafter receiving full payment therefor exceeding two percent (2%) of the
Borrower’s and its Subsidiaries’ Proved Reserves of natural gas (on an mcf
equivalent basis) in the aggregate.
 
Section 7.19 Marketing of Production.  Except for contracts listed and in effect
on the date hereof on Schedule 7.19, and thereafter either disclosed in writing
to the Administrative Agent or included in the most recently delivered Reserve
Report (with respect to all of which contracts the Borrower represents that it
or its Subsidiaries are receiving a price for all production sold thereunder
which is computed substantially in accordance with the terms of the relevant
contract and are not having deliveries curtailed substantially below the subject
Property’s delivery capacity), no material agreements exist which are not
cancelable on 60 days notice or less without penalty or detriment for the sale
of production from the Borrower’s or its Subsidiaries’ Hydrocarbons (including,
without limitation, calls on or other rights to purchase, production, whether or
not the same are currently being exercised) that (a) pertain to the sale of
production at a fixed price and (b) have a maturity or expiry date of longer
than six (6) months from the date hereof.
 
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Section 7.20 Swap Agreements.  Schedule 7.20, as of the date hereof, and after
the date hereof, each report required to be delivered by the Borrower pursuant
to Section 8.01(d), sets forth, a true and complete list of all Swap Agreements
of the Borrower and each Subsidiary, the material terms thereof (including the
type, term, effective date, termination date and notional amounts or volumes),
the net mark to market value thereof, all credit support agreements relating
thereto (including any margin required or supplied) and the counterparty to each
such agreement.
 
Section 7.21 Use of Loans and Letters of Credit.  The proceeds of the Loans and
the Letters of Credit shall be used to provide working capital for exploration
and production operations as set forth in the Development Plan, to refinance
Debt under the Existing Credit Agreement, and for general corporate purposes,
including, without limitation, to redeem the Touradji Preferred Equity.  The
Borrower and its Subsidiaries are not engaged principally, or as one of its or
their important activities, in the business of extending credit for the purpose,
whether immediate, incidental or ultimate, of buying or carrying margin stock
(within the meaning of Regulation T, U or X of the Board).  No part of the
proceeds of any Loan or Letter of Credit will be used for any purpose which
violates the provisions of Regulations T, U or X of the Board.
 
Section 7.22 Solvency.  After giving effect to the transactions contemplated
hereby, (a) the aggregate assets (after giving effect to amounts that could
reasonably be received by reason of indemnity, offset, insurance or any similar
arrangement), at a fair valuation, of the Borrower and the Guarantors, taken as
a whole, will exceed the aggregate Debt of the Borrower and the Guarantors on a
consolidated basis, as the Debt becomes absolute and matures, (b) each of the
Borrower and the Guarantors has not incurred and does not intend to incur, and
does not believe that it will incur, Debt beyond its ability to pay such Debt
(after taking into account the timing and amounts of cash to be received by each
of the Borrower and the Guarantors and the amounts to be payable on or in
respect of its liabilities, and giving effect to amounts that could reasonably
be received by reason of indemnity, offset, insurance or any similar
arrangement) as such Debt becomes absolute and matures and (c) each of the
Borrower and the Guarantors will not have (and will have no reason to believe
that it will have thereafter) unreasonably small capital for the conduct of its
business.
 
Section 7.23 Casualty Events.  Since December 31, 2007, neither the business nor
any Properties of the Borrower have been materially and adversely affected as a
result of any fire, explosion, earthquake, flood, drought, windstorm, accident,
strike or other labor disturbance, embargo, requisition or taking of Property or
cancellation of contracts, permits or concessions by any domestic or foreign
Governmental Authority, riot, activities or armed forces or acts of God or of
any public enemy.
 
Section 7.24 Material Agreements.  Set forth on Schedule 7.24 hereto is a
complete and correct list of all material agreements and other instruments
currently maintained by the Borrower setting forth each counterparty thereto
(other than the Loan Documents) relating to the purchase, transportation by
pipeline, gas processing, marketing, development, sale and supply of
 
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Hydrocarbons, farmout arrangements, joint operating agreements, contract
operating agreements or other material contracts (excluding oil and gas leases
of the Borrower) to which the Borrower is a party on or after the Effective Date
or by which its Properties is bound on or after the Effective Date (collectively
“Material Agreements”) and copies of such documents have been provided to the
Administrative Agent.  All such agreements are in full force and effect and the
Borrower is not in default thereunder, nor is there any uncured default by any
Affiliate predecessor in interest to the Borrower or, to the Borrower’s
knowledge, by any predecessor in interest to the Borrower (other than an
Affiliate predecessor) or counterparty thereto, except, in each case, defaults
which could not reasonably be expected to cause a Material Adverse Effect, nor
has the Borrower altered any material item of such agreements since the
Effective Date without the prior written consent of the Lenders
 
Section 7.25 No Brokers.  No Person, other than Canaccord Adams Inc., is
entitled to any brokerage fee or finders fee or similar fee or commission in
connection with arranging the Loans contemplated by this Agreement.
 
Section 7.26 Reliance.  In connection with the negotiation of and the entering
into this Agreement, the Borrower acknowledges and represents that none of the
Lenders, the Administrative Agent, the Arranger, or any representative of any of
the foregoing is acting as a fiduciary or financial or investment advisor for
it; it is not relying upon any representations (whether written or oral) of such
Persons; it has consulted with its own legal, regulatory, tax, business
investment, financial and accounting advisors to the extent it has deemed
necessary, and it has made its own investment, hedging, and trading decisions
based upon its own judgment and upon any advice from such advisors as it has
deemed necessary and not upon any view expressed by any Lender, the
Administrative Agent, the Arranger, or any representative of any of the
foregoing; it has not been given by any Lender, the Administrative Agent, the
Arranger, or any representative of any of the foregoing (directly or indirectly
through any other Person) any advice, counsel, assurance, guarantee, or
representation whatsoever as to the expected or projected success,
profitability, return, performance, result, effect, consequence, or benefit
(either legal, regulatory, tax, financial, accounting, or otherwise) of this
Agreement or the transactions contemplated hereby; and it is entering into this
Agreement and the other Loan Documents with a full understanding of all of the
risks hereof and thereof (economic and otherwise), and it is capable of assuming
and willing to assume (financially and otherwise) those risks.
 
Section 7.27 Payments by Purchasers of Production.  All proceeds from the sale
of the Borrower’s interests in Hydrocarbons from its Oil and Gas Properties are
currently being paid in full to the Borrower by the purchaser thereof on a
timely basis and at prices and terms comparable to market prices and terms
generally available at the time such prices and terms were negotiated for oil
and gas production from producing areas situated near such Oil and Gas
Properties, and none of such proceeds are currently being held in suspense by
such purchaser or any other Person.
 
Section 7.28 Existing Accounts Payable.  Set forth on Schedule 7.28 hereto is a
complete and correct list of all existing accounts payable of the Borrower that
are more than 90 days past due as of the Effective Date.
 
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Section 7.29 Development Plan.
 
(a) The Administrative Agent has been provided with a true and correct copy of
the initial Development Plan, which is attached hereto as Exhibit E.
 
(b) The Borrower has obtained all consents from Governmental Authorities
necessary to implement and complete in all material respects the Development
Plan as in effect on the Effective Date.
 
(c) The Development Plan covers all work reasonably necessary (i) to drill and
complete all wells scheduled to be drilled thereunder, (ii) to construct,
install and commence operations of the production facilities related thereto and
(iii) to complete and operate all injection wells as contemplated in connection
therewith.  The budget (including the budget for capital costs described
therein) for the Development Plan has been prepared by the Borrower in good
faith and represents the total costs and expenses anticipated by the
Borrower.  The development schedule in the Development Plan is realistic and
feasible.
 
ARTICLE VIII
Affirmative Covenants
 
Until the Commitments have expired or been terminated and the principal of and
interest on each Loan and all fees payable hereunder and all other amounts
payable under the Loan Documents shall have been paid in full and all Letters of
Credit shall have expired or terminated and all LC Disbursements shall have been
reimbursed, the Borrower covenants and agrees with the Lenders that:
 
Section 8.01 Financial Statements; Ratings Change; Other Information.  The
Borrower will furnish to the Administrative Agent and each Lender:
 
(a) Annual Financial Statements.  As soon as available, but in any event in
accordance with then applicable law and not later than ninety (90) days after
the end of each fiscal year of the Borrower, its audited consolidated balance
sheet and related statements of operations, stockholders’ equity and cash flows
as of the end of and for such year, setting forth in each case in comparative
form the figures for the previous fiscal year, all reported on by independent
public accountants reasonably acceptable to the Administrative Agent (without a
“going concern” or like qualification or exception and without any qualification
or exception as to the scope of such audit) to the effect that such consolidated
financial statements present fairly in all material respects the financial
condition and results of operations of the Borrower and its Consolidated
Subsidiaries on a consolidated basis in accordance with GAAP consistently
applied.
 
(b) Quarterly Financial Statements.  As soon as available, but in any event in
accordance with then applicable law and not later than forty-five (45) days
after the end of each of the first three fiscal quarters of each fiscal year of
the Borrower, its consolidated balance sheet and related statements of
operations, stockholders’ equity and cash flows as of the end of and for such
fiscal quarter and the then elapsed portion of the fiscal year, setting forth in
each case in comparative form the figures for the corresponding period or
periods of (or, in the case of the balance sheet, as of the end of) the previous
fiscal year, all certified by a Financial Officer as presenting fairly in all
material respects the financial condition and results of operations of the
Borrower and its Consolidated Subsidiaries on a consolidated basis in accordance
with GAAP consistently applied, subject to normal year-end audit adjustments and
the absence of footnotes.
 
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(c) Certificate of Financial Officer -- Compliance.  Concurrently with any
delivery of financial statements under Section 8.01(a) or Section 8.01(b), a
certificate of a Financial Officer in substantially the form of Exhibit D hereto
(i) certifying as to whether a Default has occurred and, if a Default has
occurred, specifying the details thereof and any action taken or proposed to be
taken with respect thereto, (ii) setting forth reasonably detailed calculations
demonstrating compliance with Section 8.12(b) and Section 9.01, (iii) stating
whether any change in GAAP or in the application thereof has occurred since the
date of the audited financial statements referred to in Section 7.04 and, if any
such change has occurred, specifying the effect of such change on the financial
statements accompanying such certificate, and (iv) if, at any time, all the
Consolidated Subsidiaries of the Borrower are not Consolidated Subsidiaries,
setting forth consolidating spreadsheets that show all Consolidated Subsidiaries
and the eliminating entries, in such form as would be presentable to the
auditors of the Borrower.
 
(d) Certificate of Financial Officer – Swap Agreements.  Concurrently with any
delivery of financial statements under Section 8.01(a) and Section 8.01(b), a
certificate of a Financial Officer, in form and substance satisfactory to the
Administrative Agent, setting forth as of the last Business Day of such fiscal
quarter or fiscal year, a true and complete list of all Swap Agreements of the
Borrower and each Subsidiary, the material terms thereof (including the type,
term, effective date, termination date and notional amounts or volumes), the net
mark-to-market value therefor, any new credit support agreements relating
thereto not listed on Schedule 7.20, any margin required or supplied under any
credit support document, and the counterparty to each such agreement.
 
(e) Certificate of Insurer -- Insurance Coverage.  Upon change or renewal, a
certificate of insurance coverage from each insurer with respect to the
insurance required by Section 8.06, in form and substance satisfactory to the
Administrative Agent, and, if requested by the Administrative Agent or any
Lender, all copies of the applicable policies.
 
(f) Other Accounting Reports.  Promptly upon receipt thereof, a copy of each
other report or letter submitted to the Borrower or any of its Subsidiaries by
independent accountants in connection with any annual, interim or special audit
made by them of the books of the Borrower or any such Subsidiary, and a copy of
any response by the Borrower or any such Subsidiary, or the Board of Directors
of the Borrower or any such Subsidiary, to such letter or report.
 
(g) Notices Under Material Instruments.  Promptly after the furnishing thereof,
copies of any financial statement, report or notice furnished to or by any
Person pursuant to the terms of any preferred stock designation, indenture, loan
or credit or other similar agreement, other than this Agreement and not
otherwise required to be furnished to the Lenders pursuant to any other
provision of this Section 8.01.
 
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(h) Lists of Purchasers.  Concurrently with the delivery of any Reserve Report
to the Administrative Agent pursuant to Section 8.11, a list of all Persons
purchasing Hydrocarbons from the Borrower or any Subsidiary.
 
(i) Notice of Sales of Oil and Gas Properties.  In the event the Borrower or any
Subsidiary intends to sell, transfer, assign or otherwise dispose of any Oil or
Gas Properties or any Equity Interests in any Subsidiary in accordance with
Section 9.12, prior written notice of such disposition, the price thereof and
the anticipated date of closing and any other details thereof requested by the
Administrative Agent or any Lender.
 
(j) Notice of Litigation/Casualty Events.  Prompt written notice, and in any
event within three Business Days, of the delivery of any demand letter, or the
filing of any lawsuit or arbitration proceeding or the occurrence of any
Casualty Event or the commencement of any action or proceeding that could
reasonably be expected to result in a demand notice, lawsuit, arbitration
proceeding or Casualty Event.
 
(k) Information Regarding Borrower and Guarantors.  Prompt written notice (and
in any event within fifteen (15) days prior thereto) of any change (i) in the
Borrower or any Guarantor’s corporate name or in any trade name used to identify
such Person in the conduct of its business or in the ownership of its
Properties, (ii) in the location of the Borrower or any Guarantor’s chief
executive office or principal place of business, (iii) in the Borrower or any
Guarantor’s identity or corporate structure or in the jurisdiction in which such
Person is incorporated or formed, (iv) in the Borrower or any Guarantor’s
jurisdiction of organization or such Person’s organizational identification
number in such jurisdiction of organization, and (v) in the Borrower or any
Guarantor’s federal taxpayer identification number.
 
(l) Other Reports.  The Borrower shall prepare and provide the Lenders and
Administrative Agent the following reports:
 
(i) on a monthly basis by the 30th of each month after the end of each calendar
month, a report setting forth, for the immediately preceding calendar month, the
volume of production and sales attributable to production (and the prices at
which such sales were made and the revenues derived from such sales) for each
such calendar month from the Oil and Gas Properties described in the most recent
Reserve Report, and setting forth the related ad valorem, severance and
production taxes and lease operating expenses attributable thereto and incurred
for each such calendar month;
 
(ii) after the occurrence and during the continuance of any Borrowing Base
Deficiency, the Borrower shall provide, on a monthly basis on the 15th of each
such month, a report setting forth, for the immediately preceding calendar
month, the Borrower’s Excess Cash Flow;
 
(iii) on a quarterly basis by the 30th of each month after the end of each
calendar quarter, an updated report setting forth the Borrower’s forecasted
Development Plan for the following twelve (12) month period.
 
(iv) such other information as the Administrative Agent may reasonably request.
 
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(m) Notices of Certain Changes.  Promptly, but in any event within ten (10)
Business Days after the execution thereof, copies of any amendment, modification
or supplement to the Organizational Documents, any preferred stock designation
or any other organic document of the Borrower or any Subsidiary.
 
(n) Other Requested Information.  Promptly following any request therefor, such
other information regarding the operations, business affairs and financial
condition of the Borrower or any Subsidiary (including, without limitation, any
Plan or Multiemployer Plan and any reports or other information required to be
filed under ERISA), or compliance with the terms of this Agreement or any other
Loan Document, in each case, as the Administrative Agent or any Lender may
reasonably request.
 
Section 8.02 Notices of Material Events.  The Borrower will furnish to the
Administrative Agent and each Lender prompt written notice of the following:
 
(a) the occurrence of any Default;
 
(b) the filing or commencement of, or the threat in writing of, any action,
suit, proceeding, investigation or arbitration by or before any arbitrator or
Governmental Authority against or affecting the Borrower or any Affiliate
thereof not previously disclosed in writing to the Lenders or any material
adverse development in any action, suit, proceeding, investigation or
arbitration (whether or not previously disclosed to the Lenders) that, in either
case, if adversely determined, could reasonably be expected to result in a
Material Adverse Effect; and
 
(c) any other development that results in, or could reasonably be expected to
result in, a Material Adverse Effect.
 
Each notice delivered under this Section 8.02 shall be accompanied by a
statement of a Responsible Officer setting forth the details of the event or
development requiring such notice and any action taken or proposed to be taken
with respect thereto.
 
Section 8.03 Existence; Conduct of Business.  The Borrower will, and will cause
each Subsidiary to, do or cause to be done all things necessary to preserve,
renew and keep in full force and effect its legal existence and the rights,
licenses, permits, privileges and franchises material to the conduct of its
business and maintain, if necessary, its qualification to do business in each
jurisdiction in which its Oil and Gas Properties is located or the ownership of
its Properties requires such qualification, except where the failure to so
qualify could not reasonably be expected to have a Material Adverse Effect;
provided that the foregoing shall not prohibit any merger, consolidation,
liquidation or dissolution permitted under Section 9.11.
 
Section 8.04 Payment of Obligations.  The Borrower will, and will cause each
Subsidiary to, pay its obligations, including Tax liabilities of the Borrower
and all of its Subsidiaries before the same shall become delinquent or in
default, except where (a) the validity or amount thereof is being contested in
good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has
set aside on its books adequate reserves with respect thereto in accordance with
GAAP and (c) the failure to make payment pending such contest could not
reasonably be expected to result in a Material Adverse Effect or result in the
seizure or levy of any Property of the Borrower or any Subsidiary.
 
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Section 8.05 Operation and Maintenance of Properties.  The Borrower, at its own
expense, will, and will cause each Subsidiary to:
 
(a) operate its Oil and Gas Properties and other material Properties or cause
such Oil and Gas Properties and other material Properties to be operated in a
careful and efficient manner in accordance with the practices of the industry
and in compliance with all applicable contracts and agreements and in compliance
with all Governmental Requirements, including, without limitation, applicable
proration requirements and Environmental Laws, and all applicable laws, rules
and regulations of every other Governmental Authority from time to time
constituted to regulate the development and operation of its Oil and Gas
Properties and the production and sale of Hydrocarbons and other minerals
therefrom, except, in each case, where the failure to comply could not
reasonably be expected to have a Material Adverse Effect;
 
(b) keep, preserve and maintain all Property material to the conduct of its
business in good working order and condition, ordinary wear and tear excepted,
and preserve, maintain and keep in good repair, working order and efficiency
(ordinary wear and tear excepted) all of its material Oil and Gas Properties and
other material Properties, including, without limitation, all equipment,
machinery and facilities, except where the failure to do so could not be
reasonably be expected to have a Material Adverse Effect;
 
(c) promptly pay and discharge, or make reasonable and customary efforts to
cause to be paid and discharged, all delay rentals, royalties, expenses and
indebtedness accruing under the leases or other agreements affecting or
pertaining to its Oil and Gas Properties and will do all other things necessary
to keep unimpaired their rights with respect thereto and prevent any forfeiture
thereof or default thereunder, provided that, the Borrower and its Subsidiaries
may pay any such items into suspense if such action is taken in good faith in
the ordinary course of business;
 
(d) promptly perform or make reasonable and customary efforts to cause to be
performed, in accordance with industry standards, the obligations required by
each and all of the assignments, deeds, leases, sub-leases, contracts and
agreements affecting its interests in its Oil and Gas Properties and other
material Properties, except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect; and
 
(e) to the extent the Borrower is not the operator of any Property, the Borrower
shall use reasonable efforts to cause the operator to comply with this Section
8.05.
 
Section 8.06 Insurance.  The Borrower will, and will cause each Subsidiary to,
maintain, with financially sound and reputable insurance companies, insurance in
such amounts and against such risks as are customarily maintained by companies
engaged in the same or similar businesses operating in the same or similar
locations.  The loss payable clauses or provisions in said insurance policy or
policies insuring any of the collateral for the Loans shall be endorsed in favor
of and made payable to the Administrative Agent as its interests may appear and
such policies shall name the Administrative Agent and the Lenders as “additional
insureds” and provide that the insurer will endeavor to give at least 30 days
prior notice of any cancellation to the Administrative Agent.
 
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Section 8.07 Books and Records; Inspection Rights.  The Borrower will, and will
cause each Subsidiary to, keep proper books of record and account in which full,
true and correct entries are made of all dealings and transactions in relation
to its business and activities.  The Borrower will, and will cause each
Subsidiary to, permit any representatives designated by the Administrative Agent
or any Lender, upon reasonable prior notice, to visit and inspect its
Properties, to examine and make extracts from its books and records, undertake
appraisals of such Properties and to discuss its affairs, finances and condition
with its officers and independent accountants, all at such reasonable times and
as often as reasonably requested.
 
Section 8.08 Compliance with Laws.  The Borrower will, and will cause each
Subsidiary to, comply with all laws, rules, regulations and orders of any
Governmental Authority applicable to it or its Property, except (a) where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect or (b) in such instances in
which such law, rule, regulation or order is being contested in good faith by
appropriate proceedings diligently conducted.
 
Section 8.09 Environmental Matters.
 
(a) The Borrower shall at its sole expense: (i) comply, and shall cause its
Properties and operations and each Subsidiary and each Subsidiary’s Properties
and operations to comply, with all applicable Environmental Laws, the breach of
which could be reasonably expected to have a Material Adverse Effect; (ii) not
Release or threaten to Release, and shall cause each Subsidiary not to Release
or threaten to Release, any Hazardous Material on, under, about or from any of
the Borrower’s or its Subsidiaries’ Properties or any other property offsite the
Property to the extent caused by the Borrower’s or any of its Subsidiaries’
operations except in compliance with applicable Environmental Laws, the Release
or threatened Release of which could reasonably be expected to have a Material
Adverse Effect; (iii) timely obtain or file, and shall cause each Subsidiary to
timely obtain or file, all Environmental Permits, if any, required under
applicable Environmental Laws to be obtained or filed in connection with the
operation or use of the Borrower’s or its Subsidiaries’ Properties, which
failure to obtain or file could reasonably be expected to have a Material
Adverse Effect; (iv) promptly commence and diligently prosecute to completion,
and shall cause each Subsidiary to promptly commence and diligently prosecute to
completion, any assessment, evaluation, investigation, monitoring, containment,
cleanup, removal, repair, restoration, remediation or other remedial obligations
(collectively, the “Remedial Work”) in the event any Remedial Work is required
or reasonably necessary under applicable Environmental Laws because of or in
connection with the actual or suspected past, present or future Release or
threatened Release of any Hazardous Material on, under, about or from any of the
Borrower’s or its Subsidiaries’ Properties, which failure to commence and
diligently prosecute to completion could reasonably be expected to have a
Material Adverse Effect; (v) conduct, and cause its Subsidiaries to conduct,
their respective operations and businesses in a manner that will not expose any
Property or Person to Hazardous Materials that could reasonably be expected to
form the basis for a claim for damages or compensation; and (vi) establish and
implement, and shall cause each Subsidiary to establish and implement, such
procedures as may be necessary to continuously determine and assure that the
Borrower’s and its Subsidiaries’ obligations under this Section 8.09(a) are
timely and fully satisfied, which failure to establish and implement could
reasonably be expected to have a Material Adverse Effect.
 
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(b) The Borrower will promptly, but in no event later than five days of the
occurrence of a triggering event, notify the Administrative Agent and the
Lenders in writing of any threatened action, investigation or inquiry by any
Governmental Authority or any threatened demand or lawsuit by any Person against
the Borrower or its Subsidiaries or their Properties of which the Borrower has
knowledge in connection with any Environmental Laws if the Borrower could
reasonably anticipate that such action will result in liability (whether
individually or in the aggregate) in excess of $250,000, not fully covered by
insurance, subject to normal deductibles.
 
Section 8.10 Further Assurances.
 
(a) The Borrower at its sole expense will, and will cause each Subsidiary to,
promptly execute and deliver to the Administrative Agent all such other
documents, agreements and instruments reasonably requested by the Administrative
Agent to comply with, cure any defects or accomplish the conditions precedent,
covenants and agreements of the Borrower or any Subsidiary, as the case may be,
in the Loan Documents, including the Notes, or to further evidence and more
fully describe the collateral intended as security for the Indebtedness, or to
correct any omissions in this Agreement or the Security Instruments, or to state
more fully the obligations secured therein, or to perfect, protect or preserve
any Liens created pursuant to this Agreement or any of the Security Instruments
or the priority thereof, or to make any recordings, file any notices or obtain
any consents, all as may be reasonably necessary or appropriate, in the sole
discretion of the Administrative Agent, in connection therewith.
 
(b) The Borrower hereby authorizes the Administrative Agent to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Mortgaged Property without the signature of the Borrower or any
other Guarantor where permitted by law.  A carbon, photographic or other
reproduction of the Security Instruments or any financing statement covering the
Mortgaged Property or any part thereof shall be sufficient as a financing
statement where permitted by law.
 
Section 8.11 Reserve Reports.
 
(a) On or before April 1st and October 1st of each year, commencing April 1,
2009, the Borrower shall furnish to the Administrative Agent and the Lenders a
Reserve Report evaluating the Oil and Gas Properties of the Borrower and its
Subsidiaries as of the immediately preceding January 1st and July 1st.  The
Reserve Report as of January 1 of each year shall be prepared by one or more
Approved Petroleum Engineers, and the July 1 Reserve Report of each year shall
be prepared by or under the supervision of the chief reserve engineer of the
Borrower who shall certify such Reserve Report to be true and accurate and to
have been prepared in accordance with the procedures used in the immediately
preceding January 1 Reserve Report.  The Administrative Agent shall provide the
Borrower economic assumptions consistent with its lending requirements 30 days
prior to the date such Reserve Report is due.
 
(b) In the event of an Interim Redetermination, the Borrower shall furnish to
the Administrative Agent and the Lenders a Reserve Report prepared by or under
the supervision of the chief reserve engineer of the Borrower who shall certify
such Reserve Report to be true and accurate and to have been prepared in
accordance with the procedures used in the immediately preceding January 1
Reserve Report.  For any Interim Redetermination requested by the Administrative
Agent or the Borrower pursuant to Section 2.07(b), the Borrower shall provide
such Reserve Report with an “as of” date as required by the Administrative Agent
as soon as possible, but in any event no later than thirty (30) days following
the receipt of such request.
 
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(c) With the delivery of each Reserve Report, the Borrower shall provide to the
Administrative Agent and the Lenders a certificate from a Responsible Officer
certifying that in all material respects: (i) the information contained in the
Reserve Report and any other information delivered in connection therewith is
true and correct, provided, however, that the Borrower does not warrant to such
projections concerning volumes, production and cost estimates contained in each
Reserve Report by any Approved Petroleum Engineer that are necessarily based
upon such Approved Petroleum Engineer’s professional opinions, estimates and
projections, (ii) the Borrower or its Subsidiaries owns good and defensible
title to the Oil and Gas Properties evaluated in such Reserve Report and such
Properties are free of all Liens except for Liens permitted by Section 9.03,
(iii) except as set forth on an exhibit to the certificate, on a net basis there
are no gas imbalances, take or pay or other prepayments in excess of the volume
specified in Section 7.18 with respect to its Oil and Gas Properties evaluated
in such Reserve Report which would require the Borrower or any Subsidiary to
deliver Hydrocarbons either generally or produced from such Oil and Gas
Properties at some future time without then or thereafter receiving full payment
therefor, (iv) none of their Oil and Gas Properties have been sold since the
date of the last Borrowing Base determination except as set forth on an exhibit
to the certificate, which certificate shall list all of its Oil and Gas
Properties sold and in such detail as reasonably required by the Administrative
Agent, (v) attached to the certificate is a list of all marketing agreements
entered into subsequent to the later of the date hereof or the most recently
delivered Reserve Report which the Borrower could reasonably be expected to have
been obligated to list on Schedule 7.19 had such agreement been in effect on the
date hereof and (vi) attached thereto is a schedule of the Oil and Gas
Properties evaluated by such Reserve Report that are Mortgaged Properties and
demonstrating the percentage of the Total Reserve Value of the Oil and Gas
Properties that the value of such Mortgaged Properties represent in compliance
with Section 8.13(a).
 
Section 8.12 Title Information.
 
(a) On or before the delivery to the Administrative Agent and the Lenders of
each Reserve Report required by Section 8.11(a), the Borrower will deliver title
information in form and substance acceptable to the Administrative Agent
covering enough of the Oil and Gas Properties evaluated by such Reserve Report
that were not included in the immediately preceding Reserve Report, so that the
Administrative Agent shall have received together with title information
previously delivered to the Administrative Agent, satisfactory title information
on at least 80% of the Total Reserve Value of the Oil and Gas Properties
evaluated by such Reserve Report.
 
(b) If the Borrower has provided title information for additional Properties
under Section 8.12(a), the Borrower shall, within 60 days of notice from the
Administrative Agent that title defects or exceptions exist with respect to such
additional Properties, either (i) cure any such title defects or exceptions
(including defects or exceptions as to priority) which are not permitted by
Section 9.03 raised by such information, (ii) substitute acceptable Mortgaged
Properties with no title defects or exceptions except for Excepted Liens (other
than Excepted Liens described in clauses (e), (g) and (h) of such definition)
having an equivalent value or (iii) deliver title information in form and
substance acceptable to the Administrative Agent so that the Administrative
Agent shall have received, together with title information previously delivered
to the Administrative Agent, satisfactory title information on at least 80% of
the Total Reserve Value of the Oil and Gas Properties evaluated by such Reserve
Report.
 
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(c) If the Borrower is unable to cure any title defect requested by the
Administrative Agent or the Lenders to be cured within the 60-day period or the
Borrower does not comply with the requirements to provide acceptable title
information covering 80% of the Total Reserve Value of the Oil and Gas
Properties evaluated in the most recent Reserve Report, such default shall not
be a Default, but instead the Administrative Agent and/or the Majority Lenders
shall have the right to exercise the following remedy in their sole discretion
from time to time, and any failure to so exercise this remedy at any time shall
not be a waiver as to future exercise of the remedy by the Administrative Agent
or the Lenders.  To the extent that the Administrative Agent or the Majority
Lenders are not satisfied with title to any Mortgaged Property after the 60-day
period has elapsed, such unacceptable Mortgaged Property shall not count towards
the 80% requirement, and the Administrative Agent may send a notice to the
Borrower and the Lenders that the then outstanding Borrowing Base shall be
reduced by an amount as determined by the Majority Lenders to cause the Borrower
to be in compliance with the requirement to provide acceptable title information
on 80% of the Total Reserve Value of the Oil and Gas Properties.  This new
Borrowing Base shall become effective immediately after receipt of such notice.
 
Section 8.13 Additional Collateral; Additional Guarantors.
 
(a) Within three (3) Business Days of the Effective Date, the Borrower shall
deliver to the Administrative Agent an opinion by its local counsel in the State
of North Dakota, in form and substance reasonably satisfactory to the
Administrative Agent.
 
(b) In connection with each redetermination of the Borrowing Base, the Borrower
shall review the Reserve Report and the list of current Mortgaged Properties (as
described in Section 8.11(c)(vi)) to ascertain whether the Mortgaged Properties
represent at least 80% of the Total Reserve Value of the Oil and Gas Properties
evaluated in the most recently completed Reserve Report after giving effect to
exploration and production activities, acquisitions, dispositions and
production.  In the event that the Mortgaged Properties do not represent at
least 80% of such Total Reserve Value, then the Borrower shall, and shall cause
its Subsidiaries to, grant, within thirty (30) days of delivery of the
certificate required under Section 8.11(c), to the Administrative Agent as
security for the Indebtedness a first-priority Lien interest (provided that (i)
Excepted Liens of the type described in clauses (a) to (d) and (f) of the
definition thereof may exist, but subject to the provisos at the end of such
definition and (ii) Liens permitted by Section 9.03 may exist) on additional Oil
and Gas Properties not already subject to a Lien of the Security Instruments
such that after giving effect thereto, the Mortgaged Properties will represent
at least 80% of such Total Reserve Value.  All such Liens will be created and
perfected by and in accordance with the provisions of deeds of trust, security
agreements and financing statements or other Security Instruments, all in form
and substance reasonably satisfactory to the Administrative Agent and in
sufficient executed (and acknowledged where necessary or appropriate)
counterparts for recording purposes.  In order to comply with the foregoing, if
any Subsidiary places a Lien on its Oil and Gas Properties and such Subsidiary
is not a Guarantor, then it shall become a Guarantor and comply with Section
8.13(c).
 
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(c) In the event that the Borrower forms or acquires any Subsidiary, the
Borrower shall promptly cause such Subsidiary to guarantee the Indebtedness
pursuant to the Guaranty Agreement.  In connection with any such guaranty, the
Borrower shall, or shall cause such Subsidiary to, (i) execute and deliver a
supplement to the Guaranty Agreement executed by such Subsidiary, (ii) pledge
all of the Equity Interests of such new Subsidiary (including, without
limitation, delivery of original stock certificates evidencing the Equity
Interests of such Subsidiary, together with an appropriate undated stock powers
for each certificate duly executed in blank by the registered owner thereof) and
(iii) execute and deliver such other additional closing documents, certificates
and legal opinions as shall reasonably be requested by the Administrative Agent.
 
(d) The Borrower agrees that it will not, and will not permit any Subsidiary to,
grant a Lien on any Property to secure the Second Lien Notes without first (i)
giving ten (10) days’ prior written notice to the Administrative Agent thereof
and (ii) granting to the Administrative Agent to secure the Indebtedness a
first-priority, perfected Lien on this same Property pursuant to Security
Instruments in form and substance satisfactory to the Administrative Agent.  In
connection therewith, the Borrower shall, or shall cause its Subsidiaries to,
execute and deliver such other additional closing documents, certificates and
legal opinions as shall reasonably be requested by the Administrative Agent.
 
(e) The Borrower shall, and shall cause its Subsidiaries to, grant to the
Administrative Agent as security for the Indebtedness a first-priority Lien
interest on additional Oil and Gas Properties identified on Schedule 8.13 within
thirty (30) days of the acquisition of such Oil and Gas Properties.
 
Section 8.14 ERISA Compliance.  The Borrower will promptly furnish and will
cause the Subsidiaries and any ERISA Affiliate to promptly furnish to the
Administrative Agent (i) promptly after the filing thereof with the United
States Secretary of Labor or the Internal Revenue Service, copies of each annual
and other report with respect to each Plan or any trust created thereunder, and
(ii) immediately upon becoming aware of the occurrence of any “prohibited
transaction,” as described in section 406 of ERISA or in section 4975 of the
Code, in connection with any Plan or any trust created thereunder, a written
notice signed by the President or the principal Financial Officer, the
Subsidiary or the ERISA Affiliate, as the case may be, specifying the nature
thereof, what action the Borrower, the Subsidiary or the ERISA Affiliate is
taking or proposes to take with respect thereto, and, when known, any action
taken or proposed by the Internal Revenue Service or the Department of Labor
with respect thereto.
 
Section 8.15 Swap Agreements.  The Borrower shall from time to time enter into
Swap Agreements in respect of commodities so that the notional volumes of all
Swap Agreements, in the aggregate, are more than 50% of the reasonably
anticipated projected production from the Borrower’s Proved Developed Producing
Reserves for each month until December 31, 2011.  Notwithstanding anything to
the contrary in this Agreement, the Borrower shall not assign, terminate or
unwind any Swap Agreement entered into on or before the Effective Date.
 
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Section 8.16 Marketing Activities.  The Borrower will not, and will not permit
any of its Subsidiaries to, engage in marketing activities for any Hydrocarbons
or enter into any contracts related thereto other than (i) the Nexen Contract,
(ii) contracts for the sale of Hydrocarbons scheduled or reasonably estimated to
be produced from their proved Oil and Gas Properties during the period of such
contract, (iii) contracts for the sale of Hydrocarbons scheduled or reasonably
estimated to be produced from proved Oil and Gas Properties of third parties
during the period of such contract associated with the Oil and Gas Properties of
the Borrower and its Subsidiaries that the Borrower or one of its Subsidiaries
has the right to market pursuant to joint operating agreements, unitization
agreements or other similar contracts that are usual and customary in the oil
and gas business and (iv) other contracts for the purchase and/or sale of
Hydrocarbons of third parties (A) which have generally offsetting provisions
(i.e. corresponding pricing mechanics, delivery dates and points and volumes)
such that no “position” is taken and (B) for which appropriate credit support
has been taken to alleviate the material credit risks of the counterparty
thereto.
 
Section 8.17 Modifications to Development Plan.  Promptly following any
modification of the Development Plan which is permitted by the terms of Section
9.19, the Borrower shall provide the Administrative Agent a true and correct
copy of such modification.
 
Section 8.18 Operating Account, Deposit Accounts and Securities Accounts.
 
(a) The Borrower agrees to deliver, and cause its Subsidiaries to deliver,
within 60 days of the Effective Date, duly executed account control agreements,
in form and substance satisfactory to the Administrative Agent, from the
Operating Account Bank holding the Operating Account and each institution
holding any other deposit accounts or securities accounts of the Borrower or its
Subsidiaries, including without limitation, the accounts listed on Schedule 8 of
the Guaranty Agreement, pursuant to which each of the Operating Account Bank and
such other institution recognizes the Administrative Agent’s Lien in the
Operating Account  and such other accounts and, upon the occurrence and during
the continuance of an Event of Default, agrees to transfer collected balances in
the Operating Account and such other accounts to the Administrative Agent
pursuant to its instructions from time to time.
 
(b) All Cash Receipts to be received by the Borrower shall be deposited, and the
Borrower shall direct (and hereby agrees to direct) each payor of any Cash
Receipts existing now and in the future to make payment to the Operating
Account.  Following the occurrence of any Event of Default, the Administrative
Agent shall send notice to the Borrower that the Administrative Agent is sending
or has sent a notice to the Operating Account Bank that the Administrative Agent
is exercising its right to take control of the Operating Account.  With respect
to the Operating Account, the Administrative Agent shall receive copies of the
Borrower’s bank account statements, statement of expenses for the preceding
month and such other supporting information as shall from time to time be
requested by the Administrative Agent.
 
(c) Upon the request of the Administrative Agent, the Borrower shall (i) close
the Operating Account and (ii) establish and maintain, at the Borrower’s
expense, a new operating account with a bank reasonably acceptable to the
Administrative Agent.
 
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(d)  Upon the payment in full in cash of all Indebtedness under this Agreement
and termination of all of the Commitments hereunder, the Administrative Agent
shall notify the Operating Account Bank to terminate the account control
agreement. Otherwise, the account control agreement shall remain and continue in
full force and effect.
 
Section 8.19 Performance of Obligations under Loan Documents.  The Borrower will
pay the Notes according to the reading, tenor and effect thereof, and the
Borrower will, and will cause each Subsidiary to, do and perform every act and
discharge all of the obligations to be performed and discharged by them under
the Loan Documents, including, without limitation, this Agreement, at the time
or times and in the manner specified.
 
ARTICLE IX
Negative Covenants
 
Until the Commitments have expired or terminated and the principal of and
interest on each Loan and all fees payable hereunder and all other amounts
payable under the Loan Documents have been paid in full and all Letters of
Credit have expired or terminated and all LC Disbursements shall have been
reimbursed, the Borrower covenants and agrees with the Lenders that:
 
Section 9.01 Financial Covenants.
 
(a) Interest Coverage Ratio.  Commencing December 31, 2008, the Borrower will
not, as of the last day of any fiscal quarter, permit its ratio of EBITDAX to
Interest Expense for such period to be less than 2.5 to 1.0.
 
(b) Ratio of Net Debt to EBITDAX.  Commencing December 31, 2008, the Borrower
will not, at any time, permit its ratio of Net Debt as of such time to EBITDAX
to be greater than (i) 4.5 to 1.0 the fiscal quarters ending December 31, 2008,
March 31, 2009, June 30, 2009 and September 30, 2009, and (ii) 3.5 to 1.0 for
all fiscal quarters ending thereafter.
 
(c) Current Ratio.  The Borrower will not permit, as of the last day of any
fiscal quarter, its ratio of (i) consolidated current assets (including the
unused amount of the total Commitments, but excluding non-cash assets under FAS
133) to (ii) consolidated current liabilities (excluding non-cash obligations
under FAS 133 and current maturities under this Agreement) to be less than 1.0
to 1.0.
 
(d) Capital Expenditures.  The Borrower will not and will not permit its
Subsidiaries to either make or commit or agree to make any Capital Expenditure
(by purchase or Capital Lease or incur costs associated with the exploration and
development of Borrower’s or its Subsidiaries’ Oil and Gas Properties) except
(i) Capital Expenditures made in compliance with the Development Plan and (ii)
additional Capital Expenditures made outside the Development Plan, after the
Effective Date, in an aggregate amount not to exceed $500,000 during any fiscal
year.  Notwithstanding the foregoing, to the extent any Capital Expenditures
described in clause (ii) are subsequently approved as part of the Development
Plan, such Capital Expenditures shall be deemed to constitute Capital
Expenditures under clause (i) and shall not be included for purposes of
calculating Capital Expenditures under clause (ii).
 
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Section 9.02 Debt.  The Borrower will not, and will not permit any Subsidiary
to, incur, create, assume or suffer to exist any Debt, except:
 
(a) the Notes or other Indebtedness arising under the Loan Documents or any
guaranty of or suretyship arrangement for the Notes or other Indebtedness
arising under the Loan Documents;
 
(b) accounts payable and accrued expenses, liabilities or other obligations to
pay the deferred purchase price of Property or services, from time to time
incurred in the ordinary course of business which are not greater than ninety
(90) days past the date of invoice or delinquent or which are being contested in
good faith by appropriate action and for which adequate reserves have been
maintained in accordance with GAAP;
 
(c) Debt secured by the Liens permitted under subsection (c) or (d) of Section
9.03 in an aggregate principal amount not to exceed $250,000 at any one time
outstanding;
 
(d) Debt associated with bonds or surety obligations required by Governmental
Requirements in connection with the operation of the Oil and Gas Properties;
 
(e) intercompany Debt between the Borrower and any Subsidiary or between
Subsidiaries to the extent permitted by Section 9.05(f); provided that such Debt
is not held, assigned, transferred, negotiated or pledged to any Person other
than the Borrower or one of its Subsidiaries, and, provided further, that any
such Debt owed by either the Borrower or a Guarantor shall be subordinated to
the Indebtedness on terms set forth in the Guaranty Agreement;
 
(f) Debt under the Second Lien Notes, the principal amount of which Debt does
not exceed $15,000,000 in the aggregate; and
 
(g) other Debt not to exceed $250,000 in the aggregate at any one time
outstanding.
 
Section 9.03 Liens.  The Borrower will not, and will not permit any Subsidiary
to, create, incur, assume or permit to exist any Lien on any of its Properties
(now owned or hereafter acquired), except:
 
(a) Liens securing the payment of any Indebtedness;
 
(b) Excepted Liens;
 
(c) Liens securing Capital Leases; provided such Liens secure Debt that (i) is
secured only by the Property leased under such Capital Leases and not any other
Properties of the Borrower or any of its Subsidiaries and (ii) is not increased
in amount;
 
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(d) purchase money Liens or purchase money security interests upon or in any
equipment acquired or held by the Borrower or any of its Subsidiaries in the
ordinary course of business created prior to or at the time of the Borrower's or
such Subsidiary's acquisition of such equipment; provided that such Liens secure
Debt that (i) was incurred solely for the purpose of financing the acquisition
of such equipment, and does not exceed the aggregate purchase price of such
equipment, (ii) is secured only by such equipment and not by any other
Properties of the Borrower or its Subsidiaries, and (iii) is not increased in
amount;
 
(e) Liens on Property securing the Second Lien Notes and any guaranties thereof
as permitted by Section 9.02(f); provided, however, that such Liens securing
such Debt are subordinate to the Liens securing the Indebtedness;
 
(f) obligations of PRC Williston LLC under the PetroBridge Participation
Agreement; and
 
(g) other Liens securing Debt permitted under Section 6.02 in an aggregate
principal amount not to exceed $250,000 at any one time outstanding.
 
Section 9.04 Dividends, Distributions and Redemptions.
 
(a) Restricted Payments.  The Borrower will not, and will not permit any of its
Subsidiaries to, declare or make, or agree to pay or make, directly or
indirectly, any Restricted Payment, return any capital to its stockholders or
make any distribution of its Property to its Equity Interest holders, except (i)
the Borrower may declare and pay dividends with respect to its Equity Interests
payable solely in additional shares of its Equity Interests (other than
Disqualified Capital Stock), (ii) Subsidiaries may declare and pay dividends to
the Borrower ratably with respect to their Equity Interests, (iii) PRC Williston
LLC may make any distributions pursuant to the requirements of the PetroBridge
Participation Agreement, (iv) the Borrower may make Restricted Payments pursuant
to and in accordance with stock option plans or other benefit plans for
management or employees of the Borrower and its Subsidiaries, (v) so long as no
Default or Event of Default or Borrowing Base Deficiency shall have occurred or
would occur after giving effect thereto, the Borrower may redeem the Touradji
Preferred Equity and (vi) PRC Williston LLC may redeem any Working Interest
Election (as such term is defined in the PetroBridge Participation Agreement) so
long as (1) no Default or Borrowing Base Deficiency has occurred and is
continuing or would result therefrom and (2) after giving effect thereto, there
exists at least $3,000,000 of unused Borrowing Base availability.
 
(b) Redemption of Second Lien Notes; Amendment of Second Lien Term Loan
Documents. The Borrower will not, and will not permit any Subsidiary to: (i)
prior to the date that is 90 days after the Termination Date, call, make or
offer to make any optional or voluntary Redemption of or otherwise optionally or
voluntarily Redeem (whether in whole or in part) the Second Lien Notes, provided
that the Borrower may optionally prepay the Second Lien Notes, including
refinancings thereof, if (A) no Default or Event of Default has occurred and is
continuing or would exist after giving effect to such prepayment or refinancing,
and (B) after giving effect to such prepayment or refinancing, the Borrower
would have at least $5,000,000 of unused availability under the Commitments,
(ii) amend, modify, waive or otherwise change, consent or agree to any
amendment, modification, waiver or other change to, any of the terms of any
Second Lien Term Loan Document if (A) the effect thereof would be to shorten the
maturity of the Second Lien Notes or shorten the average life or increase the
amount of any payment of principal thereof or increase the rate or add call or
pre-payment premiums or shorten any period for payment of interest thereon, (B)
such action requires the payment of a consent fee (howsoever described), (C)
such action adds additional Property as collateral to secure the Second Lien
Notes unless the Borrower complies with Section 8.13 such action adds any
covenants or defaults without this Agreement being contemporaneously amended to
add substantially similar covenants or defaults, provided that the foregoing
shall not prohibit the execution of supplemental agreements to add guarantors if
required by the terms thereof provided that any such guarantor also guarantees
the Indebtedness pursuant to the Guaranty Agreement and each of the Borrower and
such guarantor otherwise complies with Section 8.13, and (iii) designate any
Debt (other than obligations of the Borrower and the Subsidiaries pursuant to
the Loan Documents) as “Senior Indebtedness” or give any such other Debt any
other similar designation
 
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Section 9.05 Investments, Loans and Advances.  The Borrower will not, and will
not permit any Subsidiary to, make or permit to remain outstanding any
Investments in or to any Person, except that the foregoing restriction shall not
apply to:
 
(a) accounts receivable arising in the ordinary course of business;
 
(b) direct obligations of the United States or any agency thereof, or
obligations guaranteed by the United States or any agency thereof, in each case
maturing within one year from the date of creation thereof;
 
(c) commercial paper maturing within one year from the date of creation thereof
rated in the highest grade by S&P or Moody’s;
 
(d) deposits maturing within one year from the date of creation thereof with,
including certificates of deposit issued by, any Lender or any office located in
the United States of any other bank or trust company which is organized under
the laws of the United States or any state thereof, has capital, surplus and
undivided profits aggregating at least $100,000,000 (as of the date of such bank
or trust company’s most recent financial reports) and has a short term deposit
rating of no lower than A2 or P2, as such rating is set forth from time to time,
by S&P or Moody’s, respectively;
 
(e) deposits in money market funds investing exclusively in Investments
described in Section 9.05(b), Section 9.05(c) or Section 9.05(d);
 
(f) Investments (i) made by the Borrower in or to the Guarantors, (ii) made by
any Subsidiary in or to the Borrower or any Guarantor;
 
(g)  Investments in direct ownership interests in additional Oil and Gas
Properties and gas gathering systems related thereto or related to farm-out,
farm-in, joint operating, joint venture or area of mutual interest agreements,
gathering systems, pipelines or other similar arrangements which are usual and
customary in the oil and gas exploration and production business located within
the geographic boundaries of the United States of America and Canada;
 
(h) Investments in stock, obligations or securities received in settlement of
debts arising from Investments permitted under this Section 9.05 owing to the
Borrower or any Subsidiary as a result of a bankruptcy or other insolvency
proceeding of the obligor in respect of such debts or upon the enforcement of
any Lien in favor of the Borrower or any of its Subsidiaries; provided that the
Borrower shall give the Administrative Agent prompt written notice in the event
that the aggregate amount of all Investments held at any one time under this
Section 9.05(h) exceeds $100,000;
 
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(i) The creation of any additional Subsidiaries in compliance with Section 9.15;
 
(j) Swap Agreements entered into in compliance with Section 9.18;
 
(k) other Investments in an aggregate amount not to exceed $200,000 at any time;
and
 
(l) Hall Houston Minority Investment made by the Borrower (i) existing on the
Effective Date of Hall Houston and (ii) in an amount not to exceed $1,000,000
after the Effective Date;
 
Section 9.06 Nature of Business.  The Borrower will not, and will not permit any
Subsidiary to, allow any material change to be made in the character of its
business as an independent oil and gas exploration and production company.  From
and after the date hereof, the Borrower and its Subsidiaries will not acquire or
make any other expenditure (whether such expenditure is capital, operating or
otherwise) in or related to, any Oil and Gas Properties not located within the
geographical boundaries of the United States of America and Canada.
 
Section 9.07 Limitation on Leases.  The Borrower will not, and will not permit
any Subsidiary to, create, incur, assume or suffer to exist any obligation for
the payment of rent or hire of Property of any kind whatsoever (real or personal
but excluding Capital Leases and leases of Hydrocarbon Interests), under leases
or lease agreements which would cause the aggregate amount of all payments made
by the Borrower and the Subsidiaries pursuant to all such leases or lease
agreements, including, without limitation, any residual payments at the end of
any lease, to exceed $150,000 in any period of twelve consecutive calendar
months during the life of such leases without the approval of the Lenders.
 
Section 9.08 Proceeds of Notes.  The Borrower will not permit the proceeds of
the Notes to be used for any purpose other than those permitted by Section
7.21.  Neither the Borrower nor any Person acting on behalf of the Borrower has
taken or will take any action which might cause any of the Loan Documents to
violate Regulations T, U or X or any other regulation of the Board or to violate
Section 7 of the Securities Exchange Act of 1934 or any rule or regulation
thereunder, in each case as now in effect or as the same may hereinafter be in
effect.  If requested by the Administrative Agent, the Borrower will furnish to
the Administrative Agent and each Lender a statement to the foregoing effect in
conformity with the requirements of FR Form U-1 or such other form referred to
in Regulation U, Regulation T or Regulation X of the Board, as the case may be.
 
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Section 9.09 ERISA Compliance.  The Borrower will not, and will not permit any
Subsidiary to, at any time:
 
(a) engage in, or permit any ERISA Affiliate to engage in, any transaction in
connection with which the Borrower, a Subsidiary or any ERISA Affiliate could be
subjected to either a civil penalty assessed pursuant to subsections (c), (i),
(l) or (m) of section 502 of ERISA or a tax imposed by Chapter 43 of Subtitle D
of the Code.
 
(b) fail to make, or permit any ERISA Affiliate to fail to make, full payment
when due of all amounts which, under the provisions of any Plan, agreement
relating thereto or applicable law, the Borrower, a Subsidiary or any ERISA
Affiliate is required to pay as contributions thereto.
 
(c) contribute to or assume an obligation to contribute to, or permit any ERISA
Affiliate to contribute to or assume an obligation to contribute to (i) any
employee welfare benefit plan, as defined in section 3(1) of ERISA, including,
without limitation, any such plan maintained to provide benefits to former
employees of such entities, that may not be terminated by such entities in their
sole discretion at any time without any material liability, or (ii) any employee
pension benefit plan, as defined in section 3(2) of ERISA, that is subject to
Title IV of ERISA, section 302 of ERISA or section 412 of the Code.
 
Section 9.10 Sale or Discount of Receivables.  Except for receivables obtained
by the Borrower or any Subsidiary out of the ordinary course of business or the
settlement of joint interest billing accounts in the ordinary course of business
or discounts granted to settle collection of accounts receivable or the sale of
defaulted accounts arising in the ordinary course of business in connection with
the compromise or collection thereof and not in connection with any financing
transaction, the Borrower will not, and will not permit any Subsidiary to,
discount or sell (with or without recourse) any of its notes receivable or
accounts receivable.
 
Section 9.11 Mergers, Etc.  The Borrower will not, and will not permit any
Subsidiary to, merge into or with or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (whether in one transaction or in a series of
transactions) all or substantially all of its Property to any other Person
(whether now owned or hereafter acquired) (any such transaction, a
“consolidation”), or liquidate or dissolve; provided that any Subsidiary may
participate in a consolidation with the Borrower (provided that the Borrower
shall be the continuing or surviving entity) or any other Subsidiary provided
that if one of such Subsidiaries is a wholly-owned Subsidiary, then the
surviving Person shall be a wholly-owned Subsidiary.
 
Section 9.12 Sale of Properties.  The Borrower will not, and will not permit any
Subsidiary to, sell, assign, farm-out, convey or otherwise transfer (including
through the sale of a production payment or overriding royalty interest) any
Property except for (a) the sale of Hydrocarbons in the ordinary course of
business; (b) farmouts of undeveloped acreage and assignments in connection with
such farmouts with such Persons who are not Related Parties of the Borrower or
its Affiliates, or relatives of such Related Parties; (c) the sale or transfer
of equipment that is no longer necessary for the business of the Borrower or
such Subsidiary or is replaced by equipment of at least comparable value and
use; (d) the sale or other disposition
 
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(including Casualty Events) of any Oil and Gas Property or any interest therein
or any Subsidiary owning Oil and Gas Properties; provided that (1) 100% of the
consideration received in respect of such sale or other disposition shall be
cash, (2) the consideration received in respect of such sale or other
disposition shall be equal to or greater than the fair market value of the Oil
and Gas Property, interest therein or the Subsidiary subject of such sale or
other disposition (as reasonably determined by the board of directors of the
Borrower and, if requested by the Administrative Agent, the Borrower shall
deliver a certificate of a Responsible Officer of the Borrower certifying to
that effect), (3) if the value assigned to Oil and Gas Property or Subsidiary
owning Oil and Gas Properties in the most recently delivered Reserve Report, if
any, is in excess of $250,000 (either individually or in the aggregate, the
Borrowing Base shall be reduced, effective immediately upon such sale or
disposition, by an amount equal to the value, if any, assigned such Property in
the most recently delivered Reserve Report and (4) if any such sale or other
disposition is of a Subsidiary owning Oil and Gas Properties, such sale or other
disposition shall include all the Equity Interests of such Subsidiary; (e) the
sale of the Hall Houston Minority Investment for a purchase price paid in cash
in an amount at least equal to the fair market value thereof; (f) any Working
Interest Election (as defined in the PetroBridge Participation Agreement)
pursuant to the PetroBridge Participation Agreement; (g) the assignment of
overriding royalty interest in and to the Oil & Gas Properties identified on
Schedule 9.12 pursuant to the Existing Credit Agreement and (h) sales and other
dispositions of Properties not regulated by Section 9.12(a) to (d) having a fair
market value not to exceed $250,000 during any 12-month period.
 
Section 9.13 Environmental Matters.  The Borrower will not, and will not permit
any Subsidiary to, cause or permit any of its Property to be in violation of, or
do anything or permit anything to be done which will subject any such Property
to a Release or threatened Release of Hazardous Materials, exposure to any
Hazardous Materials, or to any Remedial Work under any Environmental Laws,
assuming disclosure to the applicable Governmental Authority of all relevant
facts, conditions and circumstances, if any, pertaining to such Property where
such violations, Release or threatened Release, exposure, or Remedial work could
reasonably be expected to have a Material Adverse Effect.
 
Section 9.14 Transactions with Affiliates.  The Borrower will not, and will not
permit any Subsidiary to, enter into any transaction, including, without
limitation, any purchase, sale, lease or exchange of Property or the rendering
of any service, with any Affiliate (other than the Guarantors and wholly-owned
Subsidiaries of the Borrower) unless such transactions are otherwise permitted
under this Agreement and are upon fair and reasonable terms no less favorable to
it than it would obtain in a comparable arm’s length transaction with a Person
not an Affiliate.
 
Section 9.15 Subsidiaries.  The Borrower will not, and will not permit any
Subsidiary to, create or acquire any additional Subsidiary unless the Borrower
gives written notice to the Administrative Agent of such creation or acquisition
and complies with Section 8.13(c).  The Borrower shall not, and shall not permit
any Subsidiary to, sell, assign or otherwise dispose of any Equity Interests in
any Subsidiary except (a) pursuant to a transaction permitted by Section 9.11 or
Section 9.12 or (b) the dissolution of Subsidiaries that the Borrower determines
in good faith are no longer necessary to the operations of the Borrower’s
business and such dissolution could not reasonably be expected to have a
Material Adverse Effect.  The Borrower or any Subsidiary shall only have
Subsidiaries organized in a jurisdiction within the United States of America or
Canada.
 
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Section 9.16 Negative Pledge Agreements; Dividend Restrictions.  The Borrower
will not, and will not permit any Subsidiary to, create, incur, assume or suffer
to exist any contract, agreement or understanding (other than this Agreement,
the Second Lien Term Loan Agreement, the Security Instruments or Capital Leases
or agreements creating Liens permitted by Section 9.03(c) and Section 9.03(d))
which in any way prohibits or restricts the granting, conveying, creation or
imposition of any Lien on any of its Property in favor of the Administrative
Agent and the Lenders or restricts any Subsidiary from paying dividends or
making distributions to the Borrower or any Guarantor, or which requires the
consent of or notice to other Persons in connection therewith.
 
Section 9.17 Gas Imbalances, Take-or-Pay or Other Prepayments.  The Borrower
will not, and will not permit any Subsidiary to, allow gas imbalances,
take-or-pay or other prepayments with respect to the Oil and Gas Properties of
the Borrower or any Subsidiary that would require the Borrower or such
Subsidiary to deliver Hydrocarbons at some future time without then or
thereafter receiving full payment therefor to exceed two percent (2%) of
Borrower’s and its Subsidiaries’ Proved Reserves of natural gas (on an mcf
equivalent basis) in the aggregate.
 
Section 9.18 Swap Agreements.  The Borrower will not, and will not permit any
Subsidiary to, enter into any Swap Agreements with any Person other than (a)
Swap Agreements in respect of commodities (i) with an Approved Counterparty and
(ii) the notional volumes for which (when aggregated with other commodity Swap
Agreements then in effect other than basis differential swaps on volumes already
hedged pursuant to other Swap Agreements) do not exceed, as of the date such
Swap Agreement is executed, 85% of the reasonably anticipated projected
production from Proved Developed Producing Reserves for each month during the
period during which such Swap Agreement is in effect for each of crude oil and
natural gas, calculated separately, (b) Swap Agreements in respect of interest
rates with an Approved Counterparty, as follows:  (i) Swap Agreements
effectively converting interest rates from fixed to floating, the notional
amounts of which (when aggregated with all other Swap Agreements of the Borrower
and its Subsidiaries then in effect effectively converting interest rates from
fixed to floating) do not exceed 50% of the then outstanding principal amount of
the Borrower’s Debt for borrowed money which bears interest at a fixed rate and
(ii) Swap Agreements effectively converting interest rates from floating to
fixed, the notional amounts of which (when aggregated with all other Swap
Agreements of the Borrower and its Subsidiaries then in effect effectively
converting interest rates from floating to fixed) do not exceed 75% of the then
outstanding principal amount of the Borrower’s Debt for borrowed money which
bears interest at a floating rate.  In no event shall any Swap Agreement contain
any requirement, agreement or covenant for the Borrower or any Subsidiary to
post collateral or margin to secure their obligations under such Swap Agreement
or to cover market exposures.
 
Section 9.19 Development Plan.  Without the prior written consent of the
Majority Lenders, the Borrower shall not (i) amend, modify or supplement any
term of the Development Plan if the effect of such amendment, modification,
supplement or waiver would be to materially and adversely affect the commercial
terms of the Development Plan or the schedule of the Development Plan and (ii)
cancel, terminate or abandon the Development Plan.
 
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ARTICLE X
Events of Default; Remedies
 
Section 10.01 Events of Default.  One or more of the following events shall
constitute an “Event of Default”:
 
(a) the Borrower shall fail to pay any principal of any Loan or any
reimbursement obligation in respect of any LC Disbursement when and as the same
shall become due and payable, whether at the due date thereof or at a date fixed
for prepayment thereof, by acceleration or otherwise.
 
(b) the Borrower shall fail to pay any interest on any Loan or any fee or any
other amount (other than an amount referred to in Section 10.01(a)) payable
under any Loan Document, when and as the same shall become due and payable, and
such failure shall continue unremedied for a period of three Business Days.
 
(c) any representation or warranty made or deemed made by or on behalf of the
Borrower or any Subsidiary in or in connection with any Loan Document or any
amendment or modification of any Loan Document or waiver under such Loan
Document, or in any report, certificate, financial statement or other document
furnished pursuant to or in connection with any Loan Document or any amendment
or modification thereof or waiver thereunder, shall prove to have been incorrect
when made or deemed made.
 
(d) the Borrower or any Subsidiary shall fail to observe or perform any
covenant, condition or agreement contained in Section 8.01(g), Section 8.01(k),
Section 8.02, Section 8.03, Section 8.13, Section 8.14 or in Article IX.
 
(e) the Borrower or any Subsidiary shall fail to observe or perform any
covenant, condition or agreement contained in this Agreement (other than those
specified in Section 10.01(a), Section 10.01(b) or Section 10.01(d)) or any
other Loan Document, and such failure shall continue unremedied for a period of
thirty (30) days after the earlier to occur of (A) notice thereof from the
Administrative Agent to the Borrower (which notice will be given at the request
of any Lender) or (B) a Responsible Officer of the Borrower or such Subsidiary
otherwise becoming aware of such default.
 
(f) the Borrower or any Subsidiary shall fail to make any payment (whether of
principal or interest and regardless of amount) in respect of any Material
Indebtedness, when and as the same shall become due and payable.
 
(g) any event or condition occurs that results in any Material Indebtedness
becoming due prior to its scheduled maturity or that enables or permits (with or
without the giving of notice, the lapse of time or both) the holder or holders
of any Material Indebtedness or any trustee or agent on its or their behalf to
cause any Material Indebtedness to become due, or to require the Redemption
thereof or any offer to Redeem to be made in respect thereof, prior to its
scheduled maturity or an event or condition requires the Borrower or any
Subsidiary to make an offer in respect thereof.
 
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(h) an involuntary proceeding shall be commenced or an involuntary petition
shall be filed seeking (i) liquidation, reorganization or other relief in
respect of the Borrower or any Subsidiary or its debts, or of a substantial part
of its assets, under any  Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect or (ii) the appointment
of a receiver, trustee, custodian, sequestrator, conservator or similar official
for the Borrower or any Subsidiary or for a substantial part of its assets, and,
in any such case, such proceeding or petition shall continue undismissed for 60
days or an order or decree approving or ordering any of the foregoing shall be
entered.
 
(i) the Borrower or any Subsidiary shall (i) voluntarily commence any proceeding
or file any petition seeking liquidation, reorganization or other relief under
any Federal, state or foreign bankruptcy, insolvency, receivership or similar
law now or hereafter in effect, (ii) consent to the institution of, or fail to
contest in a timely and appropriate manner, any proceeding or petition described
in Section 10.01(h), (iii) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official for
the Borrower or any Subsidiary or for a substantial part of its assets, (iv)
file an answer admitting the material allegations of a petition filed against it
in any such proceeding, (v) make a general assignment for the benefit of
creditors or (vi) take any action for the purpose of effecting any of the
foregoing; or any stockholder of the Borrower shall make any request or take any
action for the purpose of calling a meeting of the stockholders of the Borrower
to consider a resolution to dissolve and wind-up the Borrower’s affairs.
 
(j) the Borrower or any Subsidiary shall become unable, admit in writing its
inability or fail generally to pay its debts as they become due.
 
(k) (i) one or more judgments for the payment of money in an aggregate amount in
excess of $250,000 (to the extent not covered by independent third party
insurance provided by insurers of the highest claims paying rating or financial
strength as to which the insurer does not dispute coverage and is not subject to
an insolvency proceeding) or (ii) any one or more non-monetary judgments that
have, or could reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect, shall be rendered against the Borrower, any
Subsidiary or any combination thereof and the same shall remain undischarged for
a period of 30 consecutive days during which execution shall not be effectively
stayed, or any action shall be legally taken by a judgment creditor to attach or
levy upon any assets of the Borrower or any Subsidiary to enforce any such
judgment.
 
(l) the Loan Documents after delivery thereof shall for any reason, except to
the extent permitted by the terms thereof, cease to be in full force and effect
and valid, binding and enforceable in accordance with their terms against the
Borrower or a Guarantor party thereto or shall be repudiated by any of them, or
cease to create a valid and perfected Lien of the priority required thereby on
any of the collateral purported to be covered thereby, except to the extent
permitted by the terms of this Agreement, or the Borrower or any Subsidiary or
any of their Affiliates shall so state in writing.
 
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(m) a Change in Control shall occur.
 
(n) an event, development or circumstance shall have occurred or shall exist
that has resulted in a Material Adverse Effect.
 
(o) a failure to cure a Borrowing Base Deficiency in accordance with Section
3.04(c)(ii).
 
(p) the Intercreditor Agreement, after delivery thereof shall for any reason,
except to the extent permitted by the terms thereof, cease to be in full force
and effect and valid, binding and enforceable in accordance with its terms
against the Borrower or any party thereto or holder of the Lien subordinated
thereby or shall be repudiated by any of them, or cause the lien securing the
obligations of the Second Lien Notes to be senior or pari passu in right to the
lien securing the obligations of this Agreement.
 
Section 10.02 Remedies.
 
(a) In the case of an Event of Default other than one described in Section
10.01(h), Section 10.01(i), or Section 10.01(j), at any time thereafter during
the continuance of such Event of Default, the Administrative Agent may, and at
the request of the Majority Lenders, shall, by notice to the Borrower, take
either or both of the following actions, at the same or different times:  (i)
terminate the Commitments, and thereupon the Commitments shall terminate
immediately, and (ii) declare the Notes and the Loans then outstanding to be due
and payable in whole (or in part, in which case any principal not so declared to
be due and payable may thereafter be declared to be due and payable), and
thereupon the principal of the Loans so declared to be due and payable, together
with accrued interest thereon and all fees and other obligations of the Borrower
and the Guarantors accrued hereunder and under the Notes and the other Loan
Documents (including, without limitation, the payment of cash collateral to
secure the LC Exposure as provided in Section 2.08(h)), shall become due and
payable immediately, without presentment, demand, protest, notice of intent to
accelerate, notice of acceleration or other notice of any kind, all of which are
hereby waived by the Borrower and each Guarantor; and in case of an Event of
Default described in Section 10.01(h), Section 10.01(i), or Section 10.01(j),
the Commitments shall automatically terminate and such Notes and the principal
of such Loans then outstanding, together with accrued interest thereon and all
fees and the other obligations of the Borrower and the Guarantors accrued
hereunder and under such Notes and the other Loan Documents(including, without
limitation, the payment of cash collateral to secure the LC Exposure as provided
in Section 2.08(h)), shall automatically become due and payable, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower and each Guarantor.
 
(b) In the case of the occurrence and continuance of an Event of Default, the
Administrative Agent and the Lenders will have all other rights and remedies
available at law and equity.
 
(c) All proceeds realized from the liquidation or other disposition of
collateral or otherwise received after maturity of the Notes, whether by
acceleration or otherwise, shall be applied:
 
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(i) first, to payment or reimbursement of that portion of the Indebtedness
constituting fees, expenses and indemnities payable to the Administrative Agent
in its capacity as such;
 
(ii) second, pro rata to payment or reimbursement of that portion of the
Indebtedness constituting fees, expenses and indemnities payable to the Lenders;
 
(iii) third, pro rata to payment of accrued interest on the Loans;
 
(iv) fourth, pro rata to payment of principal outstanding on the Loans owing to
a Lender or an Affiliate of a Lender and Indebtedness referred to in Clause (b)
of the definition of Indebtedness owing to an Approved Counterparty;
 
(v) fifth, pro rata to any other Indebtedness;
 
(vi) sixth, to serve as cash collateral to be held by the Administrative Agent
to secure the LC Exposure; and
 
(vii) seventh, any excess, after all of the Indebtedness shall have been
indefeasibly paid in full in cash, shall be paid to the Borrower or as otherwise
required by any Governmental Requirement.
 

 
ARTICLE XI
The Administrative Agent
 
Section 11.01 Appointment; Powers.  Each of the Lenders hereby irrevocably
appoints the Administrative Agent as its agent and authorizes the Administrative
Agent to take such actions on its behalf and to exercise such powers as are
delegated to the Administrative Agent by the terms hereof and the other Loan
Documents, together with such actions and powers as are reasonably incidental
thereto.
 
Section 11.02 Duties and Obligations of Administrative Agent.  The
Administrative Agent shall not have any duties or obligations except those
expressly set forth in the Loan Documents.  Without limiting the generality of
the foregoing, (a) the Administrative Agent shall not be subject to any
fiduciary or other implied duties, regardless of whether a Default has occurred
and is continuing (the use of the term “agent” herein and in the other Loan
Documents with reference to the Administrative Agent is not intended to connote
any fiduciary or other implied (or express) obligations arising under agency
doctrine of any applicable law; rather, such term is used merely as a matter of
market custom, and is intended to create or reflect only an administrative
relationship between independent contracting parties), (b) the Administrative
Agent shall have no duty to take any discretionary action or exercise any
discretionary powers, except as provided in Section 11.03, and (c) except as
expressly set forth herein, the Administrative Agent shall not have any duty to
disclose, and shall not be liable for the failure to disclose, any information
relating to the Borrower or any of its Subsidiaries that is communicated to or
obtained by the bank serving as Administrative Agent or any of its Affiliates in
any capacity.  The Administrative Agent shall be deemed not to have knowledge of
any Default unless and until written notice thereof is given to the
Administrative Agent by the Borrower or a Lender, and shall not be responsible
for or have any duty to ascertain or inquire into (i) any statement, warranty or
representation made in or in connection with this Agreement or any other Loan
Document, (ii) the contents of any certificate, report or other document
delivered hereunder or under any other Loan Document or in connection herewith
or therewith, (iii) the performance or observance of any of the covenants,
agreements or other terms or conditions set forth herein or in any other Loan
Document, (iv) the validity, enforceability, effectiveness or genuineness of
this Agreement, any other Loan Document or any other agreement, instrument or
document, (v) the satisfaction of any condition set forth in Article VI or
elsewhere herein, other than to confirm receipt of items expressly required to
be delivered to the Administrative Agent or as to those conditions precedent
expressly required to be to the Administrative Agent’s satisfaction, (vi) the
existence, value, perfection or priority of any collateral security or the
financial or other condition of the Borrower and its Subsidiaries or any other
obligor or guarantor, or (vii) any failure by the Borrower or any other Person
(other than itself) to perform any of its obligations hereunder or under any
other Loan Document or the performance or observance of any covenants,
agreements or other terms or conditions set forth herein or therein.  For
purposes of determining compliance with the conditions specified in Article VI,
each Lender shall be deemed to have consented to, approved or accepted or to be
satisfied with, each document or other matter required thereunder to be
consented to or approved by or acceptable or satisfactory to a Lender unless the
Administrative Agent shall have received written notice from such Lender prior
to the proposed closing date specifying its objection thereto.
 
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Section 11.03 Action by Administrative Agent.  The Administrative Agent shall
have no duty to take any discretionary action or exercise any discretionary
powers, except discretionary rights and powers expressly contemplated hereby or
by the other Loan Documents that the Administrative Agent is required to
exercise in writing as directed by the Majority Lenders (or such other number or
percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 12.02) and in all cases the Administrative Agent shall be
fully justified in failing or refusing to act hereunder or under any other Loan
Documents unless it shall (a) receive written instructions from the Majority
Lenders or the Lenders, as applicable, (or such other number or percentage of
the Lenders as shall be necessary under the circumstances as provided in Section
12.02) specifying the action to be taken and (b) be indemnified to its
satisfaction by the Lenders against any and all liability and expenses which may
be incurred by it by reason of taking or continuing to take any such
action.  The instructions as aforesaid and any action taken or failure to act
pursuant thereto by the Administrative Agent shall be binding on all of the
Lenders.  If a Default has occurred and is continuing, then the Administrative
Agent shall take such action with respect to such Default as shall be directed
by the requisite Lenders in the written instructions (with indemnities)
described in this Section 11.03, provided that, unless and until the
Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default as it shall deem advisable in
the best interests of the Lenders.  In no event, however, shall the
Administrative Agent be required to take any action which exposes the
Administrative Agent to personal liability or which is contrary to this
Agreement, the Loan Documents or applicable law.  The Administrative Agent shall
not be liable for any action taken or not taken by it with the consent or at the
request of the Majority Lenders or the Lenders (or such other number or
percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 12.02), and otherwise the Administrative Agent shall not be
liable for any action taken or not taken by it hereunder or under any other Loan
Document or under any other document or instrument referred to or provided for
herein or therein or in connection herewith or therewith INCLUDING ITS OWN
ORDINARY NEGLIGENCE, except for its own gross negligence or willful misconduct.
 
 
 
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Section 11.04 Reliance by Administrative Agent.  The Administrative Agent shall
be entitled to rely upon, and shall not incur any liability for relying upon,
any notice, request, certificate, consent, statement, instrument, document or
other writing believed by it to be genuine and to have been signed or sent by
the proper Person.  The Administrative Agent also may rely upon any statement
made to it orally or by telephone and believed by it to be made by the proper
Person, and shall not incur any liability for relying thereon and each of the
Borrower and the Lenders hereby waives the right to dispute the Administrative
Agent’s record of such statement, except in the case of gross negligence or
willful misconduct by the Administrative Agent.  The Administrative Agent may
consult with legal counsel (who may be counsel for the Borrower), independent
accountants and other experts selected by it, and shall not be liable for any
action taken or not taken by it in accordance with the advice of any such
counsel, accountants or experts.  The Administrative Agent may deem and treat
the payee of any Note as the holder thereof for all purposes hereof unless and
until a written notice of the assignment or transfer thereof permitted hereunder
shall have been filed with the Administrative Agent.
 
Section 11.05 Subagents.  The Administrative Agent may perform any and all its
duties and exercise its rights and powers by or through any one or more
sub-agents appointed by the Administrative Agent.  The Administrative Agent and
any such sub-agent may perform any and all its duties and exercise its rights
and powers through their respective Related Parties.  The exculpatory provisions
of the preceding Sections of this Article XI shall apply to any such sub-agent
and to the Related Parties of the Administrative Agent and any such sub-agent,
and shall apply to their respective activities in connection with the
syndication of the credit facilities provided for herein as well as activities
as Administrative Agent.
 
Section 11.06 Resignation or Removal of Administrative Agent.  Subject to the
appointment and acceptance of a successor Administrative Agent as provided in
this Section 11.06, the Administrative Agent may resign at any time by notifying
the Lenders and the Borrower, and the Administrative Agent may be removed at any
time with or without cause by the Majority Lenders.  Upon any such resignation
or removal, the Majority Lenders shall have the right, in consultation with the
Borrower, to appoint a successor.  If no successor shall have been so appointed
by the Majority Lenders and shall have accepted such appointment within 30 days
after the retiring Administrative Agent gives notice of its resignation or
removal of the retiring Administrative Agent, then the retiring Administrative
Agent may, on behalf of the Lenders, appoint a successor Administrative Agent
which shall be a bank with an office in New York, New York, or an Affiliate of
any such bank.  Upon the acceptance of its appointment as Administrative Agent
hereunder by a successor, such successor shall succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Administrative
Agent, and the retiring Administrative Agent shall be discharged from its duties
and obligations hereunder.  The fees payable by the Borrower to a successor
Administrative Agent shall be the same as those payable to its predecessor
unless otherwise agreed between the Borrower and such successor.  After the
Administrative Agent’s resignation hereunder, the provisions of this Article XI
and Section 12.03 shall continue in effect for the benefit of such retiring
Administrative Agent, its sub-agents and their respective Related Parties in
respect of any actions taken or omitted to be taken by any of them while it was
acting as Administrative Agent.
 
 
 
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Section 11.07 Administrative Agent as Lender.  Each Person serving as an
Administrative Agent hereunder shall have the same rights and powers in its
capacity as a Lender as any other Lender and may exercise the same as though it
were not an Administrative Agent, and such bank and its Affiliates may accept
deposits from, lend money to and generally engage in any kind of business with
the Borrower or any Subsidiary or other Affiliate thereof as if it were not an
Administrative Agent hereunder.
 
Section 11.08 No Reliance.
 
(a) Each Lender acknowledges that it has, independently and without reliance
upon the Administrative Agent or any other Lender and based on such documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement and each other Loan Document to which it
is a party.  Each Lender also acknowledges that it will, independently and
without reliance upon the Administrative Agent, any other Agent or any other
Lender and based on such documents and information as it shall from time to time
deem appropriate, continue to make its own decisions in taking or not taking
action under or based upon this Agreement, any other Loan Document, any related
agreement or any document furnished hereunder or thereunder.  The Administrative
Agent shall not be required to keep itself informed as to the performance or
observance by the Borrower or any of its Subsidiaries of this Agreement, the
Loan Documents or any other document referred to or provided for herein or to
inspect the Properties or books of the Borrower or its Subsidiaries.  Except for
notices, reports and other documents and information expressly required to be
furnished to the Lenders by the Administrative Agent hereunder, neither the
Administrative Agent nor the Arranger shall have any duty or responsibility to
provide any Lender with any credit or other information concerning the affairs,
financial condition or business of the Borrower (or any of its Affiliates) which
may come into the possession of such Agent or any of its Affiliates.  In this
regard, each Lender acknowledges that Vinson & Elkins L.L.P. is acting in this
transaction as special counsel to the Administrative Agent only, except to the
extent otherwise expressly stated in any legal opinion or any Loan
Document.  Each other party hereto will consult with its own legal counsel to
the extent that it deems necessary in connection with the Loan Documents and the
matters contemplated therein.
 
(b) The Lenders acknowledge that the Administrative Agent and the Arranger are
acting solely in administrative capacities with respect to the structuring and
syndication of this facility and have no duties, responsibilities or liabilities
under this Agreement and the other Loan Documents other than their
administrative duties, responsibilities and liabilities specifically as set
forth in the Loan Documents and in their capacity as Lenders hereunder.  In
structuring, arranging or syndicating this facility, each Lender acknowledges
that the Administrative Agent and/or Arranger may be an agent or lender under
these Notes, the Second Lien Notes, other loans or other securities and waives
any existing or future conflicts of interest associated with the their role in
such other debt instruments.  If in its administration of this facility or any
other debt instrument, the Administrative Agent determines (or is given written
notice by any Lender that a conflict exists), then it shall eliminate such
conflict within ninety (90) days or resign pursuant to Section 11.06 and shall
have no liability for action taken or not taken while such conflict existed.
 
 
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Section 11.09 Administrative Agent May File Proofs of Claim.  In case of the
pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relative to the Borrower or any of its Subsidiaries, the
Administrative Agent (irrespective of whether the principal of any Loan shall
then be due and payable as herein expressed or by declaration or otherwise and
irrespective of whether the Administrative Agent shall have made any demand on
the Borrower) shall be entitled and empowered, by intervention in such
proceeding or otherwise:
 
(a) to file and prove a claim for the whole amount of the principal and interest
owing and unpaid in respect of the Loans and all other Indebtedness that are
owing and unpaid and to file such other documents as may be necessary or
advisable in order to have the claims of the Lenders and the Administrative
Agent (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Lenders and the Administrative Agent and their
respective agents and counsel and all other amounts due the Lenders and the
Administrative Agent under Section 12.03) allowed in such judicial proceeding;
and
 
(b) to collect and receive any monies or other property payable or deliverable
on any such claims and to distribute the same;
 
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Lender to make such payments to the Administrative Agent and, in the event
that the Administrative Agent shall consent to the making of such payments
directly to the Lenders, to pay to the Administrative Agent any amount due for
the reasonable compensation, expenses, disbursements and advances of the
Administrative Agent and its agents and counsel, and any other amounts due the
Administrative Agent under Section 12.03.
 
Nothing contained herein shall be deemed to authorize the Administrative Agent
to authorize or consent to or accept or adopt on behalf of any Lender any plan
of reorganization, arrangement, adjustment or composition affecting the
Indebtedness or the rights of any Lender or to authorize the Administrative
Agent to vote in respect of the claim of any Lender in any such proceeding.
 
Section 11.10 Authority of Administrative Agent to Release Collateral and
Liens.  Each Lender hereby authorizes the Administrative Agent to release any
collateral that is permitted to be sold or released pursuant to the terms of the
Loan Documents.  Each Lender hereby authorizes the Administrative Agent to
execute and deliver to the Borrower, at the Borrower’s sole cost and expense,
any and all releases of Liens, termination statements, assignments or other
documents reasonably requested by the Borrower in connection with any sale or
other disposition of Property to the extent such sale or other disposition is
permitted by the terms of Section 9.12 or is otherwise authorized by the terms
of the Loan Documents.
 
Section 11.11 The Arranger.  The Arranger shall have no duties, responsibilities
or liabilities under this Agreement and the other Loan Documents other than its
duties, responsibilities and liabilities in its capacity as a Lender hereunder.
 
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ARTICLE XII
Miscellaneous
 
Section 12.01 Notices.
 
(a) Except in the case of notices and other communications expressly permitted
to be given by telephone (and subject to Section 12.01(b)), all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
 
(i)  if to the Borrower, to it at 777 Post Oak Blvd., Suite 910, Houston,
TX  77056, Attention of Harry Stout  (Telecopy No. (832) 369-6992);
 
(ii) if to the Administrative Agent and related to amendments, consents,
waivers, financial statements, operating reports, reserve reports, etc, to it at
505 Fifth Avenue, 10th Floor, New York, NY 10017, attention of Marc Theisinger
(Telecopy No. (212) 771-9675) with a copy to 700 Louisiana Street, Suite 5200,
Houston, TX 77002, attention of David Bornstein (Telecopy No. (713) 237-8156);
and
 
(iii) if to the Administrative Agent and related to rate sets, drawdown
requests, paydowns, interest, fees, etc., to it at 11 West 42nd Street, New
York, NY 10036, attention of Maria McClung (Telecopy No. (212) 461-5344) with a
copy to 700 Louisiana Street, Suite 5200, Houston, TX 77002, attention of David
Bornstein (Telecopy No. (713) 237-8156).
 
(b) Notices and other communications to the Lenders hereunder may be delivered
or furnished by electronic communications pursuant to procedures approved by the
Administrative Agent; provided that the foregoing shall not apply to notices
pursuant to Article II, Article III, Article IV and Article V unless otherwise
agreed by the Administrative Agent and the applicable Lender.  The
Administrative Agent or the Borrower may, in its discretion, agree to accept
notices and other communications to it hereunder by electronic communications
pursuant to procedures approved by it; provided that approval of such procedures
may be limited to particular notices or communications.
 
(c) Any party hereto may change its address or telecopy number for notices and
other communications hereunder by notice to the other parties hereto.  All
notices and other communications given to any party hereto in accordance with
the provisions of this Agreement shall be deemed to have been given on the date
of receipt.
 
Section 12.02 Waivers; Amendments.
 
(a) No failure on the part of the Administrative Agent, the Issuing Bank, the
Arranger or any Lender to exercise and no delay in exercising, and no course of
dealing with respect to, any right, power or privilege, or any abandonment or
discontinuance of steps to enforce such right, power or privilege, under any of
the Loan Documents shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege under any of the Loan
Documents preclude any other or further exercise thereof or the exercise of any
other right, power or privilege.  The rights and remedies of the Administrative
Agent, the Issuing Bank, the Arranger and the Lenders hereunder and under the
other Loan Documents are cumulative and are not exclusive of any rights or
remedies that they would otherwise have.  No waiver of any provision of this
Agreement or any other Loan Document or consent to any departure by the Borrower
therefrom shall in any event be effective unless the same shall be permitted by
Section 12.02(b), and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given.  Without limiting the
generality of the foregoing, the making of a Loan or issuance of a Letter of
Credit shall not be construed as a waiver of any Default, regardless of whether
the Administrative Agent, the Issuing Bank, the Arranger or any Lender may have
had notice or knowledge of such Default at the time.
 
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(b) Neither this Agreement nor any provision hereof nor any Security Instrument
nor any provision thereof may be waived, amended or modified except pursuant to
an agreement or agreements in writing entered into by the Borrower and the
Majority Lenders or by the Borrower and the Administrative Agent with the
consent of the Majority Lenders; provided that no such agreement shall (i)
increase the Commitment or the Maximum Credit Amount of any Lender without the
written consent of such Lender, (ii) increase the Borrowing Base without the
written consent of all of the Lenders, decrease or maintain the Borrowing Base
without the consent of the Majority Lenders, or modify Section 2.07 in any
manner without the consent of each Lender, (iii) reduce the principal amount of
any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce
any fees payable hereunder, or reduce any other Indebtedness hereunder or under
any other Loan Document, without the written consent of each Lender affected
thereby, (iv) postpone the scheduled date of payment or prepayment of the
principal amount of any Loan or LC Disbursement, or any interest thereon, or any
fees payable hereunder, or any other Indebtedness hereunder or under any other
Loan Document, or reduce the amount of, waive or excuse any such payment, or
postpone or extend the Termination Date without the written consent of each
Lender affected thereby, (v) change Section 4.01(b) or Section 4.01(c) in a
manner that would alter the pro rata sharing of payments required thereby,
without the written consent of each Lender, (vi) waive or amend Section 3.04(c),
Section 6.01, Section 8.13, Section 10.02(c) or Section 12.14 or change the
definition of the terms “Foreign Subsidiary” or “Subsidiary”, without the
written consent of each Lender, (vii) release any Guarantor (except as set forth
in the Guaranty Agreement), release any of the collateral (other than as
provided in Section 11.10), or reduce the percentage set forth in Section
8.13(a) to less than 80%, without the written consent of each Lender, or (viii)
change any of the provisions of this Section 12.02(b) or the definitions of
“Majority Lenders” or any other provision hereof specifying the number or
percentage of Lenders required to waive, amend or modify any rights hereunder or
under any other Loan Documents or make any determination or grant any consent
hereunder or any other Loan Documents, without the written consent of each
Lender; provided further that no such agreement shall amend, modify or otherwise
affect the rights or duties of the Administrative Agent or the Issuing Bank
hereunder or under any other Loan Document without the prior written consent of
the Administrative Agent or the Issuing Bank as the case may
be.  Notwithstanding the foregoing, any supplement to Schedule 7.14
(Subsidiaries) shall be effective simply by delivering to the Administrative
Agent a supplemental schedule clearly marked as such and, upon receipt, the
Administrative Agent will promptly deliver a copy thereof to the Lenders.
 
Section 12.03 Expenses, Indemnity; Damage Waiver.
 
 
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(a) The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by
the Administrative Agent and its Affiliates, including, without limitation, the
reasonable fees, charges and disbursements of counsel and other outside
consultants for the Administrative Agent, the reasonable travel, photocopy,
mailing, courier, telephone and other similar expenses, and the cost of
environmental audits and surveys and appraisals, in connection with the
syndication of the credit facilities provided for herein, the preparation,
negotiation, execution, delivery and administration (both before and after the
execution hereof and including advice of counsel to the Administrative Agent as
to the rights and duties of the Administrative Agent and the Lenders with
respect thereto) of this Agreement and the other Loan Documents and any
amendments, modifications or waivers of or consents related to the provisions
hereof or thereof (whether or not the transactions contemplated hereby or
thereby shall be consummated), (ii) all reasonable costs, expenses, Taxes,
assessments and other charges incurred by the Administrative Agent or any Lender
in connection with any filing, registration, recording or perfection of any
security interest contemplated by this Agreement or any Security Instrument or
any other document referred to therein, (iii) all reasonable out-of-pocket
expenses incurred by the Administrative Agent in connection with the issuance,
amendment, renewal or extension of any Letter of Credit or any demand for
payment thereunder, (iv) all out of pocket expenses incurred by any
Administrative Agent, the Issuing Bank or any Lender, including the fees,
charges and disbursements of any counsel for the Administrative Agent, the
Issuing Bank or any Lender, in connection with the enforcement or protection of
its rights in connection with this Agreement or any other Loan Document,
including its rights under this Section 12.03, or in connection with the Loans
made or Letters of Credit issued hereunder, including, without limitation, all
such out-of-pocket expenses incurred during any workout, restructuring or
negotiations in respect of such Loans or Letters of Credit.
 
(b) THE BORROWER SHALL INDEMNIFY THE ADMINISTRATIVE AGENT, THE ARRANGER, THE
ISSUING BANK AND EACH LENDER, AND EACH RELATED PARTY OF ANY OF THE FOREGOING
PERSONS (EACH SUCH PERSON BEING CALLED AN “INDEMNITEE”) AGAINST, AND HOLD EACH
INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES AND
RELATED EXPENSES, INCLUDING THE FEES, CHARGES AND DISBURSEMENTS OF ANY COUNSEL
FOR ANY INDEMNITEE, INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE ARISING OUT
OF, IN CONNECTION WITH, OR AS A RESULT OF (i) THE EXECUTION OR DELIVERY OF THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED
HEREBY OR THEREBY, THE PERFORMANCE BY THE PARTIES HERETO OR THE PARTIES TO ANY
OTHER LOAN DOCUMENT OF THEIR RESPECTIVE OBLIGATIONS HEREUNDER OR THEREUNDER OR
THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY OR BY ANY OTHER LOAN
DOCUMENT, (ii) THE FAILURE OF THE BORROWER OR ANY SUBSIDIARY TO COMPLY WITH THE
TERMS OF ANY LOAN DOCUMENT, INCLUDING THIS AGREEMENT, OR WITH ANY GOVERNMENTAL
REQUIREMENT, (iii) ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY
WARRANTY OR COVENANT OF THE BORROWER OR ANY GUARANTOR SET FORTH IN ANY OF THE
LOAN DOCUMENTS OR ANY INSTRUMENTS, DOCUMENTS OR CERTIFICATIONS DELIVERED IN
CONNECTION THEREWITH, (iv) ANY LOAN OR LETTER OF CREDIT OR THE USE OF THE
PROCEEDS THEREFROM, INCLUDING, WITHOUT LIMITATION, (A) ANY
 
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REFUSAL BY THE ISSUING BANK TO HONOR A DEMAND FOR PAYMENT UNDER A LETTER OF
CREDIT IF THE DOCUMENTS PRESENTED IN CONNECTION WITH SUCH DEMAND DO NOT STRICTLY
COMPLY WITH THE TERMS OF SUCH LETTER OF CREDIT, OR (B) THE PAYMENT OF A DRAWING
UNDER ANY LETTER OF CREDIT NOTWITHSTANDING THE NON-COMPLIANCE, NON-DELIVERY OR
OTHER IMPROPER PRESENTATION OF THE DOCUMENTS PRESENTED IN CONNECTION THEREWITH,
(v) ANY OTHER ASPECT OF THE LOAN DOCUMENTS, (vi) THE OPERATIONS OF THE BUSINESS
OF THE BORROWER AND ITS SUBSIDIARIES BY THE BORROWER AND ITS SUBSIDIARIES, (vii)
ANY ASSERTION THAT THE LENDERS WERE NOT ENTITLED TO RECEIVE THE PROCEEDS
RECEIVED PURSUANT TO THE SECURITY INSTRUMENTS, (viii) ANY ENVIRONMENTAL LAW
APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY OR ANY OF THEIR PROPERTIES,
INCLUDING WITHOUT LIMITATION, THE PRESENCE, GENERATION, STORAGE, RELEASE,
THREATENED RELEASE, USE, TRANSPORT, DISPOSAL, ARRANGEMENT OF DISPOSAL OR
TREATMENT OF OIL, OIL AND GAS WASTES, SOLID WASTES OR HAZARDOUS MATERIALS ON ANY
OF THEIR PROPERTIES, (ix) THE BREACH OR NON-COMPLIANCE BY THE BORROWER OR ANY
SUBSIDIARY WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY
SUBSIDIARY, (x) THE PAST OWNERSHIP BY THE BORROWER OR ANY SUBSIDIARY OF ANY OF
THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES WHICH, THOUGH
LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT LIABILITY,
(xi) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT, DISPOSAL, GENERATION,
THREATENED RELEASE, TRANSPORT, ARRANGEMENT FOR TRANSPORT OR ARRANGEMENT FOR
DISPOSAL OF OIL, OIL AND GAS WASTES, SOLID WASTES OR HAZARDOUS MATERIALS ON ANY
OF THE PROPERTIES OWNED OR OPERATED BY THE BORROWER OR ANY SUBSIDIARY OR ANY
ACTUAL OR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS MATERIALS ON OR FROM ANY
PROPERTY OWNED OR OPERATED BY THE BORROWER OR ANY OF ITS SUBSIDIARIES, (xii) ANY
ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO THE BORROWER OR ANY OF ITS
SUBSIDIARIES, OR (xiii) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN
CONNECTION WITH THE LOAN DOCUMENTS, OR (xiv) ANY ACTUAL OR PROSPECTIVE CLAIM,
LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE FOREGOING,
WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY AND REGARDLESS OF WHETHER
ANY INDEMNITEE IS A PARTY THERETO, AND SUCH INDEMNITY SHALL EXTEND TO EACH
INDEMNITEE NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND OR
CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT OR
AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT
IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE
INDEMNITEES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR
MORE OF THE INDEMNITEES; PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO ANY
INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS, DAMAGES,
LIABILITIES OR RELATED EXPENSES ARE DETERMINED BY A COURT OF COMPETENT
JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE.
 
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(c) To the extent that the Borrower fails to pay any amount required to be paid
by it to the Administrative Agent, the Arranger or the Issuing Bank under
Section 12.03(a) or (b), each Lender severally agrees to pay to the
Administrative Agent, the Arranger or the Issuing Bank, as the case may be, such
Lender’s Applicable Percentage (determined as of the time that the applicable
unreimbursed expense or indemnity payment is sought) of such unpaid amount;
provided that the unreimbursed expense or indemnified loss, claim, damage,
liability or related expense, as the case may be, was incurred by or asserted
against the Administrative Agent, the Arranger or the Issuing Bank in its
capacity as such.
 
(d) To the extent permitted by applicable law, the Borrower shall not assert,
and hereby waives, any claim against any Indemnitee, on any theory of liability,
for special, indirect, consequential or punitive damages (as opposed to direct
or actual damages) arising out of, in connection with, or as a result of, this
Agreement, any other Loan Document or any agreement or instrument contemplated
hereby or thereby, the Transactions, any Loan or Letter of Credit or the use of
the proceeds thereof.
 
(e) All amounts due under this Section 12.03 shall be payable promptly after
written demand therefor.
 
Section 12.04 Successors and Assigns.
 
(a) The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns
permitted hereby, except that (i) the Borrower may not assign or otherwise
transfer any of its rights or obligations hereunder without the prior written
consent of each Lender (and any attempted assignment or transfer by the Borrower
without such consent shall be null and void) and (ii) no Lender may assign or
otherwise transfer its rights or obligations hereunder except in accordance with
this Section 12.04.  Nothing in this Agreement, expressed or implied, shall be
construed to confer upon any Person (other than the parties hereto, their
respective successors and assigns permitted hereby, Participants (to the extent
provided in Section 12.04(c)) and, to the extent expressly contemplated hereby,
the Related Parties of each of the Administrative Agent, the Issuing Bank and
the Lenders) any legal or equitable right, remedy or claim under or by reason of
this Agreement.
 
(b) (i) Subject to the conditions set forth in Section 12.04(b)(ii), any Lender
may assign to one or more assignees all or a portion of its rights and
obligations under this Agreement (including all or a portion of its Commitment
and the Loans at the time owing to it) with the prior written consent (such
consent not to be unreasonably withheld) of:
 
(A) the Borrower, provided that no consent of the Borrower shall be required if
such assignment is to a Lender, an Affiliate of a Lender, an Approved Fund or,
if an Event of Default has occurred and is continuing, is to any other assignee;
and
 
 
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(B) the Administrative Agent, provided that no consent of the Administrative
Agent shall be required for an assignment to an assignee that is a Lender
immediately prior to giving effect to such assignment.
 
(ii) Assignments shall be subject to the following additional conditions:
 
(A) except in the case of an assignment to a Lender or an Affiliate of a Lender
or an assignment of the entire remaining amount of the assigning Lender’s
Commitment or Loans, the amount of the Commitment or Loans of the assigning
Lender subject to each such assignment (determined as of the date the Assignment
and Assumption with respect to such assignment is delivered to the
Administrative Agent) shall not be less than $1,000,000 unless each of the
Borrower and the Administrative Agent otherwise consent, provided that no such
consent of the Borrower shall be required if an Event of Default has occurred
and is continuing;
 
(B) each partial assignment shall be made as an assignment of a proportionate
part of all the assigning Lender’s rights and obligations under this Agreement;
 
(C) the parties to each assignment shall execute and deliver to the
Administrative Agent an Assignment and Assumption, together with a processing
and recordation fee of $3,500; and
 
(D) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent any information reasonably requested by the Administrative
Agent.
 
(iii) Subject to Section 12.04(b)(iv) and the acceptance and recording thereof,
from and after the effective date specified in each Assignment and Assumption
the assignee thereunder shall be a party hereto and, to the extent of the
interest assigned by such Assignment and Assumption, have the rights and
obligations of a Lender under this Agreement, and the assigning Lender
thereunder shall, to the extent of the interest assigned by such Assignment and
Assumption, be released from its obligations under this Agreement (and, in the
case of an Assignment and Assumption covering all of the assigning Lender’s
rights and obligations under this Agreement, such Lender shall cease to be a
party hereto but shall continue to be entitled to the benefits of Section 5.01,
Section 5.02, Section 5.03 and Section 12.03).  Any assignment or transfer by a
Lender of rights or obligations under this Agreement that does not comply with
this Section 12.04 shall be treated for purposes of this Agreement as a sale by
such Lender of a participation in such rights and obligations in accordance with
Section 12.04(c).
 
(iv) The Administrative Agent, acting for this purpose as an agent of the
Borrower, shall maintain at one of its offices a copy of each Assignment and
Assumption delivered to it and a register for the recordation of the names and
addresses of the Lenders, and the Maximum Credit Amount of, and principal amount
of the Loans and LC Disbursements owing to, each Lender pursuant to the terms
hereof from time to time (the “Register”).  The entries in the Register shall be
conclusive, and the Borrower, the Administrative Agent, the Issuing Bank and the
Lenders may treat each Person whose name is recorded in the Register pursuant to
the terms hereof as a Lender hereunder for all purposes of this Agreement,
notwithstanding notice to the contrary.  The Register shall be available for
inspection by the Borrower, the Issuing Bank and any Lender, at any reasonable
time and from time to time upon reasonable prior notice.  In connection with any
changes to the Register, if necessary, the Administrative Agent will reflect the
revisions on Annex I and forward a copy of such revised Annex I to the Borrower,
the Issuing Bank and each Lender.
 
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(v) Upon its receipt of a duly completed Assignment and Assumption executed by
an assigning Lender and an assignee, the assignee’s providing any information
reasonably requested by the Administrative Agent (unless the assignee shall
already be a Lender hereunder), the processing and recordation fee referred to
in this Section 12.04(b) and any written consent to such assignment required by
Section 12.04(a), the Administrative Agent shall accept such Assignment and
Assumption and record the information contained therein in the Register.  No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this Section 12.04(b).
 
(c) 
 
(i) Any Lender may, without the consent of the Borrower or the Administrative
Agent or the Issuing Bank, sell participations to one or more banks or other
entities (a “Participant”) in all or a portion of such Lender’s rights and
obligations under this Agreement (including all or a portion of its Commitment
and the Loans owing to it); provided that (A) such Lender’s obligations under
this Agreement shall remain unchanged, (B) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations
and (C) the Borrower, the Administrative Agent, the Issuing Bank and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender’s rights and obligations under this Agreement.  Any
agreement or instrument pursuant to which a Lender sells such a participation
shall provide that such Lender shall retain the sole right to enforce this
Agreement and to approve any amendment, modification or waiver of any provision
of this Agreement; provided that such agreement or instrument may provide that
such Lender will not, without the consent of the Participant, agree to any
amendment, modification or waiver described in the proviso to Section 12.02 that
affects such Participant.  In addition such agreement must provide that the
Participant be bound by the provisions of Section 12.03.  Subject to Section
12.04(c)(ii), the Borrower agrees that each Participant shall be entitled to the
benefits of Section 5.01, Section 5.02 and Section 5.03 to the same extent as if
it were a Lender and had acquired its interest by assignment pursuant to Section
12.04.  To the extent permitted by law, each Participant also shall be entitled
to the benefits of Section 12.08 as though it were a Lender, provided such
Participant agrees to be subject to Section 4.01(c) as though it were a Lender.
 
(ii) A Participant shall not be entitled to receive any greater payment under
Section 5.01 or Section 5.03 than the applicable Lender would have been entitled
to receive with respect to the participation sold to such Participant, unless
the sale of the participation to such Participant is made with the Borrower’s
prior written consent.  A Participant that would be a Foreign Lender if it were
a Lender shall not be entitled to the benefits of Section 5.03 unless the
Borrower is notified of the participation sold to such Participant and such
Participant agrees, for the benefit of the Borrower, to comply with Section
5.03(e) as though it were a Lender.
 
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(d) Any Lender may at any time pledge or assign a security interest in all or
any portion of its rights under this Agreement to secure obligations of such
Lender, including, without limitation, any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this Section 12.04(d) shall not apply
to any such pledge or assignment of a security interest; provided that no such
pledge or assignment of a security interest shall release a Lender from any of
its obligations hereunder or substitute any such pledgee or assignee for such
Lender as a party hereto.
 
(e) Notwithstanding any other provisions of this Section 12.04, no transfer or
assignment of the interests or obligations of any Lender or any grant of
participations therein shall be permitted if such transfer, assignment or grant
would require the Borrower and the Guarantors to file a registration statement
with the SEC or to qualify the Loans under the “Blue Sky” laws of any state.
 
Section 12.05 Survival; Revival; Reinstatement.
 
(a) All covenants, agreements, representations and warranties made by the
Borrower herein and in the certificates or other instruments delivered in
connection with or pursuant to this Agreement or any other Loan Document shall
be considered to have been relied upon by the other parties hereto and shall
survive the execution and delivery of this Agreement and the making of any Loans
and issuance of any Letters of Credit, regardless of any investigation made by
any such other party or on its behalf and notwithstanding that the
Administrative Agent, any other Agent, the Issuing Bank or any Lender may have
had notice or knowledge of any Default or incorrect representation or warranty
at the time any credit is extended hereunder, and shall continue in full force
and effect as long as the principal of or any accrued interest on any Loan or
any fee or any other amount payable under this Agreement is outstanding and
unpaid or any Letter of Credit is outstanding and so long as the Commitments
have not expired or terminated.  The provisions of Section 5.01, Section 5.02,
Section 5.03 and Section 12.03 and Article XI shall survive and remain in full
force and effect regardless of the consummation of the transactions contemplated
hereby, the repayment of the Loans, the expiration or termination of the Letters
of Credit and the Commitments or the termination of this Agreement, any other
Loan Document or any provision hereof or thereof.
 
(b) To the extent that any payments on the Indebtedness or proceeds of any
collateral are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or other Person under any bankruptcy law, common law or
equitable cause, then to such extent, the Indebtedness so satisfied shall be
revived and continue as if such payment or proceeds had not been received and
the Administrative Agent’s and the Lenders’ Liens, security interests, rights,
powers and remedies under this Agreement and each Loan Document shall continue
in full force and effect.  In such event, each Loan Document shall be
automatically reinstated and the Borrower shall take such action as may be
reasonably requested by the Administrative Agent and the Lenders to effect such
reinstatement.
 
Section 12.06 Counterparts; Integration; Effectiveness.
 
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(a) This Agreement may be executed in counterparts (and by different parties
hereto on different counterparts), each of which shall constitute an original,
but all of which when taken together shall constitute a single contract.
 
(b) This Agreement, the other Loan Documents and any separate letter agreements
with respect to fees payable to the Administrative Agent constitute the entire
contract among the parties relating to the subject matter hereof and thereof and
supersede any and all previous agreements and understandings, oral or written,
relating to the subject matter hereof and thereof.  THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES HERETO AND
THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
 
(c) Except as provided in Section 6.01, this Agreement shall become effective
when it shall have been executed by the Administrative Agent and when the
Administrative Agent shall have received counterparts hereof which, when taken
together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns.  Delivery of an executed
counterpart of a signature page of this Agreement by telecopy shall be effective
as delivery of a manually executed counterpart of this Agreement.
 
Section 12.07 Severability.  Any provision of this Agreement or any other Loan
Document held to be invalid, illegal or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such invalidity,
illegality or unenforceability without affecting the validity, legality and
enforceability of the remaining provisions hereof or thereof; and the invalidity
of a particular provision in a particular jurisdiction shall not invalidate such
provision in any other jurisdiction.
 
Section 12.08 Right of Setoff.  If an Event of Default shall have occurred and
be continuing, each Lender and each of its Affiliates is hereby authorized at
any time and from time to time, to the fullest extent permitted by law, to set
off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other obligations (of whatsoever
kind, including, without limitations obligations under Swap Agreements) at any
time owing by such Lender or Affiliate to or for the credit or the account of
the Borrower or any Subsidiary against any of and all the obligations of the
Borrower or any Subsidiary owed to such Lender now or hereafter existing under
this Agreement or any other Loan Document, irrespective of whether or not such
Lender shall have made any demand under this Agreement or any other Loan
Document and although such obligations may be unmatured.  The rights of each
Lender under this Section 12.08 are in addition to other rights and remedies
(including other rights of setoff) which such Lender or its Affiliates may have.
 
Section 12.09 GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS.
 
(a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT THAT UNITED
STATES FEDERAL LAW PERMITS ANY LENDER TO CONTRACT FOR, CHARGE, RECEIVE, RESERVE
OR TAKE INTEREST AT THE RATE ALLOWED BY THE LAWS OF THE STATE WHERE SUCH LENDER
IS LOCATED.  CHAPTER 346 OF THE TEXAS FINANCE CODE (WHICH REGULATES CERTAIN
REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRI-PARTY ACCOUNTS) SHALL NOT APPLY
TO THIS AGREEMENT OR THE NOTES.
 
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(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS SHALL BE
BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES OF AMERICA
FOR THE SOUTHERN DISTRICT OF TEXAS, AND, BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH PARTY HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED BY
LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION
OF THE AFORESAID COURTS.  EACH PARTY HEREBY IRREVOCABLY WAIVES ANY OBJECTION,
INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE
JURISDICTIONS.  THIS SUBMISSION TO JURISDICTION IS NON-EXCLUSIVE AND DOES NOT
PRECLUDE A PARTY FROM OBTAINING JURISDICTION OVER ANOTHER PARTY IN ANY COURT
OTHERWISE HAVING JURISDICTION.
 
(c) EACH PARTY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT THE ADDRESS
SPECIFIED IN SECTION 12.01 OR SUCH OTHER ADDRESS AS IS SPECIFIED PURSUANT TO
SECTION 12.01 (OR ITS ASSIGNMENT AND ASSUMPTION), SUCH SERVICE TO BECOME
EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING.  NOTHING HEREIN SHALL AFFECT THE
RIGHT OF A PARTY OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
ANOTHER PARTY IN ANY OTHER JURISDICTION.
 
(d) EACH PARTY HEREBY (i) IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM
THEREIN; (ii) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW,
ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL,
EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN
ADDITION TO, ACTUAL DAMAGES; (iii) CERTIFIES THAT NO PARTY HERETO NOR ANY
REPRESENTATIVE, AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION,
SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (iv) ACKNOWLEDGES THAT IT HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT, THE LOAN DOCUMENTS AND THE TRANSACTIONS
CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS CONTAINED IN THIS SECTION 12.09.
 
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Section 12.10 Headings.  Article and Section headings and the Table of Contents
used herein are for convenience of reference only, are not part of this
Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
 
Section 12.11 Confidentiality.  Each of the Administrative Agent and the Lenders
agrees to maintain the confidentiality of the Information (as defined below),
except that Information may be disclosed (a) to its and its Affiliates’
directors, officers, employees and agents, including accountants, legal counsel
and other advisors (it being understood that the Persons to whom such disclosure
is made will be informed of the confidential nature of such Information and
instructed to keep such Information confidential), (b) to the extent requested
by any regulatory authority purporting to have jurisdiction over it, (c) to the
extent required by applicable laws or regulations or by any subpoena or similar
legal process, (d) to any other party to this Agreement or any other Loan
Document, (e) in connection with the exercise of any remedies hereunder or under
any other Loan Document or any suit, action or proceeding relating to this
Agreement or any other Loan Document or the enforcement of rights hereunder or
thereunder, (f) subject to an agreement containing provisions substantially the
same as those of this Section 12.11, to (i) any assignee of or Participant in,
or any prospective assignee of or Participant in, any of its rights or
obligations under this Agreement or (ii) any actual or prospective counterparty
(or its advisors) to any Swap Agreement relating to the Borrower and its
obligations, (g) with the consent of the Borrower or (h) to the extent such
Information (i) becomes publicly available other than as a result of a breach of
this Section 12.11 or (ii) becomes available to the Administrative Agent or any
Lender on a non-confidential basis from a source other than the Borrower.  For
the purposes of this Section 12.11, “Information” means all information received
from the Borrower or any Subsidiary relating to the Borrower or any Subsidiary
and their businesses, other than any such information that is available to the
Administrative Agent or any Lender on a non-confidential basis prior to
disclosure by the Borrower or a Subsidiary; provided that, in the case of
information received from the Borrower or any Subsidiary after the date hereof,
such information is clearly identified at the time of delivery as
confidential.  Any Person required to maintain the confidentiality of
Information as provided in this Section 12.11 shall be considered to have
complied with its obligation to do so if such Person has exercised the same
degree of care to maintain the confidentiality of such Information as such
Person would accord to its own confidential information.
 
Section 12.12 Interest Rate Limitation.  It is the intention of the parties
hereto that each Lender shall conform strictly to usury laws applicable to
it.  Accordingly, if the transactions contemplated hereby would be usurious as
to any Lender under laws applicable to it (including the laws of the United
States of America and the State of Texas or any other jurisdiction whose laws
may be mandatorily applicable to such Lender notwithstanding the other
provisions of this Agreement), then, in that event, notwithstanding anything to
the contrary in any of the Loan Documents or any agreement entered into in
connection with or as security for the Notes, it is agreed as follows:  (i) the
aggregate of all consideration which constitutes interest under law applicable
to any Lender that is contracted for, taken, reserved, charged or received by
such Lender under any of the Loan Documents or agreements or otherwise in
connection with the
 
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Notes shall under no circumstances exceed the maximum amount allowed by such
applicable law, and any excess shall be canceled automatically and if
theretofore paid shall be credited by such Lender on the principal amount of the
Indebtedness (or, to the extent that the principal amount of the Indebtedness
shall have been or would thereby be paid in full, refunded by such Lender to the
Borrower); and (ii) in the event that the maturity of the Notes is accelerated
by reason of an election of the holder thereof resulting from any Event of
Default under this Agreement or otherwise, or in the event of any required or
permitted prepayment, then such consideration that constitutes interest under
law applicable to any Lender may never include more than the maximum amount
allowed by such applicable law, and excess interest, if any, provided for in
this Agreement or otherwise shall be canceled automatically by such Lender as of
the date of such acceleration or prepayment and, if theretofore paid, shall be
credited by such Lender on the principal amount of the Indebtedness (or, to the
extent that the principal amount of the Indebtedness shall have been or would
thereby be paid in full, refunded by such Lender to the Borrower).  All sums
paid or agreed to be paid to any Lender for the use, forbearance or detention of
sums due hereunder shall, to the extent permitted by law applicable to such
Lender, be amortized, prorated, allocated and spread throughout the stated term
of the Loans evidenced by the Notes until payment in full so that the rate or
amount of interest on account of any Loans hereunder does not exceed the maximum
amount allowed by such applicable law.  If at any time and from time to time (i)
the amount of interest payable to any Lender on any date shall be computed at
the Highest Lawful Rate applicable to such Lender pursuant to this Section 12.12
and (ii) in respect of any subsequent interest computation period the amount of
interest otherwise payable to such Lender would be less than the amount of
interest payable to such Lender computed at the Highest Lawful Rate applicable
to such Lender, then the amount of interest payable to such Lender in respect of
such subsequent interest computation period shall continue to be computed at the
Highest Lawful Rate applicable to such Lender until the total amount of interest
payable to such Lender shall equal the total amount of interest which would have
been payable to such Lender if the total amount of interest had been computed
without giving effect to this Section 12.12.  To the extent that Chapter 303 of
the Texas Finance Code is relevant for the purpose of determining the Highest
Lawful Rate applicable to a Lender, such Lender elects to determine the
applicable rate ceiling under such Chapter by the weekly ceiling from time to
time in effect.  Chapter 346 of the Texas Finance Code does not apply to the
Borrower’s obligations hereunder.
 
Section 12.13 EXCULPATION PROVISIONS.  EACH OF THE PARTIES HERETO SPECIFICALLY
AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS; THAT IT HAS IN FACT READ THIS AGREEMENT
AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS, CONDITIONS
AND EFFECTS OF THIS AGREEMENT; THAT IT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL
COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND HAS RECEIVED THE ADVICE OF ITS
ATTORNEY IN ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND THAT
IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF
THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH
LIABILITY.  EACH PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE
VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS ON THE BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE
OF SUCH PROVISION OR THAT THE PROVISION IS NOT “CONSPICUOUS.”
 
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Section 12.14 Collateral Matters; Swap Agreements.  The benefit of the Security
Instruments and of the provisions of this Agreement relating to any collateral
securing the Indebtedness shall also extend to and be available to Approved
Counterparties to any Swap Agreement with the Borrower or any of its
Subsidiaries on a pro rata basis in respect of any obligations of the Borrower
or any of its Subsidiaries.  No Approved Counterparty shall have any voting
rights under any Loan Document as a result of the existence of obligations owed
to it under any such Swap Agreements.
 
Section 12.15 No Third Party Beneficiaries.  This Agreement, the other Loan
Documents, and the agreement of the Lenders to make Loans and the Administrative
Agent to procure and arrange to issue, amend, renew or extend Letters of Credit
hereunder are solely for the benefit of the Borrower, and no other Person
(including, without limitation, any Subsidiary of the Borrower, any obligor,
contractor, subcontractor, supplier or materialsman) shall have any rights,
claims, remedies or privileges hereunder or under any other Loan Document
against the Administrative Agent, the Issuing Bank or any Lender for any reason
whatsoever.  There are no third party beneficiaries.
 
Section 12.16 USA Patriot Act Notice.  Each Lender hereby notifies the Borrower
that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L.
107-56 (signed into law October 26, 2001)) (the “Patriot Act”), it is required
to obtain, verify and record information that identifies the Borrower, which
information includes the name and address of the Borrower and other information
that will allow such Lender to identify the Borrower in accordance with the
Patriot Act.
 
Section 12.17 Intercreditor Agreement.  Each Lender hereunder (a) agrees that it
will be bound by and will take no actions contrary to the provisions of the
Intercreditor Agreement and (b) authorizes and instructs the Administrative
Agent to enter into the Intercreditor Agreement as Collateral Agent and on
behalf of such Lender.
 
[SIGNATURES BEGIN NEXT PAGE]
 

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

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

 
 
 
 
 
 
 
 
 
 
 

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

 
 
 
 
 
 
 
 
 
 
 

 

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

  
 
 
 
 
 
 
 
 
 
 
 

    

 
 
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LENDERS:   CIT Bank            
By:
/s/ Daniel Burnett
   
Name:
Daniel Burnett
   
Title:
Authorized Signatory
   

 
 
 
 
 
 
 
 
 
 
 
 

     

 
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