Exhibit 10.1
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
AMONG
PETROQUEST ENERGY, L.L.C.,
As Borrower
PETROQUEST ENERGY, INC.,
As a Guarantor
JPMORGAN CHASE BANK, N.A.,
AS AGENT
J.P. MORGAN SECURITIES, INC.,
AS LEAD ARRANGER AND SOLE BOOK RUNNER
CALYON NEW YORK BRANCH,
AS SYNDICATION AGENT
AND
CERTAIN FINANCIAL INSTITUTIONS,
As Lenders
 
$100,000,000 Credit Facility
November 18, 2005

 

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TABLE OF CONTENTS

                              Page ARTICLE I DEFINITIONS     7  
 
                ARTICLE II THE CREDITS     26  
 
  2.1.   Commitment     26  
 
  2.2.   Borrowing Base     26  
 
  2.3.   Termination     28  
 
  2.4.   Ratable Loans     28  
 
  2.5.   Types of Advances     28  
 
  2.6.   Commitment Fee; Reductions in Borrowing Base     28  
 
  2.7.   Minimum Amount of Each Advance     28  
 
  2.8.   Optional Principal Payments     28  
 
  2.9.   Method of Selecting Types and Interest Periods for New Advances     29
 
 
  2.10.   Conversion and Continuation of Outstanding Advances     29  
 
  2.11.   Changes in Interest Rate, etc     30  
 
  2.12.   Rates Applicable After Default     30  
 
  2.13.   Method of Payment     30  
 
  2.14.   Noteless Agreement; Evidence of Indebtedness     31  
 
  2.15.   Telephonic Notices     31  
 
  2.16.   Interest Payment Dates; Interest and Fee Basis     32  
 
  2.17.   Notification of Advances, Interest Rates, Facility LCs, Prepayments
and Commitment Reductions     32  
 
  2.18.   Lending Installations     32  
 
  2.19.   Non-Receipt of Funds by the Agent     33  
 
  2.20.   Replacement of Lender     33  
 
  2.21.   Facility LCs     33  
 
  2.22.   Collateral     37  
 
                ARTICLE III YIELD PROTECTION; TAXES     39  
 
  3.1.   Yield Protection     39  
 
  3.2.   Changes in Capital Adequacy Regulations     40  
 
  3.3.   Availability of Types of Advances     40  
 
  3.4.   Funding Indemnification     40  
 
  3.5.   Taxes     41  
 
  3.6.   Lender Statements; Survival of Indemnity     42  
 
                ARTICLE IV CONDITIONS PRECEDENT     44  
 
  4.1.   Initial Credit Extension     44  
 
  4.2.   Each Credit Extension     47  

 

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                              Page ARTICLE V REPRESENTATIONS AND WARRANTIES    
49  
 
  5.1.   Existence and Standing     49  
 
  5.2.   Authorization and Validity     49  
 
  5.3.   No Conflict; Government Consent     49  
 
  5.4.   Financial Statements     50  
 
  5.5.   Material Adverse Effect     50  
 
  5.6.   Taxes     50  
 
  5.7.   Litigation and Contingent Obligations     50  
 
  5.8.   Subsidiaries     51  
 
  5.9.   ERISA     51  
 
  5.10.   Accuracy of Information     51  
 
  5.11.   Regulation U     51  
 
  5.12.   Material Agreements     51  
 
  5.13.   Compliance With Laws     51  
 
  5.14.   Ownership/Title to the Properties; Licenses; Liens     52  
 
  5.15.   Plan Assets; Prohibited Transactions     53  
 
  5.16.   Environmental Matters     53  
 
  5.17.   Investment Company Act     55  
 
  5.18.   Public Utility Holding Company Act     55  
 
  5.19.   Insurance     55  
 
  5.20.   Solvency     55  
 
  5.21.   Burdensome Provisions     56  
 
  5.22.   Relationship with the Lenders     56  
 
  5.23.   Jurisdiction of Organization     56  
 
  5.24.   Full Disclosure     56  
 
  5.25.   Gas Imbalances     56  
 
  5.27.   No Default     57  
 
                ARTICLE VI COVENANTS     58  
 
  6.1.   Financial Reporting     58  
 
  6.2.   Use of Proceeds     60  
 
  6.3.   Notice of Default     60  
 
  6.4.   Conduct of Business     60  
 
  6.5.   Taxes     61  
 
  6.6.   Insurance     61  
 
  6.7.   Compliance with Laws     61  
 
  6.8.   Maintenance of Properties     61  
 
  6.9.   Inspection     62  
 
  6.10.   Dividends; Repurchase of Capital Stock; etc     62  
 
  6.11.   Indebtedness     62  
 
  6.12.   Acquisitions and Merger     63  
 
  6.13.   Sale of Assets     64  
 
  6.14.   Investments and Acquisitions     64  
 
  6.15.   Liens     65  

 

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                              Page
 
  6.17.   Operating Leases     67  
 
  6.18.   Trade Liabilities     67  
 
  6.19.   Affiliates     67  
 
  6.20.   Agreement to Deliver Collateral Documents     67  
 
  6.21.   Maintenance of Liens     68  
 
  6.22.   Title Information     68  
 
  6.23.   Deposit of Production Proceeds     68  
 
  6.25.   Rate Management Transactions     69  
 
  6.27.   Sale of Accounts     70  
 
  6.28.   Sale and Leaseback Transactions and Other Off-Balance Sheet
Liabilities     70  
 
  6.29.   Contingent Obligations     70  
 
  6.30.   Financial Contracts     70  
 
  6.31.   Financial Covenants     70  
 
                ARTICLE VII DEFAULTS     72  
 
                ARTICLE VIII ACCELERATIONS, WAIVERS, AMENDMENTS AND REMEDIES    
76  
 
  8.1.   Acceleration     76  
 
  8.2.   Amendments     77  
 
  8.3.   Preservation of Rights     78  
 
                ARTICLE IX GENERAL PROVISIONS     79  
 
  9.1.   Survival of Representations     79  
 
  9.2.   Governmental Regulation     79  
 
  9.3.   Headings     79  
 
  9.4.   ENTIRE AGREEMENT     79  
 
  9.5.   Several Obligations; Benefits of this Agreement     79  
 
  9.6.   Expenses; Indemnification     79  
 
  9.7.   Numbers of Documents     80  
 
  9.8.   Accounting     80  
 
  9.9.   Severability of Provisions     80  
 
  9.10.   Nonliability of Lenders     80  
 
  9.11.   Confidentiality     81  
 
  9.12.   Nonreliance     81  
 
  9.13.   Disclosure     81  
 
  9.14   Interest     82  
 
  9.15   NO ORAL AGREEMENTS     82  
 
  9.16   Survival of Representations     82  
 
  9.17   Amendment and Restatement     82  
 
                ARTICLE X THE AGENT     84  
 
  10.1.   Appointment; Nature of Relationship     84  
 
  10.2.   Powers     84  
 
  10.3.   General Immunity     84  

 

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                              Page
 
  10.4.   No Responsibility for Loans, Recitals, etc     84  
 
  10.5.   Action on Instructions of Lenders     85  
 
  10.6.   Employment of Agents and Counsel     85  
 
  10.7.   Reliance on Documents; Counsel     85  
 
  10.8.   Agent’s Reimbursement and Indemnification     85  
 
  10.9.   Notice of Default     86  
 
  10.10.   Rights as a Lender     86  
 
  10.11.   Lender Credit Decision     86  
 
  10.12.   Successor Agent     86  
 
  10.13.   Agent’s Fee     87  
 
  10.14.   Delegation to Affiliates     87  
 
  10.15.   Execution of Collateral Documents     88  
 
  10.16.   Collateral Releases     88  
 
                ARTICLE XI SETOFF; RATABLE PAYMENTS     89  
 
  11.1.   Setoff     89  
 
  11.2.   Ratable Payments     89  
 
  11.3   Application of Collateral     89  
 
                ARTICLE XII BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS  
  91  
 
  12.1.   Successors and Assigns     91  
 
  12.2.   Participations     91  
 
  12.3.   Assignments     92  
 
  12.4.   Dissemination of Information     93  
 
  12.5.   Tax Treatment     93  
 
                ARTICLE XIII NOTICES     94  
 
  13.1.   Notices     94  
 
  13.2.   Change of Address     94  
 
                ARTICLE XIV COUNTERPARTS     94  
 
  14.1.   Counterparts     94  
 
  14.2.   Facsimile Documents and Signatures     94  
 
                ARTICLE XV CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF
JURY TRIAL     95  
 
  15.1.   CHOICE OF LAW     95  
 
  15.2.   CONSENT TO JURISDICTION     95  
 
  15.3.   WAIVER OF JURY TRIAL     95  

 

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SCHEDULES AND EXHIBITS
SCHEDULES

         
Schedule 5.1
  —   Other Names
Schedule 5.7
  —   Litigation and Contingent Obligations
Schedule 5.8
  —   Subsidiaries
Schedule 5.14
  —   Ownership/Title to the Properties; Licenses; Liens
Schedule 5.16
  —   Environmental Matters
Schedule 5.23
  —   Jurisdiction of Organization
Schedule 5.25
  —   Gas Imbalances
Schedule 6.11
  —   Indebtedness
Schedule 6.14
  —   Investments and Acquisitions
Schedule 6.25
  —   Existing Rate Management Transaction

EXHIBITS
EXHIBIT A — Promissory Note
EXHIBIT B — Borrowing Notice
EXHIBIT C — Assignment Agreement
     SCHEDULE 1 TO Assignment Agreement
EXHIBIT D — Form of Opinion of Porter & Hedges, L.L.P.
EXHIBIT E — Loan/Credit Related Money Transfer Instruction
EXHIBIT F — Compliance Certificate
     SCHEDULE 1 to Compliance Certificate
     SCHEDULE II to Compliance Certificate
EXHIBIT G — Form of Title Opinion

 

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SECOND AMENDED AND RESTATED CREDIT AGREEMENT
     This Second Amended and Restated Credit Agreement, dated as of November 18,
2005, is among PETROQUEST ENERGY, L.L.C., a Louisiana limited liability company;
JPMORGAN CHASE BANK, N.A., a national banking association, individually and as
agent (in its agent capacity herein “Agent”) and as issuer of Letters of Credit
(in such capacity the “LC Issuer”); CALYON NEW YORK BRANCH, as Syndication
Agent; and J.P. MORGAN SECURITIES, INC., as Sole Lead Arranger and Sole Book
Runner; and the LENDERS. The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
     As used in this Agreement:
     “Advance” means a borrowing hereunder, (i) made by the Lenders on the same
Borrowing Date, or (ii) converted or continued by the Lenders on the same date
of conversion or continuation, consisting, in either case, of the aggregate
amount of the several Loans of the same Type and, in the case of Eurodollar
Loans, for the same Interest Period.
     “Affiliate” of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if the controlling Person owns 10% or
more of any class of voting securities (or other ownership interests) of the
controlled Person or possesses, directly or indirectly, the power to direct or
cause the direction of the management or policies of the controlled Person,
whether through ownership of stock, by contract or otherwise.
     “Agent” means JPMorgan Chase in its capacity as contractual representative
of the Lenders pursuant to Article X, and not in its individual capacity as a
Lender, and any successor Agent appointed pursuant to Article X.
     “Aggregate Commitment” means the aggregate of the Commitments of all the
Lenders, as reduced from time to time pursuant to the terms hereof.
     “Aggregate Outstanding Credit Exposure” means, at any time, the aggregate
of the Outstanding Credit Exposure of all the Lenders.
     “Agreement” means this credit agreement, as it may be amended or modified
and in effect from time to time.

 

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     “Agreement Accounting Principles” means generally accepted accounting
principles as in effect from time to time in the United States, applied in a
manner consistent with that used in preparing the financial statements referred
to in Section 5.4.
     “Alternate Base Rate” means, for any day, a rate of interest per annum
equal to the higher of (i) the Corporate Base Rate for such day and (ii) the sum
of the Federal Funds Effective Rate for such day plus 1/2% per annum.
     “Applicable Environmental Laws” means any and all federal, state, local and
foreign Laws, judicial decisions, rules, judgments, plans, permits, concessions,
grants, franchises, licenses, agreements and other governmental restrictions
relating to (i) the protection of the environment (including, without
limitation, CERCLA, CERCLIS and RCRA), (ii) the effect of the environment on
human health, (iii) emissions, discharges or releases of pollutants,
contaminants, Hazardous Substances or wastes into surface water, ground water or
land, or (iv) the manufacture, processing, distribution, use, treatment,
storage, Disposal, transport or handling of pollutants, contaminants, Hazardous
Substances or wastes or the clean-up or other remediation thereof, as such Laws
now exist or are hereafter enacted and/or amended.
     “Applicable Fee Rate” means, at any time, the percentage rate per annum at
which commitment fees are accruing on the unused portion of the Aggregate
Commitment at such time as set forth in the Pricing Schedule.
     “Applicable Margin” means, with respect to Advances of any Type at any
time, the percentage rate per annum which is applicable at such time with
respect to Advances of such Type as set forth in the Pricing Schedule.
     “Arranger” means J.P. Morgan Securities, Inc., a Delaware corporation, and
its successors, in its capacity as Lead Arranger and Sole Book Runner.
     “Article” means an article of this Agreement unless another document is
specifically referenced.
     “Assignment Agreement” is defined in Section 12.3.1.
     “Authorized Officer” means any of the Chairman of the Board, President,
Chief Financial Officer, Treasurer, or any Vice President of the Borrower or the
Parent, acting singly.
     “Available Borrowing Base” means, at any time, the Borrowing Base then in
effect (after reduction for each applicable Borrowing Base Reduction Amount)
minus the Aggregate Outstanding Credit Exposure.
     “Borrower” means PetroQuest Energy, L.L.C., a Louisiana limited liability
company, and its successors and assigns.

 

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     “Borrower Pledge Agreement” means that certain Pledge and Security
Agreement of even date herewith executed by the Borrower in favor of the Agent,
for the ratable benefit of the Lenders, as it may be amended or modified and in
effect from time to time.
     “Borrowing Base” shall mean the amount of indebtedness which can be
adequately supported by the value of oil and gas reserves attributable to the
Collateral, which value shall be determined by the Lenders, in the exercise of
their sole discretion, in accordance with the Lenders’ customary practices and
standards for oil and gas loans, all as more particularly set forth in
Section 2.2.
     “Borrowing Base Reduction Amount” means (a) for each month after the date
hereof until the next semi-annual Borrowing Base redetermination pursuant to
Section 2.2.2, $-0-, and (b) for each month thereafter, such amount as
designated by 100% of the Lenders from time to time in connection with each
successive scheduled semi-annual Borrowing Base redetermination pursuant to
Section 2.2.2 or successive unscheduled Borrowing Base redetermination pursuant
to Section 2.2.3; provided however, if the Required Lenders fail to timely
designate a new Borrowing Base Reduction Amount, then the Borrowing Base
Reduction Amount most recently in effect will continue in effect until the
Required Lenders designate a new Borrowing Base Reduction Amount.
     “Borrowing Date” means a date on which an Advance is made hereunder.
     “Borrowing Notice” is defined in Section 2.9.
     “Business Day” means (i) with respect to any borrowing, payment or rate
selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on
which banks generally are open in Houston, Chicago and New York for the conduct
of substantially all of their commercial lending activities, interbank wire
transfers can be made on the Fedwire system and dealings in United States
dollars are carried on in the London interbank market and (ii) for all other
purposes, a day (other than a Saturday or Sunday) on which banks generally are
open in Houston, Chicago and New York for the conduct of substantially all of
their commercial lending activities and interbank wire transfers can be made on
the Fedwire system.
     “Capitalized Lease” of a Person means at any date any lease of Property by
such Person as lessee which would be capitalized on a balance sheet as of such
date of such Person prepared in accordance with Agreement Accounting Principles.
     “Capitalized Lease Obligations” of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be shown as a
liability on a balance sheet of such Person prepared in accordance with
Agreement Accounting Principles.

 

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     “Cash Equivalent Investments” means (i) obligations of, or fully guaranteed
by, the United States of America or any agency thereof and backed by the full
faith and credit of the United States of America, in each case which matures
within twelve months from the date of acquisition, (ii) commercial paper rated
A-1 or better by S&P or P-1 or better by Moody’s, (iii) demand deposit accounts
maintained in the ordinary course of business, (iv) certificates of deposit
issued by and time deposits with commercial banks (whether domestic or foreign)
having capital and surplus in excess of $100,000,000, (v) repurchase obligations
with a term of not more than 180 days for underlying securities of the types
described in subsection (i) above entered into with a bank meeting the
qualifications described in subsection (iv) above and (vi) money market funds,
the assets of which consist primarily of obligations of the types referred to in
clause (i) through (iv) above; provided in each case that the same provides for
payment of both principal and interest (and not principal alone or interest
alone) and is not subject to any contingency (other than the passage of time)
regarding the payment of principal or interest.
     “CERCLA” means the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, as from time to time in effect and any successor
thereto.
     “CERCLIS” means the Comprehensive Environmental Response, Compensation and
Liability Information System List of the Environmental Protection Agency, as
from time to time in effect and any successor thereto.
     “Change” is defined in Section 3.2.
     “Change in Control” means the acquisition by any Person, or two or more
Persons acting in concert, of beneficial ownership (within the meaning of
Rule 13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934) of 40% or more of the outstanding shares of voting stock
of the Parent.
     “Code” means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
     “Collateral” means any Property or asset of the Borrower or any Subsidiary,
now or hereafter acquired, which is subject to a Lender Lien in favor of the
Lenders (or in favor of the Agent for the benefit of the Lenders) or which,
under the terms of any Collateral Document or otherwise, is purported to be
subject to such a Lien, as described in Section 2.22.
     “Collateral Documents” means, collectively, the Deeds of Trust executed by
Borrower, the Pledge Agreements, the Guaranties, any Security Agreements and all
financing statements, notices, and other documents executed in connection
therewith.
     “Collateral Shortfall Amount” is defined in Section 8.1.

 

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     “Commitment” means, for each Lender, the obligation of such Lender to make
Advances to, and participate in Facility LCs issued upon the application of, the
Borrower in an aggregate amount not exceeding the amount set forth opposite its
signature below or as set forth in any Assignment Agreement relating to any
assignment that has become effective pursuant to Section 12.3.2, as such amount
may be modified from time to time pursuant to the terms hereof.
     “Consolidated Current Assets” shall mean the total of the consolidated
current assets of the Parent and Borrower, including amounts available under the
Available Borrowing Base; provided, however, in determining Consolidated Current
Assets, such determination shall not include non-cash gains, losses or charges
required (a) under SFAS 133, (b) under SFAS 143 or (c) under SFAS 123(R).
     “Consolidated Current Liabilities” shall mean the total of the consolidated
current liabilities of the Parent, provided, however, in determining
consolidated current liabilities, such determination shall not include non-cash
gains, losses or charges required (a) under SFAS 133, (b) under SFAS 143 or
(c) under SFAS 123(R).
     “Consolidated EBITDDA” means for any period Consolidated Net Income for
such period plus, to the extent deducted from revenues in determining
Consolidated Net Income, (i) consolidated interest expense, (ii) expense for
taxes paid or accrued, (iii) depreciation, depletion, amortization, and any
other non-cash charges, (iv) extraordinary or non-recurring expenses or losses
incurred other than in the ordinary course of business and (v) unrealized loss
from Rate Management Obligations, if any, minus, to the extent included in
Consolidated Net Income, extraordinary or non-recurring income or gains realized
other than in the ordinary course of business, and non-cash credits, all
calculated for the Parent, Borrower and their Subsidiaries on a consolidated
basis.
     “Consolidated Indebtedness” means, with reference to any period, the
aggregate Indebtedness of the Parent, the Borrower and their Subsidiaries on a
consolidated basis, after excluding Indebtedness attributable to unrealized Rate
Management Transactions.
     “Consolidated Net Income” means, with reference to any period, the net
income (or loss) of the Parent, Borrower and their Subsidiaries calculated on a
consolidated basis for such period; provided, however, in determining
Consolidated Net Income, such determination shall not include (i) non-cash
gains, losses or charges required (a) under SFAS 133 (b) under SFAS 143 or under
SFAS 123(R); (ii) full cost ceiling limit write downs; and (iii) amortization of
deferred compensation expense.
     “Contingent Obligation” of a Person means any agreement, undertaking or
arrangement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes or
is contingently liable upon, the obligation or liability of any other Person, or
agrees to maintain the net worth or working capital or other financial condition
of any other Person, or otherwise assures any creditor of such other Person

 

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against loss, (including, without limitation, any comfort letter, or obligations
of the type listed above of any such Person as general partner of a partnership
with respect to the liabilities of the partnership) other than endorsements of
instruments in the ordinary course of business in connection with collection of
the instruments.
     “Controlled Group” means all members of a controlled group of corporations
or other business entities and all trades or businesses (whether or not
incorporated) under common control which, together with the Borrower or any of
its Subsidiaries, are treated as a single employer under Section 414 of the
Code.
     “Conversion/Continuation Notice” is defined in Section 2.10.
     “Corporate Base Rate” means a rate per annum equal to the corporate base
rate or prime rate of interest announced by JPMorgan Chase, from time to time,
changing when and as said corporate base rate or prime rate changes.
     “Credit Extension” means the making of an Advance or the issuance of a
Facility LC hereunder.
     “Credit Extension Date” means the Borrowing Date for an Advance or the
issuance date for a Facility LC.
     “CSP Pipeline” means CSP Pipeline LLC, a Louisiana limited liability
company, a Wholly-Owned Subsidiary of TDC Energy.
     “Deeds of Trust” means all of the Amended and Restated Deeds of Trust,
Mortgages, Assignments, Security Agreements and Financing Statements executed by
the Borrower or any Guarantor in favor of the Agent, for the ratable benefit of
the Lenders, as it may be amended or modified and in effect from time to time,
each a “Deed of Trust.”
     “Default” means an event described in Article VII.
     “Disposal” and “Disposed” shall have the meanings specified in RCRA;
provided, in the event RCRA is amended so as to broaden the meaning of
“Disposal” or “Disposed”, such broader meaning shall apply subsequent to the
effective date of such amendment; and provided further, to the extent that the
Laws of the states in which the Borrower’s or any Subsidiary’s Oil and Gas
Properties are located establish a meaning for “Disposal” or “Disposed” which is
broader than that specified in RCRA, such broader meaning shall apply.
     “Eligible Assignee” is defined in Section 12.3.1.

 

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     “Enforcement Action” means any action or proceeding by the Agent for the
enforcement of the Lender Liens created under any or all of the Collateral
Documents and any other exercise of any right or remedy with respect to the
Collateral.
     “ERISA” means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any rule or regulation issued thereunder.
     “Eurodollar Advance” means an Advance which, except as otherwise provided
in Section 2.11, bears interest at the applicable Eurodollar Rate.
     “Eurodollar Base Rate” means, with respect to a Eurodollar Advance for the
relevant Interest Period, the applicable British Bankers’ Association Interest
Settlement Rate for deposits in U.S. dollars appearing on Reuters Screen FRBD as
of 11:00 a.m. (London time) two Business Days prior to the first day of such
Interest Period, and having a maturity equal to such Interest Period; provided
that, (i) if Reuters Screen FRBD is not available to the Agent for any reason,
the applicable Eurodollar Base Rate for the relevant Interest Period shall
instead be the applicable British Bankers’ Association Interest Settlement Rate
for deposits in U.S. dollars as reported by any other generally recognized
financial information service as of 11:00 a.m. (London time) two Business Days
prior to the first day of such Interest Period, and having a maturity equal to
such Interest Period, and (ii) if no such British Bankers’ Association Interest
Settlement Rate is available to the Agent, the applicable Eurodollar Base Rate
for the relevant Interest Period shall instead be the rate determined by the
Agent to be the rate at which JPMorgan Chase or one of its Affiliate banks
offers to place deposits in U.S. dollars with first-class banks in the London
interbank market at approximately 11:00 a.m. (London time) two Business Days
prior to the first day of such Interest Period, in the approximate amount of
JPMorgan Chase’s relevant Eurodollar Loan and having a maturity equal to such
Interest Period.
     “Eurodollar Loan” means a Loan which, except as otherwise provided in
Section 2.11, bears interest at the applicable Eurodollar Rate.
     “Eurodollar Rate” means, with respect to a Eurodollar Advance for the
relevant Interest Period, the sum of (i) the quotient of (a) the Eurodollar Base
Rate applicable to such Interest Period, divided by (b) one minus the Reserve
Requirement (expressed as a decimal) applicable to such Interest Period, plus
(ii) the Applicable Margin.
     “Excluded Subsidiary” means, individually and collectively, PetroQuest Oil
& Gas, CSP Pipeline, Sea Harvester, Salvador Energy, TDC Energy Systems,
Indianola Gathering and Wirth Gathering.
     “Excluded Taxes” means, in the case of each Lender or applicable Lending
Installation and the Agent, taxes imposed on its overall net income, and
franchise taxes imposed on it, by any jurisdiction under the Laws, other than
those imposed solely as a result of transactions contemplated by this Agreement.

 

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     “Exhibit” refers to an exhibit to this Agreement, unless another document
is specifically referenced.
     “Existing Rate Management Transaction” means those certain ISDA Master
Agreements or Trade Confirmations thereunder all as more particularly described
on Schedule 6.25.
     “Facility LC” is defined in Section 2.21.1.
     “Facility LC Application” is defined in Section 2.21.3.
     “Facility LC Collateral Account” is defined in Section 2.21.11.
     “Facility Termination Date” means November 18, 2009 or any earlier date on
which the Aggregate Commitment is reduced to zero or otherwise terminated
pursuant to the terms hereof.
     “Federal Funds Effective Rate” means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10:00 a.m. (Houston
time) on such day on such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by the Agent in its sole
discretion.
     “Fee Letter” means that certain letter dated August 10, 2005 between
Arranger and the Borrower.
     “Financial Contract” of a Person means (i) any exchange-traded or
over-the-counter futures, forward, swap or option contract or other financial
instrument with similar characteristics, or (ii) any Rate Management
Transaction.
     “Floating Rate” means, for any day, a rate per annum equal to (i) the
Alternate Base Rate for such day plus (ii) the Applicable Margin, in each case
changing when and as the Alternate Base Rate changes.
     “Floating Rate Advance” means an Advance which, except as otherwise
provided in Section 2.11, bears interest at the Floating Rate.
     “Floating Rate Loan” means a Loan which, except as otherwise provided in
Section 2.11, bears interest at the Floating Rate.

 

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     “Guaranties” means those certain Guaranties dated of even date herewith,
executed by each Guarantor in favor of the Agent, for the ratable benefit of the
Lenders, as it may be amended or modified and in effect from time to time, each
a “Guaranty.”
     “Guarantor” means individually and collectively (i) Parent; (ii) Pittrans;
(iii) TDC Energy; (iv) any hereafter formed or acquired Subsidiary of the
Parent, the Borrower, Pittrans or TDC Energy; and (v) their respective
successors and assigns.
     “Hazardous Substance” shall have the meaning specified in CERCLA; provided,
in the event CERCLA is amended so as to broaden the meaning of “Hazardous
Substance”, such broader meaning shall apply subsequent to the effective date of
such amendment; and provided further, to the extent that the Laws of the states
in which the Borrower’s or any Subsidiary’s Oil and Gas Properties are located
establish a meaning for “Hazardous Substance” which is broader than that
specified in CERCLA, such broader meaning shall apply.
     “Highest Lawful Rate” means the maximum rate (or, if the context so
permits, an amount calculated at such rate) of interest which, at the time in
question, would not cause the interest charged to exceed the maximum amount
which the Lenders would be allowed to contract for, charge, take, reserve or
receive under applicable Law after taking into account, to the extent required
by applicable Law, any and all relevant payments or charges under the Loan
Documents.
     “Hydrocarbons” means oil, gas, casinghead gas, coalbed methane, drip
gasoline, natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous
hydrocarbons and all products refined or separated therefrom and all other
minerals.
     “Hydrocarbons Interests” means all rights, titles, interests and estates 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 interest of whatever nature.
     “Indebtedness” of a Person means such Person’s (i) obligations for borrowed
money, (ii) obligations representing the deferred purchase price of Property or
services (other than accounts payable arising in the ordinary course of such
Person’s business payable on terms customary in the trade), (iii) obligations,
whether or not assumed, secured by Liens or payable out of the proceeds or
production from Property now or hereafter owned or acquired by such Person;
provided that if not assumed, the amount of such debt will be the lesser of the
amount of the debt or the value of the Property owned by such Person which
secures the debt, (iv) obligations which are evidenced by notes, acceptances, or
other instruments, (v) obligations of such Person to purchase securities or
other Property arising out of or in connection with the sale of the same or
substantially similar securities or Property, (vi) Capitalized Lease
Obligations, (vii) Contingent Obligations, (viii) Letters of Credit, (ix) Rate
Management Obligations, (x) obligations under Sale and Leaseback Transactions,
and (xi) any other obligation for borrowed money which in

 

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accordance with Agreement Accounting Principles would be shown as a liability on
the consolidated balance sheet of such Person.
     “Independent Engineer” is defined in Section 6.1(ix).
     “Indianola Gathering” L.L.C. means Indianola Gathering L.L.C., an Oklahoma
limited liability company, of which Pittrans owns a sixteen (16%) membership
interest.
     “Initial Reserve Report” means the reserve report dated January 1, 2005,
prepared by Ryder Scott Company, L.P., an independent petroleum engineer,
concerning the Oil & Gas Properties based on reasonable assumptions specified by
the Agent (including discount rates and projected hydrocarbon price
assumptions), a copy of which has been delivered to each Lender.
     “Interest Period” means, with respect to a Eurodollar Advance, a period of
one, two, three or six months commencing on a Business Day selected by the
Borrower pursuant to this Agreement. Such Interest Period shall end on the day
which corresponds numerically to such date one, two, three or six months
thereafter, provided, however, that if there is no such numerically
corresponding day in such next, second, third or sixth succeeding month, such
Interest Period shall end on the last Business Day of such next, second, third
or sixth succeeding month. If an Interest Period would otherwise end on a day
which is not a Business Day, such Interest Period shall end on the next
succeeding Business Day, provided, however, that if said next succeeding
Business Day falls in a new calendar month, such Interest Period shall end on
the immediately preceding Business Day.
     “Investment” of a Person means any loan, advance (other than commission,
travel and similar advances to officers and employees made in the ordinary
course of business), extension of credit (other than accounts receivable arising
in the ordinary course of business on terms customary in the trade) or
contribution of capital by such Person; stocks, bonds, mutual funds, partnership
interests, notes, debentures or other securities owned by such Person; any
deposit accounts and certificate of deposit owned by such Person; and structured
notes, derivative financial instruments and other similar instruments or
contracts owned by such Person.
     “JPMorgan Chase” means JPMorgan Chase Bank, N.A., a national banking
association having offices in Houston, Texas, in its individual capacity, and
its successors.
     “Law” means all applicable statutes, laws, ordinances, regulations, orders,
writs, injunctions or decrees of any state, commonwealth, nation, country,
territory, possession, county, parish, municipality or Tribunal.
     “LC Fee” is defined in Section 2.21.4.
     “LC Issuer” means JPMorgan Chase (or any Subsidiary or Affiliate of
JPMorgan Chase designated by JPMorgan Chase) in its capacity as issuer of
Facility LCs hereunder.

 

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     “LC Obligations” means, at any time, the sum, without duplication, of
(i) the aggregate undrawn stated amount under all Facility LCs outstanding at
such time plus (ii) the aggregate unpaid amount at such time of all
Reimbursement Obligations.
     “LC Payment Date” is defined in Section 2.21.5.
     “Lender Liens” means the Liens granted in the Collateral in favor of the
Agent for the ratable benefit of the Lenders or directly for the benefit of any
Lender pursuant to the Loan Documents.
     “Lender Rate Management Obligations” means Rate Management Obligations
among the Borrower and any Lender or any Affiliate of any Lender arising under
Rate Management Transactions among such Persons.
     “Lenders” means the lending institutions listed on the signature pages of
this Agreement and their respective successors and assigns.
     “Lending Installation” means, with respect to a Lender or the Agent, the
office, branch, Subsidiary or Affiliate of such Lender or the Agent listed on
the signature pages hereof or on a Schedule or otherwise selected by such Lender
or the Agent pursuant to Section 2.18.
     “Letter of Credit” of a Person means a letter of credit or similar
instrument which is issued upon the application of such Person or upon which
such Person is an account party or for which such Person is in any way liable.
     “Lien” means any lien (statutory or other), security interest, mortgage,
pledge, hypothecation, assignment, deposit arrangement, encumbrance or
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever (including, without limitation, the interest of a
vendor or lessor under any conditional sale, Capitalized Lease or other title
retention agreement).
     “Loan” means, with respect to a Lender, such Lender’s loan made pursuant to
Article II (or any conversion or continuation thereof).
     “Loan Documents” means this Agreement, the Notes, the Facility LC
Applications, and the Collateral Documents.
     “Material Adverse Effect” means a material adverse effect on (i) the
business, Property, condition (financial or otherwise), results of operations,
or prospects of the Parent, the Borrower and their Subsidiaries taken as a
whole, (ii) the ability of the Borrower to perform its obligations under the
Loan Documents to which it is a party, (iii) the validity or enforceability of
any of the Loan Documents or the rights or remedies of the Agent or the Lenders
thereunder, or (iv) the

 

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Collateral or Lender Liens on the Collateral or the perfection or priority of
such Lender Liens, which significantly increases the risk that any of the
Obligations will not be repaid as and when due.
     “Material Indebtedness” is defined in Section 7.5.
     “Modify” and “Modification” are defined in Section 2.21.1.
     “Moody’s” means Moody’s Investors Service, Inc.
     “Multiemployer Plan” means a Plan maintained pursuant to a collective
bargaining agreement or any other arrangement to which the Borrower or any
member of the Controlled Group is a party to which more than one employer is
obligated to make contributions.
     “Non-Recourse Indebtedness” means Indebtedness as to which (a) neither the
Parent, the Borrower or any of their Subsidiaries (i) provides credit support of
any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness) or (ii) is directly or indirectly liable as a guarantor
or otherwise, (b) no default with respect thereto would permit, upon notice,
lapse of time or both, any holder of any other Indebtedness (other than the
Obligations) of the Parent, the Borrower or their Subsidiaries to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity, and (c) the holders thereof
have been notified in writing that they will not have any recourse to the
capital stock or assets of the Parent, the Borrower or any of their
Subsidiaries.
     “Non-U.S. Lender” is defined in Section 3.5.4.
     “Note” means, with respect to any Lender, the promissory note issued at the
request of such Lender pursuant to Section 2.14 in the form of Exhibit A.
     “Obligations” means all unpaid principal of and accrued and unpaid interest
on the Loans, the Lender Rate Management Obligations, all accrued and unpaid
fees and all expenses, reimbursements, indemnities and other obligations of the
Borrower to the Lenders or to any Lender, the Agent, the LC Issuer, or any
indemnified party arising under the Loan Documents.
     “Off-Balance Sheet Liability” of a Person means (i) any repurchase
obligation or liability of such Person with respect to accounts or notes
receivable sold by such Person, (ii) any liability under any Sale and Leaseback
Transaction which is not a Capitalized Lease, (iii) any liability under any
so-called “synthetic lease” transaction entered into by such Person, or (iv) any
obligation arising with respect to any other transaction which is the functional
equivalent of or takes the place of borrowing but which does not constitute a
liability on the balance sheets of such Person, but excluding from this clause
(iv) Operating Leases.

 

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     “Oil and Gas Properties” means Hydrocarbon Interests; the properties now or
hereafter pooled or unitized with Hydrocarbon Interests; 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 body or agency having
jurisdiction) which may affect all or any portion of the Hydrocarbon Interests;
all operating agreements, contracts and other 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;
all Hydrocarbons in and under and which may be produced and saved or
attributable to the Hydrocarbon Interests, the lands covered thereby and all oil
in tanks and all rents, issues, profits, proceeds, products, revenues and other
incomes from or attributable to the Hydrocarbon Interests; all tenements,
hereditaments, appurtenances and properties in anywise appertaining, belonging,
affixed or incidental to the Hydrocarbon Interests, 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 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.
     “Operating Lease” of a Person means any lease of Property (other than a
Capitalized Lease) by such Person as lessee which has an original term
(including any required renewals and any renewals effective at the option of the
lessor) of one year or more.
     “Operating Lease Obligations” means, as at any date of determination, the
amount obtained by aggregating the present values, determined in the case of
each particular Operating Lease by applying a discount rate (which discount rate
shall equal the discount rate which would be applied under Agreement Accounting
Principles if such Operating Lease were a Capitalized Lease) from the date on
which each fixed lease payment is due under such Operating Lease to such date of
determination, of all fixed lease payments due under all Operating Leases of the
Parent, the Borrower and their Subsidiaries.
     “Other Taxes” is defined in Section 3.5.2.
     “Outstanding Credit Exposure” means, as to any Lender at any time, the sum
of (i) the aggregate principal amount of its Loans outstanding at such time,
plus (ii) an amount equal to its Pro Rata Share of the LC Obligations at such
time.

 

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     “Parent” means PetroQuest Energy, Inc., a Delaware corporation.
     “Parent Pledge Agreement” means that certain Pledge and Security Agreement
of even date herewith executed by the Parent in favor of the Agent, for the
ratable benefit of the Lenders, as it may be amended or modified and in effect
from time to time.
     “Participant” is defined in Section 12.2.1.
     “Payment Date” means the first day of each January, April, July and
October, commencing January 1, 2006.
     “PBGC” means the Pension Benefit Guaranty Corporation, or any successor
thereto.
     “PDP Present Value” means the present value discounted at nine percent (9%)
of future net revenues attributable to all PDP Reserves from the Oil and Gas
Properties calculated based on a Reserve Report prepared in accordance with
Section 6.1.
     “PDP Reserves” means Proved Reserves which are categorized as both
“Developed” and “Producing.”
     “Person” means any natural person, corporation, firm, joint venture,
partnership, limited liability company, association, enterprise, trust or other
entity or organization, or any government or political subdivision or any
agency, department or instrumentality thereof.
     “PetroQuest Oil & Gas” means PetroQuest Oil & Gas, L.L.C., a Louisiana
limited liability company the sole member of which is the Parent.
     “Pittrans” means Pittrans, Inc., an Oklahoma corporation, a Wholly-Owned
Subsidiary of Borrower.
     “Plan” means an employee pension benefit plan which is covered by Title IV
of ERISA or subject to the minimum funding standards under Section 412 of the
Code as to which the Borrower or any member of the Controlled Group may have any
liability.
     “Pledge Agreements” means the Borrower Pledge Agreement, the Parent Pledge
Agreement and the TDC Pledge Agreement, each a “Pledge Agreement.”
     “Pricing Schedule” means the Schedule attached hereto identified as such.
     “Prior Credit Agreement” means the Amended and Restated Credit Agreement
dated May 13, 2003 among Borrower, the Parent, the Agent, and the financial
institutions party thereto, as amended from time to time.

 

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     “Pro Rata Share” means, with respect to a Lender, a portion equal to a
fraction the numerator of which is such Lender’s Commitment and the denominator
of which is the Aggregate Commitment.
     “Property” of a Person means any and all property, whether real, personal,
tangible, intangible, or mixed, of such Person, or other assets owned, leased or
operated by such Person.
     “Proved Reserves” has the meaning given that term in the definitions
promulgated by the Society of Petroleum Evaluation Engineers and the World
Petroleum Congress as in effect at the time in question.
     “Rate Management Obligations” of a Person means any and all obligations of
such Person, whether absolute or contingent, realized or unrealized (in which
case netted against one another) and howsoever and whensoever created, arising,
evidenced or acquired (including all renewals, extensions and modifications
thereof and substitutions therefor), under (i) any and all Rate Management
Transactions, and (ii) any and all cancellations, buy backs, reversals,
terminations or assignments of any Rate Management Transactions.
     “Rate Management Transaction” means any transaction (including an agreement
with respect thereto) now existing or hereafter entered into between the
Borrower and any Lender or Affiliate thereof which is a rate swap, basis swap,
forward rate transaction, commodity swap, commodity option, equity or equity
index swap, equity or equity index option, bond option, interest rate option,
foreign exchange transaction, cap transaction, floor transaction, collar
transaction, forward transaction, currency swap transaction, cross-currency rate
swap transaction, currency option or any other similar transaction (including
any option with respect to any of these transactions) or any combination
thereof, whether linked to one or more interest rates, foreign currencies,
commodity prices, equity prices or other financial measures including, without
limitation, the Existing Rate Management Transaction.
     “RCRA” means the Resource Conservation and Recovery Act of 1976, as amended
by the Used Oil Recycling Act of 1980, the Solid Waste Disposal Act Amendments
of 1980, and the Hazardous and Solid Waste Amendments of 1984, as from time to
time in effect and any successor thereto.
     “Regulation D” means Regulation D of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor thereto or other
regulation or official interpretation of said Board of Governors relating to
reserve requirements applicable to member banks of the Federal Reserve System.
     “Regulation U” means Regulation U of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by banks for the

 

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purpose of purchasing or carrying margin stocks applicable to member banks of
the Federal Reserve System.
     “Reimbursement Obligations” means, at any time, the aggregate of all
obligations of the Borrower then outstanding under Section 2.21 to reimburse the
LC Issuer for amounts paid by the LC Issuer in respect of any one or more
drawings under Facility LCs.
     “Release” shall have the meaning specified in CERCLA; provided, in the
event CERCLA is amended so as to broaden the meaning of “Release”, such broader
meaning shall apply subsequent to the effective date of such amendment; and
provided further, to the extent that the Laws of the states in which the
Borrower’s or any Subsidiary’s Oil and Gas Properties are located establish a
meaning for “Release” which is broader than that specified in CERCLA, such
broader meaning shall apply.
     “Release Price” means in connection with the sale of any of the Borrower’s
or any Subsidiary’s Oil and Gas Properties permitted by Section 6.13, the price
determined by the Required Lenders in their discretion based upon the loan value
of such Oil and Gas Properties being sold that the Required Lenders in their
discretion (using such methodology, assumptions and discount rates as such
Required Lenders customarily use in assigning loan value to oil and gas
properties) assign to such Oil and Gas Properties as of the time of their sale.
     “Reportable Event” means a reportable event as defined in Section 4043 of
ERISA and the regulations issued under such Section, with respect to a Plan,
excluding, however, such events as to which the PBGC has by regulation waived
the requirement of Section 4043(a) of ERISA that it be notified within 30 days
of the occurrence of such event, provided, however, that a failure to meet the
minimum funding standard of Section 412 of the Code and of Section 302 of ERISA
shall be a Reportable Event regardless of the issuance of any such waiver of the
notice requirement in accordance with either Section 4043(a) of ERISA or Section
412(d) of the Code.
     “Reports” is defined in Section 9.6.
     “Required Lenders” means (i) Lenders having 100% of the Aggregate
Commitment if there are only two or fewer Lenders; or (ii) Lenders in the
aggregate having at least 662/3% of the Aggregate Commitment if there are more
than two Lenders or, (iii) if the Aggregate Commitment has been terminated,
Lenders in the aggregate holding at least 662/3% of the aggregate unpaid
principal amount of the outstanding Advances.
     “Reserve Report” means the Initial Reserve Report and each reserve report
delivered pursuant to Sections 6.1(x) or (xi).
     “Reserve Requirement” means, with respect to an Interest Period, the
maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under Regulation D on Eurocurrency
liabilities.

 

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     “Rights” means rights, remedies, powers, and privileges.
     “Risk-Based Capital Guidelines” is defined in Section 3.2.
     “S&P” means Standard and Poor’s Ratings Services, a division of The McGraw
Hill Companies, Inc.
     “Sale and Leaseback Transaction” means any sale or other transfer of
Property by any Person with the intent to lease such Property as lessee.
     “Salvador Energy” means Salvador Energy Company, L.L.C., a Louisiana
limited liability company, a Wholly-Owned Subsidiary of TDC Energy.
     “Schedule” refers to a specific schedule to this Agreement, unless another
document is specifically referenced.
     “Sea Harvester” means Sea Harvester Energy Development Company, L.L.C., a
Louisiana limited liability company, a Wholly-Owned Subsidiary of TDC Energy.
     “Section” means a numbered section of this Agreement, unless another
document is specifically referenced.
     “Security Agreements” means any and all security agreements now or
hereafter executed by the Parent, the Borrower or any of their Subsidiaries in
favor of the Agent, for the ratable benefit of the Lenders, as they may be
amended or modified and in effect from time to time.
     “Senior Notes” means the senior unsecured promissory notes due 2012 of the
Borrower and Parent, as co-issuers, issued May 2005 and June 2005 pursuant to
the Senior Notes Indenture, and includes the unsecured guaranties thereof
executed from time to time by certain Subsidiaries of Parent and the Borrower,
notes (and the guaranties thereof) issued from time to time in exchange for such
Senior Notes due 2012 and all reissues and replacements of the foregoing.
     “Senior Notes Indenture” means the Indenture dated May 11, 2005, among the
Borrower and Parent, as co-issuers, the subsidiary guarantors identified therein
and The Bank of New York Trust Company, N.A., as the same may be amended or
supplemented from time to time.
     “Single Employer Plan” means a Plan maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group.
     “Solid Waste” shall have the meaning specified in RCRA; provided, in the
event RCRA is amended so as to broaden the meaning of “Solid Waste”, such
broader meaning shall apply

 

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subsequent to the effective date of such amendment; and provided further, to the
extent that the Laws of the states in which the Borrower’s or any Subsidiary’s
Oil and Gas Properties are located establish a meaning for “Solid Waste” which
is broader than that specified in RCRA, such broader meaning shall apply.
     “Subsidiary” of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(ii) any partnership, limited liability company, association, joint venture or
similar business organization more than 50% of the ownership interests having
ordinary voting power of which shall at the time be so owned or controlled.
Unless otherwise expressly provided, all references herein to a “Subsidiary”
shall mean a Subsidiary of the Borrower and all references herein to a
“Subsidiary” of the Parent shall mean Subsidiaries of the Parent other than the
Excluded Subsidiaries.
     “Substantial Portion” means, ten percent 10% of the present value
discounted at ten percent 10% per annum of the PDP Present Value of the Borrower
and its Subsidiaries as reflected in the most recent Reserve Report.
     “Syndication Agent” means Calyon New York Branch and not in its individual
capacity as a Lender, and any successor Syndication Agent appointed pursuant to
Article X.
     “Taxes” means any and all present or future taxes, duties, levies, imposts,
deductions, charges or withholdings, and any and all liabilities with respect to
the foregoing, but excluding Excluded Taxes and Other Taxes.
     “TDC Energy” means TDC Energy LLC, a Louisiana limited liability company,
Wholly-Owned Subsidiary of Parent.
     “TDC Energy Pledge Agreement” means that certain Pledge and Security
Agreement of even date herewith executed by TDC Energy in favor of the Agent,
for the ratable benefit of the Lenders, as it may be amended or modified and in
effect from time to time.
     “TDC Energy Systems” means TDC Energy Systems, L.L.C., a Louisiana limited
liability company, a Wholly-Owned Subsidiary of TDC Energy.
     “Transferee” is defined in Section 12.4.
     “Tribunal” means any government, any arbitration panel, any court or any
governmental department, central bank or comparable agency, commission, board,
bureau, agency or instrumentality of the United States or any state, province,
commonwealth, nation, territory, possession, county, parish, town, township,
village or municipality, whether now or hereafter constituted or existing.

 

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     “Type” means, with respect to any Advance, its nature as a Floating Rate
Advance or a Eurodollar Advance.
     “Unfunded Liabilities” means the amount (if any) by which the present value
of all vested and unvested accrued benefits under all Single Employer Plans
exceeds the fair market value of all such Plan assets allocable to such
benefits, all determined as of the then most recent valuation date for such
Plans using PBGC actuarial assumptions for single employer plan terminations.
     “Unmatured Default” means an event which but for the lapse of time or the
giving of notice, or both, would constitute a Default.
     “Utilization Percentage” means as of any day, the quotient obtained by
dividing the Aggregate Outstanding Credit Exposure on such day by the Borrowing
Base (after reduction for each applicable Borrowing Base Reduction Amount) as of
such day.
     “Wholly-Owned Subsidiary” of a Person means (i) any Subsidiary all of the
outstanding voting securities of which shall at the time be owned or controlled,
directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries
of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of
such Person, or (ii) any partnership, limited liability company, association,
joint venture or similar business organization 100% of the ownership interests
having ordinary voting power of which shall at the time be so owned or
controlled.
     “Wirth Gathering” means Wirth Gathering Partnership, an Oklahoma Limited
Liability Partnership, of which Pittrans owns a fifty percent (50%) interest.
     The foregoing definitions shall be equally applicable to both the singular
and plural forms of the defined terms.
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ARTICLE II
THE CREDITS
     2.1. Commitment. From and including the date of this Agreement and prior to
the Facility Termination Date, each Lender severally agrees, on the terms and
conditions set forth in this Agreement to (i) make Advances to the Borrower and
(ii) participate in Facility LCs issued upon the request of the Borrower;
provided, that, after giving effect to the making of each such Advance and the
issuance of each such Facility LC, such Lender’s Outstanding Credit Exposure
shall not exceed its Commitment. Subject to the terms of this Agreement, the
Borrower may borrow, repay and reborrow at any time prior to the Facility
Termination Date provided, that the Aggregate Outstanding Credit Exposure shall
not exceed the lesser of (a) the Aggregate Commitment and (b) the Borrowing
Base. The Commitments to extend credit hereunder shall expire on the Facility
Termination Date. The LC Issuer will issue Facility LCs hereunder on the terms
and conditions set forth in Section 2.21.
     2.2. Borrowing Base.
          2.2.1 During the period from the date of this Agreement to the date as
of which the Borrowing Base is first redetermined pursuant to Section 2.2.2, the
Borrowing Base shall be $25,000,000.00, as reduced pursuant to Section 2.2.5.
          2.2.2 On or before March 1 and September 1 of each year the Borrower
shall furnish to each Lender all information, reports, and data which the Agent
has then requested concerning the Borrower’s and its Subsidiaries’ businesses
and properties (including their Oil and Gas Properties and interests and the
reserves and production relating thereto), together with the Reserve Report
described in Sections 6.1(x) or (xi), as appropriate. By April 1, in the case of
the Reserve Report delivered by March 1, and by October 1, in the case of the
Reserve Report delivered by September 1, or as promptly thereafter as
practicable, in either case, (i) the Agent shall determine and the Required
Lenders shall approve an amount for the Borrowing Base (provided that all
Lenders must agree to any increase in the Borrowing Base) and (ii) the Agent
shall by notice to the Borrower designate such amount as the new Borrowing Base
available to the Borrower hereunder, which designation shall take effect
immediately on the date such notice is sent and shall remain in effect (subject
to reduction pursuant to Sections 2.2.5 and 2.2.6) until, but not including, the
next date as of which the Borrowing Base is redetermined. If the Borrower does
not furnish all such information, reports, and data by the date specified in the
first sentence of this section, the Agent may nonetheless designate the
Borrowing Base at any amount which the Required Lenders have approved and may
redesignate the Borrowing Base from time to time thereafter until each Lender
receives all such information, reports, and data, whereupon the Required Lenders
shall designate a new Borrowing Base as described above. Any redetermination of
the Borrowing Base shall not be effective until written notice is sent to the
Borrower.

 

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          2.2.3 In addition to the foregoing, the Required Lenders or the
Borrower may initiate a redetermination of the Borrowing Base at any other time
as they or it, as the case may be, so elect; provided, however, that the
Borrower may initiate only one (1) such unscheduled redetermination between each
scheduled redetermination by specifying in writing to the Lenders the date on
which the Borrower will furnish the information required by Section 2.2.2 and
the date on which it desires such redetermination to occur. The Lenders shall
have at least forty-five (45) days after the delivery of the information
required by Section 2.2.2 to make any unscheduled redetermination of the
Borrowing Base requested by the Borrower. The Required Lenders may, at any time,
initiate an unscheduled redetermination of the Borrowing Base by specifying in
writing to the Borrower the date by which the Borrower is to furnish the
information required by Section 2.2.2 and the projected date on which such
redetermination is to occur. The Agent shall promptly notify the Borrower, in
writing, of the new Borrowing Base.
          2.2.4 The Agent shall determine and submit to the Lenders for approval
by the Required Lenders the amount of the Borrowing Base and Borrowing Base
Reduction Amount based upon the loan collateral value which they in their
discretion assign to the various Oil and Gas Properties of the Parent, the
Borrower and their Subsidiaries at the time in question and based upon such
other credit factors (including, without limitation, the assets, senior and
subordinate liabilities, cash flow, hedged and unhedged exposure to oil and gas
prices, foreign exchange rate, and interest rate changes, business, properties,
prospects, management, and ownership of the Parent, the Borrower and their
Subsidiaries) as they in their sole discretion deem significant. It is expressly
understood that the Lenders and the Agent have no obligation to agree upon or
designate the Borrowing Base at any particular amount, whether in relation to
the Aggregate Commitment or otherwise, and that the Lenders’ Commitments to
advance funds hereunder is determined by reference to the Borrowing Base from
time to time in effect, and, to the extent permitted by Law and regulatory
authorities, for the purposes of capital adequacy determination and
reimbursements under Section 3.2. Notwithstanding anything to the contrary
herein, the amount of the Borrowing Base may not be increased at any time
without the consent of 100% of the Lenders.
          2.2.5 The Borrowing Base shall automatically reduce by the applicable
Borrowing Base Reduction Amount on the first day of each month as specified in
the definition of the term “Borrowing Base Reduction Amount.”
          2.2.6. Upon the sale of any of the Oil and Gas Properties of the
Borrower or any Subsidiary other than those permitted to be sold under
Section 6.13(i) through (iv), the Borrower will immediately make a prepayment of
principal on the Loans equal to, and the Borrowing Base will automatically
reduce by, an amount equal to 100% of the Release Price.
          2.2.7. In the event the Aggregate Outstanding Credit Exposure shall,
at any time, be in excess of the amount of the Borrowing Base in effect at such
time, then the Borrower shall prepay Credit Extensions in an amount at least
equal to such excess immediately, or at the option of the Borrower, in three
(3) successive installments, each in an amount equal to one-third of

 

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such excess, due 60, 90 and 120 days respectively from the date of the
determination of the existence of such excess.
     2.3. Termination. The Aggregate Outstanding Credit Exposure and all other
unpaid Obligations shall be paid in full by the Borrower on the Facility
Termination Date.
     2.4. Ratable Loans. Each Advance hereunder shall consist of Loans made from
the several Lenders ratably according to their Pro Rata Shares.
     2.5. Types of Advances. The Advances may be Floating Rate Advances or
Eurodollar Advances, or a combination thereof, selected by the Borrower in
accordance with Sections 2.9 and 2.10.
     2.6. Commitment Fee; Reductions in Borrowing Base. The Borrower agrees to
pay to the Agent for the account of each Lender, according to its Pro Rata
Share, a commitment fee at a per annum rate equal to the Applicable Fee Rate on
the average daily Available Borrowing Base from the date hereof to and including
the Facility Termination Date, payable in arrears for the immediately preceding
three (3) calendar month period on each Payment Date hereafter and on the
Facility Termination Date. The Borrower may permanently reduce the Borrowing
Base in whole, or in part ratably among the Lenders in integral multiples of
$1,000,000, upon at least five Business Days’ written notice to the Agent, which
notice shall specify the amount of any such reduction, provided, however, that
the amount of the Borrowing Base may not be reduced below the Aggregate
Outstanding Credit Exposure. All accrued commitment fees shall be payable on the
effective date of any termination of the obligations of the Lenders to make
Credit Extensions hereunder.
     2.7. Minimum Amount of Each Advance. Each Eurodollar Advance shall be in
the minimum amount of $1,000,000 (and in multiples of $100,000 if in excess
thereof), and each Floating Rate Advance shall be in the minimum amount of
$200,000 (and in multiples of $100,000 if in excess thereof), provided, however,
that any Floating Rate Advance may be in the amount of the Available Borrowing
Base.
     2.8. Optional Principal Payments. The Borrower may from time to time pay,
without penalty or premium, all outstanding Floating Rate Advances, or, in a
minimum aggregate amount of $500,000 or any integral multiple of $100,000 in
excess thereof, any portion of the outstanding Floating Rate Advances upon one
Business Day’s prior notice to the Agent. The Borrower may from time to time
pay, subject to the payment of any funding indemnification amounts required by
Section 3.4 but without penalty or premium, all outstanding Eurodollar Advances,
or, in a minimum aggregate amount of $500,000 or any integral multiple of
$100,000 in excess thereof, any portion of the outstanding Eurodollar Advances
upon three Business Days’ prior notice to the Agent.

 

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     2.9. Method of Selecting Types and Interest Periods for New Advances. The
Borrower shall select the Type of Advance and, in the case of each Eurodollar
Advance, the Interest Period applicable thereto from time to time. The Borrower
shall give the Agent irrevocable notice (a “Borrowing Notice”) substantially in
the form of Exhibit B not later than 10:00 a.m. (Houston time) at least one
Business Day before the Borrowing Date of each Floating Rate Advance and three
Business Days before the Borrowing Date for each Eurodollar Advance, specifying:

  (i)   the Borrowing Date, which shall be a Business Day, of such Advance,    
(ii)   the aggregate amount of such Advance,     (iii)   the Type of Advance
selected, and     (iv)   in the case of each Eurodollar Advance, the Interest
Period applicable thereto.

Not later than noon (Houston time) on each Borrowing Date, each Lender shall
make available its Loan or Loans in funds immediately available in Houston to
the Agent at its address specified pursuant to Article XIII. The Agent will make
the funds so received from the Lenders available to the Borrower at the Agent’s
aforesaid address.
     2.10. Conversion and Continuation of Outstanding Advances. Floating Rate
Advances shall continue as Floating Rate Advances unless and until such Floating
Rate Advances are converted into Eurodollar Advances pursuant to this
Section 2.10 or are repaid in accordance with Section 2.8. Each Eurodollar
Advance shall continue as a Eurodollar Advance until the end of the then
applicable Interest Period therefor, at which time such Eurodollar Advance shall
be automatically converted into a Floating Rate Advance unless (x) such
Eurodollar Advance is or was repaid in accordance with Section 2.8 or (y) the
Borrower shall have given the Agent a Conversion/Continuation Notice (as defined
below) requesting that, at the end of such Interest Period, such Eurodollar
Advance continue as a Eurodollar Advance for the same or another Interest
Period. Subject to the terms of Section 2.7, the Borrower may elect from time to
time to convert all or any part of a Floating Rate Advance into a Eurodollar
Advance. The Borrower shall give the Agent irrevocable notice (a
“Conversion/Continuation Notice”) of each conversion of a Floating Rate Advance
into a Eurodollar Advance or continuation of a Eurodollar Advance not later than
10:00 a.m. (Houston time) at least three Business Days prior to the date of the
requested conversion or continuation, specifying:

  (i)   the requested date, which shall be a Business Day, of such conversion or
continuation,     (ii)   the aggregate amount and Type of the Advance which is
to be converted or continued, and

 

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  (iii)   the amount of such Advance which is to be converted into or continued
as a Eurodollar Advance and the duration of the Interest Period applicable
thereto.

     2.11. Changes in Interest Rate, etc. Each Floating Rate Advance shall bear
interest on the outstanding principal amount thereof, for each day from and
including the date such Advance is made or is automatically converted from a
Eurodollar Advance into a Floating Rate Advance pursuant to Section 2.10, to but
excluding the date it is paid or is converted into a Eurodollar Advance pursuant
to Section 2.10 hereof, at a rate per annum equal to the Floating Rate for such
day. Changes in the rate of interest on that portion of any Advance maintained
as a Floating Rate Advance will take effect simultaneously with each change in
the Alternate Base Rate. Each Eurodollar Advance shall bear interest on the
outstanding principal amount thereof from and including the first day of the
Interest Period applicable thereto to (but not including) the last day of such
Interest Period at the interest rate determined by the Agent as applicable to
such Eurodollar Advance based upon the Borrower’s selections under Sections 2.8
and 2.9 and otherwise in accordance with the terms hereof. No Interest Period
may end after the Facility Termination Date.
     2.12. Rates Applicable After Default. Notwithstanding anything to the
contrary contained in Sections 2.9 or 2.10, during the continuance of a Default
the Required Lenders may, at their option, by notice to the Borrower (which
notice may be revoked at the option of the Required Lenders notwithstanding any
provision of Section 8.2 requiring unanimous consent of the Lenders to changes
in interest rates), declare that no Advance may be made as, converted into or
continued as a Eurodollar Advance. During the continuance of a Default the
Required Lenders may, at their option, by notice to the Borrower (which notice
may be revoked at the option of the Required Lenders notwithstanding any
provision of Section 8.2 requiring unanimous consent of the Lenders to changes
in interest rates), declare that (i) each Eurodollar Advance shall bear interest
for the remainder of the applicable Interest Period at the rate otherwise
applicable to such Interest Period plus 2% per annum and (ii) each Floating Rate
Advance shall bear interest at a rate per annum equal to the Floating Rate in
effect from time to time plus 2% per annum, provided that, during the
continuance of a Default under Sections 7.6 or 7.7, the interest rates set forth
in clauses (i) and (ii) above shall be applicable to all Credit Extensions
without any election or action on the part of the Agent or any Lender.
     2.13. Method of Payment. All payments of the Obligations hereunder shall be
made, without setoff, deduction, or counterclaim, in immediately available funds
to the Agent at the Agent’s address specified pursuant to Article XIII, or at
any other Lending Installation of the Agent specified in writing by the Agent to
the Borrower, by noon (local time) on the date when due and shall (except in the
case of Reimbursement Obligations for which the LC Issuer has not been fully
indemnified by Lenders, or as otherwise specifically required hereunder) be
applied ratably by the Agent among the Lenders. Each payment delivered to the
Agent for the account of any Lender shall be delivered promptly by the Agent to
such Lender in the same type of funds that the Agent received at its address
specified pursuant to Article XIII or at any Lending

 

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Installation specified in a notice received by the Agent from such Lender. Each
reference to the Agent in this Section 2.13 shall also be deemed to refer, and
shall apply equally, to the LC Issuer, in the case of payments required to be
made by the Borrower to the LC Issuer pursuant to Section 2.21.6. The Agent is
hereby authorized to charge the account of the Borrower maintained with JPMorgan
Chase for each payment of principal, interest and fees as it becomes due
hereunder.
     2.14. Noteless Agreement; Evidence of Indebtedness. (i) Each Lender shall
maintain in accordance with its usual practice an account or accounts evidencing
the indebtedness of the Borrower to such Lender resulting from each Loan made by
such Lender from time to time, including the amounts of principal and interest
payable and paid to such Lender from time to time hereunder.
          (ii) The Agent shall also maintain accounts in which it will record
(a) the amount of each Loan made hereunder, the Type thereof and the Interest
Period with respect thereto, (b) the amount of any principal or interest due and
payable or to become due and payable from the Borrower to each Lender hereunder,
(c) the original stated amount of each Facility LC and the amount of LC
Obligations outstanding at any time, and (d) the amount of any sum received by
the Agent hereunder from the Borrower and each Lender’s share thereof.
          (iii) The entries maintained in the accounts maintained pursuant to
paragraphs (i) and (ii) above shall be prima facie evidence of the existence and
amounts of the Obligations therein recorded; provided, however, that the failure
of the Agent or any Lender to maintain such accounts or any error therein shall
not in any manner affect the obligation of the Borrower to repay the Obligations
in accordance with their terms.
          (iv) Any Lender may request that its Loans be evidenced by a
promissory note (a “Note”). In such event, the Borrower shall prepare, execute
and deliver to such Lender a Note payable to the order of such Lender in a form
supplied by the Agent. Thereafter, the Loans evidenced by such Note and interest
thereon shall at all times (including after any assignment pursuant to
Section 12.3) be represented by one or more Notes payable to the order of the
payee named therein or any assignee pursuant to Section 12.3, except to the
extent that any such Lender or assignee subsequently returns any such Note for
cancellation and requests that such Loans once again be evidenced as described
in paragraphs (i) and (ii) above.
     2.15. Telephonic Notices. The Borrower hereby authorizes the Lenders and
the Agent to extend, convert or continue Advances, effect selections of Types of
Advances and to transfer funds based on telephonic notices made by any Person or
Persons designated in writing by the Borrower from time to time, it being
understood that the foregoing authorization is specifically intended to allow
Borrowing Notices and Conversion/Continuation Notices to be given
telephonically. The Borrower agrees to deliver promptly to the Agent a written
confirmation, if such confirmation is requested by the Agent or any Lender, of
each telephonic notice signed by an Authorized Officer. If the written
confirmation differs in any material respect from the action

 

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taken by the Agent and the Lenders, the records of the Agent and the Lenders
shall govern absent manifest error.
     2.16. Interest Payment Dates; Interest and Fee Basis. Interest accrued on
each Floating Rate Advance shall be payable on each Payment Date, commencing
with the first such date to occur after the date hereof, on any date on which
the Floating Rate Advance is prepaid, whether due to acceleration or otherwise,
and at maturity. Interest accrued on that portion of the outstanding principal
amount of any Floating Rate Advance converted into a Eurodollar Advance on a day
other than a Payment Date shall be payable on the date of conversion. Interest
on Floating Rate Advances, commitment fees and LC Fees shall be calculated for
actual days elapsed on a basis of a 365, or when appropriate 366, day per year.
Interest accrued on each Eurodollar Advance shall be payable on the last day of
its applicable Interest Period, on any date on which the Eurodollar Advance is
prepaid, whether by acceleration or otherwise, and at maturity. Interest accrued
on each Eurodollar Advance having an Interest Period longer than three months
shall also be payable on the last day of each three-month interval during such
Interest Period. Interest on Eurodollar Advances shall be calculated for actual
days elapsed on the basis of a 360-day year. Interest shall be payable for the
day an Advance is made but not for the day of any payment on the amount paid if
payment is received prior to noon (local time) at the place of payment. If any
payment of principal of or interest on a Floating Rate Advance shall become due
on a day which is not a Business Day, such payment shall be made on the next
succeeding Business Day and, in the case of a principal payment, such extension
of time shall be included in computing interest in connection with such payment.
     2.17. Notification of Advances, Interest Rates, Facility LCs, Prepayments
and Commitment Reductions. Promptly after receipt thereof, the Agent will notify
each Lender of the contents of each Aggregate Commitment reduction notice,
Borrowing Notice, Conversion/Continuation Notice, and repayment notice received
by it hereunder. Promptly after notice from the LC Issuer, the Agent will notify
each Lender of the contents of each request for issuance of a Facility LC
hereunder. The Agent will notify each Lender of the interest rate applicable to
each Eurodollar Advance promptly upon determination of such interest rate and
will give each Lender prompt notice of each change in the Alternate Base Rate.
     2.18. Lending Installations. Each Lender may book its Loans and its
participation in any LC Obligations and the LC Issuer may book the Facility LCs
at any Lending Installation selected by such Lender or the LC Issuer, as the
case may be, and may change its Lending Installation from time to time. All
terms of this Agreement shall apply to any such Lending Installation and the
Loans, Facility LCs, participations in LC Obligations and any Notes issued
hereunder shall be deemed held by each Lender or the LC Issuer, as the case may
be, for the benefit of any such Lending Installation. Each Lender and the LC
Issuer may, by written notice to the Agent and the Borrower in accordance with
Article XIII, designate replacement or additional Lending Installations through
which Loans will be made by it or Facility LCs will be issued by it and for
whose account Loan payments or payments with respect to Facility LCs are to be
made.

 

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     2.19. Non-Receipt of Funds by the Agent. Unless the Borrower or a Lender,
as the case may be, notifies the Agent prior to the date on which it is
scheduled to make payment to the Agent of (i) in the case of a Lender, the
proceeds of a Loan or (ii) in the case of the Borrower, a payment of principal,
interest or fees to the Agent for the account of the Lenders, that it does not
intend to make such payment, the Agent may assume that such payment has been
made. The Agent may, but shall not be obligated to, make the amount of such
payment available to the intended recipient in reliance upon such assumption. If
such Lender or the Borrower, as the case may be, has not in fact made such
payment to the Agent, the recipient of such payment shall, on demand by the
Agent, repay to the Agent the amount so made available together with interest
thereon in respect of each day during the period commencing on the date such
amount was so made available by the Agent until the date the Agent recovers such
amount at a rate per annum equal to (x) in the case of payment by a Lender, the
Federal Funds Effective Rate for such day for the first three days and,
thereafter, the interest rate applicable to the relevant Loan or (y) in the case
of payment by the Borrower, the interest rate applicable to the relevant Loan.
     2.20. Replacement of Lender. If the Borrower is required pursuant to
Sections 3.1, 3.2 or 3.5 to make any additional payment to any Lender or if any
Lender’s obligation to make or continue, or to convert Floating Rate Advances
into, Eurodollar Advances shall be suspended pursuant to Section 3.3 (any Lender
so affected an “Affected Lender”), the Borrower may elect, if such amounts
continue to be charged or such suspension is still effective, to replace such
Affected Lender as a Lender party to this Agreement, provided that no Default or
Unmatured Default shall have occurred and be continuing at the time of such
replacement, and provided further that, concurrently with such replacement,
(i) another bank or other entity which is reasonably satisfactory to the
Borrower and the Agent shall agree, as of such date, to purchase for cash the
Advances and other Obligations due to the Affected Lender pursuant to an
assignment substantially in the form of Exhibit C and to become a Lender for all
purposes under this Agreement and to assume all obligations of the Affected
Lender to be terminated as of such date and to comply with the requirements of
Section 12.3 applicable to assignments, and (ii) the Borrower shall pay to such
Affected Lender in same day funds on the day of such replacement (A) all
interest, fees and other amounts then accrued but unpaid to such Affected Lender
by the Borrower hereunder to and including the date of termination, including
without limitation payments due to such Affected Lender under Sections 3.1, 3.2
and 3.5, and (B) an amount, if any, equal to the payment which would have been
due to such Lender on the day of such replacement under Section 3.4 had the
Loans of such Affected Lender been prepaid on such date rather than sold to the
replacement Lender.
     2.21. Facility LCs.
          2.21.1. Issuance. Except as provided below, the LC Issuer hereby
agrees, on the terms and conditions set forth in this Agreement, to issue
standby and commercial letters of credit (each, a “Facility LC”) and to renew,
extend, increase, decrease or otherwise modify each Facility LC (“Modify,” and
each such action a “Modification”), from time to time from and

 

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including the date of this Agreement and prior to the Facility Termination Date
upon the request of the Borrower; provided that immediately after each such
Facility LC is issued or Modified, (i) the aggregate amount of the outstanding
LC Obligations shall not exceed $15,000,000 and (ii) the Aggregate Outstanding
Credit Exposure shall not exceed the lesser of (a) the Aggregate Commitment and
(b) the Borrowing Base. No Facility LC shall have an expiry date later than the
earlier of (x) the fifth Business Day prior to the Facility Termination Date and
(y) one year after its issuance; provided, however, that any Facility LC with a
one-year tenor may provide for the renewal thereof for additional one-year
periods (which shall in no event extend beyond the fifth Business Day prior to
the Facility Termination Date) unless the LC Issuer provides prior notice of
non-renewal to the beneficiary of such Facility LC.
          2.21.2. Participations. Upon the issuance or Modification by the LC
Issuer of a Facility LC in accordance with this Section 2.21, the LC Issuer
shall be deemed, without further action by any party hereto, to have
unconditionally and irrevocably sold to each Lender, and each Lender shall be
deemed, without further action by any party hereto, to have unconditionally and
irrevocably purchased from the LC Issuer, a participation in such Facility LC
(and each Modification thereof) and the related LC Obligations in proportion to
its Pro Rata Share.
          2.21.3. Notice. Subject to Section 2.21.1, the Borrower shall give the
LC Issuer notice prior to 10:00 a.m. (Houston time) at least five Business Days
prior to the proposed date of issuance or Modification of each Facility LC,
specifying the beneficiary, the proposed date of issuance (or Modification) and
the expiry date of such Facility LC, and describing the proposed terms of such
Facility LC and the nature of the transactions proposed to be supported thereby.
Upon receipt of such notice, the LC Issuer shall promptly notify the Agent, and
the Agent shall promptly notify each Lender, of the contents thereof and of the
amount of such Lender’s participation in such proposed Facility LC. The issuance
or Modification by the LC Issuer of any Facility LC shall, in addition to the
conditions precedent set forth in Article IV (the satisfaction of which the LC
Issuer shall have no duty to ascertain), be subject to the conditions precedent
that such Facility LC shall be satisfactory to the LC Issuer and that the
Borrower shall have executed and delivered such application agreement and/or
such other instruments and agreements relating to such Facility LC as the LC
Issuer shall have reasonably requested (each, a “Facility LC Application”). In
the event of any conflict between the terms of this Agreement and the terms of
any Facility LC Application, the terms of this Agreement shall control.
          2.21.4. LC Fees. The Borrower shall pay to the Agent, for the account
of the Lenders ratably in accordance with their respective Pro Rata Shares, with
respect to each Facility LC, a letter of credit fee at a per annum rate equal to
the Applicable Margin for Eurodollar Rate Loans per annum on the average daily
undrawn stated amount under such standby Facility LC, such fee to be payable in
arrears on each Payment Date (such fee described in this sentence an “LC Fee”);
provided, that during the continuance of a Default the LC Fee shall be the sum
of 2% plus the Applicable Margin for Eurodollar Rate Loans per annum. The
Borrower shall also pay to the LC Issuer for its own account (x) in arrears on
each Payment

 

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Date, a fronting fee of .25% per annum of the face amount of each Facility LC,
and (y) documentary and processing charges in connection with the issuance or
Modification of and draws under Facility LCs in accordance with the LC Issuer’s
standard schedule for such charges as in effect from time to time.
          2.21.5. Administration; Reimbursement by Lenders. Upon receipt from
the beneficiary of any Facility LC of any demand for payment under such Facility
LC, the LC Issuer shall notify the Agent and the Agent shall promptly notify the
Borrower and each other Lender as to the amount to be paid by the LC Issuer as a
result of such demand and the proposed payment date (the “LC Payment Date”). The
responsibility of the LC Issuer to the Borrower and each Lender shall be only to
determine that the documents (including each demand for payment) delivered under
each Facility LC in connection with such presentment shall be in conformity in
all material respects with such Facility LC. The LC Issuer shall endeavor to
exercise the same care in the issuance and administration of the Facility LCs as
it does with respect to letters of credit in which no participations are
granted, it being understood that in the absence of any gross negligence or
willful misconduct by the LC Issuer, each Lender shall be unconditionally and
irrevocably liable without regard to the occurrence of any Default or any
condition precedent whatsoever, to reimburse the LC Issuer on demand for
(i) such Lender’s Pro Rata Share of the amount of each payment made by the LC
Issuer under each Facility LC to the extent such amount is not reimbursed by
pursuant to Section 2.21.6 below, plus (ii) interest on the foregoing amount to
be reimbursed by such Lender, for each day from the date of the LC Issuer’s
demand for such reimbursement (or, if such demand is made after 11:00 a.m.
(Houston time) on such date, from the next succeeding Business Day) to the date
on which such Lender pays the amount to be reimbursed by it, at a rate of
interest per annum equal to the Federal Funds Effective Rate for the first three
days and, thereafter, at a rate of interest equal to the rate applicable to
Floating Rate Advances.
          2.21.6. Reimbursement by Borrower. The Borrower shall be irrevocably
and unconditionally obligated to reimburse the LC Issuer on or before the
applicable LC Payment Date for any amounts to be paid by the LC Issuer upon any
drawing under any Facility LC, without presentment, demand, protest or other
formalities of any kind; provided that neither the Borrower nor any Lender shall
hereby be precluded from asserting any claim for direct (but not consequential)
damages suffered by the Borrower or such Lender to the extent, but only to the
extent, caused by (i) the willful misconduct or gross negligence of the LC
Issuer in determining whether a request presented under any Facility LC issued
by it complied with the terms of such Facility LC or (ii) the LC Issuer’s
failure to pay under any Facility LC issued by it after the presentation to it
of a request strictly complying with the terms and conditions of such Facility
LC. All such amounts paid by the LC Issuer and remaining unpaid by the Borrower
shall bear interest, payable on demand, for each day until paid at a rate per
annum equal to (x) the rate applicable to Floating Rate Advances for such day if
such day falls on or before the applicable LC Payment Date and (y) the sum of 2%
plus the rate applicable to Floating Rate Advances for such day if such day
falls after such LC Payment Date. The LC Issuer will pay to each Lender ratably
in accordance with its Pro Rata Share all amounts received by it from the

 

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Borrower for application in payment, in whole or in part, of the Reimbursement
Obligation in respect of any Facility LC issued by the LC Issuer, but only to
the extent such Lender has made payment to the LC Issuer in respect of such
Facility LC pursuant to Section 2.21.5. Subject to the terms and conditions of
this Agreement (including without limitation the submission of a Borrowing
Notice in compliance with Section 2.9 and the satisfaction of the applicable
conditions precedent set forth in Article IV), the Borrower may request an
Advance hereunder for the purpose of satisfying any Reimbursement Obligation.
          2.21.7. Obligations Absolute. The Borrower’s obligations under this
Section 2.21 shall be absolute and unconditional under any and all circumstances
and irrespective of any setoff, counterclaim or defense to payment that the
Borrower may have or have had against the LC Issuer, any Lender or any
beneficiary of a Facility LC. The Borrower further agrees with the LC Issuer and
the Lenders that the LC Issuer and the Lenders shall not be responsible for, and
the Borrower’s Reimbursement Obligation in respect of any Facility LC shall not
be affected by, among other things, the validity or genuineness of documents or
of any endorsements thereon, even if such documents should in fact prove to be
in any or all respects invalid, fraudulent or forged, or any dispute between or
among the Borrower, any of its Affiliates, the beneficiary of any Facility LC or
any financing institution or other party to whom any Facility LC may be
transferred or any claims or defenses whatsoever of the Borrower or of any of
its Affiliates against the beneficiary of any Facility LC or any such
Transferee. The LC Issuer shall not be liable for any error, omission,
interruption or delay in transmission, dispatch or delivery of any message or
advice, however transmitted, in connection with any Facility LC. The Borrower
agrees that any action taken or omitted by the LC Issuer or any Lender under or
in connection with each Facility LC and the related drafts and documents, if
done without gross negligence or willful misconduct, shall be binding upon the
Borrower and shall not put the LC Issuer or any Lender under any liability to
the Borrower. Nothing in this Section 2.21.7 is intended to limit the right of
the Borrower to make a claim against the LC Issuer for damages as contemplated
by the proviso to the first sentence of Section 2.21.6.
          2.21.8. Actions of LC Issuer. The LC Issuer shall be entitled to rely,
and shall be fully protected in relying, upon any Facility LC, draft, writing,
resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document believed by it to be genuine and correct and to have been signed, sent
or made by the proper Person or Persons, and upon advice and statements of legal
counsel, independent accountants and other experts selected by the LC Issuer.
The LC Issuer shall be fully justified in failing or refusing to take any action
under this Agreement unless it shall first have received such advice or
concurrence of the Required Lenders as it reasonably deems appropriate or it
shall first be indemnified to its reasonable satisfaction by the Lenders against
any and all liability and expense which may be incurred by it by reason of
taking or continuing to take any such action. Notwithstanding any other
provision of this Section 2.21, the LC Issuer shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement in
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action taken or failure to act pursuant thereto shall be binding upon the
Lenders and any future holders of a participation in any Facility LC.
          2.21.9. Indemnification. The Borrower hereby agrees to indemnify and
hold harmless each Lender, the LC Issuer and the Agent, and their respective
directors, officers, agents and employees from and against any and all claims
and damages, losses, liabilities, costs or expenses which such Lender, the LC
Issuer or the Agent may incur (or which may be claimed against such Lender, the
LC Issuer or the Agent by any Person whatsoever) by reason of or in connection
with the issuance, execution and delivery or transfer of or payment or failure
to pay under any Facility LC or any actual or proposed use of any Facility LC,
including, without limitation, any claims, damages, losses, liabilities, costs
or expenses which the LC Issuer may incur by reason of or in connection with
(i) the failure of any other Lender to fulfill or comply with its obligations to
the LC Issuer hereunder (but nothing herein contained shall affect any rights
the Borrower may have against any defaulting Lender) or (ii) by reason of or on
account of the LC Issuer issuing any Facility LC which specifies that the term
“Beneficiary” included therein includes any successor by operation of law of the
named Beneficiary, but which Facility LC does not require that any drawing by
any such successor Beneficiary be accompanied by a copy of a legal document,
satisfactory to the LC Issuer, evidencing the appointment of such successor
Beneficiary; provided that the Borrower shall not be required to indemnify any
Lender, the LC Issuer or the Agent for any claims, damages, losses, liabilities,
costs or expenses to the extent, but only to the extent, caused by (x) the
willful misconduct or gross negligence of the LC Issuer in determining whether a
request presented under any Facility LC complied with the terms of such Facility
LC or (y) the LC Issuer’s failure to pay under any Facility LC after the
presentation to it of a request strictly complying with the terms and conditions
of such Facility LC. Nothing in this Section 2.21.9 is intended to limit the
obligations of the Borrower under any other provision of this Agreement.
          2.21.10. Lenders’ Indemnification. Each Lender shall, ratably in
accordance with its Pro Rata Share, indemnify the LC Issuer, its Affiliates and
their respective directors, officers, agents and employees (to the extent not
reimbursed by the Borrower) against any cost, expense (including reasonable
counsel fees and disbursements), claim, demand, action, loss or liability
(except such as result from such indemnitees’ gross negligence or willful
misconduct or the LC Issuer’s failure to pay under any Facility LC after the
presentation to it of a request strictly complying with the terms and conditions
of the Facility LC) that such indemnitees may suffer or incur in connection with
this Section 2.21 or any action taken or omitted by such indemnitees hereunder.
          2.21.11. Rights as a Lender. In its capacity as a Lender, the LC
Issuer shall have the same rights and obligations as any other Lender.
     2.22. Collateral

 

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          2.22.1 First Lien. The full and complete payment and performance of
the Obligations shall be secured under the Collateral Documents by (i) first and
prior Lender Liens in, to and on at least ninety percent (90%) of the PDP
Present Value of Oil and Gas Properties located in the United States or its
offshore waters and at least eighty percent (80%) of the aggregate Proved
Reserves of Oil and Gas Properties located in the United States or its offshore
waters, in each case, now owned or hereafter acquired by the Borrower or any of
its Subsidiaries and (ii) the Pledge Agreements.
          2.22.2 Lender Liens. The Lender Liens in the Collateral shall be
further evidenced and governed by the Collateral Documents.
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ARTICLE III
YIELD PROTECTION; TAXES
     3.1. Yield Protection. If, on or after the date of this Agreement, the
adoption of any Law or any governmental or quasi-governmental rule, regulation,
policy, guideline or directive (whether or not having the force of Law), or any
change in the interpretation or administration thereof by any governmental or
quasi-governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender or
applicable Lending Installation or the LC Issuer with any request or directive
(whether or not having the force of Law) of any such authority, central bank or
comparable agency:

  (i)   subjects any Lender or any applicable Lending Installation or the LC
Issuer to any Taxes, or changes the basis of taxation of payments (other than
with respect to Excluded Taxes) to any Lender or the LC Issuer in respect of its
Eurodollar Loans or Facility LCs or participations therein, or     (ii)  
imposes or increases or deems applicable any reserve, assessment, insurance
charge, special deposit or similar requirement against assets of, deposits with
or for the account of, or credit extended by, any Lender or any applicable
Lending Installation or the LC Issuer (other than reserves and assessments taken
into account in determining the interest rate applicable to Eurodollar
Advances), or     (iii)   imposes any other condition the result of which is to
increase the cost to any Lender or any applicable Lending Installation or the LC
Issuer of making, funding or maintaining its Eurodollar Loans or issuing or
participating in Facility LCs, or reduces any amount receivable by any Lender or
any applicable Lending Installation or the LC Issuer in connection with its
Eurodollar Loans or Facility LCs or participations therein, or requires any
Lender or any applicable Lending Installation or the LC Issuer to make any
payment calculated by reference to the amount of Eurodollar Loans held or
interest or LC Fees received by it, by an amount deemed material by such Lender
or the LC Issuer, as the case may be,

and the result of any of the foregoing is to increase the cost to such Lender or
applicable Lending Installation or the LC Issuer, as the case may be, of making
or maintaining its Eurodollar Loans or Commitment or issuing or participating in
Facility LCs, or to reduce the return received by such Lender or applicable
Lending Installation or the LC Issuer, as the case may be, in connection with
such Eurodollar Loans or Commitment or Facility LCs or participations therein,
then, within 15 days of demand by such Lender or the LC Issuer, the Borrower
shall pay such Lender or the LC Issuer such additional amount or amounts as will
compensate such Lender or the LC Issuer for such increased cost or reduction in
amount received.

 

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     3.2. Changes in Capital Adequacy Regulations. If a Lender or the LC Issuer
determines the amount of capital required or expected to be maintained by such
Lender or the LC Issuer, any Lending Installation of such Lender or the LC
Issuer, or any corporation controlling such Lender or the LC Issuer is increased
as a result of a Change, then, within 30 days of demand by such Lender or the LC
Issuer, the Borrower shall pay such Lender or the LC Issuer the amount necessary
to compensate for any shortfall in the rate of return on the portion of such
increased capital which such Lender or the LC Issuer determines is attributable
to this Agreement, its Outstanding Credit Exposure, or its Commitment to make
Loans and issue or participate in Facility LCs, as the case may be, hereunder
(after taking into account such Lender’s or the LC Issuer’s policies as to
capital adequacy). “Change” means (i) any change after the date of this
Agreement in the Risk-Based Capital Guidelines or (ii) any adoption of or change
in any other Law, governmental or quasi-governmental rule, regulation, policy,
guideline, interpretation, or directive (whether or not having the force of Law)
after the date of this Agreement which affects the amount of capital required or
expected to be maintained by any Lender, the LC Issuer or any Lending
Installation or any corporation controlling any Lender or the LC Issuer.
“Risk-Based Capital Guidelines” means (i) the risk-based capital guidelines in
effect in the United States on the date of this Agreement, including transition
rules, and (ii) the corresponding capital regulations promulgated by regulatory
authorities outside the United States implementing the July 1988 report of the
Basle Committee on Banking Regulation and Supervisory Practices Entitled
“International Convergence of Capital Measurements and Capital Standards,”
including transition rules, and any amendments to such regulations adopted prior
to the date of this Agreement.
     3.3. Availability of Types of Advances. If any Lender determines that
maintenance of its Eurodollar Loans at a suitable Lending Installation would
violate any applicable Law, rule, regulation, or directive, whether or not
having the force of Law, or if the Required Lenders determine that (i) deposits
of a type and maturity appropriate to match fund Eurodollar Advances are not
available or (ii) the interest rate applicable to Eurodollar Advances does not
accurately reflect the cost of making or maintaining Eurodollar Advances, then
the Agent shall suspend the availability of Eurodollar Advances and require any
affected Eurodollar Advances to be repaid or converted to Floating Rate
Advances, subject to the payment of any funding indemnification amounts required
by Section 3.4.
     3.4. Funding Indemnification. If any payment of a Eurodollar Advance occurs
on a date which is not the last day of the applicable Interest Period, whether
because of acceleration, prepayment or otherwise, or a Eurodollar Advance is not
made on the date specified by the Borrower for any reason other than default by
the Lenders, the Borrower will indemnify each Lender for any loss or cost
incurred by it resulting therefrom, including, without limitation, any loss or
cost in liquidating or employing deposits acquired to fund or maintain such
Eurodollar Advance.

 

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     3.5. Taxes.
          3.5.1 All payments by the Borrower to or for the account of any
Lender, the LC Issuer or the Agent hereunder or under any Note or Facility LC
Application shall be made free and clear of and without deduction for any and
all Taxes. If the Borrower shall be required by Law to deduct any Taxes from or
in respect of any sum payable hereunder to any Lender, the LC Issuer or the
Agent, (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 3.5) such Lender, the LC Issuer or the Agent (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 shall make such deductions,
(iii) the Borrower shall pay the full amount deducted to the relevant authority
in accordance with applicable Law and (iv) the Borrower shall furnish to the
Agent the original copy of a receipt evidencing payment thereof within 30 days
after such payment is made.
          3.5.2 In addition, the Borrower hereby agrees to pay any present or
future stamp or documentary taxes and any other excise or property taxes,
charges or similar levies which arise from any payment made hereunder or under
any Note or Facility LC Application or from the execution or delivery of, or
otherwise with respect to, this Agreement or any Note or Facility LC Application
(“Other Taxes”).
          3.5.3 The Borrower hereby agrees to indemnify the Agent, the LC Issuer
and each Lender for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed on amounts payable under this
Section 3.5) paid by the Agent, the LC Issuer or such Lender and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto. Payments due under this indemnification shall be made within 30 days of
the date the Agent, the LC Issuer or such Lender makes demand therefor pursuant
to Section 3.6.
          3.5.4 Each Lender that is not incorporated under the Laws of the
United States of America or a state thereof (each a “Non-U.S. Lender”) agrees
that it will, not less than ten Business Days after the date of this Agreement,
(i) deliver to each of the Borrower and the Agent two duly completed copies of
United States Internal Revenue Service Form W-8BEN or W-8ECI, certifying in
either case that such Lender is entitled to receive payments under this
Agreement without deduction or withholding of any United States federal income
taxes, and (ii) deliver to each of the Borrower and the Agent a United States
Internal Revenue Form W-8 or W-9, as the case may be, and certify that it is
entitled to an exemption from United States backup withholding tax. Each
Non-U.S. Lender further undertakes to deliver to each of the Borrower and the
Agent (x) renewals or additional copies of such form (or any successor form) on
or before the date that such form expires or becomes obsolete, and (y) after the
occurrence of any event requiring a change in the most recent forms so delivered
by it, such additional forms or amendments thereto as may be reasonably
requested by the Borrower or the Agent. All forms or amendments described in the
preceding sentence shall certify that such Lender is entitled to

 

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receive payments under this Agreement without deduction or withholding of any
United States federal income taxes, unless an event (including without
limitation any change in treaty, Law or regulation) has occurred prior to the
date on which any such delivery would otherwise be required which renders all
such forms inapplicable or which would prevent such Lender from duly completing
and delivering any such form or amendment with respect to it and such Lender
advises the Borrower and the Agent that it is not capable of receiving payments
without any deduction or withholding of United States federal income tax.
          3.5.5 For any period during which a Non-U.S. Lender has failed to
provide the Borrower with an appropriate form pursuant to Section 3.5.4 above
(unless such failure is due to a change in treaty, Law or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, occurring subsequent to the date on which a form originally was
required to be provided), such Non-U.S. Lender shall not be entitled to
indemnification under this Section 3.5 with respect to Taxes imposed by the
United States; provided that, should a Non-U.S. Lender which is otherwise exempt
from or subject to a reduced rate of withholding tax become subject to Taxes
because of its failure to deliver a form required under Section 3.5.4, the
Borrower shall take such steps as such Non-U.S. Lender shall reasonably request
to assist such Non-U.S. Lender to recover such Taxes.
          3.5.6 Any Lender that is entitled to an exemption from or reduction of
withholding tax with respect to payments under this Agreement or any Note
pursuant to the Law of any relevant jurisdiction or any treaty shall deliver to
the Borrower (with a copy to the Agent), at the time or times prescribed by
applicable Law, such properly completed and executed documentation prescribed by
applicable Law as will permit such payments to be made without withholding or at
a reduced rate.
          3.5.7 If the U.S. Internal Revenue Service or any other governmental
authority of the United States or any other country or any political subdivision
thereof asserts a claim that the Agent did not properly withhold tax from
amounts paid to or for the account of any Lender (because the appropriate form
was not delivered or properly completed, because such Lender failed to notify
the Agent of a change in circumstances which rendered its exemption from
withholding ineffective, or for any other reason), such Lender shall indemnify
the Agent fully for all amounts paid, directly or indirectly, by the Agent as
tax, withholding therefor, or otherwise, including penalties and interest, and
including taxes imposed by any jurisdiction on amounts payable to the Agent,
under this Section 3.5.7, together with all costs and expenses related thereto
(including attorneys’ fees and time charges of attorneys for the Agent, which
attorneys may be employees of the Agent). The obligations of the Lenders under
this Section 3.5.7 shall survive the payment of the Obligations and termination
of this Agreement.
          3.6. Lender Statements; Survival of Indemnity. To the extent
reasonably possible, each Lender shall designate an alternate Lending
Installation with respect to its Eurodollar Loans to reduce any liability of the
Borrower to such Lender under Sections 3.1, 3.2 and 3.5 or to avoid the
unavailability of Eurodollar Advances under Section 3.3, so long as such

 

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designation is not, in the judgment of such Lender, disadvantageous to such
Lender. Each Lender shall deliver a written statement of such Lender to the
Borrower (with a copy to the Agent) as to the amount due, if any, under
Section 3.1, 3.2, 3.4 or 3.5. Such written statement shall set forth in
reasonable detail the calculations upon which such Lender determined such amount
and shall be final, conclusive and binding on the Borrower in the absence of
manifest error. Determination of amounts payable under such Sections in
connection with a Eurodollar Loan shall be calculated as though each Lender
funded its Eurodollar Loan through the purchase of a deposit of the type and
maturity corresponding to the deposit used as a reference in determining the
Eurodollar Rate applicable to such Loan, whether in fact that is the case or
not. Unless otherwise provided herein, the amount specified in the written
statement of any Lender shall be payable on demand after receipt by the Borrower
of such written statement. The obligations of the Borrower under Sections 3.1,
3.2, 3.4 and 3.5 shall survive payment of the Obligations and termination of
this Agreement.
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ARTICLE IV
CONDITIONS PRECEDENT
     4.1. Initial Credit Extension.
          4.1.1 The Lenders shall not be required to make the initial Credit
Extension hereunder unless the Borrower has furnished the following to the Agent
with sufficient copies for the Lenders:

  (i)   this Agreement;     (ii)   copies of the certificate of formation or
other applicable document of the Borrower, together with all amendments thereto,
and certificates of good standing, each certified by the appropriate
governmental officer in Louisiana and certificates of good standing from each
other jurisdiction where the Borrower is qualified to transact business;    
(iii)   copies of the articles or certificate of incorporation of the Parent
together with all amendments thereto, and a certificate of good standing, each
certified by the appropriate governmental officer in Delaware and certificates
of good standing from each other jurisdiction where the Parent is qualified to
transact business;     (iv)   copies of the certificate of formation,
organization, incorporation or other applicable document of each direct or
indirect Subsidiary of the Borrower, together with all amendments thereto, and
certificates of good standing, each certified by the appropriate governmental
officer and certificates of good standing from each other jurisdiction where any
such Subsidiary is qualified to transact business     (v)   copies certified by
the Secretary or Assistant Secretary of the Borrower of (i) its limited
liability company agreement, and (ii) resolutions from its managers authorizing
the execution of the Loan Documents to which it is a party;     (vi)   copies
certified by the Secretary or Assistant Secretary of the Parent of (i) its
by-laws and (ii) resolutions of its Board of Directors authorizing the execution
of the Loan Documents to which it is a party;     (vii)   copies certified by
the Authorized Officer of each Subsidiary of (i) its by-laws, limited liability
company agreement or other similar document and (ii) resolutions of each such
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      Directors, as applicable, authorizing the execution of the Loan Documents
to which it is a party;     (viii)   incumbency certificates, executed by the
respective Secretary, Assistant Secretary or other Authorized Officer of the
Borrower, the Parent and each Subsidiary which shall identify by name and title
and bear the signatures of the Authorized Officers and any other officers
authorized to sign the Loan Documents to which the Borrower, the Parent and such
Subsidiary, respectively is a party, upon which certificate the Agent and the
Lenders shall be entitled to rely until informed of any change in writing by the
Borrower;     (ix)   a certificate, signed by the chief financial officer of the
Borrower, stating that on the initial Credit Extension Date no Default or
Unmatured Default has occurred and is continuing;

  (x)   written opinions of counsel to the Borrower and the Guarantors addressed
to the Agent and Lenders and their counsel in substantially the form of
Exhibit D;     (xi)   the Notes issued pursuant to Section 2.14 payable to the
order of each Lender, and, if the initial Credit Extension will be the issuance
of a Facility LC, a properly completed Facility LC Application;     (xii)   the
Deeds of Trust, executed by the Borrower or the Guarantors, as applicable, in a
form satisfactory to the Agent, the Lenders and their counsel with respect to
the Properties therein described, which are part of the Collateral, and such
other agreements, documents and instruments as may be necessary and appropriate,
in form and substance satisfactory to the Agent and the Lenders, executed and
delivered by Borrower or the Guarantors, as applicable, , as mortgagor or
assignor, in favor of the Agent, ratably for the benefit of the Lenders, in
order to create and perfect the Lender Liens in and to all Collateral described
therein;     (xiii)   the Pledge Agreements, executed by the Parent, the
Borrower and TDC Energy, in a form satisfactory to the Agent, the Lenders and
their counsel with respect to the Properties therein described, which are a part
of the Collateral;     (xiv)   the Guaranties, executed by each Guarantor, in a
form satisfactory to the Agent, the Lenders, and their counsel;

 

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  (xv)   written money transfer instructions, in substantially the form of
Exhibit E, addressed to the Agent and signed by an Authorized Officer of the
Borrower, on behalf of the Borrower, together with such other related money
transfer authorizations as the Agent may have reasonably requested;     (xvi)  
title opinions from counsel acceptable to the Agent, or title reviews
satisfactory to the Agent, with respect to the Oil and Gas Properties included
in the Collateral and in a form acceptable to the Agent and the Lenders,
covering at least eighty percent (80%) of the aggregate PDP Reserves of such Oil
and Gas Properties and seventy percent (70%) of the aggregate present worth of
the aggregate Proved Reserves;     (xvii)   the Initial Reserve Report upon
which the initial Borrowing Base has been determined acceptable to all the
Lenders;     (xviii)   copies of any environmental reports regarding any
environmental assessment of the Oil and Gas Properties included in the
Collateral, which shall be acceptable to all Lenders;     (xix)   the insurance
certificate(s) described in Section 5.20;     (xx)   detailed monthly
projections (including balance sheets, income and cash flow statements) for the
Parent, the Borrower and their Subsidiaries on a consolidated basis as of and
for the period ending December 31, 2005, which projections shall be acceptable
to the Lenders in their sole discretion;     (xxi)   the Financial Statements
described in Section 5.4;     (xxii)   an Assignment of Notes, Liens and
Security Interests in form an substance satisfactory to the Agent in its sole
discretion, executed by each of the lenders currently party to the Prior Credit
Agreement and     (xxiii)   such other documents as any Lender or its counsel
may have reasonably requested.

          4.1.2 The Lenders shall not be required to make the initial Credit
Extension hereunder unless the following conditions precedent are satisfied, to
the satisfaction of the Agent and the Lenders:

 

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  (i)   the Agent and the Lenders shall have satisfactorily completed their
normal and customary due diligence in connection with loans of the type
contemplated by this Agreement;     (ii)   this Agreement and any Lender Rate
Management Transactions (including, without limitation, any Existing Rate
Management Transactions) shall each be (or upon the execution, delivery and
filing of the Loan Documents creating the Lenders’ Liens each shall be) secured
by the Lender Liens;     (iii)   the Agent and the Lenders shall have reviewed
and become satisfied with any changes in the composition of the Borrower’s Board
of Directors and executive management occurring prior to the date of the initial
Credit Extension;     (iv)   there shall not have been any Material Adverse
Effect on the Parent, the Borrower or any of their Subsidiaries since
September 30, 2005; and     (v)   payment of all facility and administrative
fees required to be paid pursuant to any Loan Document and the Fee Letter and
legal fees and disbursements of Agent’s counsel.

4.2.   Each Credit Extension. The Lenders shall not be required to make any
subsequent Credit Extension unless the following conditions precedent are
satisfied, to the satisfaction of the Agent and the Lenders, as of the
applicable Credit Extension Date;

  (i)   There exists no Default or Unmatured Default.     (ii)   The
representations and warranties contained in Article V are true and correct as of
such Credit Extension Date except to the extent any such representation or
warranty is stated to relate solely to an earlier date, in which case such
representation or warranty shall have been true and correct on and as of such
earlier date.     (iii)   There exists no litigation, arbitration, governmental
investigation, proceeding or inquiry pending or threatened against the Borrower
or any of its Subsidiaries which, if adversely determined, could reasonably be
expected to have a Material Adverse Effect.     (iv)   All legal matters
incident to the making of such Credit Extension shall be satisfactory to the
Lenders and their counsel.

 

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  (v)   There shall not have been, in the sole judgment of the Lenders, any
change from the Parent’s financial condition as reflected in the Parent’s
consolidated financial statements dated September 30, 2005, that would have a
Material Adverse Effect on the financial condition, business or operations of
the Parent, the Borrower and their Subsidiaries taken as a whole.

     Each Borrowing Notice or request for issuance of a Facility LC with respect
to each such Credit Extension shall constitute a representation and warranty by
the Borrower that the conditions contained in Sections 4.2(i), (ii) and
(iii) have been satisfied. Any Lender may require a duly completed compliance
certificate in substantially the form of Exhibit F as a condition to making a
Credit Extension.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES
     The Parent and the Borrower, jointly and severally, represent and warrant
to the Lenders that:
     5.1. Existence and Standing. The Borrower is a limited liability company
duly formed and organized, validly existing and in good standing under the Laws
of Louisiana. The Parent is a corporation duly organized validly existing and in
good standing under the Laws of Delaware. Each of the Parent, the Borrower and
their Subsidiaries is a corporation, partnership or limited liability company
duly and properly incorporated or organized, as the case may be, validly
existing and (to the extent such concept applies to such entity) in good
standing under the Laws of its jurisdiction of incorporation or organization.
Each of the Parent, the Borrower and their Subsidiaries has all requisite
authority to conduct its business in each jurisdiction in which its business is
conducted. Except as set forth in Schedule 5.1, neither the Parent, the Borrower
nor any of their Subsidiaries has used or transacted business under any other
name in the five (5) year period preceding the date hereof. The Borrower is a
Wholly-Owned Subsidiary of the Parent.
     5.2. Authorization and Validity. The Parent, the Borrower and their
Subsidiaries have the power and authority and legal right to execute and deliver
the Loan Documents to which they respectively are a party and to perform their
respective obligations thereunder. The execution and delivery by the Parent, the
Borrower and their Subsidiaries of the Loan Documents to which they respectively
are a party and the performance of their respective obligations thereunder have
been duly authorized by proper corporate, partnership or limited liability
company proceedings, and the Loan Documents to which they respectively are a
party constitute their legal, valid and binding obligations enforceable against
them in accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency or similar Laws affecting the enforcement of creditors’
rights generally.
     5.3. No Conflict; Government Consent. Neither the execution and delivery by
the Parent, the Borrower or any of their Subsidiaries of the Loan Documents to
which they respectively are a party, nor the consummation of the transactions
therein contemplated, nor compliance with the provisions thereof will violate
(i) any Law, rule, regulation, order, writ, judgment, injunction, decree or
award binding on them or (ii) the Parent’s, the Borrower’s or any Subsidiary’s
articles or certificate of incorporation, partnership agreement, certificate of
partnership, articles or certificate of organization, by-laws, or operating or
other management agreement, as the case may be, or (iii) the provisions of any
indenture, instrument or agreement to which the Parent, the Borrower or any of
their Subsidiaries is a party or is subject, or by which it, or its Property, is
bound, or conflict with or constitute a default thereunder, or result in, or
require, the creation or imposition of any Lien in, of or on the Property of the
Parent, the Borrower or a Subsidiary pursuant to the terms of any such
indenture, instrument or agreement.

 

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No order, consent, adjudication, approval, license, authorization, or validation
of, or filing, recording or registration with, or exemption by, or other action
in respect of any governmental or public body or authority, or any subdivision
thereof, which has not been obtained by the Parent, the Borrower or any of their
Subsidiaries, is required to be obtained by the Parent, the Borrower or any of
their Subsidiaries in connection with the execution and delivery of the Loan
Documents, the borrowings under this Agreement, the payment and performance by
the Borrower of the Obligations or the legality, validity, binding effect or
enforceability of any of the Loan Documents.
     5.4. Financial Statements. The September 30, 2005 consolidated financial
statements of the Parent, and its consolidated subsidiaries heretofore delivered
to the Agent were prepared in accordance with Agreement Accounting Principles in
effect on the date such statements were prepared and fairly present the
consolidated financial condition and operations of the Parent and its
consolidated subsidiaries at such date and the consolidated results of their
operations for the period then ended.
     5.5. Material Adverse Effect. Since the date of the financial statements
delivered pursuant to Section 5.4, there has been no change in the business,
Property, prospects, condition (financial or otherwise) or results of operations
of the Parent, the Borrower and their Subsidiaries which could reasonably be
expected to have a Material Adverse Effect.
     5.6. Taxes. The Parent, the Borrower and their Subsidiaries have filed all
United States federal tax returns and all other tax returns which are required
to be filed and have paid all Taxes due pursuant to said returns or pursuant to
any assessment received by the Parent, the Borrower or any of their
Subsidiaries, except such taxes, if any, as are being contested in good faith
and as to which adequate reserves have been provided in accordance with
Agreement Accounting Principles and as to which no Lien exists. The United
States income tax returns of the Parent, the Borrower and their Subsidiaries
have not been audited by the Internal Revenue Service during the time period
between September, 2000 and the date of this Agreement. No tax liens have been
filed and no claims are being asserted with respect to any such Taxes. The
charges, accruals and reserves on the books of the Parent, the Borrower and
their Subsidiaries in respect of any taxes or other governmental charges are
adequate.
     5.7. Litigation and Contingent Obligations. Except as set forth on
Schedule 5.7, there is no litigation, arbitration, governmental investigation,
proceeding or inquiry pending or, to the knowledge of any of their officers,
threatened against or affecting the Borrower or any of its Subsidiaries which
could reasonably be expected to have a Material Adverse Effect or which seeks to
prevent, enjoin or delay the making of any Credit Extension. Other than any
liability incident to any litigation, arbitration or proceeding which (i) could
not reasonably be expected to have a Material Adverse Effect or (ii) is set
forth on Schedule 5.7, the Borrower has no material contingent obligations not
provided for or disclosed in the financial statements referred to in
Section 5.4.

 

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     5.8. Subsidiaries. Schedule 5.8 contains an accurate list of all direct or
indirect Subsidiaries of the Borrower as of the date of this Agreement, setting
forth their respective jurisdictions of organization, the percentage of their
respective capital stock or other ownership interests owned by the Borrower or
other Subsidiaries, their taxpayer identification number and organizational
number, if any. All of the issued and outstanding shares of capital stock or
other ownership interests of such Subsidiaries have been (to the extent such
concepts are relevant with respect to such ownership interests) duly authorized
and issued and are fully paid and non-assessable.
     5.9. ERISA. The Unfunded Liabilities of all Single Employer Plans do not in
the aggregate exceed $ 100,000. Neither the Borrower nor any other member of the
Controlled Group has incurred, or is reasonably expected to incur, any
withdrawal liability to Multiemployer Plans in excess of $100,000 in the
aggregate. Each Plan complies in all material respects with all applicable
requirements of Law and regulations, no Reportable Event has occurred with
respect to any Plan, neither the Borrower nor any other member of the Controlled
Group has withdrawn from any Plan or initiated steps to do so, and no steps have
been taken to reorganize or terminate any Plan.
     5.10. Accuracy of Information. Neither the Loan Documents nor any other
agreement, document, certificate, statement, information, exhibit or report
(other than projections and review reports) furnished to the Agent or any Lender
by or on behalf of the Borrower or any Subsidiary in connection with the
transactions contemplated in any of the Loan Documents contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein or therein not misleading. All
writings heretofore or hereafter exhibited or delivered to the Agent or any
Lender by or on behalf of the Borrower or any Subsidiary are and will be genuine
and in all respects what they purport to be.
     5.11. Regulation U. Margin stock (as defined in Regulation U) constitutes
less than 25% of the value of those assets of the Parent, the Borrower and their
Subsidiaries which are subject to any limitation on sale, pledge, or other
restriction hereunder.
     5.12. Material Agreements. Neither the Parent, the Borrower nor any
Subsidiary is a party to any agreement or instrument or subject to any charter
or other corporate restriction which could reasonably be expected to have a
Material Adverse Effect. Neither the Parent, the Borrower nor any Subsidiary is
in default in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in (i) any agreement to which it
is a party, which default could reasonably be expected to have a Material
Adverse Effect or (ii) any agreement or instrument evidencing or governing
Indebtedness.
     5.13. Compliance With Laws.
          5.13.1. The Parent, the Borrower and their Subsidiaries have complied
with all applicable statutes, rules, regulations, orders and restrictions of any
domestic or foreign

 

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government or any instrumentality or agency thereof having jurisdiction over the
conduct of their respective businesses or the ownership of their respective
Property except for any failure to comply with any of the foregoing which could
not reasonably be expected to have a Material Adverse Effect.
          5.13.2. The Parent, the Borrower and their Subsidiaries have all
material licenses, permits, franchises, or other governmental authorizations
necessary for the ownership and, if it is the operator, operation of their Oil
and Gas Properties and the conduct of their respective businesses, and are in
compliance in all material respects with the terms and conditions of all such
licenses, permits, franchises, or other governmental authorizations. Their Oil
and Gas Properties (and properties unitized therewith) operated by Borrower or
its Subsidiaries have been maintained, operated and developed in a good and
workman like manner and in conformity with all applicable Laws and all rules,
regulations and orders of all duly constituted Tribunals having jurisdiction 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; specifically in this
connection, (i) after the date of this Agreement, no Oil and Gas Property 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) prior to
the date of this Agreement; and (ii) none of the wells comprising a part of the
Oil and Gas Properties (or properties unitized therewith) are deviated from the
vertical more than the maximum permitted by applicable Laws and regulations,
rules and orders of any Tribunal having appropriate jurisdiction, and such wells
are, in fact, bottomed under and are producing from, and the wellbores are
wholly within, the Oil and Gas Properties (or in the case of wells located on
properties unitized therewith, such unitized properties).
     5.14. Ownership/Title to the Properties; Licenses; Liens.
          5.14.1. Except as set forth on Schedule 5.14, on the date of this
Agreement, the Parent, the Borrower and their Subsidiaries will have good and
defensible title, free of all Liens other than those permitted by Section 6.15
or contemplated otherwise in this Agreement, all of the Collateral (including
but not limited to their respective material Oil and Gas Properties).
          5.14.2. After giving full effect to the Liens permitted under
Section 6.15, except as set out in Schedule 5.14, the Parent, the Borrower or
their Subsidiaries own the net interests in production attributable to the wells
and units evaluated in the Initial Reserve Report or the most recent Reserve
Report furnished to the Lenders pursuant to Sections 6.1(x) or (xi). The
ownership of the Oil and Gas Properties shall not in any material respect
obligate the Borrower or any Subsidiary to bear the costs and expenses relating
to the maintenance, development and operations of each such Oil and Gas Property
in any amount in excess of the working interest of each Oil and Gas Property set
forth in the Initial Reserve Report or the most recent Reserve Report furnished
to the Lenders pursuant to Sections 6.1(x) or (xi). The Parent, the Borrower and
their Subsidiaries shall have paid all royalties payable under the oil and gas
leases to which

 

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they are operator, except those not yet due or contested in accordance with the
terms of the applicable joint operating agreement or otherwise contested in good
faith by appropriate proceedings or temporarily suspended in the ordinary course
of business pending determination of title ownership. Upon the delivery of each
Reserve Report furnished to the Lenders pursuant to Sections 6.1(x) or (xi), the
statements made in the preceding sentences of this section shall be true with
respect to such Reserve Reports.
          5.14.3 The Borrower and each Subsidiary possesses all material
licenses, permits, franchises, patents, copyrights, trademarks and trade names,
and other intellectual property (or otherwise possess the right to use such
intellectual property without violation of the rights of any other Person) which
are necessary to carry out their respective business as presently conducted and
as presently proposed to be conducted hereafter, and neither the Borrower nor
any Subsidiary is in violation in any material respect of the terms under which
it possesses such intellectual property or the right to use such intellectual
property.
          5.14.4 Upon filing of the Deeds of Trust with the Clerk of the County
or Parish where the Property thereby covered is located and the financing
statements with the appropriate governmental entity, and upon filing financing
statements relating to the other Collateral Documents with the appropriate
governmental entity, the Collateral Documents will constitute legal, valid and
continuing perfected first liens on the Collateral as security for the
Obligations, free and clear of all other Liens, except for the Liens permitted
by Section 6.15.
     5.15. Plan Assets; Prohibited Transactions. The Borrower is not an entity
deemed to hold “plan assets” within the meaning of 29 C.F.R. § 2510.3-101 of an
employee benefit plan (as defined in Section 3(3) of ERISA) which is subject to
Title I of ERISA or any plan (within the meaning of Section 4975 of the Code),
and neither the execution of this Agreement nor the making of Loans hereunder
gives rise to a prohibited transaction within the meaning of Section 406 of
ERISA or Section 4975 of the Code.
     5.16. Environmental Matters.
          Schedule 5.16 identifies: (a) all environmental audits, analyses,
assessments, or occupational health studies (whether routine or special) with
regard to any Property ordered or undertaken by the Borrower or any Subsidiary
or under the direction, suggestion of or by any Tribunal, lender or other Person
with an interest in such Property, any insurer or any predecessor landowner or
lessee of such Property or any predecessor in interest and, in each case, now
within the possession of the Parent, the Borrower or any of their Subsidiaries;
(b) the results of any and all tests or analyses of water, soil, air, buildings
on or near any Property, whether or not compliance was questioned or indicated
which have been taken or made in the period five (5) years prior to the date
hereof, whether conducted by the Borrower or any Subsidiary or any predecessor
landowner or lessee of the Property, any Tribunal or any other Person; (c) the
results of and circumstances surrounding any Tribunal inspection or audit of any
Property or each operating entity of the Parent, the Borrower and any Subsidiary
whether routine or relating

 

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directly or indirectly to contamination or non-compliance with the Applicable
Environmental Laws; or (d) any claim or complaint concerning the Applicable
Environmental Laws relative to the Borrower or any Subsidiary. Except as set
forth in Schedule 5.16, or except as would not have a Material Adverse Effect:

  (i)   The Parent, the Borrower and their Subsidiaries and their Properties are
not in violation of Applicable Environmental Laws, or subject to any existing,
pending or, to the best knowledge of the Borrower, threatened investigation or
inquiry by any Tribunal or any other Person under or with respect to Applicable
Environmental Laws, or subject to any remedial obligations under Applicable
Environmental Laws, and are in compliance with all permits and licenses required
under Applicable Environmental Laws, and this representation will continue to be
true and correct following disclosure to the applicable Tribunal of all relevant
facts, conditions and circumstances, if any, pertaining to the Parent, the
Borrower and their Subsidiaries and their Properties.     (ii)   The Borrower
undertook, at the time of acquisition of such Properties, all appropriate
inquiry into the previous ownership and uses of such Properties consistent with
good commercial or customary practice. The Borrower has taken all steps
necessary to determine and has determined that no Hazardous Substances or Solid
Wastes have been Disposed of or otherwise Released at, into, upon or under such
Properties. The use which the Borrower makes and intends to make of such
Properties will not result in the use, treatment, storage or Disposal or other
Release of any Hazardous Substance or Solid Waste at, into, upon or under such
Properties, except such usage, and temporary storage in anticipation of usage,
as is in the ordinary course of business and in compliance with Applicable
Environmental Laws.     (iii)   No notice, notification, demand, request for
information, citation, summons, or order has been received, no review is
pending, no penalty has been assessed and, to the best knowledge of Borrower, no
complaint has been filed, no penalty has been assessed, and no investigation is
threatened by any Tribunal or any other Person with respect to (a) any alleged
generation, treatment, storage, recycling, transportation, Disposal, or Release
of any Hazardous Substances by the Borrower or any Subsidiary or on any Property
owned by the Borrower or any Subsidiary, (b) any material remedial action which
might be needed to respond to any such alleged generation, treatment, storage,
recycling, transportation, Disposal, or Release, or (c) any alleged failure by
the Borrower or any Subsidiary to have any permit, license, or authorization
required in connection with the conduct of their business or with respect to any
such generation, treatment, storage, recycling, transportation, Disposal, or
Release.

 

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  (iv)   There are no Liens arising under or pursuant to any Applicable
Environmental Laws on any of the Properties owned or leased by the Borrower or
any Subsidiary, and no government actions have been taken or are in process
which could subject any of such Properties to such Liens; nor would the Borrower
or any Subsidiary be required to place any notice or restrictions relating to
the presence of Hazardous Substances at any Properties owned by it in any deed
to such Properties.

     5.17. Investment Company Act. Neither the Borrower nor any Subsidiary is an
“investment company” or a company “controlled” by an “investment company”,
within the meaning of the Investment Company Act of 1940, as amended.
     5.18. Public Utility Holding Company Act. Neither the Borrower nor any
Subsidiary is a “holding company” or a “subsidiary company” of a “holding
company”, or an “affiliate” of a “holding company” or of a “subsidiary company”
of a “holding company”, within the meaning of the Public Utility Holding Company
Act of 1935, as amended, or subject to the Federal Power Act, and neither the
Borrower nor any Subsidiary is subject to any other Law regulating them as a
common carrier or a contract carrier in the rendering of electricity, gas,
steam, water, or other similar service as a regulated public utility.
     5.19. Insurance. The Certificates signed by the applicable insurers that
attest to the existence of, and summarizes, the property and casualty insurance
program carried by the Borrower with respect to itself and its Subsidiaries and
that has been furnished by the Borrower to the Agent and the Lenders, is
complete and accurate. This summary includes the insurer’s or insurers’ name(s),
policy number(s), expiration date(s), amount(s) of coverage, type(s) of
coverage, exclusion(s), and deductibles. This summary also includes similar
information, and describes any reserves, relating to any self-insurance program
that is in effect.
     5.20. Solvency.
          5.20.1. Immediately after the consummation of the transactions to
occur on the date the initial Credit Extension is to be made hereunder and
immediately following the making of each Credit Extension, if any, made on such
date hereof and after giving effect to the application of the proceeds of such
Credit Extension, (a) the fair value of the assets of the Parent, the Borrower
and their Subsidiaries on a consolidated basis, at a fair valuation, will exceed
the debts and liabilities, subordinated, contingent or otherwise, of the Parent,
the Borrower and their Subsidiaries on a consolidated basis; (b) the present
fair saleable value of the Property of the Parent, the Borrower and their
Subsidiaries on a consolidated basis will be greater than the amount that will
be required to pay the probable liability of the Parent, the Borrower and their
Subsidiaries on a consolidated basis on their debts and other liabilities,
subordinated, contingent or otherwise, as such debts and other liabilities
become absolute and matured; (c) the Parent, the Borrower and their Subsidiaries
on a consolidated basis will be able to pay their debts and liabilities,

 

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subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured; and (d) the Parent, the Borrower and their Subsidiaries on
a consolidated basis will not have unreasonably small capital with which to
conduct the businesses in which they are engaged as such businesses are now
conducted and are proposed to be conducted after the date hereof.
     5.20.2. The Borrower does not intend to, or to permit any of its
Subsidiaries to, and does not believe that it or any of its Subsidiaries will,
incur debts beyond its ability to pay such debts as they mature, taking into
account the timing of and amounts of cash to be received by it or any such
Subsidiary and the timing of the amounts of cash to be payable on or in respect
of its Indebtedness or the Indebtedness of any such Subsidiary.
     5.21. Burdensome Provisions. Neither Borrower nor any Subsidiary is a party
to any agreement or instrument containing any burdensome or uncustomary
provisions, or subject to any charter or other corporate restrictions or to any
judgment, order, writ, injunction, decree, award, rule or regulation, which will
or could cause a Material Adverse Effect.
     5.22. Relationship with the Lenders. Neither Borrower nor any Person having
“control” (as that term is defined in 12 U.S.C. § 375b(9) or in regulations
promulgated pursuant thereto) of the Borrower is an “executive officer”,
“director” or “principal shareholder” (as those terms are defined in 12 U.S.C. §
375b(8) or (9) or in regulations promulgated pursuant thereto) of any Lender, or
a bank holding company of which any Lender is a Subsidiary or of any Subsidiary
of a bank holding company of which any Lender is a Subsidiary.
     5.23. Jurisdiction of Organization. The Borrower’s and each Subsidiary’s
jurisdiction of organization and organizational identification number and
taxpayer identification number are as set forth on Schedule 5.23.
     5.24. Full Disclosure. There are no significant material facts or
conditions relating to the making of Credit Extensions, any of the Collateral
and/or the financial condition and business of the Borrower or any Subsidiary
which could, collectively or individually, cause a Material Adverse Effect, and
which have not been fully disclosed, in writing, to the Lenders. There are no
statements or conclusions in any Reserve Report which are based upon or include
materially misleading information or fail to take into account material
information regarding the matter reported therein, except as to projections as
to the results of future operations and estimated quantities of reserves
furnished to the Lenders, as to which the Borrower represents that such
projections were made based on assumptions believed by the Borrower to be
reasonable at the time made. The Borrower has heretofore delivered to each
Lender true, correct and complete copies of the Initial Reserve Report.
     5.25. Gas Imbalances. Except as set forth on Schedule 5.25, as of
October 31, 2005, on a net basis there are no gas imbalances, take or pay or
other prepayments with respect to the Borrower’s or any Subsidiary’s Oil and Gas
Properties which would require the Borrower or a

 

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Subsidiary to deliver Hydrocarbons produced from the Borrower’s or such
Subsidiary’s Oil and Gas Properties at some future time without then or
thereafter receiving full payment therefor.
     5.26 No Default. No event has occurred and is continuing which constitutes
a Default or an Unmatured Default.
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ARTICLE VI
COVENANTS
     During the term of this Agreement, unless the Required Lenders shall
otherwise consent in writing:
     6.1. Financial Reporting. The Parent will maintain, for itself and each
Subsidiary, a system of accounting established and administered in accordance
with Agreement Accounting Principles, and furnish to the Lenders:

  (i)   within ninety (90) days after the close of each of its fiscal years,
unqualified audited financial statements prepared by independent certified
public accountants acceptable to the Lenders, prepared in accordance with
Agreement Accounting Principles on a consolidated and consolidating basis for
itself and its subsidiaries, including balance sheets as of the end of such
period, related profit and loss and reconciliation of surplus statements, and a
statement of cash flows, accompanied by any management letter prepared by said
accountant in connection with the annual audited financial statements;     (ii)
  within forty-five (45) days after the close of the first three quarterly
periods of each of its fiscal years, for itself and its Subsidiaries,
consolidated and consolidating unaudited balance sheets as at the close of each
such period and consolidated and consolidating profit and loss and
reconciliation of surplus statements and a statement of cash flows for the
period from the beginning of such fiscal year to the end of such quarter, all
certified by its chief financial officer;     (iii)   together with the
financial statements required under Sections 6.1(i) and (ii), a compliance
certificate in substantially the form of Exhibit F signed by its chief financial
officer showing the calculations necessary to determine compliance with this
Agreement and stating that no Default or Unmatured Default exists, or if any
Default or Unmatured Default exists, stating the nature and status thereof;    
(iv)   within two hundred seventy (270) days after the close of each fiscal
year, a statement of the Unfunded Liabilities of each Single Employer Plan,
certified as correct by an actuary enrolled under ERISA;     (v)   as soon as
possible and in any event within ten (10) days after the Parent knows that any
Reportable Event has occurred with respect to any Plan, a statement, signed by
the chief financial officer of the Parent, describing said Reportable Event and
the action which the Parent proposes to take with respect thereto;

 

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  (vi)   as soon as possible and in any event within ten (10) days after receipt
by the Borrower, a copy of (a) any notice or claim to the effect that the
Borrower or any of its Subsidiaries is or may be liable to any Person as a
result of the Release by the Borrower, any of its Subsidiaries, or any other
Person of any Hazardous Substance into the environment, and (b) any notice
alleging any violation of any Applicable Environmental Law by the Borrower or
any of its Subsidiaries;     (vii)   promptly upon the furnishing thereof to the
shareholders of the Parent, copies of all financial statements, reports and
proxy statements so furnished;     (viii)   promptly upon the filing thereof,
copies of all registration statements and annual, quarterly, monthly or other
regular reports which the Parent files with the Securities and Exchange
Commission;     (ix)   by March 1st of each year, a Reserve Report prepared by
an independent petroleum engineer chosen by the Borrower and acceptable to the
Required Lenders (the “Independent Engineer”), which report shall be dated as of
January 1 of such year, concerning the Oil and Gas Properties and interests
owned by the Parent, the Borrower and their Subsidiaries which are located in or
offshore of the United States of America and which have attributable to them
Proved Reserves. This report shall be in form satisfactory to Agent and shall
include such reasonable assumptions as the Agent shall specify (including
discount rates and projected Hydrocarbon price assumptions), shall contain
sufficient information to enable the Borrower to meet the reporting requirements
concerning oil and gas reserves contained in Regulations S-K and S-X promulgated
by the Securities and Exchange Commission, shall take into account any material
“over-produced” and “under produced” status under gas balancing arrangements,
and shall contain information and analysis comparable in scope to that contained
in the Initial Reserve Report, including the proven oil and gas reserves of the
Parent, the Borrower and their Subsidiaries as of the date of such report, and
the discounted net present value (at a rate acceptable to the Lenders). Together
with such report, the Borrower shall furnish to the Lenders any updated
production history of the proven oil and gas reserves of the Parent, the
Borrower and their Subsidiaries as of such date, the lease operating expenses
attributable to the Borrower’s and its Subsidiaries’ Oil and Gas Properties for
the prior twelve month period, together with any other information as to the
operations of the Parent, the Borrower and their Subsidiaries as reasonably
requested by the Lenders. Together with such report, the Borrower shall furnish
to the Lenders such additional data and information concerning pricing,
quantities, or volume of production from or attributable to the Oil and Gas
Properties with respect thereto as the Lenders may reasonably request. This
report shall distinguish (or shall be delivered together with a certificate from
an appropriate officer of the Borrower which distinguishes)

 

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      those properties treated in the report which are Collateral from those
properties treated in the report which are not Collateral;     (x)   by
September 1st of each year and promptly following notice of an additional
Borrowing Base redetermination under Section 2.2.3 above, a Reserve Report
prepared as of July 1 of such year by petroleum engineers who are employees of
the Borrower, together with an accompanying report on Oil and Gas Property
sales, Oil and Gas Property purchases and changes in categories, both in the
same form and scope as the reports in clause (x) above. The Reserve Report shall
be prepared by or at the direction of the Borrower and shall be certified by the
senior petroleum engineer of the Borrower as to the truth and accuracy of the
information utilized to prepare the Reserve Report and the estimates included
therein;     (xi)   as soon as available, and in any event within forty-five
(45) days after the end of each fiscal quarter, a report setting forth volumes,
prices and margins for all marketing activities of the Borrower and Subsidiaries
during such fiscal quarter; and     (xii)   such other information (including
reserve, engineering, geological, and title information) as the Agent or any
Lender may from time to time reasonably request;

     6.2. Use of Proceeds. The Borrower will, and will cause the Parent and each
of their Subsidiaries to, use the proceeds of the Credit Extensions (x) for the
acquisition, development and exploration of Oil & Gas Properties; (y) for
working capital requirements, capital expenditures, permitted acquisitions and
other general corporate purposes; and (z) Letters of Credit. The Borrower will
not use any of the proceeds of the Credit Extensions to purchase or carry any
“margin stock” (as defined in Regulation U) or extend credit to others for the
purpose of purchasing or repurchasing or carrying margin stock.
     6.3. Notice of Default. The Borrower will, and will cause each Subsidiary
to, give prompt notice in writing to the Lenders of the occurrence of any
Default or Unmatured Default and of any other development, financial or
otherwise, which could reasonably be expected to have a Material Adverse Effect.
Furthermore the Borrower will, and will cause each Subsidiary to, give prompt
notice in writing to the Lenders of the occurrence of any “Default” or “Event of
Default” as defined in the Senior Notes Indenture.
     6.4. Conduct of Business. The Borrower will, and will cause each Subsidiary
to, carry on and conduct its business in substantially the same manner and in
substantially the same fields of enterprise as it is presently conducted and do
all things necessary to remain duly incorporated or organized, validly existing
and (to the extent such concept applies to such entity) in good standing as a
domestic corporation, partnership or limited liability company in its
jurisdiction of

 

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incorporation or organization, as the case may be, and maintain all requisite
authority to conduct its business in each jurisdiction in which its business is
conducted.
     6.5. Taxes. The Borrower will, and will cause each Subsidiary to, timely
file complete and correct United States federal and applicable foreign, state
and local tax returns required by Law and pay when due all Taxes, assessments
and governmental charges and levies upon it or its income, profits or Property,
except those which are being contested in good faith by appropriate proceedings
and with respect to which adequate reserves have been set aside in accordance
with Agreement Accounting Principles.
     6.6. Insurance. The Borrower will, and will cause each Subsidiary to,
maintain with financially sound and reputable insurance companies insurance on
all their Property in such amounts and covering such risks as is consistent with
sound business practice, and the Borrower will furnish to any Lender upon
request full information as to the insurance carried.
     6.7. Compliance with Laws. The Borrower will, and will cause each
Subsidiary to, comply with all Laws, rules, regulations, orders, writs,
judgments, injunctions, decrees or awards to which it may be subject including,
without limitation, all Environmental and ERISA Laws.
     6.8. Maintenance of Properties. The Borrower will, and will cause each
Subsidiary to, do all things necessary to, or in respect of non-operated
properties cause the operator to, maintain, preserve, protect and keep in good
repair, working order and condition (ordinary wear and tear excepted) in
accordance with good industry practices all of the Oil and Gas Properties owned
by it including, without limitation, all equipment, machinery and facilities,
and will make all necessary and proper repairs, renewals and replacements so
that its business carried on in connection therewith may be properly conducted
at all times. The state and condition of the Collateral and the Oil and Gas
Properties owned by the Parent, the Borrower and their Subsidiaries will be
preserved and maintained in accordance with the foregoing standards, except to
the extent a portion of such Oil and Gas Properties is no longer capable of
producing Hydrocarbons in economically reasonable amounts. The Borrower will,
and will cause each Subsidiary to, or in respect of non-operated properties
cause the operator to, promptly pay and discharge or cause to be paid and
discharged all delay rentals, royalties, expenses and debt accruing under, and
perform or cause to be performed each and every act, matter or thing required
by, each and all of the assignments, deeds, leases, sub-leases, contracts and
agreements affecting the Borrower’s or any Subsidiary’s interests in its Oil and
Gas Properties and will do all other things necessary to keep unimpaired their
respective rights with respect thereto and prevent any forfeiture thereof or a
default thereunder, except to the extent a portion of the Oil and Gas Properties
is no longer capable of producing Hydrocarbons in economically reasonable
amounts or without potential for commercial development. The Borrower will, and
will cause each Subsidiary to, or in respect of non-operated properties cause
the operator to, operate its Oil and Gas Properties (or cause its owned but
non-operated Oil and Gas Properties to be operated) in a careful and efficient
manner in accordance with the practices of the industry and in compliance

 

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with all applicable contracts and agreements and in compliance in all material
respects with all applicable Laws.
     6.9. Inspection. The Borrower will, and will cause each Subsidiary to, keep
accurate books and financial records and to permit the Agent and the Lenders, by
their respective representatives and agents, to inspect any of the Property,
books and financial records of the Borrower and each Subsidiary, to examine and
make copies of the books of accounts and other financial records of the Borrower
and each Subsidiary, and to discuss the affairs, finances and accounts of the
Borrower and each Subsidiary with, and to be advised as to the same by, their
respective officers at such reasonable times and intervals as the Agent or any
Lender may designate.
     6.10. Dividends; Repurchase of Capital Stock; etc.. Neither the Parent nor
the Borrower will, nor will they permit any Subsidiary to, declare or pay any
dividends or make any distributions on its capital stock or membership interests
(other than dividends payable in its own capital stock or membership interests,
as applicable) or redeem, repurchase or otherwise acquire or retire any of its
capital stock or membership interests at any time outstanding, except (i) that
the Borrower or any Subsidiary may declare and pay dividends or make
distributions to its members or shareholders on a pro rata basis; (ii) the
Parent may repurchase, repay, defease, redeem or otherwise acquire or retire any
capital stock with the proceeds of the contemporaneous issuance of the capital
stock of the Parent and (iii) with the prior approval of the Required Lenders,
the Parent may repurchase its capital stock upon the termination of employment
of any officer or employee of the Parent, the Borrower or any of their
Subsidiaries or upon the termination of the services of any director of such
Persons; provided further that, the Parent may repurchase up to $1,000,000 of
capital stock in the aggregate from one or more officers or employees of such
Persons upon the termination of the employment of such officers or employees.
     6.11. Indebtedness. Neither the Borrower nor the Parent will, nor will it
permit any Subsidiary to, create, incur or suffer to exist any Indebtedness,
except:

  (i)   the Credit Extensions;     (ii)   Indebtedness existing on the date
hereof and described in Schedule 6.11;     (iii)   Indebtedness arising under
Rate Management Transactions permitted under Section 6.23;     (iv)  
Indebtedness among the Parent, the Borrower or any of their Subsidiaries;    
(v)   Indebtedness associated with bonds or surety obligations required by any
governmental or regulatory authority or prior owner in connection with owning or
operating its Oil and Gas Properties in the ordinary course of business;

 

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  (vi)   unsecured accounts payable incurred in the ordinary course of business
which remain unpaid after the expiration of ninety (90) days beyond invoice date
or are being contested in good faith and as to which such reserve as is required
by Agreement Accounting Principles has been made;     (vii)   Indebtedness not
to exceed $2,000,000 at any one time outstanding related to purchase money
financing;     (viii)   Indebtedness relating to Capitalized Lease Obligations
not to exceed $2,000,000 at any one time outstanding;     (ix)   Indebtedness
relating to net production imbalances not to exceed $2,000,000 at any one time
outstanding;     (x)   Indebtedness relating to royalties, overriding royalties
and other interests carved out of production incurred in the ordinary course of
oil and gas exploration and development projects;     (xi)   Indebtedness
associated with the financing of premiums for business insurance of the Parent,
the Borrower and their Subsidiaries;     (xii)   Contingent Obligations of the
Parent in connection with guarantees of the obligations of the Borrower and its
Subsidiaries in connection with owning and operating Oil and Gas Properties in
the ordinary course of business.     (xiii)   Non-Recourse Indebtedness not to
exceed $25,000,000 at any one time outstanding; and     (xiv)   Indebtedness
under the Senior Notes;     (xv)   Indebtedness consisting of a guaranty of any
Indebtedness which is otherwise permitted;     (xvi)   any renewal, extension,
rearrangement or refinancing (but not increases in) any of the Indebtedness
permitted by clauses (ii) and (xiv) of this Section 6.11; and     (xvii)   in
addition to any of the exceptions listed above, any Indebtedness of the Parent,
the Borrower or their Subsidiaries in an aggregate principal amount at any one
time outstanding not to exceed $5,000,000.

     6.12. Acquisitions and Merger. Except as provided below, neither the
Parent, the Borrower nor any Subsidiary will, directly or indirectly, acquire
all or any Substantial Portion of

 

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the property, assets or stock of, or interest in, any Person, or merge or
consolidate with or into any other Person, except that a Subsidiary may merge
into another Subsidiary or into the Parent or the Borrower. Notwithstanding the
foregoing, the Parent, the Borrower or any Subsidiary may acquire by purchase,
merger or otherwise, additional Oil and Gas Properties or the capital stock or
interests of any Person whose business is primarily the ownership and operation
of Oil & Gas Properties.
     6.13. Sale of Assets. The Borrower will not, nor will it permit any
Subsidiary to, lease, sell or otherwise dispose of its Property to any other
Person, except:

  (i)   the sales of Hydrocarbons in the ordinary course of business.     (ii)  
transfers of interests in Oil and Gas Properties in the ordinary course of the
joint development of Oil and Gas Properties with others, including without
limitation transfers to other parties to joint development agreements,
participation agreements, farmout agreements, farmin agreements, exploration
agreements, operating agreements and unit agreements;     (iii)   the sale or
transfer of equipment that is obsolete, worn-out, depleted or no longer
necessary for their business or is replaced by equipment of at least comparable
value and use;     (iv)   during any consecutive twelve month period, sales of
Oil and Gas Properties in the ordinary course that will not exceed, in the
aggregate, five percent (5%) of the Borrowing Base then in effect, and that will
not materially impair or diminish the value of the Collateral or the Borrower’s
financial condition; and     (v)   leases, sales or other dispositions of Oil
and Gas Properties, other than those permitted in subsections (i) through
(iv) above, that, during any consecutive twelve-month period, do not constitute
a Substantial Portion of the Oil and Gas Properties of the Borrower and its
Subsidiaries.

Upon the written request of the Borrower setting forth in reasonable detail the
transfer, sale or conveyance of assets in a transaction which may be permitted
above, the Agent will execute and deliver to the Borrower such documentation as
is reasonably necessary in the opinion of the Agent and its counsel to release
the Lender Liens on assets so transferred, sold or conveyed.
     6.14. Investments and Acquisitions. The Borrower will not, nor will it
permit any Subsidiary to, make or suffer to exist any Investments or commitments
therefore, or to create any Subsidiary or to become or remain a partner in any
partnership or joint venture except:

  (i)   Cash Equivalent Investments;

 

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  (ii)   existing Investments in Subsidiaries and other Investments in existence
on the date hereof and described in Schedule 6.14;     (iii)   acquisition of
interests in Oil and Gas Properties and related assets in the ordinary course of
the conduct of the exploration, development and production business of the
Borrower and Parent;     (iv)   Investments made in the ordinary course of
acquiring, exploring, developing and producing Oil and Gas Properties and
marketing, transporting, processing and treating production therefrom;     (v)  
loans and advances and other Investments among the Parent, the Borrower and any
of their Subsidiaries;     (vi)   any Subsidiary may be created or acquired if
within two Business Days of its creation or acquisition it becomes a Guarantor
by executing a Guaranty substantially similar to the Guaranty;     (vii)   any
acquisition or merger as permitted in Section 6.12;     (viii)   Investments
made with respect to Rate Management Transactions permitted by Section 6.23; and
    (xi)   Investments (including Indebtedness and other obligations) received
in connection with the bankruptcy or reorganization of suppliers, customers and
joint owners of Oil and Gas Properties and in settlement of delinquent
obligations of, and other disputes with such Persons, in the ordinary course of
business not to exceed $2,000,000.

     6.15. Liens. The Borrower will not, nor will it permit any Subsidiary to,
create, incur, or suffer to exist any Lien in, of or on the Property of the
Borrower or any of its Subsidiaries, except:

  (i)   Liens for taxes, assessments or governmental charges or levies on its
Property if the same shall not at the time be delinquent or thereafter can be
paid without penalty, or are being contested in good faith and by appropriate
proceedings and for which adequate reserves in accordance with Agreement
Accounting Principles shall have been set aside on its books;     (ii)   Liens
imposed by Law, such as carriers’, warehousemen’s and mechanics’ liens and other
similar liens arising in the ordinary course of business which secure payment of
obligations not more than 60 days past due, or are being contested in

 

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      good faith and by appropriate proceedings and for which adequate reserves
in accordance with Agreement Accounting Principles shall have been set aside on
its books;     (iii)   Liens arising out of pledges or deposits under worker’s
compensation Laws, unemployment insurance, old age pensions, or other social
security or retirement benefits, or similar legislation;     (iv)   utility
easements, building restrictions and such other encumbrances or charges against
real property as are of a nature generally existing with respect to properties
of a similar character and which do not in any material way affect the
marketability of the same or interfere with the use thereof in the business of
the Borrower or its Subsidiaries;     (v)   Liens existing from time to time
hereof in favor of the Minerals Management Service;     (vi)   Liens in favor of
the Agent, for the benefit of the Lenders, granted pursuant to any Collateral
Document and other Liens expressly permitted under the Collateral Documents;    
(vii)   Liens in favor of operators and non-operators under joint operating
agreements or similar contractual arrangements arising in the ordinary course of
the business of the Borrower or its Subsidiaries to secure amounts owing, which
amounts are not more than sixty (60) days past due or are being contested in
good faith by appropriate proceedings, if such reserve as may be required by
Agreement Accounting Principles shall have been made therefor;     (viii)  
Liens under production sales agreements, division orders, operating agreements,
and other agreements customary in the oil and gas business for processing,
producing, and selling Hydrocarbons securing obligations not constituting
Indebtedness and provided that such Liens do not secure obligations to deliver
Hydrocarbons at some future date without receiving full payment therefor within
ninety (90) days of delivery;     (ix)   Liens in connection with Rate
Management Transactions permitted under Section 6.23; and     (x)   Liens or any
insurance policy or on any prepaid premiums on any such policy securing
Indebtedness related to the payment of insurance premiums with respect to such
policy which Indebtedness is permitted under Section 6.11(xi).

 

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     6.16. Operating Leases. Neither the Borrower nor any Subsidiary will enter
into or remain liable upon any Operating Lease, except for Operating Leases
which have Operating Lease Obligations of not more than $2,000,000 per annum.
     6.17. Trade Liabilities. The Borrower and each of its Subsidiaries will
timely pay all liabilities owed by it on ordinary trade terms to vendors,
suppliers, and other Persons providing goods and services used by it in the
ordinary course of its business, except those which are being contested in good
faith by appropriate proceedings and with respect to which adequate reserves
have been set aside in accordance with Agreement Accounting Principles.
     6.18. Affiliates. The Parent shall not permit the assets of PetroQuest Oil
& Gas to ever be anything other than the legal interests in Oil and Gas
Properties, the beneficial interests of which is owned by Persons other than the
Borrower and/or the Parent. The Parent will not permit any other Person to
become a member of PetroQuest Oil & Gas. The Parent will not nor will it permit
the Borrower or any other Subsidiary to transfer assets of the Parent, the
Borrower, or any Subsidiary to or assume or discharge the liabilities of
PetroQuest Oil & Gas. The Borrower will not, and will not permit any Subsidiary
to, enter into any transaction (including, without limitation, the purchase or
sale of any Property or service) with, or make any payment or transfer to, any
Affiliate except in the ordinary course of business and pursuant to the
reasonable requirements of the Borrower’s or such Subsidiary’s business and upon
fair and reasonable terms no less favorable to the Borrower or such Subsidiary
than the Borrower or such Subsidiary would obtain in a comparable arms-length
transaction. Except as permitted below, Parent will not nor will it permit the
Borrower or any other Subsidiary to transfer assets of Parent, the Borrower or
any other Subsidiary to any Excluded Subsidiary, provide, however, Parent, the
Borrower or any Subsidiary may fund working capital to CSP Pipeline in an amount
not to exceed $250,000 in any calendar year.
     6.19. Agreement to Deliver Collateral Documents. The Borrower agrees to
deliver, and to cause each Subsidiary to deliver, to further secure the
Obligations whenever requested by the Agent in its sole and absolute discretion,
Deeds of Trust, mortgages, chattel mortgages, security agreements, financing
statements and other Collateral Documents in form and substance satisfactory to
the Agent for the purpose of granting, confirming, and perfecting first and
prior liens or security interests in any real or personal Property now owned or
hereafter acquired by the Borrower or any Subsidiary, so as to maintain at all
times such liens and security interests in, to and on at least ninety percent
(90%) of the PDP Present Value of Oil and Gas Properties owned by the Borrower
and its Subsidiaries and located in the United States or it s offshore waters
and at least eighty percent (80%) of the aggregate Proved Reserves of Oil and
Gas Properties located in the United States or its offshore waters owned by the
Borrower or any of its Subsidiaries. The Borrower also agrees to deliver, and to
cause each Subsidiary to deliver, whenever requested by the Agent in its sole
and absolute discretion, favorable title opinions from legal counsel acceptable
to the Agent with respect to any of the Oil and Gas Properties designated by the
Agent, based upon abstract or record examinations to dates acceptable to the
Agent and (i) stating that such Person has good and defensible title to such
properties and

 

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interests, free and clear of all Liens other than Liens permitted under
Section 6.15, (ii) confirming that such Oil and Gas Properties and interests
therein are subject to Collateral Documents securing the Obligations that
constitute and create legal, valid and duly perfected first deed of trust or
mortgage liens in such properties and interests and first priority assignments
of and security interests in the Hydrocarbons attributable to such properties
and interests and the proceeds thereof, and (iii) covering such other matters as
the Agent may request.
     6.20. Maintenance of Liens. The Borrower will perform, and will cause each
Subsidiary to perform, such acts and duly authorize, execute, acknowledge,
deliver, file and record such additional assignments, security agreements, deeds
of trust, mortgages and other agreements, documents, instruments and
certificates as the Lenders may reasonably deem necessary or appropriate in
order to perfect and maintain the Liens in favor of the Lenders and preserve and
protect the Rights of the Lenders.
     6.21. Title Information. By March 1st and September 1st of each year, the
Borrower will deliver any acquisition summaries, title opinions and due
diligence reports prepared in connection with the acquisition and the financing
of the acquisition of such Oil and Gas Properties prepared for the Borrower or
the Person financing such acquisition and such additional title information in
form and substance acceptable to the Lenders as is requested so that the Lenders
shall have received, together with the title information previously received by
the Lenders, satisfactory title information covering Oil and Gas Properties
representing ninety percent (90%) of the value of such Oil and Gas Properties as
set forth in such Reserve Report, as such value is set forth therein. From time
to time upon written request of the Agent, the Borrower shall cause to be
delivered and addressed to the Agent and the Lenders the written opinions of
counsel of the Borrower and any Guarantor to the effect that the Deeds of Trust
constitute first, prior perfected Liens on the Oil and Gas Properties the States
of Texas and Louisiana, in substantially the form of Exhibit G.
     6.22. Deposit of Production Proceeds. Notwithstanding that, by the terms of
the various Loan Documents, the Parent, the Borrower and their Subsidiaries are
and will be assigning to the Agent and the Lenders all of the “Production
Proceeds” (as defined therein) accruing to the Property covered thereby, so long
as no Default has occurred the Borrower and each Subsidiary may continue to
receive from the purchasers of production all such Production Proceeds, subject,
however, to the Liens created under the Loan Documents, which Liens are hereby
affirmed and ratified and provided that to further secure the Agent’s and
Lenders’ Liens upon such Production Proceeds, the Borrower and each Subsidiary
agree to maintain their operating accounts with the Agent and not to redirect
the payment of Production Proceeds from such operating accounts without the
written consent of the Agent. Upon the occurrence of a Default, the Agent and
the Lenders may exercise all rights and remedies granted under the Loan
Documents, including the right to obtain possession of all Production Proceeds
then held by the Borrower or any Subsidiary or to receive directly from the
purchasers of production all Production Proceeds. In no case shall any failure,
whether purposed or inadvertent, by the Agent or the Lenders to collect directly
any such Production Proceeds constitute in any way a waiver,

 

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remission or release of any of their rights under the Loan Documents, nor shall
any release of any Production Proceeds by the Agent or the Lenders to the
Borrower or any Subsidiary constitute a waiver, remission, or release of any
other Production Proceeds or of any rights of the Agent or the Lenders to
collect other Production Proceeds thereafter.
     6.23. Rate Management Transactions. Neither the Borrower nor any Subsidiary
will be a party to or in any manner be liable on any Rate Management
Transactions except:

  (i)   contracts entered into with the purpose of fixing prices on oil or gas
expected to be produced by the Borrower or its Subsidiaries, provided that at
all times: (a) no such contract fixes a price for a term of more than thirty-six
(36) months; (b) the aggregate monthly production covered by all such contracts
(determined, in the case of contracts that are not settled on a monthly basis,
by a monthly pro-ration acceptable to the Agent) for any single month does not
in the aggregate exceed (x) eighty-five percent (85%) during the first
thirty-six (36) months after the date hereof and fifty percent (50%) during the
twelve (12) month period thereafter through and including the Facility
Termination Date of the aggregate Projected Oil Production of the Borrower,
Parent and their Subsidiaries anticipated to be sold in the ordinary course of
such Person’s business for such month and (y) eighty-five percent (85%) during
the first thirty-six (36) months after the date hereof and fifty percent (50%)
during the twelve (12) month period thereafter through and including the
Facility Termination Date of the aggregate Projected Gas Production of the
Borrower, Parent and their Subsidiaries anticipated to be sold in the ordinary
course of such Person’s business for such month; (c) each such contract is with
a counterparty or has a guarantor of the obligation of the counterparty who
(unless such counterparty is a Lender or one of its Affiliates) at the time such
contract is made has (or whose holding company has) long-term obligations rated
BBB or better by S&P or Baa2 or better by Moody’s or is an investment
grade-rated industry participant. As used in this subsection, the term
“Projected Oil Production” and “Projected Gas Production” means, in the case of
each such commodity, the projected production of oil or gas, as the case may be,
(measured by volume unit or BTU equivalent, not sales price) for the term of the
contracts or a particular month, as applicable, from Oil and Gas Properties and
interests owned by the Parent, the Borrower and their Subsidiaries which are
located in or offshore of the United States of America and which have
attributable to them Proved Reserves, as such production is determined by the
Agent using the most recent Reserve Report delivered pursuant to Section 6.1,
after deducting projected production from any properties or interests sold or
under contract for sale that had been included in such report and after adding
projected production from any properties or interests that had not been
reflected in such report but that are reflected in a separate or supplemental
reports meeting the requirements of Section 6.1 above and otherwise are
satisfactory to the Agent; and

 

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  (ii)   contracts entered into by the Borrower or any Subsidiary with the
purpose and effect of fixing interest rates on a principal amount of
indebtedness of such Person that is accruing interest at a variable rate,
provided that (a) the aggregate notional amount of such contracts never exceeds
eighty-five percent (85%) of the anticipated outstanding principal balance of
the Indebtedness to be hedged by such contracts or an average of such principal
balances calculated using a generally accepted method of matching interest swap
contracts to declining principal balances, (b) the floating rate index of each
such contract generally matches the index used to determine the floating rates
of interest on the corresponding indebtedness to be hedged by such contract, and
(c) each such contract is with a counterparty or has a guarantor of the
obligation of the counterparty who (unless such counterparty is a Lender or one
of its Affiliates) at the time the contract is made has (or whose company has)
long-term obligations rated AA or AA2 or better, respectively, by either S&P or
Moody’s or is an investment grade-rated industry participant.

     6.24. Sale of Accounts. Neither the Borrower nor any Subsidiary will sell
or otherwise dispose of any notes receivable or accounts receivable, with or
without recourse.
     6.25. Sale and Leaseback Transactions and Other Off-Balance Sheet
Liabilities. Neither the Borrower nor any Subsidiary will enter into or suffer
to exist any (i) Sale and Leaseback Transaction or (ii) any other transaction
pursuant to which it incurs or has incurred Off-Balance Sheet Liabilities,
except for (i) Non-Recourse Indebtedness permitted to be incurred under the
terms of Section 6.11; and (ii) Rate Management Transactions permitted to be
incurred under the terms of Section 6.23.
     6.26. Contingent Obligations. Neither the Borrower nor any Subsidiary will
make or suffer to exist any Contingent Obligation (including, without
limitation, any Contingent Obligation with respect to the obligations of a
Subsidiary), other than those in connection with guarantees of the obligations
of Subsidiaries in connection with owning and operating Oil and Gas Properties
in the ordinary course of business, except (i) by endorsement of instruments for
deposit or collection in the ordinary course of business, (ii) the Reimbursement
Obligations, and (iii) that the Borrower or any Subsidiary may incur Contingent
Obligations with respect to Obligations permitted hereunder.
     6.27. Financial Contracts. Neither the Borrower nor any Subsidiary will
enter into or remain liable upon any Financial Contract, except for Rate
Management Transactions required or permitted under Section 6.25.
     6.28. Financial Covenants.
          6.28.1 Debt Coverage Ratio. The Borrower will not permit the ratio of
(A) Consolidated Indebtedness to (B) annualized Consolidated EBITDDA, determined
on a

 

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rolling four quarter basis (and taking into account, on a proforma basis, the
revenues and expenses attributable to any Oil and Gas Properties acquired during
the rolling four quarter period and deducting any revenues and expenses
attributable to Oil & Gas Properties disposed of during such period) to be
greater than 2.50 to 1.00.
     6.28.2 Current Ratio. The Borrower will not permit the ratio of
Consolidated Current Assets to Consolidated Current Liabilities, excluding
current maturities of long term debt and current payables resulting from any
Rate Management Transaction, to be less than 1.0 to 1.0 at any time.
     6.30. Senior Notes. The Senior Notes will be unsecured obligations of
Parent and the Borrower, as co-issuers, guarantied by the unsecured guaranties
of the Subsidiary Guarantors (as such term is described in the Senior Notes
Indenture). If not previously provided pursuant to the terms of this Agreement,
the Borrower will promptly provide the Agent with copies of all documentation,
notices and reports provided by or on behalf of the Borrower, any Guarantor or
any Subsidiary to the holders of the Senior Notes. On or before the date the
financial statements are due pursuant to Sections 6.1(i) and (ii) hereof, the
Borrower shall deliver to the Agent a certificate, executed by an Authorized
Officer of the Borrower, setting forth the outstanding principal balance of the
Senior Notes as of the last day of the preceding month. The Borrower will not,
and will not permit any Guarantor or any Subsidiary to, make any (i) amendment
or modification to the Senior Notes or the Senior Notes Indenture (other than
supplemental indentures to add subsidiary guarantors as contemplated by the
Senior Notes Indenture or, in the event of any discrepancy, to conform the
Senior Notes Indenture to the terms in the Senior Notes Indenture) which would
be materially adverse to the Lenders without the prior written consent of the
Required Lenders; or (ii) directly or indirectly voluntarily prepay, defease or
in substance defease, purchase, redeem, retire or otherwise acquire, any portion
of the Senior Notes without the prior written consent of the Required Lenders;
provided that (I) Parent may redeem Senior Notes out of the net cash proceeds of
Equity Offerings (as that term is defined in the Senior Notes Indenture) to the
extent described in the Senior Notes; and (II) the Borrower and Parent may
comply with their obligations with respect to the purchase of Senior Notes upon
(x) an Asset Disposition (as that term is defined in the Senior Notes Indenture)
to the extent set forth in the Senior Notes Indenture so long as, prior to such
purchase, the Borrower shall have offered to prepay the Obligations to the
Lenders by a like amount and the Lenders shall have declined that offer or (y) a
Change of Control (as that term is defined in the Senior Notes Indenture) to the
extent set forth in the Senior Notes Indenture so long as, if such Change of
Control constitutes an Unmatured Default or an Event of Default, the Obligations
to the Lender shall have been paid in full prior to such purchase.
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ARTICLE VII
DEFAULTS
     The occurrence of any one or more of the following events shall constitute
a Default:
     7.1. Any representation or warranty made or deemed made by or on behalf of
the Borrower or any of its Subsidiaries to the Lenders or the Agent under or in
connection with this Agreement, any Credit Extension, or any certificate or
information delivered in connection with this Agreement or any other Loan
Document shall prove to have been materially false on the date as of which made.
     7.2. Nonpayment of principal of any Loan when due, nonpayment of any
Reimbursement Obligation within three Business Days after the same becomes due,
or nonpayment of interest upon any Loan or of any commitment fee, LC Fee or
other obligations under any of the Loan Documents within five days after the
same becomes due.
     7.3. The material breach by the Borrower of any of the terms or provisions
of Sections 6.2, 6.10, 6.11, 6.12, 6.13, 6.14, 6.15, 6.16, 6.17, 6.18, 6.19,
6.23, 6.24, 6.25, 6.26, 6.27, 6.28, or 6.29.
     7.4. The material breach by the Borrower (other than a breach which
constitutes a Default under another Section of this Article VII) of any of the
terms or provisions of this Agreement which is not remedied within thirty days
after written notice from the Agent or any Lender.
     7.5. Failure of the Borrower or any of its Subsidiaries to pay when due any
Indebtedness (other than the Obligations) aggregating in excess of $1,000,000
(“Material Indebtedness”); or the default by the Borrower or any of its
Subsidiaries in the performance (beyond the applicable grace period with respect
thereto, if any) of any term, provision or condition contained in any agreement
under which any such Material Indebtedness was created or is governed, or any
other event shall occur or condition exist, the effect of which default or event
is to cause, or to permit the holder or holders of such Material Indebtedness to
cause, such Material Indebtedness to become due prior to its stated maturity; or
any Material Indebtedness of the Borrower or any of its Subsidiaries shall be
declared to be due and payable or required to be prepaid or repurchased (other
than by a regularly scheduled payment) prior to the stated maturity thereof; or
the Borrower or any of its Subsidiaries shall not pay, or admit in writing its
inability to pay, its debts generally as they become due.
     7.6. The Borrower or any of its Subsidiaries shall (i) have an order for
relief entered with respect to it under the federal bankruptcy Laws as now or
hereafter in effect, (ii) make an assignment for the benefit of creditors,
(iii) apply for, seek, consent to, or acquiesce in, the

 

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appointment of a receiver, custodian, trustee, examiner, liquidator or similar
official for it or any Substantial Portion of its Property, (iv) institute any
proceeding seeking an order for relief under the federal bankruptcy Laws as now
or hereafter in effect or seeking to adjudicate it a bankrupt or insolvent, or
seeking dissolution, winding up, liquidation, reorganization, arrangement,
adjustment or composition of it or its debts under any Law relating to
bankruptcy, insolvency or reorganization or relief of debtors or fail to file an
answer or other pleading denying the material allegations of any such proceeding
filed against it, (v) take any corporate, limited liability company or
partnership action to authorize or effect any of the foregoing actions set forth
in this Section 7.6 or (vi) fail to contest in good faith any appointment or
proceeding described in Section 7.7.
     7.7. Without the application, approval or consent of the Borrower or any of
its Subsidiaries, a receiver, trustee, examiner, liquidator or similar official
shall be appointed for the Borrower or any of its Subsidiaries or any
Substantial Portion of its Property, or a proceeding described in
Section 7.6(iv) shall be instituted against the Borrower or any of its
Subsidiaries and such appointment continues undischarged or such proceeding
continues undismissed or unstayed for a period of 30 consecutive days.
     7.8. Any court, government or governmental agency shall condemn, seize or
otherwise appropriate, or take custody or control of, all or any portion of the
Property of the Parent, the Borrower and their Subsidiaries which, when taken
together with all other Property of the Parent, the Borrower and their
Subsidiaries so condemned, seized, appropriated, or taken custody or control of,
during the twelve-month period ending with the month in which any such action
occurs, constitutes a Substantial Portion unless Outstanding Credit Exposure is
contemporaneously reduced by the Release Price determined in connection
therewith by the Required Lenders.
     7.9. The Borrower or any of its Subsidiaries shall fail within 30 days to
pay, bond or otherwise discharge one or more (i) judgments or orders for the
payment of money in excess of $2,000,000 (or the equivalent thereof in
currencies other than U.S. Dollars) in the aggregate, or (ii) nonmonetary
judgments or orders which, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect, which judgment(s), in any such case,
is/are not stayed on appeal or otherwise being appropriately contested in good
faith.
     7.10. The Unfunded Liabilities of all Single Employer Plans shall exceed in
the aggregate $100,000 or any Reportable Event shall occur in connection with
any Plan.
     7.11. The Borrower or any other member of the Controlled Group shall have
been notified by the sponsor of a Multiemployer Plan, if any, that it has
incurred withdrawal liability to such Multiemployer Plan in an amount which,
when aggregated with all other amounts required to be paid to Multiemployer
Plans by the Borrower or any other member of the Controlled Group as withdrawal
liability (determined as of the date of such notification), exceeds $1,000,000
or requires payments exceeding $1,000,000 per annum.

 

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     7.12. The Borrower or any other member of the Controlled Group shall have
been notified by the sponsor of a Multiemployer Plan that such Multiemployer
Plan, if any, is in reorganization or is being terminated, within the meaning of
Title IV of ERISA, if as a result of such reorganization or termination the
aggregate annual contributions of the Borrower and the other members of the
Controlled Group (taken as a whole) to all Multiemployer Plans which are then in
reorganization or being terminated have been or will be increased over the
amounts contributed to such Multiemployer Plans for the respective plan years of
each such Multiemployer Plan immediately preceding the plan year in which the
reorganization or termination occurs by an amount exceeding $100,000.
     7.13. The Borrower or any of its Subsidiaries shall (i) be the subject of
any proceeding or investigation pertaining to the Release by the Borrower, any
of its Subsidiaries or any other Person of any Hazardous Substance into the
environment, or (ii) violate any Applicable Environmental Law, which, in the
case of an event described in clause (i) or clause (ii), could reasonably be
expected to have a Material Adverse Effect.
     7.14. Any Change in Control shall occur.
     7.15. The occurrence of any “default”, as defined in any Loan Document
(other than this Agreement) or the breach of any of the terms or provisions of
any Loan Document (other than this Agreement), which default or breach continues
beyond any period of grace therein provided.
     7.16. Nonpayment by the Borrower or any Subsidiary of any Rate Management
Obligation when due or the material breach by the Borrower or any Subsidiary of
any term, provision or condition contained in any Rate Management Transaction,
in each case subject to any grace period associated therewith.
     7.17. Any Guaranty shall fail to remain in full force or effect or any
action shall be taken to discontinue or to assert the invalidity or
unenforceability of any Guaranty, or any Guarantor shall fail to comply with any
of the terms or provisions of any Guaranty to which it is a party and such
failure could reasonably be expected to have a Material Adverse Effect, or any
Guarantor shall deny that it has any further liability under any Guaranty to
which it is a party, or shall give notice to such effect.
     7.18. Any Collateral Document shall for any reason fail to create a valid
and perfected first priority security interest in any material portion of the
Collateral (as determined by the Agent in its reasonable judgment) purported to
be covered thereby, except as permitted by the terms of any Collateral Document,
or any Collateral Document shall fail to remain in full force or effect or any
action shall be taken to discontinue or to assert the invalidity or
unenforceability of any Collateral Document as to any material portion of the
Collateral (as determined by the

 

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Agent in its reasonable judgment), or the Borrower shall fail to comply with any
of the material terms or provisions of any Collateral Document.
     7.19. The representations and warranties set forth in Section 5.15 (Plan
Assets; Prohibited Transactions) shall at any time not be true and correct.
     7.20 The Borrower and/or Parent shall fail to timely pay any of its
obligations to the holders of the Senior Notes or any other “Event of Default”
shall occur under the Senior Notes or the Senior Notes Indenture.
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ARTICLE VIII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
     8.1. Acceleration. If any Default described in Sections 7.6, 7.7 or 7.20
occurs with respect to the Borrower or any of its Subsidiaries, the obligations
of the Lenders to make Loans hereunder and the obligation and power of the LC
Issuer to issue Facility LCs shall automatically terminate and the Obligations
shall immediately become due and payable without any election or action on the
part of the Agent, the LC Issuer or any Lender and the Borrower will be and
become thereby unconditionally obligated, without any further notice, act or
demand, to pay to the Agent an amount in immediately available funds, which
funds shall be held in the Facility LC Collateral Account, equal to the excess
of (x) the amount of LC Obligations at such time, over (y) the amount on deposit
in the Facility LC Collateral Account at such time which is free and clear of
all rights and claims of third parties and has not been applied against the
Obligations (such difference, the “Collateral Shortfall Amount”). If any other
Default occurs, the Required Lenders (or the Agent with the consent of the
Required Lenders) may (a) terminate or suspend the obligations of the Lenders to
make Loans hereunder and the obligation and power of the LC Issuer to issue
Facility LCs, or declare the Obligations to be due and payable, or both,
whereupon the Obligations shall become immediately due and payable, without
presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or notice of any kind, all of which the Borrower hereby expressly
waives, and (b) upon notice to the Borrower and in addition to the continuing
right to demand payment of all amounts payable under this Agreement, make demand
on the Borrower to pay, and the Borrower will, forthwith upon such demand and
without any further notice or act, pay to the Agent the Collateral Shortfall
Amount, which funds shall be deposited in the Facility LC Collateral Account.

  (i)   If at any time while any Default is continuing, the Agent determines
that the Collateral Shortfall Amount is greater than zero, the Agent may make
demand on the Borrower to pay, and the Borrower will, forthwith upon such demand
and without any further notice or act, pay to the Agent the Collateral Shortfall
Amount, which funds shall be deposited in the Facility LC Collateral Account.  
  (ii)   The Agent may at any time or from time to time after funds are
deposited in the Facility LC Collateral Account, apply such funds to the payment
of the Obligations or any other amounts as shall from time to time have become
due and payable by the Borrower to the Lenders or the LC Issuer under the Loan
Documents.     (iii)   At any time while any Default is continuing, neither the
Borrower nor any Person claiming on behalf of or through the Borrower shall have
any right to withdraw any of the funds held in the Facility LC Collateral
Account. After all of the Obligations have been indefeasibly paid in full and
the Aggregate Commitment has been terminated, any funds remaining in the
Facility LC Collateral Account

 

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      shall be returned by the Agent to the Borrower or paid to whomever may be
legally entitled thereto at such time.     (iv)   If, within ten (10) days after
acceleration of the maturity of the Obligations or termination of the
obligations of the Lenders to make Loans and the obligation and power of the LC
Issuer to issue Facility LCs hereunder as a result of any Default (other than
any Default as described in Sections 7.6, 7.7 or 7.20 with respect to the
Borrower) and before any judgment or decree for the payment of the Obligations
due shall have been obtained or entered, the Required Lenders (in their sole
discretion) shall so direct, the Agent shall, by notice to the Borrower, rescind
and annul such acceleration and/or termination.

     8.2. Amendments. Subject to the provisions of this Article VIII, the
Required Lenders (or the Agent with the consent in writing of the Required
Lenders) and the Borrower may enter into agreements supplemental hereto for the
purpose of adding or modifying any provisions to the Loan Documents or changing
in any manner the rights of the Lenders or the Borrower hereunder or waiving any
Default hereunder; provided, however, that no such supplemental agreement shall,
without the consent of all of the Lenders:

  (i)   extend the final maturity of any Loan, or extend the expiry date of any
Facility LC to a date after the Facility Termination Date or forgive all or any
portion of the principal amount thereof or any Reimbursement Obligation related
thereto, or reduce the rate or extend the time of payment of interest or fees
thereon or Reimbursement Obligations related thereto;     (ii)   reduce the
percentage specified in the definition of Required Lenders;     (iii)   extend
the Facility Termination Date, or reduce the amount or extend the payment date
for, the mandatory payments required under Section 2.2.7, or increase the
Commitment of any Lender hereunder or the commitment to issue Facility LCs, or
permit the Borrower to assign its rights under this Agreement;     (iv)   amend
this Section 8.2; or     (v)   except as provided in the Collateral Documents,
release all or substantially all of the Collateral.

No amendment of any provision of this Agreement relating to the Agent shall be
effective without the written consent of the Agent, and no amendment of any
provision relating to the LC Issuer shall be effective without the written
consent of the LC Issuer. The Agent may waive payment of the fee required under
Section 12.3.2 without obtaining the consent of any other party to this
Agreement.

 

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     8.3. Preservation of Rights. No delay or omission of the Lenders, the LC
Issuer or the Agent to exercise any Right under the Loan Documents shall impair
such Right or be construed to be a waiver of any Default or an acquiescence
therein, and the making of a Credit Extension notwithstanding the existence of a
Default or the inability of the Borrower to satisfy the conditions precedent to
such Credit Extension shall not constitute any waiver or acquiescence. Any
single or partial exercise of any such Right shall not preclude other or further
exercise thereof or the exercise of any other Right, and no waiver, amendment or
other variation of the terms, conditions or provisions of the Loan Documents
whatsoever shall be valid unless in writing signed by the Lenders required
pursuant to Section 8.2, and then only to the extent in such writing
specifically set forth. All remedies contained in the Loan Documents or by Law
afforded shall be cumulative and all shall be available to the Agent, the LC
Issuer and the Lenders until the Obligations have been paid in full.
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ARTICLE IX
GENERAL PROVISIONS
     9.1. Survival of Representations. All representations and warranties of the
Borrower contained in this Agreement shall survive the making of the Credit
Extensions herein contemplated.
     9.2. Governmental Regulation. Anything contained in this Agreement to the
contrary notwithstanding, neither the LC Issuer nor any Lender shall be
obligated to extend credit to the Borrower in violation of any limitation or
prohibition provided by any applicable Law.
     9.3. Headings. Section headings in the Loan Documents are for convenience
of reference only, and shall not govern the interpretation of any of the
provisions of the Loan Documents.
     9.4. ENTIRE AGREEMENT. THE LOAN DOCUMENTS EMBODY THE ENTIRE AGREEMENT AND
UNDERSTANDING AMONG THE BORROWER, THE AGENT, THE LC ISSUER AND THE LENDERS AND
SUPERSEDE ALL PRIOR AGREEMENTS AND UNDERSTANDINGS AMONG THE BORROWER, THE AGENT,
THE LC ISSUER AND THE LENDERS RELATING TO THE SUBJECT MATTER THEREOF OTHER THAN
THE FEE LETTER DESCRIBED IN SECTION 10.13.
     9.5. Several Obligations; Benefits of this Agreement. The respective
obligations of the Lenders hereunder are several and not joint and no Lender
shall be the partner or agent of any other (except to the extent to which the
Agent is authorized to act as such). The failure of any Lender to perform any of
its obligations hereunder shall not relieve any other Lender from any of its
obligations hereunder. This Agreement shall not be construed so as to confer any
right or benefit upon any Person other than the parties to this Agreement and
their respective successors and assigns, provided, however, that the parties
hereto expressly agree that the Arranger shall enjoy the benefits of the
provisions of Sections 9.6, 9.10 and 10.11 to the extent specifically set forth
therein and shall have the right to enforce such provisions on its own behalf
and in its own name to the same extent as if it were a party to this Agreement.
     9.6. Expenses; Indemnification. (i) The Borrower shall reimburse the Agent
and the Arranger for any costs, internal charges and out-of-pocket expenses
(including attorneys’ fees and time charges of outside attorneys for the Agent,
the Arranger, the LC Issuer and the Lenders) paid or incurred by the Agent or
the Arranger in connection with the preparation, negotiation, execution,
delivery, syndication, review, amendment, modification, and administration of
the Loan Documents. The Borrower also agrees to reimburse the Agent, the
Arranger, the LC Issuer and the Lenders for any costs, internal charges and
out-of-pocket expenses (including attorneys’ fees and time charges of outside
attorneys for the Agent, the Arranger, the LC Issuer and the Lenders) paid or
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with the collection and enforcement of the Loan Documents. The Borrower
acknowledges that from time to time JPMorgan Chase may prepare and may
distribute to the Lenders (but shall have no obligation or duty to prepare or to
distribute to the Lenders) certain audit reports (the “Reports”) pertaining to
the Borrower’s assets for internal use by JPMorgan Chase from information
furnished to it by or on behalf of the Borrower, after JPMorgan Chase has
exercised its rights of inspection pursuant to this Agreement.
     (ii) The Borrower hereby further agrees to indemnify the Agent, the
Arranger, the LC Issuer, each Lender, their respective Affiliates, and each of
their directors, officers and employees against all losses, claims, damages,
penalties, judgments, liabilities and expenses (including, without limitation,
all expenses of litigation or preparation therefor whether or not the Agent, the
Arranger, the LC Issuer, any Lender or any Affiliate is a party thereto) which
any of them may pay or incur arising out of or relating to this Agreement, the
other Loan Documents, the transactions contemplated hereby or the direct or
indirect application or proposed application of the proceeds of any Credit
Extension hereunder except to the extent that they are determined in a final
non-appealable judgment by a court of competent jurisdiction to have resulted
from the gross negligence or willful misconduct of the party seeking
indemnification. The obligations of the Borrower under this Section 9.6 shall
survive the termination of this Agreement.
     9.7. Numbers of Documents. All statements, notices, closing documents, and
requests hereunder shall be furnished to the Agent with sufficient counterparts
so that the Agent may furnish one to each of the Lenders.
     9.8. Accounting. Except as provided to the contrary herein, all accounting
terms used herein shall be interpreted and all accounting determinations
hereunder shall be made in accordance with Agreement Accounting Principles,
except that any calculation or determination which is to be made on a
consolidated basis shall be made for the Borrower and all its Subsidiaries,
including those Subsidiaries, if any, which are unconsolidated on the Borrower’s
audited financial statements.
     9.9. Severability of Provisions. Any provision in any Loan Document that is
held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as
to that jurisdiction, be inoperative, unenforceable, or invalid without
affecting the remaining provisions in that jurisdiction or the operation,
enforceability, or validity of that provision in any other jurisdiction, and to
this end the provisions of all Loan Documents are declared to be severable.
     9.10. Nonliability of Lenders. The relationship between the Borrower on the
one hand and the Lenders, the LC Issuer and the Agent on the other hand shall be
solely that of the Borrower and Lender. Neither the Agent, the Arranger, the LC
Issuer nor any Lender shall have any fiduciary responsibilities to the Borrower.
Neither the Agent, the Arranger, the LC Issuer nor any Lender undertakes any
responsibility to the Borrower to review or inform the Borrower of any matter in
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Borrower agrees that neither the Agent, the Arranger, the LC Issuer nor any
Lender shall have liability to the Borrower (whether sounding in tort, contract
or otherwise) for losses suffered by the Borrower in connection with, arising
out of, or in any way related to, the transactions contemplated and the
relationship established by the Loan Documents, or any act, omission or event
occurring in connection therewith, unless it is determined in a final
non-appealable judgment by a court of competent jurisdiction that such losses
resulted from the gross negligence or willful misconduct of the party from which
recovery is sought. Neither the Agent, the Arranger, the LC Issuer nor any
Lender shall have any liability with respect to, and the Borrower hereby waives,
releases and agrees not to sue for, any special, indirect, consequential or
punitive damages suffered by the Borrower in connection with, arising out of, or
in any way related to the Loan Documents or the transactions contemplated
thereby.
     9.11. Confidentiality. 9.11. Each Lender agrees to hold any confidential
information which it may receive from the Borrower pursuant to this Agreement in
confidence, except for disclosure (i) to its Affiliates and to other Lenders and
their respective Affiliates, (ii) to legal counsel, accountants, and other
professional advisors to such Lender or to a Transferee, (iii) to regulatory
officials, (iv) to any Person as requested pursuant to or as required by Law,
regulation, or legal process, (v) to any Person in connection with any legal
proceeding to which such Lender is a party, (vi) to such Lender’s direct or
indirect contractual counterparties in swap agreements or to legal counsel,
accountants and other professional advisors to such counterparties,
(vii) permitted by Section 12.4, and (viii) to rating agencies if requested or
required by such agencies in connection with a rating relating to the Advances
hereunder. Notwithstanding anything herein to the contrary, confidential
information shall not include, and each Lender (and each employee,
representative or other agent of any Lender) may disclose to any and all
Persons, without limitation of any kind, the “tax treatment” and “tax structure”
(in each case, within the meaning of Treasury Regulation Section 1.6011-4) of
the transactions contemplated hereby and all materials of any kind (including
opinions or other tax analyses) that are or have been provided to such Lender
relating to such tax treatment or tax structure; provided that with respect to
any document or similar item that in either case contains information concerning
such tax treatment or tax structure of the transactions contemplated hereby as
well as other information, this sentence shall only apply to such portions of
the document or similar item that relate to such tax treatment or tax structure.
     9.12. Nonreliance. Each Lender hereby represents that it is not relying on
or looking to any margin stock (as defined in Regulation U of the Board of
Governors of the Federal Reserve System) for the repayment of the Credit
Extensions provided for herein.
     9.13. Disclosure. The Borrower and each Lender hereby (i) acknowledge and
agree that JPMorgan Chase and/or its Affiliates from time to time may hold
investments in, make other loans to or have other relationships with the Parent,
the Borrower and their Affiliates, and (ii) waive any liability of JPMorgan
Chase or such Affiliate of JPMorgan Chase to the Borrower or any Lender,
respectively, arising out of or resulting from such investments, loans or
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other than liabilities arising out of the gross negligence or willful misconduct
of JPMorgan Chase or its Affiliates.
     9.14 Interest. It is the intention of the Parties to comply with applicable
usury Laws; accordingly, it is agreed that notwithstanding any provisions to the
contrary in any Loan Document, in no event shall any Loan Document permit the
collection of interest in excess of the maximum amount permitted by such Laws.
If any such excess of interest is contracted for, charged or received under any
Loan Document or if the maturity of the Obligation is accelerated in whole or in
part, or in the event that all or part of the principal or interest of the
Obligation shall be prepaid, so that under any of such circumstances the amount
of interest contracted for, charged or received under any Loan Document on the
amount of principal actually outstanding from time to time under the Obligation
shall exceed the maximum amount of interest permitted by applicable usury Laws,
then in any such event: (i) the provisions of this Section 9.14 shall govern and
control; (ii) no Person now or hereafter liable for the payment of the
Obligation shall be obligated to pay the amount of such interest to the extent
that it is in excess of the maximum amount of interest permitted to be
contracted for by, charged to or received from the Person obligated thereon
under the applicable usury Laws; (iii) any such excess which may have been
collected shall be either applied as a credit against the then unpaid principal
amount on the Obligation or refunded to the Person paying the same, at the
holder’s option; and (iv) the effective rate of interest shall be automatically
reduced to the maximum lawful rate of interest permitted to be contracted for
by, charged to or received from the Person obligated thereon under the
applicable usury Laws as now or hereafter construed by the courts having
jurisdiction thereof. To the extent the Laws of the State of Texas are
applicable for purposes of determining the “Highest Lawful Rate,” such term
shall mean the “weekly rate ceiling” from time to time in effect under
Chapter 303 of the Texas Finance Code, as amended from time to time in effect,
subject to the Lender’s right subsequently to change such method in accordance
with applicable Law. The provisions of Chapter 346 of Tex. Finance Code Ann.
(Vernon 2002), regulating certain revolving credit accounts shall not govern or
in any manner apply to the Obligation.
     9.15 NO ORAL AGREEMENTS. THIS WRITTEN LOAN AGREEMENT, THE OTHER LOAN
DOCUMENTS AND THE FEE LETTER REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
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.
     9.16 Survival of Representations. All representations and warranties herein
contained or made in writing in connection with this Agreement shall survive the
execution and delivery of this Agreement and the making of the Loans hereunder
and shall continue in full force and effect until the Obligation shall have been
paid in full.
     9.17 Amendment and Restatement. The Parent and the Borrower acknowledge and
agree and it is the intention of the parties hereto that this Agreement and any
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hereunder (a) represents in part a renewal, modification and extension but not a
novation or discharge of the indebtedness outstanding under the Prior Credit
Agreement and any documents executed in connection therewith; and (b) is secured
by and entitled to the benefits of certain Collateral Documents (as identified
and defined in the Prior Credit Agreement). Payments pursuant to this Agreement
or any Note hereunder shall be made and applied as provided herein.
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ARTICLE X
THE AGENT
     10.1. Appointment; Nature of Relationship. JPMorgan Chase is hereby
appointed by each of the Lenders as its contractual representative (herein
referred to as the “Agent”) hereunder and under each other Loan Document, and
each of the Lenders irrevocably authorizes the Agent to act as the contractual
representative of such Lender with the rights and duties expressly set forth
herein and in the other Loan Documents. The Agent agrees to act as such
contractual representative upon the express conditions contained in this
Article X. Notwithstanding the use of the defined term “Agent,” it is expressly
understood and agreed that the Agent shall not have any fiduciary
responsibilities to any Lender by reason of this Agreement or any other Loan
Document and that the Agent is merely acting as the contractual representative
of the Lenders with only those duties as are expressly set forth in this
Agreement and the other Loan Documents. In its capacity as the Lenders’
contractual representative, the Agent (i) does not hereby assume any fiduciary
duties to any of the Lenders and (ii) is acting as an independent contractor,
the rights and duties of which are limited to those expressly set forth in this
Agreement and the other Loan Documents. Each of the Lenders hereby agrees to
assert no claim against the Agent on any agency theory or any other theory of
liability for breach of fiduciary duty, all of which claims each Lender hereby
waives.
     10.2. Powers. The Agent shall have and may exercise such powers under the
Loan Documents as are specifically delegated to the Agent by the terms of each
thereof, together with such powers as are reasonably incidental thereto. The
Agent shall have no implied duties to the Lenders, or any obligation to the
Lenders to take any action thereunder except any action specifically provided by
the Loan Documents to be taken by the Agent.
     10.3. General Immunity. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to the Borrower, the Lenders or
any Lender for any action taken or omitted to be taken by it or them hereunder
or under any other Loan Document or in connection herewith or therewith except
to the extent such action or inaction is determined in a final non-appealable
judgment by a court of competent jurisdiction to have arisen from the gross
negligence or willful misconduct of such Person.
     10.4. No Responsibility for Loans, Recitals, etc. Neither the Agent nor any
of its directors, officers, agents or employees shall be responsible for or have
any duty to ascertain, inquire into, or verify: (a) any statement, warranty or
representation made in connection with any Loan Document or any borrowing
hereunder; (b) the performance or observance of any of the covenants or
agreements of any obligor under any Loan Document, including, without
limitation, any agreement by an obligor to furnish information directly to each
Lender; (c) the satisfaction of any condition specified in Article IV, except
receipt of items required to be delivered solely to the Agent; (d) the existence
or possible existence of any Default or Unmatured Default; (e) the validity,
enforceability, effectiveness, sufficiency or genuineness of any Loan Document
or any

 

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other instrument or writing furnished in connection therewith; (f) the value,
sufficiency, creation, perfection or priority of any Lender Lien in any
Collateral; or (g) the financial condition of the Borrower or any Guarantor of
any of the Obligations or of any of the Borrower’s or any such Guarantor’s
respective Subsidiaries. The Agent shall have no duty to disclose to the Lenders
information that is not required to be furnished by the Borrower to the Agent at
such time, but is voluntarily furnished by the Borrower to the Agent (either in
its capacity as Agent or in its individual capacity).
     10.5. Action on Instructions of Lenders. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, hereunder and under any
other Loan Document in accordance with written instructions signed by the
Required Lenders, and such instructions and any action taken or failure to act
pursuant thereto shall be binding on all of the Lenders. The Lenders hereby
acknowledge that the Agent shall be under no duty to take any discretionary
action permitted to be taken by it pursuant to the provisions of this Agreement
or any other Loan Document unless it shall be requested in writing to do so by
the Required Lenders. The Agent shall be fully justified in failing or refusing
to take any action hereunder and under any other Loan Document unless it shall
first be indemnified to its satisfaction by the Lenders pro rata against any and
all liability, cost and expense that it may incur by reason of taking or
continuing to take any such action.
     10.6. Employment of Agents and Counsel. The Agent may execute any of its
duties as Agent hereunder and under any other Loan Document by or through
employees, agents, and attorneys-in-fact and shall not be answerable to the
Lenders, except as to money or securities received by it or its authorized
agents, for the default or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. The Agent shall be entitled to advice of
counsel concerning the contractual arrangement between the Agent and the Lenders
and all matters pertaining to the Agent’s duties hereunder and under any other
Loan Document.
     10.7. Reliance on Documents; Counsel. The Agent shall be entitled to rely
upon any Note, notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper Person or Persons, and, in respect to
legal matters, upon the opinion of counsel selected by the Agent, which counsel
may be employees of the Agent.
     10.8. Agent’s Reimbursement and Indemnification. The Lenders agree to
reimburse and indemnify the Agent ratably in proportion to their respective
Commitments (or, if the Commitments have been terminated, in proportion to their
Commitments immediately prior to such termination) (i) for any amounts not
reimbursed by the Borrower for which the Agent is entitled to reimbursement by
the Borrower under the Loan Documents, (ii) for any other expenses incurred by
the Agent on behalf of the Lenders, in connection with the preparation,
execution, delivery, administration and enforcement of the Loan Documents
(including, without limitation, for any expenses incurred by the Agent in
connection with any dispute between the Agent and any Lender or between two or
more of the Lenders) and (iii) for any liabilities,

 

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obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind and nature whatsoever which may be imposed
on, incurred by or asserted against the Agent in any way relating to or arising
out of the Loan Documents or any other document delivered in connection
therewith or the transactions contemplated thereby (including, without
limitation, for any such amounts incurred by or asserted against the Agent in
connection with any dispute between the Agent and any Lender or between two or
more of the Lenders), or the enforcement of any of the terms of the Loan
Documents or of any such other documents; provided that (i) no Lender shall be
liable for any of the foregoing to the extent any of the foregoing is found in a
final non-appealable judgment by a court of competent jurisdiction to have
resulted from the gross negligence or willful misconduct of the Agent and (ii)
any indemnification required pursuant to Section 3.5.7 shall, notwithstanding
the provisions of this Section 10.8, be paid by the relevant Lender in
accordance with the provisions thereof. The obligations of the Lenders under
this Section 10.8 shall survive payment of the Obligations and termination of
this Agreement.
     10.9. Notice of Default. The Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Unmatured Default hereunder unless
the Agent has received written notice from a Lender or the Borrower referring to
this Agreement describing such Default or Unmatured Default and stating that
such notice is a “notice of default”. In the event that the Agent receives such
a notice, the Agent shall give prompt notice thereof to the Lenders.
     10.10. Rights as a Lender. In the event the Agent is a Lender, the Agent
shall have the same rights and powers hereunder and under any other Loan
Document with respect to its Commitment and its Loans as any Lender and may
exercise the same as though it were not the Agent, and the term “Lender” or
“Lenders” shall, at any time when the Agent is a Lender, unless the context
otherwise indicates, include the Agent in its individual capacity. The Agent and
its Affiliates may accept deposits from, lend money to, and generally engage in
any kind of trust, debt, equity, hedge, swap or other transaction, in addition
to those contemplated by this Agreement or any other Loan Document, with the
Borrower or any of its Subsidiaries in which the Borrower or such Subsidiary is
not restricted hereby from engaging with any other Person.
     10.11. Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent, the Arranger or any other
Lender and based on the financial statements prepared by the Borrower and such
other documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement and the other Loan
Documents. Each Lender also acknowledges that it will, independently and without
reliance upon the Agent, the Arranger or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement and the other Loan Documents.
     10.12. Successor Agent. The Agent or the Syndication Agent may resign at
any time by giving written notice thereof to the Lenders and the Borrower, such
resignation to be effective upon the appointment of a successor Agent or
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appointed, forty-five days after the retiring Agent or Syndication Agent gives
notice of its intention to resign. The Agent or the Syndication Agent may be
removed at any time with or without cause by written notice received by the such
Agent or Syndication Agent from the Required Lenders, such removal to be
effective on the date specified by the Required Lenders. Upon any such
resignation or removal, the Required Lenders shall have the right to appoint, on
behalf of the Borrower and the Lenders, a successor Agent or Syndication agent,
as the case may be . If no successor Agent or Syndication Agent shall have been
so appointed by the Required Lenders within thirty days after the giving notice
of its intention to resign, then the resigning Agent or Syndication Agent may
appoint, on behalf of the Borrower and the Lenders, a successor Agent or
Syndication Agent, as the case may be. Notwithstanding the previous sentence,
the Agent or the Syndication Agent may at any time without the consent of the
Borrower or any Lender, appoint any of its Affiliates which is a commercial bank
as a successor Agent or Syndication Agent hereunder. If the Agent or Syndication
Agent has resigned or been removed and no successor Agent or Syndication Agent
has been appointed, the Lenders may perform all the duties of the Agent or
Syndication Agent hereunder and the Borrower shall make all payments in respect
of the Obligations to the applicable Lender and for all other purposes shall
deal directly with the Lenders. No successor Agent or Syndication Agent shall be
deemed to be appointed hereunder until such successor Agent or Syndication Agent
has accepted the appointment. Any such successor Agent or Syndication Agent
shall be a commercial bank having capital and retained earnings of at least
$1,000,000,000. Upon the acceptance of any appointment as Agent or Syndication
Agent hereunder by a successor Agent or Syndication Agent, such successor Agent
or Syndication Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the resigning or removed Agent or
Syndication Agent as the case may be. Upon the effectiveness of the resignation
or removal of the Agent or Syndication Agent, the resigning or removed Agent or
Syndication Agent shall be discharged from its duties and obligations hereunder
and under the Loan Documents. After the effectiveness of the resignation or
removal of an Agent or Syndication Agent, the provisions of this Article X shall
continue in effect for the benefit of such Agent or Syndication Agent in respect
of any actions taken or omitted to be taken by it while it was acting as the
Agent or Syndication Agent hereunder and under the other Loan Documents. In the
event that there is a successor to the Agent by merger, or the Agent assigns its
duties and obligations to an Affiliate pursuant to this Section 10.12, then the
term “Corporate Base Rate” as used in this Agreement shall mean the prime rate,
base rate or other analogous rate of the new Agent.
     10.13. Agent’s Fee. The Borrower agrees to pay to the Agent, for its own
account, the fees agreed to by the Borrower and the Agent pursuant to the Fee
Letter, or as otherwise agreed from time to time in writing.
     10.14. Delegation to Affiliates. The Borrower and the Lenders agree that
the Agent may delegate any of its duties under this Agreement to any of its
Affiliates. Any such Affiliate (and such Affiliate’s directors, officers, agents
and employees) which performs duties in connection with this Agreement shall be
entitled to the same benefits of the indemnification, waiver and other
protective provisions to which the Agent is entitled under Articles IX and X.

 

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     10.15. Execution of Collateral Documents. The Lenders hereby empower and
authorize the Agent to execute and deliver to the Borrower on their behalf the
Collateral Documents and all related financing statements and any financing
statements, agreements, documents or instruments as shall be necessary or
appropriate to effect the purposes of the Collateral Documents.
     10.16. Collateral Releases. The Lenders hereby empower and authorize the
Agent to execute and deliver to the Borrower on their behalf any agreements,
documents or instruments as shall be necessary or appropriate to effect any
releases of Collateral which shall be permitted by the terms hereof or of any
other Loan Document or which shall otherwise have been approved by the Required
Lenders (or, if required by the terms of Section 8.2, all of the Lenders) in
writing.
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ARTICLE XI
SETOFF; RATABLE PAYMENTS
     11.1. Setoff. In addition to, and without limitation of, any rights of the
Lenders under applicable Law, if the Borrower becomes insolvent, however
evidenced, or any Default occurs, any and all deposits (including all account
balances, whether provisional or final and whether or not collected or
available) and any other Indebtedness at any time held or owing by any Lender or
any Affiliate of any Lender to or for the credit or account of the Borrower or
any Guarantor may be offset and applied toward the payment of the Obligations
owing to such Lender, whether or not the Obligations, or any part thereof, shall
then be due.
     11.2. Ratable Payments. If any Lender, whether by setoff or otherwise, has
payment made to it upon its Outstanding Credit Exposure (other than payments
received pursuant to Section 3.1, 3.2, 3.4 or 3.5) in a greater proportion than
that received by any other Lender, such Lender agrees, promptly upon demand, to
purchase a portion of the Outstanding Credit Exposure held by the other Lenders
so that after such purchase each Lender will hold its Pro Rata Share of the
Aggregate Outstanding Credit Exposure. If any Lender, whether in connection with
setoff or amounts which might be subject to setoff or otherwise, receives
Collateral or other protection for its Obligations or such amounts which may be
subject to setoff, such Lender agrees, promptly upon demand, to take such action
necessary such that all Lenders share in the benefits of such Collateral ratably
in proportion to their respective Pro Rata Share of the Aggregate Outstanding
Credit Exposure. In case any such payment is disturbed by legal process, or
otherwise, appropriate further adjustments shall be made.
     11.3 Application of Collateral. The proceeds of the Collateral at any time
received by the Agent following an Enforcement Action shall, when received by
the Agent in cash or its equivalent, be applied by the Agent as follows:
     (i) first, to the payment and satisfaction of all sums paid and costs and
expenses (including reasonable attorneys’ fees and court costs) incurred by the
Agent in connection herewith or under the Collateral Documents, including such
amounts paid or incurred in connection with protecting, preserving or realizing
upon the Collateral or enforcing any of the terms of the Collateral Documents to
the extent the Agent is not reimbursed therefor by the Borrower or any
Guarantor; and
     (ii) second, to the payment of all remaining Obligations pro rata to each
Lender with each Lender’s Pro Rata Share calculated based on a fraction, the
numerator of which is the amount owing to such Lender in connection with any
Loan Document and/or Rate Management Transaction and the denominator of which is
the aggregate amount owing to all Lenders in connection with the Loan Documents
and/or Rate Management Transactions.

 

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The Borrower and Guarantors shall remain liable to the Agent and the Lenders for
any deficiency. Any surplus remaining after the full, indefeasible payment and
satisfaction of the foregoing shall be returned to the Borrower or to whomsoever
a court of competent jurisdiction shall determine to be entitled thereto. After
any Lender has been paid in full for all Obligations of the Borrower owed to it
under the Loan Documents and/or Rate Management Transactions, such Lender shall
hold in trust for, and immediately return to, the Agent any Collateral or
proceeds thereof received or held hereunder.
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ARTICLE XII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
     12.1. Successors and Assigns. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Borrower and the
Lenders and their respective successors and assigns, except that (i) the
Borrower shall not have the right to assign its rights or obligations under the
Loan Documents and (ii) any assignment by any Lender must be made in compliance
with Section 12.3. The parties to this Agreement acknowledge that clause (ii) of
this Section 12.1 relates only to absolute assignments and does not prohibit
assignments creating security interests, including, without limitation, any
pledge or assignment by any Lender of all or any portion of its rights under
this Agreement and any Note to a Federal Reserve Bank; provided, however, that
no such pledge or assignment creating a security interest shall release the
transferor Lender from its obligations hereunder unless and until the parties
thereto have complied with the provisions of Section 12.3. The Agent may treat
the Person which made any Loan or which holds any Note as the owner thereof for
all purposes hereof unless and until such Person complies with Section 12.3;
provided, however, that the Agent may in its discretion (but shall not be
required to) follow instructions from the Person which made any Loan or which
holds any Note to direct payments relating to such Loan or Note to another
Person. Any assignee of the rights to any Loan or any Note agrees by acceptance
of such assignment to be bound by all the terms and provisions of the Loan
Documents. Any request, authority or consent of any Person, who at the time of
making such request or giving such authority or consent is the owner of the
rights to any Loan (whether or not a Note has been issued in evidence thereof),
shall be conclusive and binding on any subsequent holder or assignee of the
rights to such Loan.
     12.2. Participations.
          12.2.1. Permitted Participants; Effect. Any Lender may, in the
ordinary course of its business and in accordance with applicable Law, at any
time sell to one or more banks or other entities (individually, a “Participant”)
participating interests in any Outstanding Credit Exposure owing to such Lender,
any Note held by such Lender, any Commitment of such Lender or any other
interest of such Lender under the Loan Documents. In the event of any such sale
by a Lender of participating interests to a Participant, such Lender’s
obligations under the Loan Documents shall remain unchanged, such Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations, such Lender shall remain the owner of its Outstanding Credit
Exposure and the holder of any Note issued to it in evidence thereof for all
purposes under the Loan Documents, all amounts payable by the Borrower under
this Agreement shall be determined as if such Lender had not sold such
participating interests, and the Borrower and the Agent shall continue to deal
solely and directly with such Lender in connection with such Lender’s rights and
obligations under the Loan Documents.
          12.2.2. Voting Rights. Each Lender shall retain the sole right to
approve, without the consent of any Participant, any amendment, modification or
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Loan Documents other than any amendment, modification or waiver with respect to
any Credit Extension or Commitment in which such Participant has an interest
which forgives principal, interest, fees or Reimbursement Obligation or reduces
the interest rate or fees payable with respect to any such Credit Extension or
Commitment, extends the Facility Termination Date or the expiration date for any
Facility LC, postpones any date fixed for any regularly-scheduled payment of
principal of or interest on any Loan in which such Participant has an interest,
or any regularly-scheduled payment of fees on any such Credit Extension or
Commitment, releases any Guarantor of any such Credit Extension or releases any
Collateral held in the Facility LC Collateral Account (except in accordance with
the terms hereof) or all or substantially all or any other Collateral, if any,
securing any such Credit Extension.
          12.2.3. Benefit of Setoff. The Borrower and each Guarantor agrees that
each Participant shall be deemed to have the right of setoff provided in
Section 11.1 in respect of its participating interest in amounts owing under the
Loan Documents to the same extent as if the amount of its participating interest
were owing directly to it as a Lender under the Loan Documents; provided that
each Lender shall retain the right of setoff provided in Section 11.1 with
respect to the amount of participating interests sold to each Participant. The
Lenders agree to share with each Participant, and each Participant, by
exercising the right of setoff provided in Section 11.1, agrees to share with
each Lender, any amount received pursuant to the exercise of its right of
setoff, such amounts to be shared in accordance with Section 11.2 as if each
Participant were a Lender.
     12.3. Assignments.
          12.3.1. Permitted Assignments. Any Lender may, in the ordinary course
of its business and in accordance with applicable Law, at any time assign to one
or more banks or other entities (individually, an “Eligible Assignee”) all or
any part of its rights and obligations under the Loan Documents. Such assignment
shall be substantially in the form of Exhibit C (the “Assignment Agreement”) or
in such other form as may be agreed to by the parties thereto. The consent of
the Borrower, the Agent and LC Issuer shall be required prior to an assignment
becoming effective with respect to an Eligible Assignee which is not a Lender or
an Affiliate thereof; provided, however, that if a Default has occurred and is
continuing, the consent of the Borrower shall not be required. Such consent
shall not be unreasonably withheld or delayed. Each such assignment with respect
to an Eligible Assignee which is not a Lender or an Affiliate thereof shall
(unless each of the Borrower and the Agent otherwise consents) be in an amount
not less than the lesser of (i) $5,000,000 or (ii) the remaining amount of the
assigning Lender’s Commitment (calculated as at the date of such assignment) or
outstanding Credit Exposure (if the applicable Commitment has been terminated).
Borrower shall not be required to pay any costs associated with any such
assignment.
          12.3.2. Effect; Effective Date. Upon (i) delivery to the Agent of an
assignment, together with any consents required by Section 12.3.1, and
(ii) payment of a $3,500 fee to the Agent for processing such assignment (unless
such fee is waived by the Agent), such assignment

 

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shall become effective on the effective date specified in such assignment. The
assignment shall contain a representation by the Eligible Assignee to the effect
that none of the consideration used to make the purchase of the Commitment and
Outstanding Credit Exposure under the applicable Assignment Agreement
constitutes “plan assets” as defined under ERISA and that the rights and
interests of the Eligible Assignee in and under the Loan Documents will not be
“plan assets” under ERISA. On and after the effective date of such assignment,
such Eligible Assignee shall for all purposes be a Lender party to this
Agreement and any other Loan Document executed by or on behalf of the Lenders
and shall have all the rights and obligations of a Lender under the Loan
Documents, to the same extent as if it were an original party hereto, and no
further consent or action by the Borrower, the Lenders, the LC Issuer or the
Agent shall be required to release the transferor Lender with respect to the
percentage of the Aggregate Commitment and Outstanding Credit Exposure assigned
to such Eligible Assignee. Upon the consummation of any assignment to an
Eligible Assignee pursuant to this Section 12.3.2, the transferor Lender, the
Agent, the LC Issuer and the Borrower shall, if the transferor Lender or the
Eligible Assignee desires that its Outstanding Credit Exposure be evidenced by
Notes, make appropriate arrangements so that new Notes or, as appropriate,
replacement Notes are issued to such transferor Lender and new Notes or, as
appropriate, replacement Notes, are issued to such Eligible Assignee, in each
case in principal amounts reflecting their respective Commitments, as adjusted
pursuant to such assignment.
     12.4. Dissemination of Information. The Borrower authorizes each Lender,
upon prior written notice to Borrower to disclose to any Participant or Eligible
Assignee or any other Person acquiring an interest in the Loan Documents by
operation of law (each a “Transferee”) and any prospective Transferee any and
all information in such Lender’s possession concerning the creditworthiness of
the Parent, the Borrower and their Subsidiaries, including without limitation
any information contained in any Reports; provided that each Transferee and
prospective Transferee agrees to be bound by Section 9.11 of this Agreement.
     12.5. Tax Treatment. If any interest in any Loan Document is transferred to
any Transferee which is organized under the Laws of any jurisdiction other than
the United States or any State thereof, the transferor Lender shall cause such
Transferee, concurrently with the effectiveness of such transfer, to comply with
the provisions of Section 3.5.4.
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ARTICLE XIII
NOTICES
     13.1. Notices. Except as otherwise permitted by Section 2.15 with respect
to borrowing notices, all notices, requests and other communications to any
party hereunder shall be in writing (including electronic transmission,
facsimile transmission or similar writing) and shall be given to such party:
(x) in the case of the Borrower, the LC Issuer or the Agent, at its address or
facsimile number set forth on the signature pages hereof, (y) in the case of any
Lender, at its address or facsimile number set forth below its signature hereto
or set forth in any Assignment Agreement if by virtue of such Assignment
Agreement the Lender became a party to this Agreement or (z) in the case of any
party, at such other address or facsimile number as such party may hereafter
specify for the purpose by notice to the Agent and the Borrower in accordance
with the provisions of this Section 13.1. Each such notice, request or other
communication shall be effective (i) if given by facsimile transmission, when
transmitted to the facsimile number specified in this Section and confirmation
of receipt is received, (ii) if given by mail, 72 hours after such communication
is deposited in the mails with first class postage prepaid, addressed as
aforesaid, or (iii) if given by any other means, when delivered (or, in the case
of electronic transmission, received) at the address specified in this Section;
provided that notices to the Agent under Article II shall not be effective until
received.
     13.2. Change of Address. The Borrower, the Agent, the LC Issuer and any
Lender may each change the address for service of notice upon it by a notice in
writing to the other parties hereto.
ARTICLE XIV
COUNTERPARTS
     14.1. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement, and
any of the parties hereto may execute this Agreement by signing any such
counterpart. This Agreement shall be effective when it has been executed by the
Borrower, the Agent and the Lenders and each party has notified the Agent by
facsimile transmission or telephone that it has taken such action.
     14.2. Facsimile Documents and Signatures. For purposes of negotiating and
finalizing this Agreement, if this document or any document executed in
connection with it is transmitted by facsimile machine (“fax”), it shall be
treated for all purposes as an original document. Additionally, the signature of
any party on this document transmitted by way of a facsimile machine shall be
considered for all purposes as an original signature. Any such faxed document
shall be considered to have the same binding legal effect as an original
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of any party, any faxed document shall be re-executed by each signatory party in
an original form.
ARTICLE XV
CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL
     15.1. CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A
CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF TEXAS, BUT GIVING EFFECT TO FEDERAL LAWS
APPLICABLE TO NATIONAL BANKS.
     15.2. CONSENT TO JURISDICTION. THE BORROWER AND EACH GUARANTOR HEREBY
IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES
FEDERAL OR TEXAS STATE COURT SITTING IN HOUSTON, TEXAS IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND THE BORROWER
HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES
ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN
INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENT, THE LC
ISSUER OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER OR ANY GUARANTOR
IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER
OR ANY GUARANTOR AGAINST THE AGENT, THE LC ISSUER OR ANY LENDER OR ANY AFFILIATE
OF THE AGENT, THE LC ISSUER OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY
MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN
DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN HOUSTON, TEXAS.
     15.3. WAIVER OF JURY TRIAL. THE BORROWER, EACH GUARANTOR, THE AGENT, THE LC
ISSUER AND EACH LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH
ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER.

 

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     IN WITNESS WHEREOF, The Borrower, the Lenders, the LC Issuer and the Agent
have executed this Agreement as of the date first above written.

              BORROWER:   PETROQUEST ENERGY, L.L.C.    
 
                By: PetroQuest Energy, Inc., its sole member    
 
           
 
  By:   /s/ Michael O. Aldridge    
 
           
 
      Michael O. Aldridge, Chief Financial Officer    

     
 
  Address for Borrower:
 
   
 
  PetroQuest Energy, L.L.C.
 
  400 E. Kaliste Saloom Road
 
  Suite 6000
 
  Lafayette, Louisiana 70508
 
  Attention: Michael O. Aldridge,
 
  Chief Financial Officer
 
  Telephone: (337) 232-7028
 
  Fax: (337) 232-0044

PARENT: for the purpose of agreeing to the provisions of Article 5 and Article 6
and Sections 11.1, 12.2.3, 15.2 and 15.3.

                  PETROQUEST ENERGY, INC.    
 
           
 
  By:   /s/ Michael O. Aldridge    
 
           
 
      Michael O. Aldridge, Chief Financial Officer    

 

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              LENDERS:   JP MORGAN CHASE BANK, NA,         Commitment:
$40,000,000   As a Lender and as the Agent and LC Issuer    
 
           
 
  By:   /s/ Jo Linda Papadakis    
 
           
 
           Jo Linda Papadakis    
 
           Vice President    
 
                Address:    
 
                JPMorgan Chase Bank, N.A.         Chase Tower         600 Travis
Street, 20th Floor         Houston, Texas 77002         Attention: Charles
Kingswell-Smith         Telephone: (713) 751-7803         Fax: (713) 751-3544  
 

 

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              LENDERS:   MACQUARIE BANK LIMITED,         As a Lender    
Commitment: $20,000,000
           
 
  By:    /s/ Thomas Wagenhofer    
 
         
 
  Name: Thomas Wagenhofer    
 
           
 
  Title: Associate Director     
 
           
 
           
 
  By:    /s/ Thomas Cullinan    
 
         
 
  Name: Thomas Cullinan    
 
           
 
  Title: Attorney     
 
           
 
                Address:    
 
                Macquarie Bank Limited         333 Clay Street, Suite 4550      
  Houston, Texas 77002         Attention: Stephen Shatto         Telephone:
(713) 980-2962         Fax: (713-986-3610    

 

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                  CALYON NEW YORK BRANCH,         As a Lender and as Syndication
Agent    
 
           
Commitment: $40,000,000
           
 
           
 
  By:   /s/ Bertrand Cord’homme    
 
                Name: Bertrand Cord’homme         Title:   Director    
 
           
 
  By:   /s/ Michael Willis    
 
                Name: Michael Willis         Title:   Vice President    
 
                Address:    
 
                Calyon Corporate & Investment Bank         1301 Travis Street,
Suite 2100         Houston, Texas 77002         Telephone: (713) 890-8634      
  Fax: (713) 890-8666    

 

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PRICING SCHEDULE

                                      Level I   Level II   Level III   Level IV
Margin   Status   Status   Status   Status
Eurodollar Rate
    1.375 %     1.625 %     1.875 %     2.125 %
Floating Rate
    0.125 %     0.375 %     0.625 %     0.875 %

                                  Applicable Fee   Level I   Level II   Level
III   Level IV Rate   Status   Status   Status   Status
Commitment
    0.375 %     0.375 %     0.50 %     0.50 %

     For the purposes of this Schedule, the following terms have the following
meanings, subject to the final paragraph of this Schedule:
     “Level I Status” exists for any day that the Utilization Percentage is less
than 50%.
     “Level II Status” exists for any day that the Utilization Percentage is
greater than or equal to 50% but is less than 75%.
     “Level III Status” exists for any day that the Utilization Percentage is
greater than or equal to 75% but is less than 90%.
     Level IV Status” exists any day that the Borrower does not qualify for
Level I Status, Level II Status or Level III Status.
     “Status” means either Level I Status, Level II Status, Level III Status or
Level IV Status.
     The Applicable Margin and Applicable Fee Rate for each day shall be
determined by Agent from time to time in accordance with the foregoing table.