Exhibit 10.1

  

Execution Version

 

AMENDMENT NO. 4 AND JOINDER TO CREDIT AND GUARANTY AGREEMENT

 

This Amendment No. 4 and Joinder to Credit and Guaranty Agreement (this
“Agreement”) is effective as of October 19, 2017 (the “Effective Date”), by and
among Lilis Energy, Inc., a Nevada corporation (the "Borrower"), the undersigned
subsidiaries of the Borrower constituting the Guarantors (defined in the Credit
Agreement (as defined below)), the undersigned Lenders constituting the Lenders
required to be party hereto pursuant to the terms of Section 9.1 of the Credit
Agreement referred to below, the undersigned New Lenders (as such term is
defined below), and Deans Knight Capital Management Ltd, as collateral agent for
the Lenders (together with its successors and assigns, the "Collateral Agent").

 

RECITALS

 

WHEREAS, the Borrower, the Guarantors, certain lenders (not including the New
Lenders referred to below) (the “Existing Lenders”), and the Collateral Agent
are party to that certain Credit and Guaranty Agreement dated as of September
29, 2016, as amended by Amendment No. 1 and Joinder to Credit and Guaranty
Agreement dated as of April 24, 2017, Amendment No. 2 to Credit and Guaranty
Agreement dated as of April 26, 2017 and Amendment No. 3 to Credit and Guaranty
Agreement dated as of July 25, 2017 (as further amended, restated, supplemented
or otherwise modified, the “Credit Agreement”); and

 

WHEREAS, the Borrower has requested that (i) the lenders party hereto identified
on the signature pages hereto as “New Lenders” (the “New Lenders”, and together
with the Existing Lenders, the “Lenders”) become Incremental Bridge Lenders
under the Credit Agreement, each with an Incremental Bridge Loan Commitment in
the amount set forth opposite such New Lender’s name on Schedule 2.3 to the
Credit Agreement (as amended hereby) and (ii) the Lenders agree to amend certain
provisions of the Credit Agreement, in each case subject to the terms and
conditions set forth herein.

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which hereby are acknowledged, the parties hereto hereby agree as follows:

 

Section 1.          Defined Terms; Other Definitional Provisions. As used in
this Agreement, each of the terms defined in the opening paragraph and the
Recitals above shall have the meanings assigned to such terms therein. Each term
defined in the Credit Agreement and used herein without definition shall have
the meaning assigned to such term in the Credit Agreement, unless expressly
provided to the contrary. Article, Section, Schedule, and Exhibit references are
to Articles and Sections of and Schedules and Exhibits to this Agreement, unless
otherwise specified. The words "hereof", "herein", and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement. The term
"including" means "including, without limitation,". Paragraph headings have been
inserted in this Agreement as a matter of convenience for reference only and it
is agreed that such paragraph headings are not a part of this Agreement and
shall not be used in the interpretation of any provision of this Agreement.

 

Section 2.          Joinder of New Lenders.

 

(a)          Each New Lender hereby joins, becomes a party to, and agrees to
comply with and be bound by the terms and conditions of the Credit Agreement as
an Incremental Bridge Lender thereunder and under each and every other Loan
Document to which any Incremental Bridge Lender is required to be bound by the
Credit Agreement, in each case to the same extent as if such New Lender was an
original signatory thereto.

 

 

 

 

(b)          Each New Lender hereby: (i) represents and warrants that (A) it has
full power and authority, and has taken all action necessary, to execute and
deliver this Agreement and to consummate the transactions contemplated hereby
and to become an Incremental Bridge Lender under the Credit Agreement, (B) it
satisfies the requirements, if any, specified in the Credit Agreement that are
required to be satisfied by it in order to become an Incremental Bridge Lender
under the Credit Agreement, (C) from and after the date hereof, it shall be
bound by the provisions of the Credit Agreement as an Incremental Bridge Lender
and shall have the obligations of an Incremental Bridge Lender, and (D) it has
received a copy of the Credit Agreement, together with copies of the most recent
financial statements delivered thereunder, and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Agreement and to provide its Commitment on the basis
of which it has made such analysis and decision independently and without
reliance on the Collateral Agent or any other Lender; and (ii) agrees that
(A) it will, independently and without reliance on the Collateral Agent or any
other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Credit Agreement, and (B) it will perform in
accordance with the terms of the Credit Agreement, all of the obligations which
by the terms of the Credit Agreement are required to be performed by it as an
Incremental Bridge Lender.

 

Section 3.          Amendments to Credit Agreement. The Credit Agreement and the
Exhibits and Schedules thereto are hereby amended as reflected in Annex I
attached hereto.

 

Section 4.          Conditions to Effectiveness. This Agreement shall become
effective on the Effective Date and enforceable upon the Collateral Agent
receiving counterparts of this Agreement, duly executed by the Borrower, the
Guarantors, the Lenders constituting the Lenders required to be party hereto
pursuant to the terms of Section 9.1 of the Credit Agreement, the New Lenders,
and the Collateral Agent.

 

Section 5.          Payment of Fees. The Borrower acknowledges and agrees that
it shall pay the fees and expenses required to be paid pursuant to, and in
accordance with, Section 9.4 of the Credit Agreement.

 

Section 6.          Acknowledgments and Agreements.

 

(a)          The Borrower acknowledges that on the date hereof all outstanding
Obligations are payable in accordance with their terms and the Borrower waives
any defense, offset, counterclaim or recoupment with respect thereto.

 

(b)          Each party hereto agrees and acknowledges that the deadline for the
Collateral Agent to receive a Control Agreement with respect to each of the
Borrower’s deposit accounts ending in numbers 8180 and 8156 maintained at Wells
Fargo Bank, National Association shall be 30 days from the Effective Date (or
such later date as the Collateral Agent may agree in its sole discretion).

 

(c)          Each party hereto hereby represents and warrants on and as of the
Effective Date that it is legally authorized to enter into and has duly executed
and delivered this Agreement.

 

 2 

 

 

(d)          The Borrower, the Collateral Agent, and the Lenders party hereto do
hereby adopt, ratify, and confirm the Credit Agreement, as amended hereby, and
together with each Guarantor acknowledge and agree that the Credit Agreement, as
amended hereby, is and remains in full force and effect, and the Borrower and
the Guarantors acknowledge and agree that their respective liabilities and
obligations under the Credit Agreement, as amended hereby, are not impaired in
any respect by this Agreement.

 

(e)          From and after the Effective Date, all references to the Credit
Agreement and the Loan Documents shall mean the Credit Agreement and such Loan
Documents as amended by this Agreement.

 

(f)          This Agreement is a Loan Document for the purposes of the
provisions of the other Loan Documents.

 

Section 7.          Reaffirmation of the Guaranty. Each Guarantor hereby
ratifies, confirms, acknowledges and agrees that its obligations under the
Credit Agreement are in full force and effect and that such Guarantor continues
to unconditionally and irrevocably guarantee the full and punctual payment, when
due, whether at stated maturity or earlier by acceleration or otherwise, of all
the Guaranteed Obligations, as such Guaranteed Obligations may have been amended
by this Agreement, and its execution and delivery of this Agreement does not
indicate or establish an approval or consent requirement by such Guarantor in
connection with the execution and delivery of amendments, consents or waivers to
the Credit Agreement or any other Loan Documents.

 

Section 8.          Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original and all of which together
shall constitute, one and the same instrument. Delivery of an executed
counterpart of a signature page of this Agreement by telecopy, e-mail, facsimile
transmission, electronic mail in “portable document format” (“.pdf”) form or
other electronic means intended to preserve the original graphic and pictorial
appearance of the item being sent shall be effective as a delivery of a manually
executed counterpart of this Agreement.

 

Section 9.          Successors and Assigns. This terms and provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns permitted pursuant to the Credit
Agreement.

 

Section 10.         Invalidity; Severability. If any provision of this Agreement
is held to be illegal, invalid, or unenforceable under present or future laws
effective during the term hereof or thereof, such provision shall be fully
severable, and this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part thereof,
and the remaining provisions hereof shall remain in full force and effect and
shall not be affected by the illegal, invalid, or unenforceable provision or by
its severance therefrom. Furthermore, in lieu of such illegal, invalid or
unenforceable provision there shall be added automatically as a part of this
Agreement a provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible and be legal, valid and enforceable.

 

Section 11.         Governing Law. This Agreement shall be governed by,
construed in accordance with, and interpreted and enforced pursuant to the Laws
of the State of New York (and the applicable federal Laws of the United States
of America) without giving effect to its choice of law principles.

 

 3 

 

 

Section 12.         Entire Agreement. THIS AGREEMENT, THE CREDIT AGREEMENT AND
THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE AGREEMENT BETWEEN THE PARTIES
HERETO WITH RESPECT TO THE SUBJECT HEREOF AND SHALL SUPERSEDE ANY PRIOR
AGREEMENT BETWEEN THE PARTIES HERETO, WHETHER WRITTEN OR ORAL, RELATING TO THE
SUBJECT HEREOF. FURTHERMORE, IN THIS REGARD, THIS AGREEMENT, THE CREDIT
AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE
PARTIES THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF SUCH PARTIES.

 

[Signature page follows]

 

 4 

 

 

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

 

BORROWER: LILIS ENERGY, INC.

 

  By: /s/ Joseph C. Daches   Name: Joseph C. Daches   Title: Chief Financial
Officer     GUARANTORS: brushy resources, inc.   impetro operating llc   IMPETRO
RESOURCES, LLC   HURRICANE RESOURCES LLC       By: /s/ Joseph C. Daches   Name:
Joseph C. Daches   Title: Chief Financial Officer       LILIS OPERATING COMPANY,
LLC       By: Lilis Energy, Inc., its sole member       By: /s/ Joseph C. Daches
  Name: Joseph C. Daches   Title: Chief Financial Officer

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

  DEANS KNIGHT CAPITAL MANAGEMENT LTD.,   as Collateral Agent         By: /s/
Dillon Cameron   Name: Dillon Cameron   Title: Authorized Signatory

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

  RBC INVESTOR SERVICES TRUST ITF 110952002,   as a Lender         By: /s/
Dillon Cameron   Name: Dillon Cameron   Title: Authorized Signatory

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

  JAYVEE & CO. ITF YTCF6310002,   as a Lender         By: /s/ Dillon Cameron  
Name: Dillon Cameron   Title: Authorized Signatory

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

  NGPI CANADA INC.,   as a Lender         By: /s/ Philip Hampson   Name: Philip
Hampson   Title: President

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

  SPROTT RESOURCE LENDING CORP.,   as a Lender         By: /s/ Jim Grosdanis  
Name: Jim Grosdanis   Title: Managing Partner and CFO

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

  RESOURCE INCOME PARTNERS LIMITED PARTNERSHIP,   as a Lender         By: /s/
Gretchen Carter   Name: Gretchen Carter   Title: CFO, RCIC, General Partner

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

  TRACE CAPITAL INC.,   as a Lender         By: /s/ Jennifer Nadj   Name:
Jennifer Nadj   Title: President

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

  PETER ELLIS,   as a Lender         By: /s/ Peter Ellis   Name: Peter Ellis  
Title:  

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

  THOMAS ROOTHAM,   as a Lender         By: /s/ Thomas Rootham   Name: Thomas
Rootham   Title:  

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

 

INVESTOR COMPANY ITF 5J5505C,

  as a Lender         By: /s/ John Thiessen   Name: John Thiessen   Title:
Portfolio Manager

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

  

  MAC & CO. ITF YVRF 1001002,   as a Lender         By: /s/ Martin Lang   Name:
Martin Lang   Title: Chief Compliance Officer

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

  ONE E LP,   as a Lender         By: /s/ Gray Fowler   Name: Gray Fowler  
Title: Signing Officer

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

  SUGARMAN GM&P PARTNER CORPORATION,   as a New Lender         By: /s/ Lorne
Sugarman   Name: Lorne Sugarman   Title: President

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

  Sprott Credit Income Opportunities Fund,   as a New Lender         By: /s/
Warren Steinwall   Name: Warren Steinwall   Title: Managing Director, Fund and
Trade Operations

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

  Sprott Private Resource Lending (M), LP,   as a Lender         By: /s/ Jim
Grosdanis   Name: Jim Grosdanis   Title: Managing Partner and CFO

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

  SKYLAKE CAPITAL GROWTH LTD.,   as a New Lender         By: /s/ Fernando Elias
  Name: Fernando Elias   Title: Director of WND Limited

          By: /s/ Ian McConnell   Name: Ian McConnell   Title: Director of WND
Limited

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

  Earlston Investments Inc.,   as a New Lender         By: /s/ Michael Atkinson
  Name: Michael Atkinson   Title: President and CEO

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

ANNEX I

 

[Attached.]

 

 

 

 

Execution Version

 

ANNEX I TO Amendment No. 4 to Credit and Guaranty Agreement

  

CREDIT AND GUARANTY AGREEMENT

 

dated

 

September 29, 2016

 

BETWEEN

 

LILIS ENERGY, INC.,

 

as Borrower,

 

The Guarantors Party Hereto,

 

as Guarantors,

 

The Lenders Party Hereto,

 

as Lenders, and

 

DEANS KNIGHT CAPITAL MANAGEMENT LTD.,

 

as Collateral Agent

 

As amended on July 25, 2017

 

 

 

  

TABLE OF CONTENTS

 

    Page       ARTICLE  I DEFINITIONS 1       1.1. Definitions 1 1.2. Accounting
Terms and Determinations; Changes in Accounting 26 1.3. References 27 1.4.
Amendment of Defined Instruments 28 1.5. Joint Preparation; Construction of
Indemnities and Releases 28 1.6. Time References 28       ARTICLE  II TERMS OF
FACILITY 28       2.1. [Reserved] 28 2.2. Bridge Loans 28 2.3. Notes 28 2.4.
Reserved 29 2.5. Interest Rates; Payment of Interest 29 2.6. Conditions to
Closing Date Loans 29 2.7. Maturity of Notes 31 2.8. Principal Payment 31 2.9.
Conditions to Bridge Loans 31 2.10. Conditions to Incremental Bridge Loans 32  
    ARTICLE  III GENERAL PROVISIONS 32       3.1. General Provisions as to
Payments 32 3.2. Taxes 33 3.3. Default Interest 35 3.4. Prepayments 35 3.5.
Prepayment Premium 36 3.6. Additional Costs; Capital Adequacy 36       ARTICLE
 IV APPOINTMENT OF COLLATERAL AGENT 37       4.1. [Reserved.] 37 4.2.
[Reserved.] 37 4.3. Appointment and Authority 38 4.4. Exculpatory Provisions 38
4.5. Reliance by Collateral Agent 40 4.6. Delegation of Duties 40 4.7.
Collateral and Guaranty Matters 41 4.8. Resignation and Removal of Collateral
Agent 42 4.9. Non-Reliance on Collateral Agent and Other Lenders 42 4.10.
Collateral Agent May File Proofs of Claim 43 4.11. Authorization to Execute
other Loan Documents 44

 

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ARTICLE  V GUARANTY 45       5.1. Guaranty 45 5.2. Limitation of Guaranty 45
5.3. Contribution 45 5.4. Authorization; Other Agreements 45 5.5. Guaranty
Absolute and Unconditional 46 5.6. Waivers 47 5.7. Reliance 47       ARTICLE  VI
REPRESENTATIONS AND WARRANTIES 47       6.1. Existence and Power 47 6.2.
Authorization; Contravention 48 6.3. Binding Effect 48 6.4. Subsidiaries 48 6.5.
Disclosure 48 6.6. Financial Information 49 6.7. Litigation 49 6.8. ERISA Plans
49 6.9. Taxes and Filing of Tax Returns 49 6.10. Title to Properties; Liens;
Environmental Liability 50 6.11. Business Compliance 51 6.12. Licenses, Permits,
Etc 51 6.13. Compliance with Laws 51 6.14. Governmental Consent 51 6.15.
Investment Company Act 52 6.16. State Utility; No Governmental Limitations on
Liens 52 6.17. Refunds; Certain Contracts 52 6.18. No Default 53 6.19.
Anti-Terrorism Laws 53 6.20. Flood Matters 53 6.21. Solvency 53 6.22. Eligible
Contract Participant 53 6.23. Intellectual Property 54 6.24. Environmental
Reports 54       ARTICLE  VII COVENANTS 54       7.1. Reserved 54 7.2. Financial
Statements; Reserve and Other Reports; Certain Required Notices from Borrower;
Additional Information 54 7.3. Inspection of Properties and Books 56 7.4.
Maintenance of Security; Insurance; Authorization to File Financing Statements;
Operating Accounts; Transfer Orders 57 7.5. Payment of Taxes and Claims 57 7.6.
Payment of Debt; Additional Debt; Payment of Accounts; Restrictions on Payments
on the SOS Note 58

 

ii 

 

  

7.7. Negative Pledge 59 7.8. Loans and Advances to Others; Investments;
Restricted Payments; Subsidiaries 59 7.9. Consolidation, Merger, Maintenance,
Change of Control; Disposition of Property; Restrictive Agreements; Hedging
Agreements; Modification of Organizational Documents; Issuance of Equity
Interests 60 7.10. Primary Business; Continuous Operations; Location of
Borrower’s Office; Ownership of Assets 61 7.11. Operation of Properties and
Equipment; Compliance with and Maintenance of Contracts; Duties as Nonoperator
62 7.12. Transactions with Affiliates 62 7.13. [Reserved] 62 7.14. Compliance
with Laws and Documents 63 7.15. Certain Financial Covenants 63 7.16. Additional
Documents; Quantity of Documents; Title Data; Additional Information 63 7.17.
Environmental Indemnification 64 7.18. Anti-Terrorism Laws 64 7.19. Control
Agreements 64       ARTICLE  VIII DEFAULTS; REMEDIES 65       8.1. Events of
Default; Acceleration of Maturity 65 8.2. Remedies 67 8.3. Suits for Enforcement
67 8.4. Remedies Cumulative 67 8.5. Remedies Not Waived 67       ARTICLE  IX
MISCELLANEOUS 67       9.1. Amendments, Waivers and Consents 67 9.2. Release of
Guarantees and Liens 68 9.3. Indemnity 68 9.4. Expenses 69 9.5. Taxes 70 9.6.
Survival 70 9.7. Applicable Law; Venue 70 9.8. WAIVER OF JURY TRIAL AND
EXEMPLARY DAMAGES 70 9.9. Waiver of Deficiency Statute; Other Waivers 71 9.10.
Headings 71 9.11. Counterparts 71 9.12. Invalid Provisions, Severability 71
9.13. Communications Via Internet 71 9.14. USA Patriot Act Notice 72 9.15.
EXCULPATION PROVISIONS 72 9.16. [Reserved] 72 9.17. Interest Rate Limitation 72

 

iii 

 

  

ARTICLE  X SETOFF; TREATMENT OF PARTIAL PAYMENTS 73       10.1. Setoff 73 10.2.
Adjustments 73       ARTICLE  XI BENEFIT OF AGREEMENT; ASSIGNMENTS 73      
11.1. Successors and Assigns 73 11.2. Assignments; Effective Date;
Participations; Register 73 11.3. Dissemination of Information 75       ARTICLE
 XII NOTICES 75       12.1. Notices 75 12.2. Change of Address 75       ARTICLE
 XIII ENTIRE AGREEMENT 75

 

iv 

 

  

CREDIT AND GUARANTY AGREEMENT

 

THIS CREDIT AND GUARANTY AGREEMENT is entered into as of September 29, 2016, by
and among Lilis Energy, Inc., a Nevada corporation (together with its permitted
successors and assigns, the “Borrower”), Brushy Resources, Inc., a Delaware
Corporation (“Brushy”), ImPetro Operating, LLC, a Delaware limited liability
company (“Operating”) and ImPetro Resources, LLC, a Delaware limited liability
company (“Resources”, and together with Brushy and Operating, the “Initial
Guarantors”), the lenders party hereto, and Deans Knight Capital Management
Ltd., as Collateral Agent for the Lenders. Certain terms used herein are defined
in Section 1.1.

 

RECITALS:

 

A.       The Borrower has requested, and the Lenders have agreed to make
available to the Borrower, a multiple draw term loan facility subject to the
terms and conditions set forth in this Agreement (a) to refinance certain
existing indebtedness of the Borrower, (b) to fund the Borrower’s development
programs, acquisitions and working capital and (c) for working capital purposes;

 

B.       The Borrower desires to secure the Obligations under this Agreement by
granting to the Lender a security interest in and Lien on the Collateral; and

 

C.       Subject to the terms hereof, the Guarantors are willing to guarantee
the Obligations of the Borrower;

 

NOW, THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:

 

ARTICLE  I
DEFINITIONS

 

1.1.     Definitions. The following terms, as used herein, have the following
meanings:

 

“Acceptable Hedging Transactions” means all Hedging Transactions entered into by
the Borrower or any Guarantor in the ordinary course of its business, which if
secured by Liens on any Collateral (other than Liens on cash margin collateral,
deposits or securities) is subject to an intercreditor or collateral sharing
agreement reasonably acceptable to the Required Lenders.

 

“Additional Assets” means (a) the Capital Stock of a Person that becomes a
Guarantor as a result of the acquisition of such Capital Stock by the Borrower
or another Guarantor, and (b) other long-term assets that are used or useful in
the Oil and Gas Business.

 

“Advance Payment Contract” means any contract whereby any Loan Party either
(a) receives or becomes entitled to receive (either directly or indirectly) any
payment (an “Advance Payment”) to be applied toward payment of the purchase
price of hydrocarbons produced or to be produced from Oil and Gas Property owned
by any Loan Party and which Advance Payment is, or is to be, paid in advance of
actual delivery of such production to or for the account of the purchaser
regardless of such production, or (b) grants an option or right of refusal to
the purchaser to take delivery of such production in lieu of payment, and, in
either of the foregoing instances, the Advance Payment is, or is to be, applied
as payment in full for such production when sold and delivered or is, or is to
be, applied as payment for a portion only of the purchase price thereof or of a
percentage or share of such production; provided that inclusion of the standard
“take or pay” provision in any gas sales or purchase contract or any other
similar contract in the ordinary course of business shall not, in and of itself,
constitute such contract as an Advance Payment Contract for the purposes hereof.

 

 1 

 

  

“Affiliate” means, with respect to a Person, (a) any Person owning, Controlling
or holding with power to vote ten percent (10%) or more of the outstanding
voting interests of the referenced Person, (b) any Person ten percent (10%) or
more of whose outstanding voting interests are directly or indirectly owned,
Controlled or held with power to vote by the referenced Person, (c) any Person
directly or indirectly Controlling, Controlled by or under common Control with
the referenced Person, (d) any relative within the third degree of kindred of
the referenced Person, or (e) any officer, director, limited liability company
manager, trustee, beneficiary, employee or general partner of the referenced
Person or of any Person referred to in clauses (a), (b), (c) or (d) of this
definition. The term Affiliate shall include Affiliates of Affiliates (and so
on).

 

“Agreement” or “Credit Agreement” means this Credit Agreement, as the same may
hereafter be modified or amended from time to time.

 

“Anti-Terrorism Laws” mean any Laws relating to terrorism or money laundering,
including Executive Order No. 13224 and the USA Patriot Act.

 

“Approved Petroleum Engineer” means Cawley Gillispie & Associates, or any
reputable firm of independent petroleum engineers selected by the Borrower and
reasonably acceptable to the Required Lenders.

 

“Asset Coverage Ratio” means, as of any date of determination, the ratio as of
(a) the sum of (i) PV-9 Value of the Proved Reserves attributable to the Oil and
Gas Properties of Loan Parties set forth in the most recently delivered Reserve
Report plus (ii) 70% of the book value of the undeveloped acreage owned by the
Loan Parties plus (iii) unrestricted cash and Cash Equivalents of the Borrower
and its Subsidiaries to (b) the Funded Debt as of such date.

 

“Asset Sale” means any Disposition by the Borrower or any Guarantor of any
Property other than (a) Dispositions permitted by clauses (i), (ii), (iii),
(iv), (vi) (only with respect to clause (i) thereof) and (ix) of the definition
of Permitted Disposition, and (b) any single Disposition or series of related
Dispositions that involves Properties having a Fair Market Value not exceeding
$250,000 and when aggregated together with all other Dispositions under this
clause (b) the total does not exceed $500,000.

 

“Assignment Agreement” has the meaning given to such term in Section 11.2.1
hereof.

 

“Board of Governors” means the Board of Governors of the Federal Reserve System.

 

“Borrower” has the meaning given to such term in the preamble to this Agreement.

 

“Borrowing Date” means a date on which a Loan is made hereunder.

 

“Bridge Lender” means each lender with a Bridge Loan Commitment set forth on
Schedule 2.2 and any Person that shall have become a party hereto pursuant to an
Assignment Agreement in respect of a Bridge Loan, other than any such Person
that ceases to be a party hereto pursuant to an Assignment Agreement in respect
of a Bridge Loan.

 

 2 

 

 

“Bridge Loan” means a loan or advance made by the Bridge Lenders in accordance
with Section 2.2.1, or the aggregate outstanding amount of all such loans or
advances, as the context may require.

 

“Bridge Loan Base Rate” means, effective as of October 1, 2017 and thereafter,
so long as any Bridge Loan is outstanding, a rate per annum equal to ten percent
(10.00%).

 

“Bridge Loan Closing Date” means the date of initial funding of the Bridge Loans
following satisfaction or waiver of the conditions set forth in Section 2.9.

 

“Bridge Loan Commitment” has the meaning given in Section 2.2.1.

 

“Bridge Loan Maturity Date” means October 21, 2018.

 

“Bridge Loan Note” means one or more senior secured notes issued pursuant
hereto, in substantially the form attached hereto entitled “Form of Bridge Loan
Note”, duly executed by the Borrower and payable to the order of each Bridge
Lender, including any amendment, modification, renewal or replacement of such
promissory note.

 

“Bridge PIK Rate” means, effective as of October 1, 2017 and thereafter, so long
as any Bridge Loan is outstanding, a rate per annum equal to six percent
(6.00%)).

 

“Business Day” means any day that is not a Saturday, Sunday or other day on
which commercial banks in Dallas, Texas, are authorized or required by Law to
remain closed.

 

“Capital Stock” means:

 

(i)       in the case of a corporation, corporate stock;

 

(ii)      in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock;

 

(iii)     in the case of a partnership or limited liability company, partnership
or membership interests (whether general or limited); and

 

(iv)     any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of assets of,
the issuing Person;

 

but excluding from all of the foregoing any debt securities convertible into
Capital Stock, whether or not such debt securities include any right of
participation with Capital Stock.

 

“Capitalized Lease” of a Person means any lease of Property by such Person as
lessee which would be capitalized on a balance sheet of such Person prepared in
accordance with generally accepted 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 generally accepted
accounting principles.

 

 3 

 

 

“Cash Equivalents” means:

 

(i)       United States dollars;

 

(ii)      securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality of the United States
government (provided that the full faith and credit of the United States is
pledged in support of those securities) having maturities of not more than six
months from the date of acquisition;

 

(iii)     deposit accounts, certificates of deposit, money market accounts and
eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers’ acceptances with maturities not exceeding six months and
overnight bank deposits, in each case, with the Lender or with any domestic
commercial bank having capital and surplus in excess of $500,000,000 and whose
senior unsecured debt either (a) is rated at least “A-l” by S&P and at least
“P-I” by Moody’s, or (b) has a Thompson Bank Watch Rating of “B” or better;

 

(iv)     repurchase obligations with a term of not more than thirty (30) days
for underlying securities of the types described in clauses (ii) and (iii) above
entered into with any financial institution meeting the qualifications specified
in clause (iii) above;

 

(v)      commercial paper having the highest ratings categories obtainable from
Moody’s or S&P and in each case maturing within six months after the date of
acquisition;

 

(vi)     securities issued and fully guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision or
taxing authority thereof, rated at least “A” by Moody’s or S&P and having
maturities of not more than three hundred sixty-five (365) days from the date of
acquisition; and

 

(vii)    money market funds at least ninety-five (95%) of the assets of which
constitute Cash Equivalents of the kinds described in clauses (i) through (vi)
of this definition,

 

“Cash Taxes” for any fiscal quarter of the Borrower and its Subsidiaries, means
federal income taxes and state taxes actually paid by the Borrower and its
Subsidiaries during such quarter.

 

“Casualty Event” means any loss, casualty or other insured damage to, or any
nationalization, taking under power of eminent domain or by condemnation or
similar proceeding of, any Oil and Gas Property of the Borrower or any
Subsidiary.

 

“Change of Control Event” means (a) the acquisition of ownership, directly or
indirectly, beneficially or of record, by any Person or group of Persons acting
jointly or otherwise in concert of Capital Stock representing more than
thirty-five (35%) of the aggregate ordinary voting power represented by the
issued and outstanding Capital Stock of Borrower, or (b) during any period of
twelve (12) consecutive calendar months, the occupation of a majority of the
seats (other than vacant seats) on the board of directors of Borrower by Persons
who were neither (i) nominated by the board of directors of Borrower, nor (ii)
appointed by directors so nominated; in each case whether as a result of a
tender or exchange offer, open market purchases, privately negotiated purchases
or otherwise.

 

“Closing Date” means September 29, 2016.

 

 4 

 

 

“Closing Date Loans” means the loans made on the Closing Date pursuant to the
terms of this Agreement in effect as of the Closing Date.

 

“Collateral” means, until the Collateral Modification Date, the Property pledged
as security for the Notes and the other Obligations, including all of the
following of the Borrower and each Guarantor:

 

(i)       accounts receivable;

 

(ii)      equipment, goods, inventory and fixtures;

 

(iii)     documents, instruments and chattel paper;

 

(iv)     letter-of-credit rights;

 

(v)      securities collateral;

 

(vi)     investment property, including all Capital Stock owned by the Borrower
and each Guarantor;

 

(vii)    intellectual property;

 

(viii)   commercial tort claims;

 

(ix)     general intangibles;

 

(x)      deposit accounts;

 

(xi)     money;

 

(xii)    supporting obligations;

 

(xiii)   books and records;

 

(xiv)   to the extent not covered by clauses (i) through (xiii) above, choses in
action and all other personal property of the Borrower and each Guarantor,
whether tangible or intangible;

 

(xv)    proceeds and products of each of the foregoing and all accessions to,
substitutions and replacements for, and rents, profits and products of, each of
the foregoing, and any and all proceeds of any insurance, indemnity, warranty or
guaranty payable to the Borrower or any Guarantor from time to time with respect
to any of the foregoing;

 

(xvi)   Hedging Agreements and Hedging Transactions;

 

(xvii)  As-Extracted Collateral; and

 

(xviii) all other existing and future tangible and intangible personal assets of
the Borrower or any Guarantor.

 

Notwithstanding the foregoing, the Collateral will not include any of the
following assets or property (collectively, the “Excluded Assets”):

 

 5 

 

 

(i)       any asset or property right of the Borrower or any Guarantor of any
nature:

 

(a)       if the grant of a security interest shall constitute or result in (i)
the abandonment, invalidation or unenforceability of such asset or property
right of the Borrower or any Guarantor or loss of use of such asset or property
right or (ii) a breach, termination or default under any lease, license,
contract or agreement to which the Borrower or such Guarantor is party (other
than to the extent that any such term would be rendered ineffective pursuant to
Sections 9 406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code (or any
successor provision or provisions) of any relevant jurisdiction or any other
applicable Law (including the United States Bankruptcy Code)); and

 

(b)      to the extent that any applicable Law prohibits the creation of a
security interest thereon (other than to the extent that any such Law would be
rendered ineffective pursuant to any other applicable Law);

 

provided, however, that such lease, license, contract, property rights or other
agreement will cease to be an Excluded Asset immediately and automatically at
such time as the condition causing such abandonment, invalidation,
unenforceability or prohibition is remedied or otherwise becomes ineffective
and, to the extent severable, any portion of such lease, license, contract,
property rights or other agreement that does not result in any of the
consequences specified in clauses (a) and (b) above will not be an Excluded
Asset; and

 

(ii)      deposit and securities accounts the balance of which consists
exclusively of (a) withheld income taxes and federal, state or local employment
taxes in such amounts as are required to be paid to the IRS or state or local
government agencies within the following two months with respect to employees of
the Borrower or any Guarantor, (b) amounts required to be paid over to an
employee benefit plan pursuant to DOL Reg. Sec. 2510.3-102 on behalf of or for
the benefit of employees of the Borrower or any Guarantor, and (c) all
segregated deposit accounts constituting (and the balance of which consists
solely of funds set aside in connection with) tax accounts and payroll accounts.

 

Notwithstanding the foregoing, upon the Collateral Modification Date,
“Collateral” shall have the meaning set forth in the Replacement Security
Documents, and the foregoing definition shall no longer be applicable.

 

“Collateral Agent” has the meaning given to such term in Section 4.3 hereof.

 

“Collateral Modification Date” means the date on which the Collateral Agent
executes and delivers the Replacement Security Documents and the Intercreditor
Agreement in connection with the consummation of a Second Lien Facility.

 

“Commitment” means (a) for each Lender, the amount set forth opposite such
Lender’s name on Schedule 2.2 or Schedule 2.3 hereto, as applicable, under the
heading “Bridge Loan Commitment” and “Incremental Bridge Loan Commitment”, which
amount may be modified from time to time pursuant to the terms of this Agreement
and (b) as to all Lenders, the aggregate commitments of all Lenders to make
Loans hereunder in accordance with the Lenders’ Commitments shown on Schedule
2.2 and Schedule 2.3 pursuant to Section 2.2 or Section 2.3, as applicable, as
of the Bridge Loan Closing Date or the Incremental Bridge Loan Closing Date, as
the context requires.

 

 6 

 

 

“Commitment Fee” means an amount equal to two percent (2%) of the initial
principal amount of (i) for each Lender, such Lender’s Commitment as of the
Closing Date and (ii) as to all Lenders, the total aggregate Commitments of all
Lenders as of the Closing Date.

 

“Commodity Hedging Transaction” means any swap transaction, cap, floor, collar,
exchange transaction, forward transaction, or other exchange or protection
transaction relating to hydrocarbons or any option with respect to any such
transaction, including derivative financial instruments.

 

“Compliance Certificate” means a certificate, substantially in the form attached
hereto entitled “Form of Compliance Certificate”, executed by a Responsible
Representative and furnished to the Lenders from time to time in accordance with
Section 7.2.1.

 

“Contingent Obligation” See Guarantee.

 

“Control,” “Controlling” and “Controlled by” mean the ability (directly or
indirectly through one or more intermediaries) to direct or cause the direction
of the management or affairs of a Person, whether through the ownership of
voting interests, by contract or otherwise.

 

“Control Agreement” means a deposit account, securities or commodity account
control agreement, as applicable, to be executed and delivered among Borrower or
any Guarantor, the Collateral Agent and each bank at which the Borrower or such
Guarantor maintains, any deposit, securities or commodity account, in each case,
in form and substance reasonably acceptable to the Collateral Agent, as the same
may be amended, restated, supplemented or otherwise modified from time to time.

 

“Core Assets” means the hydrocarbon interests of the Borrower and its
Subsidiaries located in the Delaware Basin (including, any pipeline or salt
water disposal assets).

 

“CT”, with respect to any stated time of day, means such time of day generally
in effect in the Central Time Zone as in effect in the State of Texas.

 

“Debt” or “Indebtedness” of any Person means at any date, without duplication:

 

(i)       all obligations of such Person for money borrowed, including (a) the
obligations of such Person for money borrowed by a partnership of which such
Person is a general partner, (b) obligations, whether or not assumed, which are
secured in whole or in part by the Property of such Person or payable out of the
proceeds or production from Property of such Person, and (c) any obligations of
such Person in respect of letters of credit and repurchase agreements;

 

(ii)      all obligations of such Person evidenced by notes, debentures, bonds
or similar instruments;

 

(iii)      all obligations of such Person to pay the deferred purchase price of
Property or services (except trade accounts arising in the ordinary course of
business if interest is not paid or accrued thereon);

 

(iv)     all Capitalized Lease Obligations of such Person;

 

 7 

 

 

(v)      all liabilities which in accordance with applicable accounting
principles would be included in determining total liabilities as shown on the
liability side of a balance sheet;

 

(vi)     all obligations of such Person under Hedging Agreements and Hedging
Transactions;

 

(vii)    all Guarantees by such Person; and

 

(viii)   all Off-Balance Sheet Debt.

 

“Default” means the occurrence of an Event of Default or any event which with
notice, lapse of time or both would, unless cured or waived, become an Event of
Default.

 

“Default Rate” means a per annum interest rate equal to two percent (2.00%) per
annum in excess of the rate of interest otherwise payable on the Notes.

 

“Disposition” or “Dispose” means the sale, transfer, license, lease, exchange or
other disposition (including any Sale and Leaseback Transaction) of any property
by any Person, including any sale, assignment, transfer or other disposal, with
or without recourse, of any notes or accounts receivable or any rights and
claims associated therewith.

 

“Disqualified Stock” means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable for any consideration other than other Capital Stock (which would not
constitute Disqualified Stock), pursuant to a sinking fund obligation or
otherwise, or is redeemable for any consideration other than other Capital Stock
(which would not constitute Disqualified Stock) at the sole option of the holder
thereof, in whole or in part, on or prior to the date that is ninety one (91)
days after the Final Maturity Date.

 

“Distributions” means dividends, distributions or other payments to Persons on
account of their being the holders of Capital Stock or other Equity Interests in
the Borrower.

 

“Dollars” and “$” means dollars in lawful currency of the United States of
America.

 

“Environmental Complaint” means any written or oral complaint, order, directive,
claim, citation, notice of environmental report or investigation, or other
notice by any Governmental Authority or any other Person with respect to (a) air
emissions, (b) spills, releases, or discharges to soils, any improvements
located thereon, surface water, groundwater, or the sewer, septic, waste
treatment, storage, or disposal systems servicing any Property of the Borrower
or any Guarantor, (c) solid or liquid waste disposal, (d) the use, generation,
storage, transportation, or disposal of any Hazardous Substance, or (e) other
environmental, health, or safety matters affecting any Property of the Borrower
or any Guarantor or the business conducted thereon.

 

“Environmental Law” means (a) the following federal laws as they may be cited,
referenced, and amended from time to time: the Clean Air Act, the Clean Water
Act, the Safe Drinking Water Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Endangered Species Act, the Resource
Conservation and Recovery Act, the Hazardous Materials Transportation Act, the
Superfund Amendments and Reauthorization Act, and the Toxic Substances Control
Act; (b) any and all equivalent environmental statutes of any state in which
Property of the Borrower or any Guarantor is situated, as they may be cited,
referenced and amended from time to time; (c) any rules or regulations
promulgated under or adopted pursuant to the above federal and state laws; and
(d) any other equivalent federal, state, or local statute or any requirement,
rule, regulation, code, ordinance, or order adopted pursuant thereto, including
those relating to the generation, transportation, treatment, storage, recycling,
disposal, handling, or Release of Hazardous Substances.

 

 8 

 

 

“Environmental Liability” means any claim, demand, obligation, cause of action,
accusation, allegation, order, violation, damage, injury, judgment, penalty or
fine, cost of enforcement, cost of remedial action or any other cost or expense
whatsoever, including reasonable attorneys’ fees and disbursements, resulting
from the violation or alleged violation of any Environmental Law or the
imposition of any Environmental Lien.

 

“Environmental Lien” means a Lien in favor of a Tribunal or other Person (i) for
any liability under an Environmental Law or (ii) for damages arising from or
costs incurred by such Tribunal or other Person in response to a release or
threatened release of Hazardous Substances into the environment.

 

“Equity Interest” means, with respect to any Person, an ownership and other
equity interest, including Capital Stock and other Securities, in such Person
and rights to convert into an ownership or other equity interest, including
Capital Stock and other Securities, in such Person or to otherwise acquire an
ownership or other equity interest, including Capital Stock and other
Securities, in such Person and ownership of or rights to share in the revenues
or profits of such Person.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended
from time to time, together with all presently effective and future regulations
issued pursuant thereto.

 

“Event of Default” has the meaning given such term in Section 8.1 hereof.

 

“Excluded Account” means (i) any accounts that are designated solely as accounts
for, and are used solely for, employee benefits or taxes, in each case only to
the extent that such amounts deposited in such accounts are used solely for such
purposes listed above, (ii) any accounts that are designated solely as accounts
for, and are used solely for, payroll funding obligations, to the extent that
such amounts deposited in such accounts are used solely for payroll and
otherwise in amounts that the Borrower reasonably anticipates in good faith that
it will need to operate for fourteen (14) days thereafter, (iii) any escrow
account, trust or other fiduciary account solely used for purposes of
transactions that are permitted under this Agreement, (iv) any accounts
designated solely as accounts for, and used solely for, working interest and
royalty payments, and (v) any other accounts in which the average daily balance
or fair market value, as applicable, does not exceed $150,000 in the aggregate;
provided that, notwithstanding the foregoing, in no event shall any of the
principal operating or disbursement accounts of the Borrower or its Subsidiaries
constitute an “Excluded Account”.

 

“Executive Order No. 13224” shall mean Executive Order No. 13224 on Terrorist
Financing, effective September 24, 2001, as the same has been, or shall
hereafter be, renewed, extended, amended or replaced.

 

 9 

 

 

“Fair Market Value” means, with respect to any asset or property, the sale value
that would be obtained in an arm’s-length free-market transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy. Fair Market Value of an asset or
property in excess of $1,000,000 shall be determined by the Board of Directors
of the Borrower acting in good faith, in which event it shall be evidenced by a
resolution of the Board of Directors, and any lesser Fair Market Value shall be
determined by an officer of the Borrower acting in good faith.

 

“FATCA” means current Sections 1471 through 1474 of the Internal Revenue Code
(and any similar amended or successor versions that are substantively
comparable) and any applicable Treasury Regulations promulgated thereunder or
published administrative guidance implementing such Sections, whether in
existence on the date hereof or promulgated or published thereafter.

 

“Federal Funds Effective Rate” means, for any day, the weighted average (rounded
upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published on the next succeeding Business Day by
the Federal Reserve Bank of New York, or, if such rate is not so published for
any day that is a Business Day, the average (rounded upwards, if necessary, to
the next 1/100 of 1%) of the quotations for such day for such transactions
received by the Collateral Agent from three Federal funds brokers of recognized
standing selected by it.

 

“Final Maturity Date”, “Final Maturity” or “Maturity Date” means (a) with
respect to the Bridge Loans under the Bridge Loan Notes, the earlier of (i) the
Bridge Loan Maturity Date, or (ii) the date that the Obligations become due in
accordance with Section 8.2.1, and (b) with respect to the Incremental Bridge
Loans under the Incremental Bridge Loan Notes, the earlier of (i) the
Incremental Bridge Loan Maturity Date, or (ii) the date that the Obligations
become due in accordance with Section 8.2.1.

 

“Financial Statements” has the meaning given to such term in Section 2.6.2
hereof. “Fraudulent Transfer Laws” has the meaning given to such term in Section
5.2 hereof.

 

“Foreign Lender” means any Lender that is organized under the laws of a
jurisdiction other than that in which the Borrower is resident for tax purposes.
For the purpose of this definition, the United States, each State thereof and
the District of Columbia shall be deemed to constitute a single jurisdiction.

 

“Funded Debt” means the obligations of the Borrower and its consolidated
subsidiaries described in clauses (i) and (ii) of the definition of Debt.

 

“GAAP” means those generally accepted accounting principles and practices which
are recognized as such by the American Institute of Certified Public Accountants
acting through its Accounting Principles Board or by the Financial Accounting
Standards Board or through other appropriate boards or committees thereof. Any
accounting principle or practice required to be changed by the Accounting
Principles Board or Financial Accounting Standards Board (or other appropriate
board or committee of such Boards) in order to continue as a generally accepted
accounting principle or practice may be so changed. In the event of a change in
GAAP, the Loan Documents shall continue to be construed in accordance with GAAP
as in existence on the date hereof.

 

“Governmental Authority” means any nation, country, commonwealth, territory,
government, state, county, parish, municipality, or other political subdivision
and any entity exercising executive, legislative, judicial, regulatory, or
administrative functions of or pertaining to government.

 

 10 

 

 

“Guarantee” or “Contingent Obligation” by or of any Person means any obligation,
contingent or otherwise, of such Person directly or indirectly guaranteeing or
in effect guaranteeing any Debt, leases, dividends or other obligations of any
other Person (for purposes of this definition, a “primary obligation”) and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) any primary obligation
or any Property constituting direct or indirect security therefor (whether
arising by virtue of partnership arrangements, by agreement to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, to make
reimbursement in connection with any letter of credit or to maintain financial
statement conditions, by comfort letter or other similar undertaking of support
or otherwise) or (ii) entered into for the purpose of assuring in any other
manner the obligee of any primary obligation of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part) with
the amount of any Guarantee or Contingent Obligation being deemed to be equal to
the stated or determinable amount of the primary obligation in respect of which
such Guarantee is made or Contingent Obligation is incurred or, if not stated or
determinable, the maximum primary obligation which could reasonably be
anticipated to arise in respect thereof. The term Guarantee (or Contingent
Obligation) includes the pledging or other encumbrance of assets by a Person to
secure the obligations of another Person and restrictions or limitations on a
Person or its assets agreed to in connection with the obligations of another
Person, but does not include endorsements for collection or deposit in the
ordinary course of business; and “Guaranteed” by a Person or “incurring a
Contingent Obligation” or words of similar import shall mean the act or
condition of providing a Guarantee by such Person or such Person becoming
contingently obligated or permitting a Guarantee or Contingent Obligation of
such Person to exist or come into existence.

 

“Guaranteed Obligations” has the meaning given to such term in Section 5.1
hereof.

 

“Guarantor” means at any time the Initial Guarantors and any Person who has
executed or does execute a Guaranty, which is in effect at such time.

 

“Guaranty” means the guaranty of a Guarantor guarantying all or a portion of the
Obligations as set forth in Article V hereof.

 

“Hazardous Substance” means flammables, explosives, radioactive materials,
hazardous wastes, asbestos, or any material containing asbestos, polychlorinated
biphenyls (PCBs), toxic substances or related materials, petroleum, petroleum
products, associated oil or natural gas exploration, production, and development
wastes, or any substances defined as “hazardous substances,” “hazardous
materials,” “hazardous wastes,” or “toxic substances” under the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, the
Superfund Amendments and Reauthorization Act, as amended, the Hazardous
Materials Transportation Act, as amended, the Resource Conservation and Recovery
Act, as amended, the Toxic Substances Control Act, as amended, or any other
Environmental Laws.

 

“Hedge Termination Value” means, in respect of any one or more Hedging
Transactions, after taking into account the effect of any legally enforceable
netting agreement relating to such Hedging Transactions, (a) for any date on or
after the date such Hedging Transactions have been closed out and termination
value(s) determined in accordance therewith, such termination value(s) and (b)
for any date prior to the date referenced in clause a preceding, the amount(s)
determined as the mark-to-market value(s) for such Hedging Transactions, as
determined by the counterparties to such Hedging Transactions.

 

 11 

 

 

“Hedging Agreement” means any International Swap Dealers Association, Inc.
Master Agreement or other agreement and all schedules and exhibits attached
thereto and incorporated therein that set forth set forth one or more Hedging
Transactions or the general terms upon which a Person may enter into one or more
Hedging Transactions.

 

“Hedging Modification” means the amendment, modification, cancellation,
monetization, sale, transfer, assignment, early termination or other disposition
of any Hedge Agreement.

 

“Hedging Transaction” means a Commodity Hedging Transaction or a Rate Management
Transaction or any other transaction with respect to any swap, forward, future
or derivative transaction or option or similar transaction, whether exchange
traded, “over-the-counter” or otherwise, involving, or settled by reference to,
one or more rates, currencies, commodities, equity or debt instruments or
securities, or economic, financial or pricing indices or measures of economic,
financial or pricing risk or value or any similar transaction or any combination
of these transactions.

 

“Incremental Bridge Lender” means each lender with an Incremental Bridge Loan
Commitment set forth on Schedule 2.3 and any Person that shall have become a
party hereto pursuant to an Assignment Agreement in respect of an Incremental
Bridge Loan, other than any such Person that ceases to be a party hereto
pursuant to an Assignment Agreement in respect of an Incremental Bridge Loan.

 

“Incremental Bridge Loan” means a loan or advance made by the Incremental Bridge
Lenders in accordance with Section 2.2.2, or the aggregate outstanding amount of
all such loans or advances, as the context may require.

 

“Incremental Bridge Loan Base Rate” means, so long as any Incremental Bridge
Loan is outstanding, a rate per annum equal to ten percent (10.00%).

 

“Incremental Bridge Loan Closing Date” means the date of initial funding of the
Incremental Bridge Loans following satisfaction or waiver of the conditions set
forth in Section 2.10.

 

“Incremental Bridge Loan Commitment” has the meaning given in Section 2.2.2.

 

“Incremental Bridge Loan Maturity Date” means October 21, 2018.

 

“Incremental Bridge Loan Note” means one or more senior secured notes issued
pursuant hereto, in substantially the form attached hereto entitled “Form of
Incremental Bridge Loan Note”, duly executed by the Borrower and payable to the
order of each Incremental Bridge Lender, including any amendment, modification,
renewal or replacement of such promissory note.

 

“Incremental Bridge PIK Rate” means, so long as any Incremental Bridge Loan is
outstanding, a rate per annum equal to six percent (6.00%)).

 

“Indebtedness” See Debt.

 

 12 

 

 

“Indemnified Party” means (i) the Lenders and each of their shareholders,
officers, directors, employees, agents, attorneys-in-fact, and Affiliates, (ii)
each trustee for the benefit of the Lenders under any Security Document, and
(iii) the Collateral Agent (including any sub-agent of the Collateral Agent) and
each of its shareholders, officers, directors, employees, agents,
attorneys-in-fact, and Affiliates.

 

“Initial Guarantor” has the meaning given to such term in the preamble to this
Agreement.

 

“Insolvency Proceeding” of any Person means any application (whether voluntary
or instituted by another Person) for or the consent to the appointment of a
receiver, trustee, conservator, custodian, or liquidator of such Person or of
all or a substantial part of the Property of such Person, or the filing of a
petition (whether voluntary or instituted by another Person) commencing a case
under Title 11 of the United States Code, seeking liquidation, reorganization,
or rearrangement or taking advantage of any bankruptcy, insolvency, debtor’s
relief, or other similar Law of the United States, the State of Texas, or any
other jurisdiction.

 

“Intercreditor Agreement” means an intercreditor agreement among the Collateral
Agent and the collateral agent under a Second Lien Facility governing, among
other things, the priority of Liens securing the Obligations and the Liens
securing such Second Lien Facility, in form and substance reasonably
satisfactory to the Collateral Agent, as the same may be amended, restated,
supplemented or otherwise modified in accordance with its terms from time to
time.

 

“Interest Payment Date” means for the Loans made under the Notes, the first day
of January, April, July and October of each year commencing with January 1,
2017, and upon maturity of the Notes (whether stated or upon acceleration).

 

“Investment” means, for any Person: (a) the acquisition (whether for cash,
Property, services or securities or otherwise) of Equity Interests of any other
Person, the contribution of capital to any other Person, or any agreement to
make any such acquisition (including, without limitation, any “short sale” or
any sale of any securities at a time when such securities are not owned by the
Person entering into such short sale) or capital contribution; (b) the making of
any deposit with, or advance, loan or capital contribution to, assumption of
Debt of, purchase or other acquisition of any other Debt or equity participation
or interest in, or other extension of credit to, any other Person (including the
purchase of Property from another Person subject to an understanding or
agreement, contingent or otherwise, to resell such Property to such Person, but
excluding any such advance, loan or extension of credit having a term not
exceeding ninety (90) days representing the purchase price of inventory, goods
or services sold or provided by such Person in the ordinary course of business);
(c) the purchase or acquisition (in one or a series of transactions) of Property
of another Person that constitutes a business unit or (d) the entering into of
any guarantee of, or other Contingent Obligation (including the deposit of any
Equity Interests to be sold) with respect to, Debt or other liability of any
other Person and (without duplication) any amount committed to be advanced, lent
or extended to such Person.

 

“Law” means at any time with respect to any Person or its Property, any statute,
law, executive order, treaty, ordinance, order, writ, injunction, judgment,
ruling, decree, regulation, or determination of an arbitrator, court or other
Governmental Authority, existing at such time which are applicable to or binding
upon such Person or any of its Property or to which such Person or any of its
Property is subject.

 

“Lender” means the (i) the Bridge Lenders, (ii) the Incremental Bridge Lenders
or (iii) all of such Persons, in each case, as the context requires.

 

 13 

 

 

“Lien” means, as to any Property of any Person, (a) any mortgage, deed of trust,
lien, pledge, hypothecation, or security interest in, on or of such Property, or
any other charge or encumbrance on any such asset to secure Debt or liabilities,
but excluding any right to netting or setoff, (b) the interest of a vendor under
any conditional sale agreement or title retention agreement (or any financing
lease having substantially the same economic effect as any of the foregoing)
relating to such Property, (c) in the case of Securities, any purchase option,
call or similar right of a third party with respect to such Securities and (d)
the signing or filing of a financing statement which names the Person as debtor,
or the signing of any security agreement authorizing any other Person as the
secured party thereunder to file any financing statement which names such Person
as debtor (in each case, other than precautionary filings).

 

“Loan” means (i) the Bridge Loans, (ii) the Incremental Bridge Loans or (iii)
the aggregate outstanding amount of all such loans or advances, in each case, as
the context may require.

 

“Loan Documents” shall mean this Agreement, the Notes, the Security Documents,
any sub-agent agreement, and all other documents and instruments now or
hereafter delivered pursuant to the terms of or in connection with this
Agreement, the Notes or the Security Documents, and all renewals and extensions
of, amendments and supplements to, and restatements of, any or all of the
foregoing from time to time in effect (exclusive of term sheets and commitment
letters).

 

“Loan Party” means each of the Borrower and the Guarantors.

 

“Margin Regulations” means Regulations T, U and X of the Board of Governors, as
in effect from time to time.

 

“Material Adverse Effect” shall mean (i) for any Loan Party, any material
adverse effect on the business, operations, Properties, results of operations or
condition (financial or otherwise) of such Loan Party, (ii) for any Loan Party,
any material adverse effect upon such Loan Party’s ability to repay its material
Obligations under the Loan Documents, (iii) any material adverse effect upon any
Collateral or (iv) any material adverse effect on the priority or enforceability
of the Liens securing the Note.

 

“Material Agreement” means, with respect to any Person, any agreement, contract
or commitment to which such Person is a party, by which such Person is bound, or
to which any Property of such Person may be subject (and in any case, except for
this Agreement and the other Loan Documents), which is not cancelable by such
Person upon notice of ninety (90) days or less without (i) liability for further
payment in excess of $1,000,000 or (ii) forfeiture of Property having an
aggregate value in excess of $1,000,000.

 

“Material Debt” means, as to any Person, Debt (other than, with respect to the
Borrower, the Notes but including Hedging Transactions) of such Person in the
principal amount aggregating in excess of $1,000,000. For purposes of
determining Material Debt, the “principal amount” of the obligations of such
Person in respect of any Hedging Transaction at any time shall be the Hedge
Termination Value.

 

“Mortgages” mean deeds of trust, mortgages, assignments of production,
collateral mortgages, and acts of pledge (and security agreements included
therein) in form and substance reasonably acceptable to the Lenders covering Oil
and Gas Properties and the personality located thereon or primarily associated
therewith, executed or to be executed by the appropriate Person as security for
the Obligations and other indebtedness described therein.

 

 14 

 

 

“Net Cash Proceeds” means (A) with respect to any Casualty Event or any
Disposition or series of related Dispositions of any assets (including any Oil
and Gas Property and Capital Stock of any Subsidiary) by the Borrower or any
Subsidiary, the excess, if any, of (a) the sum of cash and Cash Equivalents
received in connection with such Casualty Event or such Disposition or
Dispositions, but only as and when so received, over (b) the sum of (i) the
principal amount of any Indebtedness that is secured by such asset or assets and
that is required to be repaid in connection with such Casualty Event or such
Disposition or Dispositions (other than the Loans), (ii) the reasonable and
documented out-of-pocket expenses (including taxes, brokers fees, commissions
and legal fees) incurred by the Borrower or such Subsidiary in connection with
such Casualty Event or such Disposition or Dispositions, and (iii) amounts
provided as a reserve, in accordance with GAAP, against any liabilities under
indemnification obligations or purchase price adjustments; provided that to the
extent that, and at the time that, any such amounts are released from such
reserves, such amounts shall constitute Net Cash Proceeds), and (B) with respect
to any Hedge Modification by the Borrower or any Subsidiary, the excess, if any,
of (a) the sum of cash and Cash Equivalents received in connection with such
Hedge Modification (after giving effect to any netting arrangements), over (b)
the out-of-pocket expenses (including taxes) incurred by the Borrower or such
Subsidiary in connection with such Hedge Modification.

 

“Note” means the collective reference to (i) each Bridge Loan Note, and (ii)
each Incremental Bridge Loan Note.

 

“Notice of Assignment” has the meaning given to such term in Section 11.2.2
hereof.

 

“NYMEX” means the New York Mercantile Exchange.

 

“Obligated Parties” mean the Borrower and any other Persons, including the
Guarantors, from time to time obligated by Guarantee or otherwise to pay all or
any portion of the Obligations.

 

“Obligations” shall mean, without duplication, (i) all Debt evidenced by the
Notes, (ii) the obligation of the Borrower for the payment of the fees, late
charges and prepayment charges, if any, payable hereunder or under the other
Loan Documents, (iii) all other obligations and liabilities of the Borrower to
the Lenders or the Collateral Agent, now existing or hereafter incurred, under,
arising out of or in connection with any Loan Document, including the
reimbursement of attorneys’ fees incurred by the Lenders and the Collateral
Agent from time to time in connection with waivers and amendments to or
enforcement of the Loan Documents, and (iv) all other obligations and
liabilities of the Borrower to the Lenders and the Collateral Agent, now
existing or hereafter incurred; and to the extent that any of the foregoing
includes or refers to the payment of amounts deemed or constituting interest,
only so much thereof as shall have accrued, been earned and which remains unpaid
at each relevant time of determination.

 

“OFAC” means the Office of Foreign Assets Control of the United States
Department of the Treasury, or any successor Governmental Authority.

 

 15 

 

 

“Off-Balance Sheet Debt” means, with respect to a Person, (a) any repurchase
indebtedness, liability or obligation of such Person with respect to accounts or
notes receivable sold by such Person, (b) any indebtedness, liability or
obligation of such Person under any Sale and Leaseback Transaction which is not
a Capitalized Lease Obligation, (c) any indebtedness, liability or obligation of
such Person under any synthetic, off-balance sheet or tax retention lease, or
(d) any indebtedness, liability or obligation of such Person arising with
respect to any other transaction, or agreement for the use or possession of any
Property, which is the functional equivalent, or takes the place, of borrowing
but which does not constitute a liability on the balance sheet of such Person.

 

“Oil and Gas Properties” means fee, leasehold, or other interests in or under
mineral estates or oil, gas, and other liquid or gaseous hydrocarbon leases with
respect to Properties situated in the United States or offshore from any State
of the United States, including, without limitation, overriding royalty and
royalty interests, leasehold estate interests, net profits interests, production
payment interests, and mineral fee interests, together with contracts executed
in connection therewith and all tenements, hereditaments, appurtenances and
Properties appertaining, belonging, affixed, or incidental thereto.

 

“Organizational Documents” means, as to any Person, the articles of
incorporation, articles of limited partnership, articles of formation or similar
organizational documents, as applicable, of such Person.

 

“Participant” has the meaning given to such term in Section 11.2.1 hereof.

 

“Permitted Disposition” means:

 

(i)       the sale of hydrocarbons in the ordinary course of business;

 

(ii)      the Disposition of equipment and other property in the ordinary course
of business, that is obsolete or no longer necessary in the business of the
Borrower or any of its Subsidiaries or that is being replaced by equipment of
comparable value and utility;

 

(iii)     Dispositions of cash and Cash Equivalents in the ordinary course of
business;

 

(iv)     the Borrower or any Guarantor may Dispose of its property to the
Borrower or another Guarantor;

 

(v)      sales, discounts or factoring of overdue accounts receivable in the
ordinary course of business, in connection with the compromise or collection
thereof, and not in connection with any financing or receivables transaction;

 

(vi)     substantially contemporaneous (and in any event occurring within thirty
(30) days of each other) Dispositions of Oil and Gas Properties as to which no
Proved Reserves are attributable in exchange for other Oil and Gas Properties
and, subject to the proviso of this clause (vi), cash; provided that (i) the
Fair Market Value of the Oil and Gas Properties exchanged by the Borrower or its
Subsidiary (together with any cash) is reasonably equivalent to the Fair Market
Value of the Oil and Gas Properties (together with any cash) to be received by
the Borrower or its Subsidiary, and (ii) any cash received must be applied in
accordance with Section 3.4.2;

 

(vii)    Dispositions of seismic, geologic or other data and license rights in
the ordinary course of business so long as such Disposition is not adverse to
the Lenders and does not impair the Borrower’s or any Subsidiary’s operation of
the Oil and Gas Properties;

 

 16 

 

 

(viii)   Hedge Modifications; provided that the consideration received for such
Hedge Modification is at least equal to Fair Market Value;

 

(ix)      solely to the extent constituting a Disposition, the incurrence of
Liens, the making of Investments and the making of Restricted Payments, in each
case as expressly permitted by this Agreement;

 

(x)       Dispositions of claims against customers, working interest owners,
other industry partners or any other Person in connection with workouts or
bankruptcy, insolvency or other similar proceedings with respect thereto;
provided that the consideration received for such claim is at least equal to
Fair Market Value; and

 

(xi)      other dispositions and sales of Properties (including any midstream
assets or gathering systems) not otherwise permitted pursuant to Section 7.9.2
and this definition having a fair market value not to exceed $15,000,000 in the
aggregate for all dispositions and sales of Properties pursuant to this clause
(xi) for the term of this Agreement; provided that:

 

(a)       the consideration received shall be at least equal to the Fair Market
Value of any Oil and Gas Property or other Properties subject to such
Disposition (and the Borrower shall deliver to the Required Lenders a
certificate of certifying that such Disposition was for Fair Market Value); and

 

(b)       at least 75% of the consideration received by the Borrower or any
Subsidiary in respect of such Disposition is cash or Cash Equivalents and any
consideration not received in the form of cash or Cash Equivalent shall solely
be in the form of Oil and Gas Properties (excluding, for the avoidance of doubt,
any Capital Stock); and

 

(c)       such Disposition shall not be a farm-out, drillco, or similar
arrangement without the prior consent of the Required Lenders.

 

“Permitted Indebtedness” means:

 

(i)       the Obligations;

 

(ii)      unsecured accounts payable incurred in the ordinary course of
business;

 

(iii)     unsecured Debt incurred by the Borrower or any Guarantor on or after
the Closing Date; provided, that the aggregate amount of interest on such Debt
payable in cash shall not exceed $5,000,000 per annum;

 

(iv)     Debt arising under Acceptable Hedging Transactions and under the
Hedging Agreement(s) governing such Acceptable Hedging Transactions (but only to
the extent such Debt arises in connection with Acceptable Hedging Transactions);

 

(v)      the SOS Note;

 

(vi)     any Second Lien Obligations;

 

(vii)    intercompany Debt between the Borrower and any Subsidiary or between
Subsidiaries; provided that any such Debt owed by either the Borrower or a
Subsidiary shall be subordinated on terms reasonably acceptable to the Required
Lenders;

 

 17 

 

 

(viii)   Debt of the Borrower and the Subsidiaries incurred to finance the
acquisition, construction or improvement of any fixed or capital assets
(including office equipment, data processing equipment and motor vehicles),
including any Capitalized Lease and any Debt assumed in connection with the
acquisition of any assets or secured by a Lien on any assets prior to the
acquisition thereof; provided that (A) with respect to the Debt incurred
pursuant to this clause (viii), such Debt is incurred prior to or within 180
days after such acquisition or the completion of such construction or
improvement and (B) the aggregate principal amount of Debt permitted by this
clause (viii) at any time outstanding shall not exceed $2,500,000;

 

(ix)     Debt (other than Debt for borrowed money) incurred or deposits made by
the Borrower or any Subsidiary (i) under worker’s compensation laws,
unemployment insurance laws or similar legislation, (ii) in connection with
bids, tenders, contracts (other than for the payment of Debt) or leases to which
the Borrower or any Subsidiary is a party, (iii) to secure public or statutory
obligations of the Borrower or any Subsidiary, and (iv) of cash or U.S.
Government Securities made to secure the performance of statutory obligations,
surety, stay, customs and appeal bonds to which the Borrower or any Subsidiary
is party in connection with the operation of the Oil and Gas Property, in each
case in the ordinary course of business;

 

(x)       Guarantees in respect of Debt otherwise permitted pursuant to this
Agreement;

 

(xi)      Debt in connection with the endorsement of negotiable instruments and
other obligations in respect of cash management services, netting services,
overdraft protection and similar arrangements, in each case incurred in the
ordinary course of business;

 

(xii)     Debt in respect of insurance premium financing for insurance being
acquired or maintained by the Borrower or any Subsidiary under customary terms
and conditions in an aggregate amount not to exceed $2,000,000;

 

(xiii)    any obligation arising from agreements of the Borrower or any
Subsidiary providing for indemnification, adjustment of purchase price, earn
outs, or similar obligations, in each case, incurred or assumed in connection
with the disposition or acquisition of any business, assets or Capital Stock of
a Subsidiary in a transaction permitted under this Agreement, provided that such
Debt incurred pursuant to this clause (xiii) shall not exceed, in the aggregate,
$2,000,000;

 

(xiv)   Debt arising under gas balancing agreements which do not give rise to
liability in the aggregate on a consolidated basis for the Borrower and its
Subsidiaries in excess of $1,000,000 at any one time outstanding; and

 

(xv)    Debt arising under any Advance Payment Contracts; provided that the
aggregate amount of all Advance Payments received by the Borrower or any
Subsidiary that have not been satisfied by delivery of production at any time
does not exceed, in the aggregate $1,000,000.

 

 18 

 

 

“Permitted Encumbrances” means:

 

(i)       Liens imposed by law for Taxes, assessments or other governmental
charges or levies which are not yet delinquent or which (i) are not overdue for
a period of more than thirty (30) days or are being contested in good faith by
appropriate proceedings diligently conducted, (ii) the Borrower or such
Subsidiary, as applicable, has set aside on its books adequate reserves with
respect thereto in accordance with GAAP and (iii) the failure to make payment
pending such contest could not reasonably be expected to result in a Material
Adverse Effect;

 

(ii)       carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s and
other like Liens imposed by law, and contractual Liens granted to operators and
non-operators under oil and gas operating agreements, in each case, arising in
the ordinary course of business or incident to the exploration, development,
operation and maintenance of Oil and Gas Property and securing obligations that
are not overdue by more than sixty (60) days or which (i) are being contested in
good faith by appropriate proceedings, (ii) the Borrower or such Subsidiary, as
applicable, has set aside on its books adequate reserves with respect thereto in
accordance with GAAP and (iii) the failure to make payment pending such contest
could not reasonably be expected to result in a Material Adverse Effect;

 

(iii)     contractual Liens which arise in the ordinary course of business under
oil and gas leases, operating agreements, partnership agreements, division
orders, contracts for the sale, transportation or exchange of oil and natural
gas, unitization and pooling declarations and agreements, area of mutual
interest agreements, marketing agreements, processing agreements, overriding
royalty agreements, net profits agreements, deferred purchase agreements,
development agreements, gas balancing, injection, repressuring and recycling
agreements, salt water or other disposal agreements and seismic or other
geophysical permits or agreements, and other agreements which are usual and
customary in the oil and gas business and are for claims which are not
delinquent or which are being contested in good faith by appropriate action and
for which adequate reserves have been maintained in accordance with GAAP, that
are taken into account in computing the net revenue interests and working
interests of the Borrower or any of its Subsidiaries warranted in the Security
Document or this Agreement which Liens are limited to the Oil and Gas Property
and related property that is the subject of such agreement, arising out of or
pertaining to the operation or the production or sale of hydrocarbons produced
from the Oil and Gas Property, provided that any such Lien referred to in this
clause does not materially impair the use of the property covered by such Lien
for the purposes for which such property is held by the Borrower or any
Subsidiary or materially impair the value of such property subject thereto;
provided that any such Liens permitted pursuant to this clause (iii) shall not
include any Liens in connection any farm-out, drillco, or similar arrangement;

 

(iv)     pledges and deposits in connection with workers’ compensation,
unemployment insurance and other social security laws or regulations;

 

(v)      Liens on cash and securities, letters of credit and deposits to secure
the performance of bids, trade contracts, leases, statutory obligations
(excluding Liens arising under ERISA), surety and appeal bonds, performance
bonds and other obligations of a like nature, in each case, which are in the
ordinary course of business and which are in respect of obligations that are not
delinquent or which are being contested in good faith by appropriate action and
for which adequate reserves have been maintained in accordance with GAAP;

 

(vi)     Liens arising solely by virtue of any statutory or common law provision
relating to banker’s liens, rights of set-off or similar rights and remedies, or
under general depositary agreements, and burdening only deposit accounts or
other funds maintained with a creditor depository institution, provided that no
such deposit account is a dedicated cash collateral account or is subject to
restrictions against access by the depositor in excess of those set forth by
regulations promulgated by the Board of Governors and no such deposit account is
intended by Borrower or any of its Subsidiaries to provide collateral to the
depository institution;

 

 19 

 

 

(vii)    judgment liens in respect of judgments that do not constitute an Event
of Default;

 

(viii)   easements, zoning restrictions, rights-of-way, servitudes, permits,
surface leases, and similar encumbrances on real property imposed by law or
arising in the ordinary course of business that do not secure any monetary
obligations and that, in the aggregate, do not materially detract from the value
of the affected property or materially impair the use of the affected property
or interfere with the ordinary conduct of business of the Borrower or any
Subsidiary;

 

(ix)     royalties, overriding royalties, reversionary interests and similar
burdens granted by the Borrower or any Subsidiary with respect to the Oil and
Gas Property owned by the Borrower or such Subsidiary, as the case may be, if
the net cumulative effect of such burdens does not operate to deprive the
Borrower or any Subsidiary of any material right in respect of its assets or
properties (except for rights customarily granted with respect to such
interests) and the net cumulative effect is deducted in the calculation of PV-9
Value;

 

(x)       Liens arising from Uniform Commercial Code financing statement filings
regarding operating leases entered into by the Borrower or any Subsidiary in the
ordinary course of business covering the property under the lease;

 

(xi)      unperfected Liens reserved in leases (other than oil and gas leases)
or arising by operation of law for rent or compliance with the lease in the case
of leasehold estates; and

 

(xii)     defects in or irregularities of title (other than defects or
irregularities of title to Oil and Gas Property), if such defects or
irregularities do not deprive the Borrower or any Subsidiary of any material
right in respect of its assets or properties;

 

provided that the term “Permitted Encumbrances” shall not include any Lien
securing indebtedness for borrowed money.

 

“Permitted Investments” means:

 

(i)       any Investment (i) in the Borrower, (ii) made by any Loan Party in or
to any Loan Party, and (iii) made by any Subsidiary in or to any Loan Party;

 

(ii)      any Investment in Cash Equivalents;

 

(iii)     any Investments received (A) in compromise of obligations with respect
to trade creditors or customers that were incurred in the ordinary course of
business, including pursuant to any plan of reorganization or similar
arrangement upon the bankruptcy or insolvency of any trade creditor or customer
or (B) in compromise of obligations relating to or in resolution of litigation,
arbitration or other disputes with Persons that are not Affiliates;

 

(iv)     Investments received in satisfaction of judgments, foreclosure of Liens
or settlement of Debt;

 

 20 

 

 

(v)       Acceptable Hedging Transactions;

 

(vi)       Investments in accounts receivable, prepaid expenses, trade credit,
negotiable instruments held for collection and lease, utility and worker’s
compensation, performance and other similar deposits provided to third parties
and endorsements for collection or deposit arising in the ordinary course of
business and not for speculative purposes;

 

(vii)       advances, deposits and prepayments for purchases of any assets;

 

(viii)      loans or advances in the ordinary course of business for bona fide
business purposes of the Borrower and its Subsidiaries (including travel,
entertainment and relocation expenses);

 

(ix)        in connection with any Property contributed or transferred to any
Person as an Investment, such Property shall be equal to the Fair Market Value
at the time of the Investment, without regard to subsequent changes in value.
With respect to any Investment, the Borrower may, in its sole discretion,
allocate or reallocate all or any portion of any Investment to one or more
applicable clauses above so that the entire Investment is a Permitted
Investment;

 

(x)        guarantees constituting Permitted Indebtedness (other than guarantees
in respect of any Capitalized Lease) and performance guarantees incurred in the
ordinary course of business;

 

(xi)        Investments by the Borrower and its Subsidiaries in Oil and Gas
Properties that are customary in the oil and gas business and in the ordinary
course of the Borrower’s or such Subsidiary’s business, and in the form of, or
pursuant to, oil, gas and mineral leases, operating agreements, unitization
agreements, joint bidding agreements, services contracts and other similar
agreements that a reasonable and prudent oil and gas industry owner or operator
would find acceptable; provided that Investments (i) in Capital Stock and (ii)
made in the form of, or pursuant to, farm-outs, drillcos or other similar
arrangements, in each case, shall not be permitted without the prior written
consent of the Required Lenders;

 

(xii)       Investments consisting of any Acceptable Hedging Transactions;

 

(xiii)       Investments consisting of earnest money deposits in connection with
an Investment otherwise permitted by this Agreement; and

 

(xiv)      other Investments not to exceed $2,000,000 in the aggregate.

 

“Permitted Liens” means, with respect to any Property, each of the following:

 

(i)         Liens securing the Obligations;

 

(ii)        the following, if the validity and amount thereof are being
contested in good faith and by appropriate legal proceedings and so long as (a)
levy and execution thereon have been stayed and continue to be stayed, (b) they
do not in the aggregate materially detract from or threaten the value of such
Property, or materially impair the use thereof in the operation of the business
of the owner of such Property, and (c) a reserve therefor, if appropriate, has
been established: claims and Liens for Taxes due and payable; claims and Liens
upon and defects of title to real and personal property; claims and Liens of
landlords, repairmen, mechanics, materialmen, warehousemen, or carriers, or
similar Liens; and adverse judgments on appeal;

 

 21 

 

 

(iii)       any Permitted Encumbrances;

 

(iv)       Liens in favor of the lessor on the Property being leased under any
Capitalized Lease permitted hereunder;

 

(v)        minor defects in title to an Oil and Gas Property not in any case
materially detracting from the value of such Property;

 

(vi)       Liens securing a Second Lien Facility pursuant to the Second Lien
Documents subject to the Intercreditor Agreement;

 

(vii)       any Lien existing on any Property prior to the acquisition thereof
by the Borrower or any Subsidiary or existing on any Property of any Person that
becomes a Subsidiary after the Closing Date prior to the time such Person
becomes a Subsidiary; provided that (i) such Lien secures Indebtedness permitted
by clause (viii) of the definition of Permitted Indebtedness, (ii) such Lien is
not created in contemplation of or in connection with such acquisition or such
Person becoming a Subsidiary, as the case may be, (iii) such Lien shall not
apply to any other Property of the Borrower or any other Subsidiary and (iv)
such Lien shall secure only those obligations which it secures on the date of
such acquisition or the date such Person becomes a Subsidiary, as the case may
be and extensions, renewals and replacements thereof that do not increase the
outstanding principal amount thereof;

 

(viii)      Liens on fixed or capital assets (including office equipment, data
processing equipment and motor vehicles) acquired, constructed or improved by
the Borrower or any Subsidiary; provided that (i) such Liens secure Indebtedness
permitted by clause (viii) of the definition of Permitted Indebtedness,
(ii) such Liens and the Indebtedness secured thereby are incurred prior to or
within 180 days after such acquisition or the completion of such construction or
improvement, (iii) the Indebtedness secured thereby does not exceed the cost of
acquiring, constructing or improving such fixed or capital assets and (iv) such
Liens shall not apply to any other property or assets of the Borrower or any
other Subsidiaries (other than proceeds and accessions and additions to such
property);

 

(ix)        Liens securing insurance premium financing permitted by clause (vii)
of the definition of Permitted Indebtedness under customary terms and
conditions, provided that no such Lien may extend to or cover any property other
than the insurance being acquired with such financing, the proceeds thereof and
any unearned or refunded insurance premiums related thereto; and

 

(x)         Liens on cash margin collateral, deposits or securities required by
any Person with whom any Credit Party enters into an Acceptable Hedging
Transaction securing obligations in any amount not to exceed $2,000,000 in the
aggregate.

 

“Person” means a natural person, a corporation, a partnership, a limited
partnership, a limited liability company, an association, a joint venture, a
trust or any other entity or organization including a government or political
subdivision or any governmental agency or instrumentality thereof.

 

“Plan” means any employee benefit plan which is covered by Title IV of ERISA.

 

 22 

 

 

“Property”, “property” or “asset” means any interest in any kind of property or
asset, whether real, personal or mixed, tangible or intangible.

 

“Proved Reserves” means “Proved Reserves” as defined in the Petroleum Resources
Management System as in effect at the time in question prepared by the Oil and
Gas Reserves Committee of the Society of Petroleum Engineers and reviewed and
jointly sponsored by the World Petroleum Council, the American Association of
Petroleum Geologists and the Society of Petroleum Evaluation Engineers (or any
generally recognized successor organizations).

 

“Purchaser” has the meaning given to such term in Section 11.2.1 hereof.

 

“PV-9 Value” means (a) in respect of the Proved Reserves of any Loan Party’s Oil
and Gas Properties set forth in the most recently delivered Reserve Report, the
aggregate net present value (discounted at 9% per annum) of such Oil and Gas
Properties calculated before income taxes, but after reduction for royalties,
lease operating expenses, severance and ad valorem taxes, capital expenditures
and abandonment costs and with no escalation of capital expenditures or
abandonment costs (a) calculated in accordance with SEC guidelines but using
Strip Price for crude oil and natural gas liquids (WTI Cushing) and natural gas
(Henry Hub), and (b) calculated (i) in the case of a Reserve Report prepared as
of December 31 of any year, by an Approved Petroleum Engineer and (ii) in the
case of each other Reserve Report or as otherwise required under this Agreement,
at the Borrower’s option, by a petroleum engineer employed by the Borrower or an
Approved Petroleum Engineer, in each case, in such person’s reasonable judgment
after having reviewed the information from the most recently delivered Reserve
Report, (iii) as set forth in the Reserve Report most recently delivered under
Section 7.2, (iv) as adjusted to give effect to Hedging Agreements permitted by
this Agreement as in effect on the date of such determination and (v) as
adjusted to give pro forma effect to all dispositions or acquisitions of Oil and
Gas Properties completed since the date of the Reserve Report.

 

“Rate Management Transaction” means any transaction (including an agreement with
respect thereto) now existing or hereafter entered into by the Borrower 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.

 

“Regulation U” means Regulation U of the Board of Governors, as in effect from
time to time.

 

“Related Parties” means, with respect to any specified Person, such Person’s
Affiliates and the respective directors, officers, managers, members, partners,
employees, agents and advisors of such Person and such Person’s Affiliates.

 

“Release of Hazardous Substances” means any emission, spill, release, disposal,
or discharge, except in accordance with a valid permit, license, certificate, or
approval of the relevant Governmental Authority, of any Hazardous Substance into
or upon (a) the air, (b) soils or any improvements located thereon, (c) surface
water or groundwater, or (d) the sewer or septic system, or the waste treatment,
storage, or disposal system servicing any Property of the Borrower or any
Guarantor, with respect to which the Borrower or any Guarantor is legally
obligated to respond under applicable Environmental Laws, by notifying the
relevant Governmental Authority, investigating or undertaking corrective action.

 

 23 

 

 

“Removal Effective Date” has the meaning given to such term in Section 4.8
hereof.

 

“Replacement Security Documents” means each security document or instrument
granting a first priority Lien on the Collateral (as described therein), subject
only to Permitted Liens, executed and delivered to secure all or a portion of
the Obligations in connection with the consummation of the transactions
contemplated by a Second Lien Facility, and all other documents and instruments
at any time executed as security for all or any portion of the Obligations
(including, without limitation, any Mortgages), as such instruments may be
amended, restated, supplemented or otherwise modified from time to time;
provided that such security document or instrument granting a first priority
Lien on the Collateral shall be on substantially the same terms and conditions
as any corresponding security document or instrument securing the Second Lien
Obligations.

 

“Representative’s Certificate” means a certificate signed by a Responsible
Representative.

 

“Required Lenders” means Lenders holding Loans in excess of fifty percent (50%)
of the Loans outstanding as of any date of determination.

 

“Requirement of Law” means, as to any Person, its Organizational Documents, and
all applicable Laws.

 

“Reserve Report” means an unsuperseded engineering analysis of the Loan Parties’
Oil and Gas Properties, in form and substance reasonably acceptable to the
Required Lenders, which shall include (i) pricing assumptions based upon the
Strip Price and (ii) projections of revenues attributable to all undrilled
locations on the Loan Parties’ Oil and Gas Properties based on a development
plan for a period no greater than 7 years from the date of such Reserve Report
reasonably acceptable to the Required Lenders; provided that, for the avoidance
of doubt, such projections need not be based on historical capital expenditures
in such locations nor take into account potential financings of projected
capital expenditures.

 

“Resignation Effective Date” has the meaning given to such term in Section 4.8
hereof.

 

“Responsible Representative” means the Chairman, President, Chief Executive
Officer, Chief Financial Officer or Vice President of the Borrower, or any other
officer of the Borrower duly authorized by the Borrowers board of directors.

 

“Restricted Payment” means the occurrence of any of the following:

 

(i)          any withdrawal from the Borrower or any Guarantor of cash by any
owner of an Equity Interest in the Borrower or any such Guarantor or the
declaration or payment of any cash dividend on, or the incurrence of any
liability to make, or the making of, any other cash payment in respect of, any
Equity Interests in the Borrower or any Guarantor;

 

(ii)         any cash payment on account of the purchase, redemption or other
retirement of any Equity Interests in the Borrower or any Guarantor; or

 

 24 

 

 

(iii)        the repayment by the Borrower or any Guarantor in cash of any Debt
owed to an Affiliate (other than repayments to the Borrower), except as
specifically permitted by the Loan Documents.

 

“ROFR Financing” shall have the meaning given to such term in Section 8.16.1.

 

“ROFR Initiation Notice” shall have the meaning given to such term in Section
8.16.1.

 

“FROFR Option” shall have the meaning given to such term in Section 8.16.2.

 

“Sale and Leaseback Transaction” means any sale or other transfer of any
property by any Person with the intent to lease such property as lessee.

 

“SEC” means the United States Securities Exchange Commission.

 

“Second Lien Documents” means the “Loan Documents” or such analogous term under
a Second Lien Facility.

 

“Second Lien Facility” means a credit agreement or similar instrument among the
Borrower and certain financial intuitions party thereto providing for loans or
other Debt for borrowed money in an aggregate principal amount (excluding, for
the avoidance of doubt any capitalized interest or interest that is paid in kind
and any make-whole or other prepayment premium) not to exceed $175,000,000 which
loans or other Debt are secured on a second priority basis by Liens on the
Collateral and subject to the Intercreditor Agreement, as the same may be
amended, restated, supplemented or otherwise modified from time to time in
accordance with its terms.

 

“Second Lien Obligations” means the “Obligations” or such analogous term under a
Second Lien Facility.

 

“Security” means any stock, share, voting trust certificate, limited or general
partnership interest, member interest, bond debenture, note, or other evidence
of indebtedness, secured or unsecured, convertible, subordinated or otherwise,
or in general any instrument commonly known as a “Security” or any certificate
of interest, share or participation in temporary or interim certificates for the
purchase or acquisition of, or any right to subscribe to, purchase or acquire
any of the foregoing.

 

“Security Documents” means (i) before the occurrence of the Collateral
Modification Date, the security instruments executed and delivered in
satisfaction of the condition set forth in Section 4.1, the Mortgages, if any,
and all other documents and instruments at any time executed as security for all
or any portion of the Obligations, as such instruments may be amended, restated,
or supplemented from time to time, and (ii) after the occurrence of the
Collateral Modification Date, the Replacement Security Documents.

 

“SOS Note” means that certain subordinated promissory note, dated June 23, 2016,
issued by the Borrower to SOSV Investments LLC, as may be amended, supplemented,
replaced, extended, renewed or modified from time to time.

 

“Strip Price” shall mean, as of any date of determination, the forward month
prices as of such date, for the most comparable hydrocarbon commodity applicable
to such future production month for a five-year period (or such shorter period
if forward month prices are not quoted for a reasonably comparable hydrocarbon
commodity for the full five-year period), with such prices escalated at two
percent (2)% each year thereafter based on the last quoted forward month price
of such period, as such prices are (i) quoted on the NYMEX as of the
determination date and (ii) adjusted by appropriate management adjustments for
additions to reserves and depletion or sale of reserves since the date of such
Reserve Report, adjusted for any basis differential as of the date of
determination.

 

 25 

 

 

“Subsidiary” means for any Person, any corporation or other entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are at the time directly or indirectly owned, collectively, by such Person and
any Subsidiaries of such Person. The term Subsidiary shall include Subsidiaries
of Subsidiaries (and so on).

 

“Taxes” means all taxes, assessments, filing or other fees, levies, imposts,
duties, deductions, withholdings, stamp taxes, interest equalization taxes,
capital transaction taxes, foreign exchange taxes or charges, or other charges
of any nature whatsoever from time to time or at any time imposed by any Law or
Tribunal.

 

“Test Period” means, as the last day of any fiscal quarter of the Borrower, the
four prior consecutive fiscal quarters of Borrower, the last of which ends on
such date.

 

“Transferee” means any Person to which a Lender has sold, assigned or
transferred any of the Obligations, as authorized hereunder and including any
Person acquiring, by purchase, assignment, transfer (including transfers by
operation of law) or participation from any such purchaser, assignee or
transferee, any part of such Obligations.

 

“Tribunal” means any court, tribunal, governmental body, agency, arbitration
panel, or instrumentality.

 

“USA Patriot Act” means the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub.
L. No. 107-56, 115 Stat. 272 (2001), as the same has been, or shall hereafter
be, renewed, extended, amended or replaced.

 

1.2.Accounting Terms and Determinations; Changes in Accounting.

 

1.2.1.       Unless otherwise specified herein, all accounting terms used herein
and all references to accounting matters shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements required to
be delivered hereunder shall be prepared in accordance with GAAP, applied on a
basis consistent (except for changes concurred in by the independent public
accountants and with respect to which the Borrower shall have promptly notified
the Lenders becoming aware thereof) with the most recent financial statements of
the Borrower delivered to the Lenders. Accounting principles are applied on a
“consistent basis” when the accounting principles applied in a current period
are comparable in all material respects to those accounting principles applied
in a preceding period. Changes in the application of accounting principles which
do not have a material impact on calculating the financial covenants herein
shall be deemed comparable in all material respects to accounting principles
applied in a preceding period.

 

 26 

 

 

1.2.2.       The Borrower will not change its method of accounting, other than
immaterial changes in methods, changes permitted by applicable accounting
principles and changes required by a change in applicable accounting principles,
without the prior written consent of the Required Lenders, which consent shall
not be unreasonably withheld. To enable the ready and consistent determination
of compliance by the Borrower with its obligations under this Agreement, neither
the Borrower nor any of its Subsidiaries will change the manner in which either
the last day of its fiscal year or the last day of the first three (3) fiscal
quarters of its fiscal years is calculated without the prior written consent of
the Required Lenders, which consent shall not be unreasonably withheld.

 

1.2.3.       The fiscal year of the Borrower shall end on December 31 of such
year.

 

1.3.          References. References in this Agreement to Exhibits, Schedules,
Annexes, Appendixes, Attachments, Articles, Sections, Recitals or clauses shall
be to exhibits, schedules, annexes, appendixes, attachments, articles, sections,
recitals or clauses of this Agreement, unless expressly stated to the contrary.
References in this Agreement to “hereby,” “herein,” “hereinafter,”
“hereinabove,” “herein below,” “hereof,” “hereunder” and words of similar import
shall be to this Agreement in its entirety and not only to the particular
Exhibit, Schedule, Annex, Appendix, Attachment, Article, or Section in which
such reference appears. Exhibits and Schedules to any Loan Document shall be
deemed incorporated by reference in such Loan Document. References to any
document, instrument, or agreement (a) shall include all exhibits, schedules,
and other attachments thereto, and (b) shall include all documents, instruments,
or agreements issued or executed in replacement thereof. This Agreement, for
convenience only, has been divided into Articles and Sections; and it is
understood that the rights and other legal relations of the parties hereto shall
be determined from this instrument as an entirety and without regard to the
aforesaid division into Articles and Sections and without regard to headings
prefixed to such Articles or Sections. The phrases “this Section” and “this
clause” and similar phrases refer only to the sections or clauses hereof in
which such phrases occur. Whenever the context requires, reference herein made
to the single number shall be understood to include the plural; and likewise,
the plural shall be understood to include the singular. Definitions of terms
defined in the singular or plural shall be equally applicable to the plural or
singular, as the case may be, unless otherwise indicated. Words denoting sex
shall be construed to include the masculine, feminine and neuter, when such
construction is appropriate; and specific enumeration shall not exclude the
general but shall be construed as cumulative; the word “or” is not exclusive;
the word “including” (in its various forms) shall mean “including, without
limitation”; in the computation of periods of time, the word “from” means “from
and including” and the words “to” and “until” mean “to but excluding”; and all
references to money refer to the legal currency of the United States of America.
The Exhibits, Schedules, Annexes, Appendixes and Attachments attached to this
Agreement and items referenced as being attached to this Agreement are
incorporated herein and shall be considered a part of this Agreement for all
purposes. Except as otherwise indicated, references in this Agreement to
statutes, sections, or regulations are to be construed as including all
statutory or regulatory provisions consolidating, amending, replacing,
succeeding, or supplementing the statute, section, or regulation referred to.
References in this Agreement to “writing” include printing, typing, lithography,
facsimile reproduction, and other means of reproducing words in a tangible
visible form. References in this Agreement to agreements and other contractual
instruments shall be deemed to include all exhibits and appendices attached
thereto and all subsequent amendments and other modifications to such
instruments, but only to the extent such amendments and other modifications are
not prohibited by the terms of this Agreement.

 

 27 

 

 

1.4.         Amendment of Defined Instruments. Unless the context otherwise
requires or unless otherwise provided herein, the terms defined in this
Agreement which refer to a particular agreement, instrument or document also
refer to and include all renewals, extensions, modifications, amendments and
restatements of such agreement, instrument or document, provided that nothing
contained in this Section shall be construed to authorize any such renewal,
extension, modification, amendment or restatement,

 

1.5.         Joint Preparation; Construction of Indemnities and Releases. This
Agreement, the other Loan Documents have been reviewed and negotiated by
sophisticated parties with access to legal counsel, and no rule of construction
shall apply hereto or thereto which would require or allow any Loan Document to
be construed against any party because of its role in drafting such Loan
Document.

 

1.6.        Time References. Unless otherwise indicated, all references to a
time of day refer to the time of day in the Central Time Zone for such day, as
generally in effect in the state of Texas.

 

ARTICLE  II
TERMS OF FACILITY

 

2.1.[Reserved].

 

2.2.Bridge Loans.

 

2.2.1.        Subject to the terms and conditions of this Agreement and in
reliance upon the representation and warranties of the Loan Parties hereto, each
Lender agrees severally and not jointly to lend to the Borrower on the Bridge
Loan Closing Date the amount set forth opposite such Lender’s name on Schedule
2.2 under the heading “Bridge Loan Commitment” (such amount being referred to as
such Lender’s “Bridge Loan Commitment”).

 

2.2.2.       Subject to the terms and conditions of this Agreement and in
reliance upon the representation and warranties of the Loan Parties hereto, each
Lender agrees severally and not jointly to lend to the Borrower on the
Incremental Bridge Loan Closing Date the amount set forth opposite such Lender’s
name on Schedule 2.3 under the heading “Incremental Bridge Loan Commitment”
(such amount being referred to as such Lender’s “Incremental Bridge Loan
Commitment”).

 

2.3.Notes.

 

2.3.1.       The Loans shall be evidenced by one or more Notes issued by the
Borrower, payable to the order of each Lender with a Commitment hereunder.

 

2.3.2.       The outstanding principal of the Notes reflected by the notations
(whether handwritten, electronic or otherwise) by the Lenders on their records
shall be deemed rebuttably presumptive evidence of the principal amount owing on
the respective Note.

 

2.3.3.       Each Lender will record each payment of principal or interest made
by the Borrower with respect thereto on its books, and may, if such Lender so
elects in connection with any transfer or enforcement of its Note, endorse on
the schedule (modified as such Lender shall deem advisable) forming a part
thereof appropriate notations to evidence the foregoing information with respect
to each such Loan then outstanding; provided that the failure of the Lender to
make any such recordation or endorsement shall not affect the obligations of the
Borrower hereunder or under the applicable Note. Each Lender is hereby
irrevocably authorized by the Borrower so to endorse such Lender’s Note and to
attach to and make a part of the Note a continuation of any such schedule
(modified as the Lender shall deem advisable) as and when required.

 

 28 

 

 

2.4.Reserved.

 

2.5.Interest Rates; Payment of Interest.

 

2.5.1.       [Reserved].

 

2.5.2.       Accrued interest on all Notes shall be payable in arrears on each
Interest Payment Date; provided that, interest accrued pursuant to Section 3.3
shall be payable on demand.

 

2.5.3.       Each determination hereunder of interest on the Notes and fees
hereunder based on per annum calculations shall be computed on the basis of a
year of three hundred sixty (360) days and paid for the actual number of days
elapsed (including the first day but excluding the last day).

 

2.5.4.       The unpaid principal of the Bridge Loan Notes shall bear interest
from the Bridge Loan Closing Date at a rate equal to Bridge Loan Base Rate or
such higher rate as is specified in Section 3.3. The unpaid principal of the
Incremental Bridge Loan Notes shall bear interest from the Incremental Bridge
Loan Closing Date at a rate equal to Incremental Bridge Loan Base Rate or such
higher rate as is specified in Section 3.3.

 

2.5.5.       Additional interest shall accrue and be payable in kind on each
Bridge Loan Note in an amount equal to the Bridge PIK Rate on the outstanding
principal amount of such Bridge Loan Note. Such accrued additional interest
shall be added to the principal of each Bridge Loan Note upon each Interest
Payment Date, by increasing the then outstanding principal amount of the Bridge
Loan Note by the amount of such additional interest paid in kind on such
Interest Payment Date. Additional interest shall accrue and be payable in kind
on each Incremental Bridge Loan Note in an amount equal to the Incremental
Bridge PIK Rate on the outstanding principal amount of such Incremental Bridge
Loan Note. Such accrued additional interest shall be added to the principal of
each Incremental Bridge Loan Note upon each Interest Payment Date, by increasing
the then outstanding principal amount of the Incremental Bridge Loan Note by the
amount of such additional interest paid in kind on such Interest Payment Date.

 

2.6.        Conditions to Closing Date Loans. No Lender shall be obligated to
make Closing Date Loans hereunder unless the following conditions shall have
been satisfied or waived by the Required Lenders.

 

2.6.1.       Receipt of Loan Documents and Other Items. On or prior to the
Closing Date, the Lenders shall have received the following, in each case in
form and substance reasonably satisfactory to the Lenders:

 

(i)       the duly executed Notes for each Lender in the amount at least equal
to its Available Commitment;

 

 29 

 

 

(ii)         copies of the Organizational Documents, and all amendments thereto,
of each Loan Party, accompanied by certificates that such copies are correct and
complete, one issued by the Secretary of State of the state of incorporation or
formation of each such Loan Party, dated a current date;

 

(iii)       certificates of incumbencies and signatures of all officers of each
Loan Party who will be authorized to execute or attest any of the Loan
Documents;

 

(iv)       copies of resolutions approving the Loan Documents and authorizing
the transactions contemplated therein, duly adopted by the governing authority
of each Loan Party accompanied by certificates of an authorized representative
reasonably acceptable to the Required Lenders, that such copies are true and
correct copies of resolutions duly adopted at the meeting of, or by the
unanimous written consent of, the authorized body of each Loan Party and that
such resolutions constitute all the resolutions adopted with respect to such
transactions, have not been amended, modified or revoked in any respect and are
in full force and effect as of the Closing Date;

 

(v)        certificates of good standing (or equivalent) for each Loan Party,
dated a current date, to the effect that such Loan Party is in good standing
with respect to the payment of franchise or other Taxes and, if required by Law,
is duly qualified to transact business in such jurisdiction;

 

(vi)       confirmation, reasonably acceptable to the Required Lenders, of the
title of the Borrower, free and clear of Liens, other than Permitted Liens, to
Oil and Gas Properties that in the aggregate have value as Collateral of no less
than eighty percent (80%) of the aggregate value as Collateral of all Proved
Reserves from the Oil and Gas Properties;

 

(vii)      confirmation reasonably acceptable to the Required Lenders that the
Oil and Gas Properties of the Borrower are in compliance in all material
respects with applicable Environmental Laws;

 

(viii)     certificates of insurance from the insurance companies insuring the
Borrower and each other Loan Party which will execute any Loan Documents,
confirming insurance for the Borrower and each such other Loan Party meeting the
standards of Section 7.1.4(iv);

 

(ix)        payment of (i) the Commitment Fee to each Lender and (ii) any
reasonable legal fees and expenses or estimates thereof of one (1) legal counsel
to the Lenders for which invoices or estimates have been presented on or before
the Closing Date;

 

(x)         if requested by the Required Lenders, a certificate from an
authorized representative reasonably acceptable to the Required Lenders
certifying that to the best of such individual’s knowledge as to the truth and
correctness in all material respects of each representation and warranty
contained in Article VI hereof as of the Closing Date and that no Default or
Event of Default exists as of the Closing Date;

 

(xi)        any consents, approvals, authorizations of a Governmental Authority
or other third party required for the valid execution, delivery and the
performance of this Agreement or any other Loan Documents by the Borrower or any
other Loan Party; and

 

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(xii)       an amended and restated Warrant.

 

2.6.2.       Financial Statements. On the Closing Date, each Lender shall have
received and reviewed: (i) the consolidated audited financial statements of
Borrower and its Subsidiaries as of December 31, 2015 and (ii) the consolidated
unaudited financial statements of Borrower and its Subsidiaries as of June 30,
2016 (together the “Financial Statements”).

 

2.6.3.       No Material Adverse Effect. No Material Adverse Effect shall have
occurred since August 22, 2016.

 

2.7.Maturity of Notes.

 

2.7.1.       The Notes shall finally mature no later than the Final Maturity
Date, and any unpaid principal of the Notes and accrued, unpaid interest thereon
shall be due and payable on such date.

 

2.7.2.       The Bridge Loan Notes shall finally mature no later than the Bridge
Loan Maturity Date, and any unpaid principal of the Bridge Loan Notes and
accrued, unpaid interest thereon shall be due and payable on such date.

 

2.7.3.       The Incremental Bridge Loan Notes shall finally mature no later
than the Incremental Bridge Loan Maturity Date, and any unpaid principal of the
Incremental Bridge Loan Notes and accrued, unpaid interest thereon shall be due
and payable on such date.

 

2.8.Principal Payment.

 

2.8.1.       The Borrower shall pay all principal of the Incremental Bridge
Loans, all accrued and unpaid interest thereon, and all other Obligations with
respect to the Incremental Bridge Loans to the Bridge Lenders on the Incremental
Bridge Loan Maturity Date.

 

2.8.2.       The Borrower shall pay all principal of the Bridge Loans, all
accrued and unpaid interest thereon, and all other Obligations with respect to
the Bridge Loans to the Bridge Lenders on the Bridge Loan Maturity Date.

 

2.9.          Conditions to Bridge Loans. No Bridge Lender shall be obligated to
make Bridge Loans hereunder unless the following conditions shall have been
satisfied or waived by the Bridge Lenders:

 

2.9.1.       Receipt of Bridge Loan Notes. On or prior to the Bridge Loan
Closing Date, the Bridge Lenders shall have received duly executed Bridge Loan
Notes for each Bridge Lender in the amount at least equal to its Bridge Loan
Commitment.

 

2.9.2.       Representations and Warranties. The representations and warranties
contained in Article VI hereof shall be true and correct in all material
respects as of the Bridge Loan Closing Date, except to the extent any such
representations and warranties are expressly limited to an earlier date, in
which case, on and as of the Bridge Loan Closing Date, such representations and
warranties shall continue to be true and correct in all material respects as of
such specified earlier date.

 

2.9.3.       No Default or Event of Default. As of the Bridge Loan Closing Date,
no Default or Event of Default shall be continuing.

 

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2.9.4.       No Material Adverse Effect. No Material Adverse Effect shall have
occurred since December 31, 2016.

 

2.9.5.       Officer’s Certificate. The Bridge Lenders shall have received a
certificate dated as of the Bridge Loan Closing Date and signed by an officer of
the Borrower, confirming compliance with the conditions set forth in Section
2.9.2, Section 2.9.3 and Section 2.9.4 of this Agreement.

 

2.10.       Conditions to Incremental Bridge Loans. No Incremental Bridge Lender
shall be obligated to make Incremental Bridge Loans hereunder unless the
following conditions shall have been satisfied or waived by the Incremental
Bridge Lenders:

 

2.10.1.       Receipt of Incremental Bridge Loan Notes. On or prior to the
Incremental Bridge Loan Closing Date, the Incremental Bridge Lenders shall have
received duly executed Incremental Bridge Loan Notes for each Incremental Bridge
Lender in the amount at least equal to its Incremental Bridge Loan Commitment.

 

2.10.2.       Representations and Warranties. The representations and warranties
contained in Article VI hereof shall be true and correct in all material
respects as of the Incremental Bridge Loan Closing Date, except to the extent
any such representations and warranties are expressly limited to an earlier
date, in which case, on and as of the Incremental Bridge Loan Closing Date, such
representations and warranties shall continue to be true and correct in all
material respects as of such specified earlier date.

 

2.10.3.       No Default or Event of Default. As of the Incremental Bridge Loan
Closing Date, no Default or Event of Default shall be continuing.

 

2.10.4.       No Material Adverse Effect. No Material Adverse Effect shall have
occurred since December 31, 2016.

 

2.10.5.       Officer’s Certificate. The Incremental Bridge Lenders shall have
received a certificate dated as of the Incremental Bridge Loan Closing Date and
signed by an officer of the Borrower, confirming compliance with the conditions
set forth in Section 2.10.2, Section 2.10.3 and Section 2.10.4 of this
Agreement.

 

ARTICLE  III
GENERAL PROVISIONS

 

3.1.General Provisions as to Payments.

 

3.1.1.       All payments of principal and interest on the Notes and of fees
hereunder shall be made, without setoff, deduction or counterclaim, by 12:00
p.m. CT on the date such payments are due in federal or other funds immediately
available at the office of the Lenders referred to in Article XII and, if not
made by such time or in immediately available funds, then such payment shall be
deemed made when such funds are available to the applicable Lender for its full
and unrestricted use. Whenever any payment of principal of or interest on the
Notes or of fees hereunder shall be due on a day which is not a Business Day,
the date for payment thereof shall be extended to the next succeeding Business
Day. If the date for any payment is extended by operation of law or otherwise,
interest thereon shall be payable for such extended time.

 

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3.1.2.       All payments made by the Borrower on the Notes shall be made free
and clear of, and without reduction by reason of, any Taxes.

 

3.1.3.       All payments shall be denominated in Dollars.

 

3.2.Taxes.

 

3.2.1.       All payments by the Borrower hereunder and under the other Loan
Documents shall be made without setoff or counterclaim and free and clear of and
without deduction for any taxes, levies, imposts, duties, charges, fees,
deductions, withholdings, compulsory loans, restrictions or conditions of any
nature now or hereafter imposed or levied by any jurisdiction or any political
subdivision thereof or taxing or other authority therein, unless the Borrower is
required by law (as determined in the good faith discretion of the Borrower on
the advice of counsel to the Borrower) to make such deduction or withholding.
Subject to Section 3.2.2, if any Non-Excluded Taxes are required to be withheld
with respect to any amount payable by the Borrower hereunder, the Borrower will
pay to the applicable Lender, on the date on which such amount is due and
payable hereunder, such additional amount in Dollars as shall be necessary to
enable such Lender to receive the same net amount which such Lender would have
received on such due date had no such Non-Excluded Taxes been required to be
withheld. For purposes of this Agreement, “Non-Excluded Taxes” are any taxes,
levies, imposts, duties, charges, fees, deductions or withholdings of any nature
now or hereafter imposed or levied by any jurisdiction or any political
subdivision thereof or taxing or other authority therein other than (A) any
United States federal withholding tax imposed pursuant to FATCA or (B) net
income taxes (however denominated), franchise taxes (imposed in lieu of net
income taxes), branch profits taxes and any other similar taxes imposed on any
Lender by the jurisdiction under the laws of which such Lender is organized or
in which its principal office is located or through which it holds the Notes or
any political subdivision, taxing authority or other authority thereof or
therein, or as a result of a present or former connection between such Lender
and the jurisdiction imposing such tax other than a connection arising solely as
a result of such Lender having executed, delivered or performed its obligations
or received payments under, or enforced, this Agreement. The Borrower will
deliver promptly to the applicable Lender certificates or other valid vouchers
for all taxes or other charges deducted from or paid with respect to payments
made by the Borrower hereunder. If the Borrower reasonably believes that such
Non-Excluded Taxes were not correctly or reasonably asserted, the applicable
Lender will use reasonable efforts to cooperate with the Borrower to obtain a
refund of such taxes (which shall be repaid to the Borrower so long as such
efforts would not, in the good faith determination of such Lender, result in any
material additional costs, expenses or risks or be otherwise disadvantageous to
it).

 

3.2.2.       Notwithstanding anything to the contrary contained herein, the
Borrower will not be required to make any additional payment to or for the
account of any Lender with respect to any Non-Excluded Taxes under Section 3.2.3
by reason of (i) a breach by such Lender of any certification or representation
set forth in any form furnished to the Borrower under Section 3.2.5 or such
Lender’s failure or inability to furnish under Section 3.2.5 an original or an
extension or renewal of any form required under Section 3.2.5, or (ii) if such
Non-Excluded Taxes are taxes required to be withheld on amounts payable to such
Lender at the time such Lender becomes a party to this Agreement (or changes its
place of organization or principal office).

 

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3.2.3.       If a Lender determines, in its reasonable discretion, that it has
received a refund of any taxes as to which it has been indemnified by a Borrower
under Section 3.2.1 or with respect to which the Borrower has paid additional
amounts pursuant to Section 3.2.1, it shall pay over such refund to the
Borrower, net of all out-of-pocket expenses of such Lender and without interest
(other than any interest paid by the relevant governmental authority with
respect to such refund). Each Lender agrees, that upon the occurrence of any
event giving rise to a tax as to which it has been indemnified by the Borrower
or with respect to which the Borrower has paid additional amounts pursuant to
Section 3.2.1, it will use reasonable efforts to mitigate the effect of any such
event, including by designating another lending office (if available) for any
Note affected by such event and by completing and delivering or filing any
tax-related forms which would reduce or eliminate such tax or additional
amounts.

 

3.2.4.       Subject to Section 3.2.2, the Borrower will indemnify each Lender
for the full amount of Non-Excluded Taxes imposed on or paid by such Lender and
any liability (including penalties, interest and reasonable expenses) arising
therefrom or with respect thereto, whether or not such Non-Excluded Taxes were
correctly or legally asserted. Payments under any indemnification provided for
in this Section 3.2.4 shall be made within thirty (30) days from the date such
Lender makes written demand therefor describing such Non-Excluded Taxes in
reasonable detail.

 

3.2.5.       Any Foreign Lender that is entitled to an exemption from or
reduction of withholding tax under the law of the jurisdiction in which the
Borrower is resident for tax purposes, or pursuant to any treaty to which such
jurisdiction is a party, with respect to payments hereunder shall deliver to the
Borrower, at the time or times prescribed by law or reasonably requested by the
Borrower, such properly completed and executed documentation prescribed by law
as will permit such payments to be made without withholding or at a reduced rate
of withholding. In addition, any Lender, if requested by the Borrower, shall
deliver such other documentation prescribed by law or reasonably requested by
the Borrower as will enable the Borrower to determine whether or not such Lender
is subject to backup withholding or information reporting requirements. Without
limiting the generality of the foregoing, each Foreign Lender shall deliver to
the Borrower (in such number of copies as shall be requested by the recipient)
on or prior to the date on which such Foreign Lender becomes a Lender under this
Agreement (and from time to time thereafter upon the request of the Borrower,
but only if such Foreign Lender is legally entitled to do so), whichever of the
following is applicable:

 

(i)       duly completed copies of Internal Revenue Service Form W-8BEN

 

(ii)       claiming eligibility for benefits of an income tax treaty to which
the United States is a party;

 

(iii)       duly completed copies of Internal Revenue Service Form W-8ECI;

 

(iv)       in the case of a Foreign Lender claiming the benefits of the
exemption for portfolio interest under section 881(c) of the Internal Revenue
Code, (x) a certificate to the effect that such Foreign Lender is not (A) a
“bank” within the meaning of section 881(c)(3)(A) of the Internal Revenue Code,
(B) a “10 percent shareholder” of any Borrower within the meaning of section
881(c)(3)(B) of the Internal Revenue Code, or (C) a “controlled foreign
corporation” described in section 881(c)(3)(C) of the Internal Revenue Code and
(y) duly completed copies of Internal Revenue Service Form W-8BEN; or

 

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(v)       any other form prescribed by law as a basis for claiming exemption
from or a reduction in United States Federal withholding tax duly completed
together with such supplementary documentation as may be prescribed by law to
permit the Borrower to determine the withholding or deduction required to be
made.

 

3.3.         Default Interest. At the option of the Required Lenders, the
principal of the Notes shall bear interest at the Default Rate during any time
an Event of Default exists and continues, and, to the extent not prohibited by
Law, overdue interest on the Notes shall bear interest at the Default Rate.

 

3.4.Prepayments.

 

3.4.1.       Borrower shall have the right at any time or from time to time to
prepay, in whole or in part, the Loans; provided that Borrower shall (a) pay at
the time of such prepayment (i) all accrued but unpaid interest due and owing
hereunder with respect to such Loans so prepaid, and (ii) in the case of any
prepayment of the Loans prior to January 19, 2018, an additional amount equal to
the interest that would have accrued from the date of such prepayment to January
19, 2018 pursuant to the terms hereof with respect to such Loan so repaid,1 (b)
have delivered a notice of payment as required pursuant to Section 3.4.3, and
(c) pay any applicable prepayment premium due pursuant to Section 3.5.

 

3.4.2.       unless the Required Lenders shall agree in writing that no
prepayment of the Loans is required pursuant to this Section 3.4.2, upon the
consummation of each Disposition of all or any part of its assets outside the
ordinary course of business Borrower shall (i) prepay the outstanding principal
amount of the Loans in an amount equal to fifty percent (50%) of the amount by
which the cash net proceeds (taking into account any underwriting discounts or
commissions and other reasonable transaction costs, fees and expenses properly
attributable to such transaction payable in connection therewith, excluding any
of the foregoing payable to Borrower, any Guarantor, any Subsidiary or any
Affiliate of any of the foregoing) of such Disposition exceeds $500,000 (such
amount, the “Prepayment Amount”, and/or (ii) elect (by written notice to the
Required Lenders) to reinvest all or any portion of such Prepayment Amount in
Additional Assets; provided further that if all or any portion of such
Prepayment Amount are not so used to reinvest in Additional Assets within 180
days, the Borrower shall apply the remaining portion of such Prepayment Amount
on the last date of such period to the prepayment of the Loans.

 

3.4.3.       Borrower shall give the Lenders at least one (1) Business Day’s
prior written notice of each prepayment proposed to be made by Borrower pursuant
to Sections 3.4.1 or 3.4.2, specifying the principal amount thereof to be
prepaid and the prepayment date. Notice of such prepayment having been given,
the principal amount of the Loan specified in such notice, together with
interest thereon to the date of prepayment, shall become due and payable on such
prepayment date.

 

3.4.4.       Any prepayment of the Loans pursuant to Section 3.4.1 or Section
3.4.5 shall be applied to repay the Bridge Loans and the Incremental Bridge
Loans, on a pro rata basis.

 

 

1 Insert date 3 months from incremental bridge closing date.

 

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3.4.5.       Unless the Required Lenders shall agree in writing that no
prepayment of the Loans is required pursuant to this Section 3.4.5, if any
Credit Party shall consummate any Asset Sale or receive any Net Cash Proceeds
from a Casualty Event (each such event, a “Prepayment Event”), then, not later
than two (2) Business Days after such Prepayment Event, the Borrower shall apply
all or any portion of such Net Cash Proceeds to the repayment of the Loans and
the payment of accrued and unpaid interest and any amount payable pursuant to
Section 3.4.1(a)(ii), and/or (ii) elect (by written notice to the Lenders) to
reinvest all or any portion of such Net Cash Proceeds in Additional Assets;
provided further that if all or any portion of such Net Cash Proceeds are not so
used to reinvest in Additional Assets within 180 days, the Borrower shall apply
the remaining portion of such Net Cash Proceeds on the last date of such period
to the prepayment of the Loans.

 

3.4.6.       The Borrower shall not have any right to reborrow any portion of
any Loan which has been repaid or prepaid from time to time.

 

3.5.Prepayment Premium.

 

3.5.1.       Upon any prepayment pursuant to Section 3.4.1 or Section 3.4.5 with
respect to the Loans, the Borrower shall pay a prepayment premium in an amount
equal to 1.00% of the principal amount of Loans so prepaid.

 

3.6.Additional Costs; Capital Adequacy.

 

3.6.1.       If any new law, rule or regulation, or any change after the date
hereof in the interpretation or administration of any applicable law, rule or
regulation by any Governmental Authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by any
Lender with any request or directive (whether or not having the force of law) of
any such authority, central bank or comparable agency in connection therewith
issued, promulgated or enacted after the date hereof shall:

 

(i)       subject any Lender to any tax, duty or other charge with respect to
its Loans, its Note or its Commitment, or shall change the basis of taxation of
payments to any Lender of the principal of or interest on its Loans or any other
amounts due under this Agreement or its Commitment, in each case except for any
tax on, or changes in the rate of tax on the overall net income of, or franchise
taxes payable by, such Lender or its Applicable Lending Office or any
Non-Excluded Taxes covered by Section 3.2; or

 

(ii)       impose, modify or deem applicable any reserve (including, without
limitation, any such requirement imposed by the Board of Governors of the
Federal Reserve System), special deposit, insurance assessment or similar
requirement against assets of, deposits with or for the account of, or credit
extended by, any Lender or shall impose on any Lender any other condition
affecting its Loans, its Note or its Commitment; or

 

(iii)       impose on any Lender any other conditions or requirements with
respect to this Agreement, the other Loan Documents, the Loans or such Lender’s
Commitment; and the result of any of the foregoing is to increase the cost to
such Lender of making, funding, issuing, renewing, extending or maintaining any
Loan or such Lender’s Commitment, or to reduce the amount of any sum received or
receivable by such Lender under this Agreement or under its Note with respect
thereto, by an amount deemed by such Lender to be material, then, promptly upon
demand by such Lender (and in any event within thirty (30) days after demand by
such Lender) and delivery to the Borrower of the certificate required by clause
(c) hereof, the Borrower shall pay to such Lender the additional amount or
amounts as will compensate such Lender for such increased cost or reduction.

 

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3.6.2.       If any Lender shall determine that any change after the date hereof
in any existing applicable law, rule or regulation or any new law, rule or
regulation regarding capital adequacy, or any change therein, or any change
after the date hereof in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or any new request or directive of
general applicability regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency issued,
promulgated or enacted after the date hereof, has or would have the effect of
reducing the rate of return on capital of such Lender (or its parent
corporation) as a consequence of such Lender’s obligations hereunder to a level
below that which such Lender (or its parent corporation) could have achieved but
for such law, change, request or directive (taking into consideration its
policies with respect to capital adequacy) by an amount deemed by such Lender to
be material, then from time to time, promptly upon demand by such Lender (and in
any event within thirty (30) days after demand by such Lender) the Borrower
shall pay to such Lender such additional amount or amounts as will compensate
such Lender (or its parent corporation) for such reduction; provided, however,
that notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall
Street Reform and Consumer Protection Act and all requests, rules, guidelines or
directives thereunder or issued in connection therewith, and (ii) all requests,
rules, guidelines or directives promulgated by any Lender for International
Settlements, the Basel Committee on Banking Supervision (or any successor or
similar authority) or the United States regulatory authorities, in each case
pursuant to Basel III, shall be deemed to be a change in law giving rise to a
payment or indemnity obligation by the Borrowers under this Section 3.6.2,
regardless of the date enacted, adopted or issued.

 

3.6.3.       Each Lender will promptly notify the Borrower of any event of which
it has knowledge, occurring after the date hereof, which will entitle such
Lender to compensation pursuant to this Section 3.6 and will designate a
different lending office if such designation will avoid the need for, or reduce
the amount of, such compensation and will not, in the judgment of such Lender,
be otherwise disadvantageous to such Lender; provided that the Borrower shall
not be required to compensate a Lender pursuant to this Section 3.6 for any
amounts incurred more than three months prior to the date that such Lender
notifies the Borrower of such Lender’s intention to claim compensation therefor;
and provided further that, if the circumstances giving rise to such claim have a
retroactive effect, then such three-month period shall be extended to include
the period of such retroactive effect. A certificate of any Lender claiming
compensation under this Section and setting forth in reasonable detail the
additional amount or amounts to be paid to it hereunder and the calculations
used in determining such additional amount or amounts shall be conclusive in the
absence of manifest error. In determining such amount, such Lender may use any
reasonable averaging and attribution methods.

 

ARTICLE  IV
APPOINTMENT OF COLLATERAL AGENT

 

4.1.[Reserved.]

 

4.2.[Reserved.]

 

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4.3.          Appointment and Authority. Each of the Lenders hereby irrevocably
appoints Deans Knight Capital Management Ltd., to act on its behalf as the
collateral agent (solely in its capacity as contractual representative of the
Lenders and not in its individual capacity), and any successor agent appointed
pursuant to this Article IV (the “Collateral Agent”) hereunder and under the
other Loan Documents for purposes of acquiring, holding and enforcing any and
all Liens on Collateral granted by the Loan Parties to the Lenders to secure any
of the Obligations, together with such powers and discretion as are reasonably
incidental thereto. All protections, exculpations, indemnifications, expense
reimbursements, rights, powers and privileges provided to the Lenders under this
Agreement and the other Loan Documents shall also apply to the Collateral Agent.
In this connection, the Collateral Agent and any co-agents, sub-agents and
attorneys-in-fact appointed by the Collateral Agent pursuant to this Article IV
for purposes of holding or enforcing any Lien on the Collateral (or any portion
thereof) granted under the Loan Documents, or for exercising any rights and
remedies thereunder, shall be entitled to the benefits of all provisions of this
Article IV and Article IX (including, without limitation, Section 9.3 and
Section 9.4 as though such co-agents, sub-agents and attorneys-in-fact were the
“collateral agent” or “Collateral Agent” under the Loan Documents) as if set
forth in full herein with respect thereto.

 

4.4.          Exculpatory Provisions. The duties of the Collateral Agent shall
be mechanical and administrative in nature. The Collateral Agent shall not have
any duties or obligations except those expressly set forth herein or in the
other Loan Documents, and its duties hereunder shall be administrative in
nature. Without limiting the generality of the foregoing:

 

4.4.1.       the Collateral Agent shall not be subject to any fiduciary or other
implied duties, regardless of whether a Default has occurred and is continuing;

 

4.4.2.       the Collateral Agent shall not have any duty to take any
discretionary action or exercise any discretionary powers, except discretionary
rights and powers expressly contemplated hereby that the Collateral Agent is
required to exercise as directed in writing by the Required Lenders; provided
that Collateral Agent shall not be required to take any action that, in its
judgment or the judgment of its counsel, may expose Collateral Agent to
liability or that is contrary to any Loan Document or applicable Requirements of
Law;

 

4.4.3.       except as expressly set forth herein, the Collateral Agent shall
not have any duty to disclose, and shall not be liable for the failure to
disclose, any information relating to any Loan Party or any of their Affiliates
that is communicated to or obtained by the Person serving as Collateral Agent or
any of its Affiliates in any capacity;

 

4.4.4.       the Collateral Agent shall not be responsible for (i) perfecting,
maintaining, monitoring, preserving or protecting the security interest or Lien
granted under the Credit Agreement, any other Loan Document or any agreement or
instrument contemplated hereby or thereby, (ii) the filing, re-filing,
recording, re-recording or continuing or any document, financing statement,
Mortgage, assignment, notice, instrument of further assurance or other
instrument in any public office at any time or times or (iii) providing,
maintaining, monitoring or preserving insurance on or the payment of taxes with
respect to any of the Collateral. The actions described in items (i) through
(iii) shall be the sole responsibility of the Borrower;

 

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4.4.5.       the Collateral Agent shall not be responsible or liable for any
failure or delay in the performance of its obligations under this Agreement or
the other Loan Documents arising out of or caused, directly or indirectly, by
circumstances beyond its reasonable control, including, without limitation, acts
of God; earthquakes; fire; flood; terrorism; wars and other military
disturbances; sabotage; epidemics; riots; business interruptions; loss or
malfunctions of utilities, computer (hardware or software) or communication
services; accidents; labor disputes; acts of civil or military authority and
governmental action;

 

4.4.6.       the Collateral Agent shall not be (i) required to qualify in any
jurisdiction in which it is not presently qualified to perform its obligations
as Collateral Agent or (ii) required to take any enforcement action against a
Loan Party or any other obligor outside of the United States; and

 

4.4.7.       the delivery of any reports, information and documents to the
Collateral Agent is for informational purposes only and the Collateral Agent’s
receipt of such shall not constitute constructive notice of any information
contained therein or determinable from information contained therein, including
a Loan Party’s compliance with any of its covenants or obligations hereunder.

 

Notwithstanding anything to the contrary set forth in this Agreement or any
other Loan Document, the Collateral Agent shall not be liable for any action
taken or not taken by it with the consent or at the request of the Required
Lenders or in the absence of its own gross negligence or willful misconduct as
determined by a final non-appealable judgment of a court of competent
jurisdiction.

 

The Collateral Agent shall be deemed not to have knowledge of any Default unless
and until written notice thereof is given to the Collateral Agent by the
Borrower or a Lender, and the Collateral Agent shall not be responsible for or
have any duty to ascertain or inquire into (i) any statement, warranty or
representation made in or in connection with this Agreement or any other Loan
Document, (ii) the contents of any certificate, report or other document
delivered hereunder or thereunder or in connection herewith or therewith, (iii)
the performance or observance of any of the covenants, agreements or other terms
or conditions set forth herein or therein, (iv) the validity, enforceability,
effectiveness or genuineness of this Agreement, or any other Loan Document or
any other agreement, instrument or document, or the creation, perfection or
priority of any Lien purported to be created by the Security Documents, (v) the
value or the sufficiency of any Collateral or (vi) the satisfaction of any
condition set forth in this Agreement or elsewhere herein, other than to confirm
receipt of items expressly required to be delivered to the Collateral Agent. The
Collateral Agent shall not be liable for any apportionment or distribution of
payments made by it in good faith and if any such apportionment or distribution
is subsequently determined to have been made in error the sole recourse of any
Lender to whom payment was due but not made, shall be to recover from other
Lenders any payment in excess of the amount to which they are determined to be
entitled (and such other Lenders hereby agree to return to such Lender any such
erroneous payments received by them).

 

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Without limiting the generality of the foregoing, the use of the term “agent” in
this Agreement with reference to the Collateral Agent is not intended to connote
any fiduciary or other implied (or express) obligations arising under agency
doctrine of any applicable law. Instead, such term us used merely as a matter of
market custom and is intended to create or reflect only an administrative
relationship between independent contracting parties. Notwithstanding any
provision to the contrary elsewhere in this Agreement or any other Loan
Document, the Collateral Agent shall not have any duties or responsibilities
except those expressly set forth herein and in the other Loan Documents, or any
fiduciary relationship with any of the Loan Parties or the Lenders, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Collateral Agent. Each party to this Agreement
acknowledges and agrees that the Collateral Agent and the Required Lenders may
use an outside service provider for the tracking of all UCC financing statements
or similar statements under the laws of any other jurisdiction required to be
filed pursuant to the Loan Documents and notification to the Collateral Agent,
the Required Lenders, as the case may be, of, among other things, the upcoming
lapse or expiration thereof.

 

4.5.          Reliance by Collateral Agent. The Collateral Agent shall be
entitled to rely upon, and shall not incur any liability for relying upon, any
notice, request, certificate, consent, statement, instrument, document or other
writing believed by it to be genuine and to have been signed or sent by the
proper Person. The Collateral Agent also may rely upon any statement made to it
orally or by telephone and believed by it to be made by the proper Person, and
shall not incur any liability for relying thereon. The Collateral Agent may
consult with legal counsel (who may be counsel for the Borrower), independent
accountants and other experts selected by it, and shall not be liable for any
action taken or not taken by it in accordance with the advice of any such
counsel, accountants or experts. In determining compliance with any condition
hereunder to the making of a Loan that by its terms must be fulfilled to the
satisfaction of a Lender, the Collateral Agent may presume that such condition
is satisfactory to such Lender unless the Collateral Agent shall have received
written notice to the contrary from such Lender prior to the making of such
Loan.

 

The Collateral Agent may at any time request instructions from Lenders with
respect to any actions or approvals which by the terms of this Agreement or of
any of the Loan Documents the Collateral Agent is permitted or desires to take
or to grant, and if such instructions are promptly requested, the Collateral
Agent shall be absolutely entitled to refrain from taking any action or to
withhold any approval and shall not be under any liability whatsoever to any
Person for refraining from any action or withholding any approval under any of
the Loan Documents until it shall have received such instructions from Required
Lenders or all or such other portion of Lenders as shall be prescribed by this
Agreement. Without limiting the foregoing, no Lender shall have any right of
action whatsoever against the Collateral Agent as a result of the Collateral
Agent acting or refraining from acting under this Credit Agreement or any of the
other Loan Documents in accordance with the instructions of the Required Lenders
(or all or such other portion of Lenders as shall be prescribed by this
Agreement) and, notwithstanding the instructions of the Required Lenders (or
such other applicable portion of Lenders), the Collateral Agent shall have no
obligation to take any action if it believes, in good faith, that such action
would violate applicable law or exposes the Collateral Agent to any liability
for which it has not received satisfactory indemnification in accordance with
the provisions of this Agreement.

 

4.6.          Delegation of Duties. The Collateral Agent may perform any and all
its duties and exercise its rights and powers by or through any one or more
sub-agents appointed by the Collateral Agent. The Collateral Agent and any such
sub-agent may perform any and all its duties and exercise its rights and powers
through their respective Related Parties. The exculpatory provisions set forth
in this Article IV, and those indemnification and expense reimbursement
provisions in Sections 9.3 and 9.4 of this Agreement, shall apply to any such
sub-agent and to the Related Parties of the Collateral Agent and any such
sub-agent, and shall apply to their respective activities in connection with the
syndication of the credit facilities provided for herein as well as activities
as Collateral Agent. The Collateral Agent shall not incur any liability for any
action or inaction taken by a sub-agent except to the extent that a court of
competent jurisdiction determines in a final and non-appealable judgment that
the Collateral Agent acted with gross negligence or willful misconduct in the
selection of such sub-agents.

 

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4.7.           Collateral and Guaranty Matters. Each Lender hereby authorizes
the Collateral Agent to release (or instruct the Collateral Agent to release)
any Collateral that it is permitted to be sold or released pursuant to the terms
of the Loan Documents (it being understood and agreed that the Collateral Agent
may conclusively rely without further inquiry on a certificate of a Responsible
Representative as to the sale or other disposition of property being made in
full compliance with the provisions of the Loan Documents). Each Lender hereby
authorizes the Collateral Agent to execute and deliver to the Borrower, at the
Borrower’s sole cost and expense, any and all releases of Liens, termination
statements, assignments or other documents reasonably requested by the Borrower
in connection with any Disposition of Collateral to the extent such Disposition
is permitted by the terms of this Agreement or is otherwise authorized by the
terms of the Loan Documents. Upon request by the Collateral Agent at any time,
the Lenders will confirm the Collateral Agent’s authority to release and/or
subordinate particular types or items of Collateral pursuant to this Article IV.

 

The Collateral Agent shall have no obligation whatsoever to any Lender or any
other person to investigate, confirm or assure that the Collateral exists or is
owned by any Loan Party or is cared for, protected or insured or has been
encumbered, or that any particular items of Collateral meet the eligibility
criteria applicable in respect of the Loans hereunder, or that the liens and
security interests granted to the Collateral Agent pursuant hereto or any of the
Loan Documents or otherwise have been properly or sufficiently or lawfully
created, perfected, protected or enforced or are entitled to any particular
priority, or to exercise at all or in any particular manner or under any duty of
care, disclosure or fidelity, or to continue exercising, any of the rights,
authorities and powers granted or available to the Collateral Agent in this
Agreement or in any of the other Loan Documents, it being understood and agreed
that in respect of the Collateral, or any act, omission or event related
thereto, subject to the other terms and conditions contained herein, the
Collateral Agent shall have no duty or liability whatsoever to any other Lender.

 

The Collateral Agent and each Lender hereby appoint each other as agent for the
purpose of perfecting the Collateral Agent’s security interest in assets which,
in accordance with the Uniform Commercial Code in any applicable jurisdiction,
can be perfected by possession or control. Should any Lender obtain possession
or control of any such assets, such Lender shall notify the Collateral Agent
thereof, and, promptly upon the Collateral Agent’s request therefor, shall
deliver such assets to the Collateral Agent or in accordance with the Collateral
Agent’s instructions or transfer control to the Collateral Agent in accordance
with the Collateral Agent’s instructions. Each Lender agrees that it will not
have any right individually to enforce or seek to enforce any Security Document
or to realize upon any Collateral for the Loans unless instructed to do so by
the Collateral Agent in writing (or consented to by Collateral Agent in
accordance with this Agreement), it being understood and agreed that such rights
and remedies may be exercised only by the Collateral Agent.

 

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4.8.Resignation and Removal of Collateral Agent.

 

4.8.1.       The Collateral Agent may resign at any time by notifying the
Lenders and the Borrower. Upon any such resignation, the Required Lenders shall
have the right, with the consent of the Borrower (which consent shall not be
unreasonably withheld or delayed), to appoint a successor; provided that no
consent of the Borrower shall be required if any Event of Default has occurred
and is continuing. If no successor shall have been so appointed by the Required
Lenders and shall have accepted such appointment within thirty (30) days after
the retiring Collateral Agent gives notice of its resignation (or such earlier
date as shall be agreed by the Required Lenders) (the “Resignation Effective
Date”), then the retiring Collateral Agent may, on behalf of the Lenders,
appoint a successor Collateral Agent which shall be a bank with an office in
Chicago, Illinois or New York, New York, or an Affiliate of any such bank that
is a financial institution. Upon the acceptance of its appointment as Collateral
Agent hereunder by a successor which shall include execution by such successor
Collateral Agent of a joinder supplement, such successor shall succeed to and
become vested with all the rights, powers, privileges and duties of the retiring
Collateral Agent. If no successor collateral agent has accepted appointment as
Collateral Agent by the date which is thirty (30) days following a retiring
Collateral Agent’s notice of resignation, the retiring Collateral Agent’s
resignation shall nevertheless thereupon become effective.

 

4.8.2.       The Required Lenders may by notice to the Borrower remove the
Collateral Agent and, in consultation with the Borrower, appoint a successor. If
no successor agent shall have been appointed by the Required Lenders and shall
have accepted such appointment within twenty (20) days (or such earlier date as
shall be agreed by the Required Lenders (the “Removal Effective Date”)) which
acceptance shall include execution by such successor Collateral Agent of a
joinder supplement, then such removal shall nonetheless become effective in
accordance with such notice on the Removal Effective Date.

 

4.8.3.       With the effect of the Resignation Effective Date or the Removal
Effective Date, the Collateral Agent shall be discharged from its duties and
obligations hereunder and under the other Loan Documents, all payments,
communications and determinations provided to be made by, to or through the
Collateral Agent shall instead be made by or to each Lender directly and the
Required Lenders shall perform all of the duties of the Collateral Agent
hereunder until such time, if any, as the Required Lenders appoint a successor
as provided for above. After the Collateral Agent’s resignation or removal
hereunder, the provisions of this Article and Section 9.3 and Section 9.4 shall
continue in effect for the benefit of such retiring Collateral Agent, its
sub-agents and their respective Related Parties in respect of any actions taken
or omitted to be taken by any of them while it was acting as Collateral Agent.

 

4.9.          Non-Reliance on Collateral Agent and Other Lenders. Each Lender
acknowledges and agrees that the extensions of credit made hereunder are
commercial loans and not investments in a business enterprise or securities.
Each Lender further represents that it is engaged in making, acquiring or
holding commercial loans in the ordinary course of its business and has,
independently and without reliance upon the Collateral Agent or any other Lender
and based on such documents and information as it has deemed appropriate, made
its own credit analysis and decision to enter into this Agreement as a Lender,
and to make, acquire or hold Loans hereunder. Each Lender shall, independently
and without reliance upon the Collateral Agent or any other Lender and based on
such documents and information (which may contain material, non-public
information within the meaning of the United States securities laws concerning
the Borrower and its Affiliates) as it shall from time to time deem appropriate,
continue to make its own decisions in taking or not taking action under or based
upon this Agreement, any related agreement or any document furnished hereunder
or thereunder and in deciding whether or to the extent to which it will continue
as a lender or assign or otherwise transfer its rights, interests and
obligations hereunder.

 

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4.10.         Collateral Agent May File Proofs of Claim. In case of the pendency
of any receivership, insolvency, liquidation, bankruptcy, reorganization,
arrangement, adjustment, composition or other judicial proceeding relative to
the Borrower or any Subsidiary, the Collateral Agent (irrespective of whether
the principal of any Loan shall then be due and payable as herein expressed or
by declaration or otherwise and irrespective of whether the Collateral Agent
shall have made any demand on the Borrower) shall be entitled and empowered (but
not obligated to), by intervention in such proceeding or otherwise:

 

4.10.1.          to file and prove a claim for the whole amount of the principal
and interest owing and unpaid in respect of the Loans and all other Indebtedness
that are owing and unpaid and to file such other documents as may be necessary
or advisable in order to have the claims of the Lenders and the Collateral Agent
(including any claim for the reasonable compensation, expenses, disbursements
and advances of the Lenders and the Collateral Agent and their respective agents
and counsel and all other amounts due the Lenders and the Collateral Agent under
Section 9.3 and Section 9.4 of this Agreement allowed in such judicial
proceeding); and

 

4.10.2.          to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute the same;

 

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Lender to make such payments to the Collateral Agent and, in the event that
the Collateral Agent shall consent to the making of such payments directly to
the Lenders, to pay to the Collateral Agent any amount due for the reasonable
compensation, expenses, disbursements and advances of the Collateral Agent and
their agents and counsel, and any other amounts due the Collateral Agent under
Section 9.3 and Section 9.4 of the Credit Agreement.

 

Nothing contained herein shall be deemed to authorize the Collateral Agent to
authorize or consent to or accept or adopt on behalf of any Lender any plan of
reorganization, arrangement, adjustment or composition affecting the
Indebtedness or the rights of any Lender or to authorize the Collateral Agent to
vote in respect of the claim of any Lender in any such proceeding.

 

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Anything contained in any of the Loan Documents to the contrary notwithstanding,
the Borrower, the Collateral Agent and each Lender hereby agree that in the
event of a foreclosure or similar enforcement action by the Collateral Agent on
any of the Collateral pursuant to a public or private sale or other disposition
(including, without limitation, pursuant to Section 363(k), Section
1129(b)(2)(a)(ii) or otherwise of the Bankruptcy Code), the Collateral Agent (or
any Lender, except with respect to a “credit bid” pursuant to Section 363(k),
Section 1129(b)(2)(a)(ii) or otherwise of the Bankruptcy Code,) may be the
purchaser or licensor of any or all of such Collateral at any such sale or other
disposition and Collateral Agent, as agent for and representative of Lenders
(but not any Lender or Lenders in its or their respective individual capacities)
shall be entitled, upon instructions from Required Lenders, for the purpose of
bidding and making settlement or payment of the purchase price for all or any
portion of the Collateral sold at any such sale or disposition, to use and apply
any of the Obligations as a credit on account of the purchase price for any
collateral payable by the Collateral Agent at such sale or other disposition.
The Lenders hereby irrevocably authorize the Collateral Agent, at the direction
of the Required Lenders, to credit bid all or any portion of the Obligations
(including accepting some or all of the Collateral in satisfaction of some or
all of the Obligations pursuant to a deed in lieu of foreclosure or otherwise)
and in such manner purchase (either directly or through one or more acquisition
vehicles) all or any portion of the Collateral (a) at any sale thereof conducted
under the provisions of the Bankruptcy Code, including under Sections 363, 1123
or 1129 thereof, or any similar laws in any other jurisdictions to which a Loan
Party is subject, (b) at any other sale or foreclosure or acceptance of
collateral in lieu of debt conducted by (or with the consent or at the direction
of) the Collateral Agent (whether by judicial action or otherwise) in accordance
with any applicable law. In connection with any such credit bid and purchase,
the Obligations owed to the Lenders shall be entitled to be, and shall be,
credit bid by the Collateral Agent at the direction of the Required Lenders on a
ratable basis (with Obligations with respect to contingent or unliquidated
claims receiving contingent interests in the acquired assets on a ratable basis
that would vest upon the liquidation of such claims in an amount proportional to
the liquidated portion of the contingent claim amount used in allocating the
contingent interests) in the asset or assets so purchased (or in the Capital
Stock or debt instruments of the acquisition vehicle or vehicles that are used
to consummate such purchase). In connection with any such bid (i) the Collateral
Agent shall be authorized to form one or more acquisition vehicles to make a
bid, (ii) to adopt documents providing for the governance of the acquisition
vehicle or vehicles (provided that any actions by the Collateral Agent with
respect to such acquisition vehicle or vehicles, including any disposition of
the assets or Capital Stock thereof shall be governed, directly or indirectly,
by the vote of the Required Lenders, irrespective of the termination of this
Agreement and without giving effect to the limitations on actions by the
Required Lenders contained in Section 9.1, (iii) the Collateral Agent shall be
authorized to assign the relevant Obligations to any such acquisition vehicle
pro rata by the Lenders, as a result of which each of the Lenders shall be
deemed to have received a pro rata portion of any Capital Stock and/or debt
instruments issued by such an acquisition vehicle on account of the assignment
of the Obligations to be credit bid, all without the need for any Lender or
acquisition vehicle to take any further action, and (iv) to the extent that
Obligations that are assigned to an acquisition vehicle are not used to acquire
Collateral for any reason (as a result of another bid being higher or better,
because the amount of Obligations assigned to the acquisition vehicle exceeds
the amount of debt credit bid by the acquisition vehicle or otherwise), such
Obligations shall automatically be reassigned to the Lenders pro rata and the
Capital Stock and/or debt instruments issued by any acquisition vehicle on
account of the Obligations that had been assigned to the acquisition vehicle
shall automatically be cancelled, without the need for any Lender or any
acquisition vehicle to take any further action.

 

4.11.         Authorization to Execute other Loan Documents. Each Lender by
accepting the benefits of the Collateral and the Loan Documents authorizes the
Collateral Agent to enter into each of the Loan Documents (including, without
limitation, any Intercreditor Agreements or subordination agreement contemplated
by the terms hereof) (other than this Agreement) and to act on its behalf and to
take all actions contemplated by such Loan Documents and agrees that it shall be
bound by such Loan Documents as if a signatory thereto. Neither the Collateral
Agent, nor its Related Parties, shall have any liability or responsibility for
the actions or omissions of any Lender, or for any other Lender’s compliance
with (or failure to comply with) the terms, covenants and agreements set forth
in this Agreement and each of the Loan Documents.

 

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ARTICLE VGUARANTY

 

5.1.          Guaranty. To induce the Lenders to make credit available to or for
the benefit of the Borrower, each Guarantor hereby, jointly and severally,
absolutely, unconditionally and irrevocably guarantees, as primary obligor and
not merely as surety, the full and punctual payment when due, whether at stated
maturity or earlier, by reason of acceleration, mandatory prepayment or
otherwise in accordance with any Loan Document, of all the Obligations of the
Borrower whether existing on the date hereof or hereinafter incurred or created
(the “Guaranteed Obligations”). This Guaranty by each Guarantor hereunder
constitutes a guaranty of payment and not of collection.

 

5.2.           Limitation of Guaranty. Any term or provision of this Guaranty or
any other Loan Document to the contrary notwithstanding, the maximum aggregate
amount for which any Guarantor shall be liable hereunder shall not exceed the
maximum amount for which such Guarantor can be liable without rendering this
Guaranty or any other Loan Document, as it relates to such Guarantor, subject to
avoidance under applicable Law relating to fraudulent conveyance or fraudulent
transfer (including the Uniform Fraudulent Conveyance Act, the Uniform
Fraudulent Transfer Act and Section 548 of title 11 of the United States Code or
any applicable provisions of comparable requirements of Law) (collectively,
“Fraudulent Transfer Laws”). Any analysis of the provisions of this Guaranty for
purposes of Fraudulent Transfer Laws shall take into account the right of
contribution established in Section 5.3 and, for purposes of such analysis, give
effect to any discharge of intercompany debt as a result of any payment made
under the Guaranty.

 

5.3.          Contribution. Without limiting any right under applicable law for
contribution, to the extent that any Guarantor shall be required hereunder to
pay any portion of any Guaranteed Obligation exceeding the greater of (a) the
amount of the value actually received by such Guarantor and its Subsidiaries
from the Loans and other Obligations and (b) the amount such Guarantor would
otherwise have paid if such Guarantor had paid the aggregate amount of the
Guaranteed Obligations (excluding the amount thereof repaid by the Borrower) in
the same proportion as such Guarantor’s net worth on the date enforcement is
sought hereunder bears to the aggregate net worth of all the Guarantors on such
date, then such Guarantor shall be reimbursed by such other Guarantors for the
amount of such excess, pro rata, based on the respective net worth of such other
Guarantors on such date. Such contribution rights shall be subordinate and
subject in right of payment to the obligations of such Guarantors under the Loan
Documents and no Guarantor shall exercise such rights of contribution until all
Obligations have been paid in full.

 

5.4.          Authorization; Other Agreements. The Collateral Agent and the
Lenders are hereby authorized, without notice to or demand upon any Guarantor
and without discharging or otherwise affecting the obligations of any Guarantor
hereunder and without incurring any liability hereunder, from time to time, to
do each of the following:

 

5.4.1 (i) modify, amend, supplement or otherwise change, (ii) accelerate or
otherwise change the time of payment or (iii) waive or otherwise consent to
noncompliance with, any Guaranteed Obligation or any Loan Document;

 

5.4.1.          apply to the Guaranteed Obligations any sums by whomever paid or
however realized in such order as provided in the Loan Documents;

 

5.4.2.          refund at any time any payment received by any Lender in respect
of any Guaranteed Obligation;

 

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5.4.3.          (i) sell, exchange, enforce, waive, substitute, liquidate,
terminate, release, abandon, fail to perfect, subordinate, accept, substitute,
surrender, exchange, affect, impair or otherwise alter or release any Collateral
for any Guaranteed Obligation or any other guaranty therefor in any manner, (ii)
receive, take and hold additional Collateral to secure any Guaranteed
Obligation, (iii) add, release or substitute any one or more other Guarantors,
makers or endorsers of any Guaranteed Obligation or any part thereof and (iv)
otherwise deal in any manner with the Borrower and any other Guarantor, maker or
endorser of any Guaranteed Obligation or any part thereof; and

 

5.4.4.       settle, release, compromise, collect or otherwise liquidate the
Guaranteed Obligations.

 

5.5.          Guaranty Absolute and Unconditional. Each Guarantor hereby waives
and agrees not to assert any defense (other than the performance in full and
payment in full of the Guaranteed Obligations), whether arising in connection
with or in respect of any of the following or otherwise, and hereby agrees that
its obligations under this Guaranty are irrevocable, absolute and unconditional
and shall not be discharged as a result of or otherwise affected by any of the
following (which may not be pleaded and evidence of which may not be introduced
in any proceeding with respect to this Guaranty, in each case except as
otherwise agreed in writing by the Required Lenders):

 

5.5.1.          the invalidity or unenforceability of any obligation of the
Borrower or any other Guarantor under any Loan Document or any other agreement
or instrument relating thereto (including any amendment, consent or waiver
thereto), or any security for, or other guaranty of, any Guaranteed Obligation
or any part thereof, or the lack of perfection or continuing perfection or
failure of priority of any security for the Guaranteed Obligations or any part
thereof;

 

5.5.2.          the absence of (i) any attempt to collect any Guaranteed
Obligation or any part thereof from the Borrower or any other Guarantor or other
action to enforce the same or (ii) any action to enforce any Loan Document or
any Lien thereunder;

 

5.5.3.          the failure by any Person to take any steps to perfect and
maintain any Lien on, or to preserve any rights with respect to, any Collateral;

 

5.5.4.          any workout, insolvency, bankruptcy proceeding, reorganization,
arrangement, liquidation or dissolution by or against the Borrower, any other
Guarantor or any of the Borrower’s other Subsidiaries or any procedure,
agreement, order, stipulation, election, action or omission thereunder,
including any discharge or disallowance of, or bar or stay against collecting,
any Guaranteed Obligation (or any interest thereon) in or as a result of any
such proceeding;

 

5.5.5.          any foreclosure, whether or not through judicial sale, and any
other sale or other disposition of any Collateral or any election following the
occurrence of an Event of Default by the Collateral Agent or any Lender to
proceed separately against any Collateral in accordance with such party’s rights
under any applicable Law; or

 

5.5.6.          any other defense, setoff, counterclaim or any other
circumstance that might otherwise constitute a legal or equitable discharge of
the Borrower, any other Guarantor or any of the Borrower’s other Subsidiaries,
in each case other than the performance in full and payment in full of the
Guaranteed Obligations.

 

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5.6.          Waivers. To the fullest extent permitted by applicable Law, each
Guarantor hereby unconditionally and irrevocably waives and agrees not to assert
any claim, defense (other than performance in full and the payment in full of
the Guaranteed Obligations), setoff or counterclaim based on diligence,
promptness, presentment, requirements for any demand or notice hereunder
including any of the following: (a) any demand for payment or performance and
protest and notice of protest; (b) any notice of acceptance; (c) any
presentment, demand, protest or further notice or other requirements of any kind
with respect to any Guaranteed Obligation (including any accrued but unpaid
interest thereon) becoming immediately due and payable; and (d) any other notice
in respect of any Guaranteed Obligation or any part thereof, and any defense
arising by reason of any disability or other defense of the Borrower or any
other Guarantor. To the fullest extent permitted by applicable law, each
Guarantor further unconditionally and irrevocably agrees not to (x) enforce or
otherwise exercise any right of subrogation or any right of reimbursement or
contribution or similar right against the Borrower or any other Guarantor by
reason of any Loan Document or any payment made thereunder except as
specifically set forth herein or (y) assert any claim, defense, setoff or
counterclaim it may have against any other Loan Party or set off any of its
obligations to such other Loan Party against obligations of such Loan Party to
such Guarantor, until the Guaranteed Obligations have been paid in full. No
obligation of any Guarantor hereunder shall be discharged other than by complete
performance. Each Guarantor further waives any right such Guarantor may have
under any applicable Law to require any Lender to seek recourse first against
the Borrower or any other Person, or to realize upon any Collateral for any of
the Obligations, as a condition precedent to enforcing such Guarantor’s
liability and obligations under this Guaranty.

 

5.7.          Reliance. Each Guarantor hereby assumes responsibility for keeping
itself informed of the financial condition of the Borrower, each other Guarantor
and any other guarantor, maker or endorser of any Guaranteed Obligation or any
part thereof, and of all other circumstances bearing upon the risk of nonpayment
of any Guaranteed Obligation or any part thereof that diligent inquiry would
reveal, and each Guarantor hereby agrees that no Lender shall have any duty to
advise any Guarantor of information known to it regarding such condition or any
such circumstances. In the event any Lender, in its sole discretion, undertakes
at any time or from time to time to provide any such information to any
Guarantor, such Lender shall be under no obligation to (a) undertake any
investigation not a part of its regular business routine, (b) disclose any
information that such Lender, pursuant to accepted or reasonable commercial
finance or banking practices, wishes to maintain confidential or (c) make any
future disclosures of such information or any other information to any
Guarantor.

 

ARTICLE  VI
REPRESENTATIONS AND WARRANTIES

 

The Borrower and, to the extent applicable to any Guarantor, such Guarantor
hereby represents and warrants to the Lenders as follows with the intention that
the Lenders shall rely thereon without any investigation or verification by the
Lenders or their counsel:

 

6.1.          Existence and Power. The Borrower:

 

6.1.1.          is a corporation, duly organized, validly existing and in good
standing under the laws of the State of Delaware.

 

6.1.2.          has all corporate powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted.

 

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6.1.3.          is duly qualified to transact business as a foreign entity in
each jurisdiction where the nature of its business requires the same.

 

6.2.          Authorization; Contravention. The execution, delivery and
performance by each Person (other than the Lenders) purporting to execute this
Agreement and the other Loan Documents are within such Person’s power, have been
duly authorized by all necessary action, require no action by or in respect of,
or filing with, any governmental body, agency or official (except that the
perfection of Liens created by certain of the Security Documents may require the
filing of financing statements or Mortgages in the appropriate recordation
offices), and do not contravene, or constitute a default under, any provision of
applicable law or regulation (including the Margin Regulations) or any agreement
creating or governing such Person or any agreement, judgment, injunction, order,
decree or other instrument binding upon such Person or result in the creation or
imposition of any Lien on any Property of the Borrower which could reasonably
expected to have a Material Adverse Effect, except Permitted Liens and Liens
securing the Obligations.

 

6.3.          Binding Effect.

 

6.3.1.          This Agreement constitutes a valid and binding agreement of the
Borrower; the Notes, when executed and delivered in accordance with this
Agreement, will constitute the valid and binding obligations of the Borrower;
the Security Documents, when executed and delivered in accordance with this
Agreement, will constitute valid and binding obligations of each Person
purporting to execute the same, in each case except as (i) may be limited by
bankruptcy, insolvency or similar laws affecting creditors’ rights generally and
(ii) rights of acceleration and the availability of equitable remedies may be
limited by equitable principles of general applicability.

 

6.3.2.          Each Loan Document is enforceable against each Person (other
than the Lenders) executing same in accordance with its terms except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors’ rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability.

 

6.4.          Subsidiaries.

 

6.4.1.          The Borrower has no Subsidiaries as of the date hereof except as
disclosed on Exhibit 6.4.1 and, if subsequent to the date hereof, as permitted
pursuant to Section 7.8.6.

 

6.5.          Disclosure. No document, certificate or statement delivered to the
Lenders by or on behalf of the Borrower or any Guarantor in connection with the
transactions contemplated hereby contains any untrue statement of a material
fact, or omits to state a material fact required to be stated in order to make
the statements contained herein or therein, taken as a whole, not misleading in
light of the circumstances under which such statements were made. All
information heretofore furnished by the Borrower or any Guarantor to the Lenders
for purposes of or in connection with this Agreement or any transaction
contemplated hereby is, and all such information hereafter furnished by the
Borrower to the Lenders will be, true and accurate in every material respect or
based on reasonable estimates on the date as of which such information is stated
or certified. The Borrower has disclosed to the Lenders in writing any and all
facts known to the Borrower after diligent inquiry (except facts of general
public knowledge) which materially and adversely affect or may affect (to the
extent the Borrower can now reasonably foresee) the business, operations,
prospects or condition, financial or otherwise, of the Borrower or the ability
of the Borrower to perform its obligations under this Agreement.

 

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6.6.          Financial Information.

 

6.6.1 (i) The Financial Statements and notes thereto fairly present the
financial position of the Borrower and its Subsidiaries at the respective dates
thereof in all material respects.

 

(ii)         Except as disclosed in a writing delivered by the Borrower to the
Lenders prior to the execution and delivery of this Agreement, since the dates
referenced in the financial information referred to in clause (i) immediately
preceding above, to the knowledge of the Responsible Representatives there has
been no Material Adverse Effect.

 

6.6.2.          (i) For each Guarantor, the financial information of such
Guarantor delivered to the Lenders in connection with the request for this
credit facility fairly presents the financial position of such Guarantor at the
respective dates thereof in all material respects.

 

(ii)         For each Guarantor, except as disclosed in a writing delivered by
such Guarantor to the Lenders prior to the execution and delivery of this
Agreement, since the dates referenced in the financial information referred to
in clause (i) immediately preceding above, to the knowledge of the Responsible
Representatives, there has been no Material Adverse Effect.

 

6.7.          Litigation.

 

6.7.1.          (i) Except as disclosed in the Borrower’s public filings with
the SEC, there is no action, suit or proceeding pending against, or to the
knowledge of the Borrower threatened in writing against or affecting the
Borrower before any Tribunal or arbitrator which would be reasonably expected to
have a Material Adverse Effect.

 

(ii)            For each Guarantor, except as disclosed in the Borrower’s public
filings with the SEC, there is no action, suit or proceeding pending against, or
to the knowledge of the Borrower threatened in writing against or affecting such
Guarantor before any Tribunal or arbitrator which would be reasonably expected
to have a Material Adverse Effect.

 

6.8.          ERISA Plans. The present value of all accumulated benefit
obligations under each Plan (based on the assumptions used for purposes of Plan
termination under Title IV of ERISA) does not exceed by more than $1,000,000 the
fair market value of the assets of such Plan.

 

6.9.          Taxes and Filing of Tax Returns.

 

6.9.1.          (i) Except as disclosed in the Borrower’s public filings with
the SEC, the Borrower has filed or properly extended all returns required to
have been filed or extended with respect to material Taxes and has paid all
material Taxes shown to be due and payable by it on such returns, including
interest and penalties, and all other material Taxes which are payable by it, to
the extent the same have become due and payable (unless, with respect to such
other material Taxes, the criteria set forth in Section 7.5 are being met). The
Borrower does not know of any proposed assessment of Taxes against it in excess
of $1,000,000 except as disclosed in writing delivered by the Borrower to the
Lenders, and all liabilities for material Taxes of the Borrower are adequately
provided for.

 

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(ii)              For each Guarantor, except as disclosed in the Borrower’s
public filings with the SEC, such Guarantor has filed or properly extended all
returns required to have been filed or extended with respect to material Taxes
and has paid all material Taxes shown to be due and payable by it on such
returns, including interest and penalties, and all other material Taxes which
are payable by it, to the extent the same have become due and payable (unless,
with respect to such other Taxes, the criteria set forth in Section 7.5 are
being met). Such Guarantor does not know of any proposed assessment of Taxes
against it in excess of $1,000,000 except as disclosed in writing delivered by
such Guarantor to the Lenders, and all liabilities for Taxes of such Guarantor
are adequately provided for.

 

6.10.         Title to Properties; Liens; Environmental Liability.

 

6.10.1.          (i) The Borrower has good and defensible record title to all
Oil and Gas Properties purported to be owned by it and good and marketable title
to all other Property purported to be owned by it, subject only to Permitted
Liens.

 

(ii)         For each Guarantor, such Guarantor has good and defensible record
title to all Oil and Gas Properties purported to be owned by it and good and
marketable title to all other Property purported to be owned by it, subject only
to Permitted Liens.

 

6.10.2.          (i) The Borrower has not (a) received notice or otherwise
learned of any Environmental Liability arising in connection with (1) any
non-compliance with or violation of the requirements of any Environmental Law or
(2) the release or threatened release of any Hazardous Substance into the
environment, (b) received notice or otherwise learned of any federal or state
investigation evaluating whether any remedial action is needed to respond to a
release or threatened release of any Hazardous Substance into the environment
for which the Borrower is or may be liable, in each case which would be
reasonably expected to have a Material Adverse Effect. The Borrower knows of no
basis for any Environmental Liability.

 

(ii)         For each Guarantor, such Guarantor has not (a) received notice or
otherwise learned of any Environmental Liability arising in connection with (1)
any noncompliance with or violation of the requirements of any Environmental Law
or (2) the release or threatened release of any Hazardous Substance into the
environment or (b) received notice or otherwise learned of any federal or state
investigation evaluating whether any remedial action is needed to respond to a
release or threatened release of any Hazardous Substance into the environment
for which such Guarantor is or may be liable, in each case which would be
reasonably expected to have a Material Adverse Effect. No Guarantor knows of any
basis for any Environmental Liability.

 

6.10.3.          (i) Except in accordance with applicable Law or the terms of a
valid permit, license, certificate, or approval of the relevant Governmental
Authority, no Release of Hazardous Substances by the Borrower from, affecting,
or related to any Property of the Borrower has occurred that would reasonably be
expected to have a Material Adverse Effect.

 

(ii)         For each Guarantor, except in accordance with applicable Law or the
terms of a valid permit, license, certificate, or approval of the relevant
Governmental Authority, no Release of Hazardous Substances by such Guarantor
from, affecting, or related to any Property of such Guarantor has occurred that
would reasonably be expected to have a Material Adverse Effect.

 

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6.10.4.          (i) No Environmental Complaints that would reasonably be
expected to have a Material Adverse Effect have been received by the Borrower.

 

(ii)         For each Guarantor, no Environmental Complaints that would
reasonably be expected to have a Material Adverse Effect have been received by
such Guarantor.

 

6.11.         Business Compliance.

 

6.11.1.          (i) The Borrower has performed and abided by all obligations
required to be performed by it to the extent required under each license,
permit, order, authorization, grant, contract, agreement, or regulation to which
it is a party or by which it or any of its Property is bound, in each case
except as would not be reasonably expected to have a Material Adverse Effect.

 

(ii)         For each Guarantor, such Guarantor has performed and abided by all
obligations required to be performed by it to the extent required under each
license, permit, order, authorization, grant, contract, agreement, or regulation
to which it is a party or by which it or any of its Property is bound, in each
case except as would not be reasonably expected to have a Material Adverse
Effect.

 

6.12.         Licenses, Permits, Etc.

 

6.12.1.          (i) The Borrower possesses such valid franchises, certificates
of convenience and necessity, operating rights, licenses, permits, consents,
authorizations, exemptions and orders of Tribunals as are necessary to carry on
its business as now being conducted and to own its Properties, in each case
except as would not be reasonably expected to have a Material Adverse Effect.

 

(ii)         For each Guarantor, such Guarantor possesses such valid franchises,
certificates of convenience and necessity, operating rights, licenses, permits,
consents, authorizations, exemptions and orders of Tribunals as are necessary to
carry on its business as now being conducted and to own its Properties, in each
case except as would not be reasonably expected to have a Material Adverse
Effect.

 

6.13.         Compliance with Laws.

 

6.13.1.          (i) The business and operations of the Borrower have been and
are being conducted in accordance with all applicable Laws, in each case except
as would not be reasonably expected to have a Material Adverse Effect.

 

(ii)         For each Guarantor, the business and operations of such Guarantor
have been and are being conducted in accordance with all applicable Laws, in
each case except as would not be reasonably expected to have a Material Adverse
Effect.

 

6.14.         Governmental Consent.

 

6.14.1.          (i) No consent, approval or authorization of, or declaration or
filing with, any Governmental Authority is required for the valid execution,
delivery and the performance of this Agreement, any other Loan Documents by the
Borrower (other than protective filings or filings necessary to perfect the
Liens granted to the Lenders under the Loan Documents).

 

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(ii)         For each Guarantor, no consent, approval or authorization of, or
declaration or filing with, any Governmental Authority is required for the valid
execution, delivery and the performance of any Loan Document by such Guarantor
(other than protective filings or filings necessary to perfect the Liens granted
to the Lenders under the Loan Documents).

 

6.15.         Investment Company Act. (i) The Borrower is not an “investment
company,” or a company “controlled” by an “investment company,” within the
meaning of the Investment Company Act of 1940, as amended.

 

(i)          For each Guarantor, such Guarantor is not an “investment company,”
or a company “controlled” by an “investment company,” within the meaning of the
Investment Company Act of 1940, as amended.

 

6.16.         State Utility; No Governmental Limitations on Liens.

 

6.16.1.          (i) The Borrower is not defined as a “utility” under the laws
of the State of Texas or any other jurisdiction wherein the Borrower is required
to qualify to do business.

 

(ii)         For each Guarantor, such Guarantor is not defined as a “utility”
under the laws of the State of Texas or any other jurisdiction wherein such
Guarantor is required to qualify to do business.

 

6.16.2.          (i) The Borrower is not subject to any state or federal Law
that would limit its ability to have Liens placed on any of its Property.

 

(ii)         For each Guarantor, such Guarantor is not subject to any state or
federal Law that would limit its ability to have Liens placed on any of its
Property.

 

6.17.         Refunds; Certain Contracts.

 

6.17.1.          (i) No orders of, proceedings pending before, or other
requirements of, the Federal Energy Regulatory Commission, the Texas Railroad
Commission, or any Governmental Authority exist which could result in the
Borrower being required to refund any portion of the proceeds received or to be
received from the sale of hydrocarbons constituting part of the Collateral.

 

(ii)         For each Guarantor, no orders of, proceedings pending before, or
other requirements of, the Federal Energy Regulatory Commission, the Texas
Railroad Commission, or any Governmental Authority exist which could result in
such Guarantor being required to refund any portion of the proceeds received or
to be received from the sale of hydrocarbons constituting part of the
Collateral.

 

6.17.2.          (i) The Borrower is not obligated by virtue of any prepayment
made under any contract containing a “take-or-pay” or “prepayment” provision or
under any similar agreement to deliver hydrocarbons produced from or allocated
to any of the Collateral at some future date without receiving full payment
therefor within ninety (90) days of delivery.

 

(ii)         For each Guarantor, such Guarantor is not obligated by virtue of
any prepayment made under any contract containing a “take-or-pay” or
“prepayment” provision or under any similar agreement to deliver hydrocarbons
produced from or allocated to any of the Collateral at some future date without
receiving full payment therefor within ninety (90) days of delivery.

 

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6.17.3.          (i) The Borrower has not produced gas subject to, and neither
the Borrower nor any of the Collateral is subject to, balancing rights of third
parties or subject to balancing duties under governmental requirements.

 

(ii)         For each Guarantor, such Guarantor has not produced gas subject to,
and neither the Guarantor nor any of the Collateral is subject to, balancing
rights of third parties or subject to balancing duties under governmental
requirements.

 

6.18.        No Default. No Default has occurred which is continuing as of the
date hereof.

 

6.19.        Anti-Terrorism Laws.

 

6.19.1.          Anti-Terrorism Laws. None of the Obligated Parties nor any
Affiliate of any Obligated Party is in violation of any Anti-Terrorism Law or
knowingly engages in or conspires to engage in any transaction that evades or
avoids, or has the purpose of evading or avoiding, or attempts to violate, any
of the prohibitions set forth in any Anti-Terrorism Law.

 

6.19.2.          OFAC. None of the Obligated Parties nor any Affiliate of any
Obligated Party is in violation of any rules or regulations promulgated by OFAC
or of any economic or trade sanctions or engages in any transaction administered
and enforced by OFAC or conspires to engage in any transaction that evades or
avoids, or has the purpose of evading or avoiding, or attempts to violate, any
of the prohibitions set forth in any rules or regulations promulgated by OFAC.

 

6.20.        Flood Matters. No “Building” (as defined in the applicable Flood
Insurance Regulation) or “Manufactured (Mobile) Home” (as defined in the
applicable Flood Insurance Regulation) is located on any Mortgaged Property
within an area having special flood hazards and in which flood insurance is
available under the Flood Insurance Regulations, and no “Building” or
“Manufactured (Mobile) Home” will be encumbered by the Mortgages.

 

6.21.        Solvency. Immediately after the Closing (a) the fair value of the
assets of the Borrower and its Subsidiaries (taken as a whole), at a fair
valuation, will exceed its debts and liabilities, subordinated, contingent or
otherwise, at a fair valuation; (b) the present fair saleable value of the
property of the Borrower and its Subsidiaries (taken as a whole) will be greater
than the amount that will be required to pay the probable liability of its debts
and other liabilities, subordinated, contingent or otherwise, as such debts and
other liabilities become absolute and matured; (c) the Borrower will be able to
pay its debts and liabilities, subordinated, contingent or otherwise, as such
debts and liabilities become absolute and matured; and (d) the Borrower and its
Subsidiaries (taken as a whole) will not have unreasonably small capital with
which to conduct the business in which it is engaged as such businesses are now
conducted and are proposed to be conducted following the date hereof.

 

6.22.        Eligible Contract Participant. As of the date of this Agreement the
Borrower is, and as of the date of the Borrower’s entry into any Commodity
Hedging Transaction the Borrower will be, an “Eligible Contract Participant” as
defined in 7 U.S.C. § 1a(18).

 

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6.23.        Intellectual Property. Each Loan Party owns or holds a valid and
enforceable license to use all intellectual property necessary to conduct its
business as currently conducted. No claim has been asserted or is pending by any
Person with respect to the use of any such intellectual property or challenging
or questioning the validity or effectiveness of any such intellectual property;
and no Loan Party knows of any valid basis for any such claim. The use of such
intellectual property by any Loan Party does not infringe on the rights of any
Person, except for such claims and infringements as do not, in the aggregate,
give rise to a Material Adverse Effect.

 

6.24.        Environmental Reports. The Borrower has furnished to the Collateral
Agent all material environmental audits, assessments, reports and other material
environmental, health or safety documents relating to the past or current
operations or facilities of the Borrower or any Subsidiary (including the Core
Assets), in each case which are in the possession or under the reasonable
control of the Borrower or any Subsidiary.

 

ARTICLE  VII
COVENANTS

 

So long as any principal of or interest on the Notes shall remain unpaid or any
other portion of the Obligations remains outstanding, the Borrower will (or will
cause the appropriate Person to) duly perform and observe each and all of the
covenants and agreements hereinafter set forth:

 

7.1.          Reserved.

 

7.2.          Financial Statements; Reserve and Other Reports; Certain Required
Notices from Borrower; Additional Information. The Borrower will furnish to the
Lenders:

 

(i)          as soon as available and in any event within one hundred
thirty-five (135) days after the end of each fiscal year of the Borrower, copies
of the consolidated statement of assets and liabilities of the Borrower and its
consolidated Subsidiaries as of the end of such fiscal year, and copies of the
related statements of revenues and expenses, operations, changes in owners’
equity and cash flow for such fiscal year, setting forth in each case in
comparative form the figures for the previous fiscal year, all in reasonable
detail; such financial statements to be audited by a firm of independent
certified public accountants selected by the Borrower and reasonably acceptable
to the Required Lenders and accompanied by the unqualified opinion of such
accountants;

 

(ii)         on or before seventy-five (75) days after the last day of each
fiscal quarter of the Borrower, (a) a copy of the unaudited consolidated
statement of assets and liabilities of the Borrower and its consolidated
Subsidiaries as at the close of such quarter and from the beginning of such
fiscal year to the end of such quarter, (b) a copy of the related statements of
revenues and expenses, operations, changes in owners’ equity and cash flows for
the quarter just ended and for that portion of the year ending on such last day,
all in reasonable detail and prepared on a basis consistent with the financial
statements previously delivered by the Borrower under this Section and (c) an
identification of all Contingent Obligations and Guarantees;

 

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(iii)        simultaneously with the delivery of each set of financial
statements pursuant to the preceding clauses of this Section, a Compliance
Certificate of the Borrower stating that such financial statements fairly and
accurately reflect in all material respects the financial condition and results
of operation of the Borrower for the periods and as of the dates set forth
therein, and that the signers have reviewed the terms of this Agreement and the
other Loan Documents, and have made, or caused to be made under their
supervision, a review of the transactions and financial condition of the
Borrower during the fiscal period covered by such financial statements, and that
such review has not disclosed the existence during such period, and that the
signers do not have knowledge of the existence as of the date of such
certificate, of any condition or event which constitutes a Default, or, if any
such condition or event existed or exists, specifying the nature and period of
existence thereof and what action the Borrower has taken or is taking or
proposes to take with respect thereto;

 

(iv)        within thirty (30) days after each filing thereof by the Borrower
and each Guarantor with any Governmental Authority (if copies thereof have been
requested by the Required Lenders), complete copies of the federal and state
income tax returns so filed;

 

(v)         as soon as available, and in any event on or before March 31 of each
year during the term of this Agreement, engineering reports in form and
substance reasonably satisfactory to the Required Lenders, certified by an
independent consulting petroleum engineers selected by the Borrower and
reasonably acceptable to the Required Lenders as fairly and accurately setting
forth (a) the proven and producing, shut-in, behind-pipe, and undeveloped oil
and gas reserves (separately classified as such) attributable to the Oil and Gas
Properties of the Borrower as of January 1 of such year, (b) the aggregate
present value of the future net income with respect to such Properties,
discounted at a stated per annum discount rate of proven and producing reserves,
(c) projections of the annual rate of production, gross income, and net income
with respect to such proven and producing reserves, and (d) information with
respect to the “takeor-pay,” “prepayment,” and gas-balancing liabilities of the
Borrower and other Persons with respect to such Properties. For purposes of this
clause, the petroleum engineering firm of either Forrest A. Garb and Associates,
or Cawley, Gillsepe & Associates, Inc. shall be deemed to be acceptable to the
Lenders with respect to all Oil and Gas Properties in the Permian Basin and Mr.
Kent Lina shall be deemed to be acceptable to the Lenders with respect to all
Oil and Gas Properties in the DJ Basin;

 

(vi)        as soon as available, and in any event on or before September 30 of
each year during the term of this Agreement, engineering reports in form and
substance reasonably satisfactory to the Required Lenders setting forth (a) the
proven and producing, shut-in, behind-pipe, and undeveloped oil and gas reserves
(separately classified as such) attributable to the Oil and Gas Properties of
the Borrower as of July 1 of such year, (b) the aggregate present value of the
future net income with respect to such Properties, discounted at a stated per
annum discount rate of proven and producing reserves, (c) projections of the
annual rate of production, gross income, and net income with respect to such
proven and producing reserves, and (d) information with respect to the
“take-or-pay,” “prepayment,” and gas-balancing liabilities of the Borrower and
other Persons with respect to such Properties;

 

(vii)       simultaneously with the delivery of such production and other
reports under clauses (i) and (ii) above, a Representative’s Certificate
certifying that, to the best of such signatory’s knowledge, such engineering and
other reports are true, accurate and complete in all material respects for the
periods covered in such reports; provided that to the extent such reports
include projections of future volumes of production and future costs, it is
understood that such estimates are necessarily based upon professional opinions,
and the Borrower does not warrant that such opinions will ultimately prove to
have been accurate;

 

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(viii)      [Reserved.];

 

(ix)         within five (5) Business Days after any Responsible Representative
becomes aware of the occurrence of any condition or event which constitutes a
Default, a Representative’s Certificate specifying the nature of such condition
or event, the period of the existence thereof, what action the Borrower has
taken or is taking and proposes to take with respect thereto and the date, if
any, on which it is estimated the same will be remedied;

 

(x)          within five (5) Business Days after the Borrower’s or any
Guarantor’s learning of any claim, demand, action, event, condition, report or
investigation indicating any potential or actual liability of the Borrower or
any Guarantor arising in connection with (a) the noncompliance with or violation
of the requirements of any Environmental Law, (b) the release or threatened
release of any Hazardous Substance into the environment, or (c) the existence of
any Environmental Lien on any Properties of the Borrower or any Guarantor,
notice thereof, in each case that would reasonably be expected to have a
Material Adverse Effect;

 

(xi)         within five (5) Business Days of the Borrower’s or any Guarantor’s
learning of any litigation or other event or circumstance which could reasonably
be expected to have a Material Adverse Effect, notice thereof;

 

(xii)        [Reserved.];

 

(xiii)       within five (5) Business Days after any Responsible Representative
learns of any Change of Control Event, notice of such Change of Control Event;
and

 

(xiv)      with reasonable promptness, such other information relating directly
or indirectly to the financial condition, business, results of operations or
Properties of the Borrower or any Guarantor as from time to time may reasonably
be requested by the Required Lenders.

 

7.3.          Inspection of Properties and Books.

 

7.3.1.          The Borrower will permit any officer, employee or representative
of one Lender designated by the Required Lenders in writing to the Borrower to
visit and inspect any of its Properties, to examine its books of account (and to
make copies thereof and take extracts therefrom) and to discuss its affairs,
finances and accounts (including transactions, agreements and other relations
with any shareholders) with, and to be advised as to the same by, its officers
and independent public accountants, all upon at least five (5) Business Days’
notice and at such reasonable times during normal business hours and intervals
as such designated Lender may desire and, if an Event of Default has occurred
and is continuing, at the expense of the Borrower.

 

7.3.2.          Each Guarantor will permit any officer, employee or
representative of one Lender designated by the Required Lenders in writing to
the Borrower to visit and inspect any of its Properties, to examine its books of
account (and to make copies thereof and take extracts therefrom) and to discuss
its affairs, finances and accounts (including transactions, agreements and other
relations with any shareholders) with, and to be advised as to the same by, its
officers and independent public accountants, all upon at least five (5) Business
Days’ notice and at such reasonable times during normal business hours and
intervals as the Required Lenders may desire and, if an Event of Default has
occurred and is continuing, at the expense of the Borrower.

 

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7.4.          Maintenance of Security; Insurance; Authorization to File
Financing Statements; Operating Accounts; Transfer Orders.

 

7.4.1.          (i) The Borrower shall execute and deliver, or cause the
appropriate Person to execute and deliver, to the Lenders and the Collateral
Agent all mortgages, deeds of trust, security agreements, financing statements,
assignments and such other documents and instruments (including division and
transfer orders), and supplements and amendments thereto, and take such other
actions as the Required Lenders or the Collateral Agent deem reasonably
necessary or desirable and request in order to (a) grant and maintain as valid,
enforceable, first-priority, perfected Liens (subject only to the Permitted
Liens), all Liens granted to secure the Obligations or (b) monitor or control
the proceeds from Collateral.

 

(ii)         The Borrower and each Guarantor which has granted a security
interest to the Collateral Agent for the benefit of the Secured Parties (as
defined in the Replacement Security Documents), as applicable, authorizes the
Lenders and the Collateral Agent to complete and file, from time to time,
financing statements naming the Borrower and each such Guarantor, as applicable,
as debtor to perfect Liens granted to secure the Obligations.

 

(iii)        The Borrower shall take such action as may be requested from time
to time by the Required Lenders or the Collateral Agent to maintain first and
prior Liens (subject to Permitted Liens) in favor of the Collateral Agent for
the benefit of the Secured Parties (as defined in the Replacement Security
Documents) by instruments executed by the appropriate Person and properly
recorded in the applicable jurisdictions on Oil and Gas Properties having an
aggregate PV-9 Value of at least eighty percent (80%) of the PV-9 Value of all
such Oil and Gas Properties.

 

(iv)        The Borrower and each Guarantor will at all times maintain or cause
to be maintained hazard and liability insurance and additional insurance
covering such risks as are customarily carried by businesses similarly situated,
all such insurance to be in amounts and from insurers reasonably acceptable to
the Required Lenders, maintained by Borrower, naming the Collateral Agent as
loss payee or as an additional insured, as applicable, to provide that such
policies may not be cancelled, reduced or affected in any manner for any reason
without thirty (30) days’ prior notice to the Collateral Agent, and, upon any
renewal of any such insurance upon request by the Required Lenders, promptly
furnish to the Lenders and the Collateral Agent evidence, reasonably
satisfactory to the Required Lenders, of the maintenance of such insurance.

 

7.4.2.          The Borrower and each Guarantor shall upon reasonable request of
the Required Lenders, execute such transfer orders, letters-in-lieu of transfer
orders or division orders as the Required Lenders may from time to time request
in respect of the Collateral to effect a transfer and delivery to the Collateral
Agent of the proceeds of production attributable to the Collateral at any time
following and during the continuation of an Event of Default.

 

7.5.          Payment of Taxes and Claims.

 

7.5.1.          Except as could not reasonably be expected to have a Material
Adverse Effect, the Borrower will pay (i) all Taxes imposed upon it or any of
its assets or with respect to any of its franchises, business, income or profits
before any material penalty or interest accrues thereon and (ii) all claims
(including claims for labor, services, materials and supplies) for sums which
have become due and payable and which have or might become a Lien (other than a
Permitted Lien) on any of its assets; provided, however, that no payment of such
Taxes or claims shall be required if (a) the amount, applicability or validity
thereof is currently being contested in good faith by appropriate proceedings
promptly initiated and diligently conducted, and (b) the Borrower shall have set
aside on its books reserves (segregated to the extent required by applicable
accounting principles) reasonably deemed by it to be adequate with respect
thereto.

 

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7.5.2.          Except as could not reasonably be expected to have a Material
Adverse Effect, each Guarantor will pay (i) all Taxes imposed upon it or any of
its assets or with respect to any of its franchises, business, income or profits
before any material penalty or interest accrues thereon and (ii) all claims
(including claims for labor, services, materials and supplies) for sums which
have become due and payable and which have or might become a Lien (other than a
Permitted Lien) on any of its assets; provided however, that no payment of such
Taxes or claims shall be required if (a) the amount, applicability or validity
thereof is currently being contested in good faith by appropriate proceedings
promptly initiated and diligently conducted, and (b) such Guarantor shall have
set aside on its books reserves (segregated to the extent required by applicable
accounting principles) reasonably deemed by it to be adequate with respect
thereto.

 

7.6.          Payment of Debt; Additional Debt; Payment of Accounts;
Restrictions on Payments on the SOS Note.

 

7.6.1.          The Borrower will (a) pay, renew or extend or cause to be paid,
renewed or extended the principal of, and the prepayment charge, if any, and
interest on all Debt heretofore or hereafter incurred or assumed by it when and
as the same shall become due and payable unless such payment is prohibited by
the Loan Documents or would cause an Event of Default hereunder; (b) faithfully
perform, observe and discharge all unwaived covenants, conditions and
obligations within any applicable periods of grace imposed on it by any
instrument evidencing such Debt or by any indenture or other agreement securing
such Debt or pursuant to which such Debt is issued unless such performance,
observance or discharge would cause an Event of Default hereunder; and (c) not
permit the occurrence of any act or omission which would constitute a default
under any such instrument, indenture or agreement.

 

7.6.2.          Each Guarantor will (a) pay, renew or extend or cause to be
paid, renewed or extended the principal of, and the prepayment charge, if any,
and interest on all Debt heretofore or hereafter incurred or assumed by it when
and as the same shall become due and payable unless such payment is prohibited
by the Loan Documents or would cause an Event of Default hereunder; (b)
faithfully perform, observe and discharge all unwaived covenants, conditions and
obligations within any applicable periods of grace imposed on it by any
instrument evidencing such Debt or by any indenture or other agreement securing
such Debt or pursuant to which such Debt is issued unless such performance,
observance or discharge would cause an Event of Default hereunder; and (c) not
permit the occurrence of any act or omission which would constitute a default
under any such instrument, indenture or agreement.

 

7.6.3.          The Borrower will not create, incur or suffer to exist any Debt,
except without duplication (a) Debt under the Loan Documents and (b) other
Permitted Indebtedness.

 

7.6.4.          No Guarantor will create, incur or suffer to exist any Debt,
except without duplication (a) Debt under the Loan Documents and (b) other
Permitted Indebtedness.

 

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7.6.5.          The Borrower shall pay all of its trade and other accounts
payable within ninety (90) days after the invoice date therefor, unless such
payables are being contested in good faith by appropriate proceedings or other
written protest thereof.

 

7.6.6.          Each Guarantor shall pay all of its trade and other accounts
payable within ninety (90) days after the invoice date therefor, unless such
payables are being contested in good faith by appropriate proceedings or other
written protest thereof.

 

7.7.          Negative Pledge. (i) The Borrower will not create, suffer to exist
or otherwise allow any Liens to be on or otherwise to affect any of its Property
whether now owned or hereafter acquired, except Permitted Liens.

 

(ii)         No Guarantor will create, suffer to exist or otherwise allow any
Liens to be on or otherwise to affect any of its Property whether now owned or
hereafter acquired, except Permitted Liens.

 

7.8.          Loans and Advances to Others; Investments; Restricted Payments;
Subsidiaries.

 

7.8.1.          The Borrower will not make or suffer to exist any loan, advance
or extension of credit to any Person except (a) Permitted Indebtedness, (b)
Permitted Investments, (c) trade and customer accounts receivable which are for
goods furnished or services rendered in the ordinary course of business and
which are payable in accordance with customary trade terms and (d) advances to
employees of the Borrower and its Subsidiaries for payment of reasonable
expenses in the ordinary course of business.

 

7.8.2.          No Guarantor will make or suffer to exist any loan, advance or
extension of credit to any Person except (a) Permitted Indebtedness, (b)
Permitted Investments, (c) trade and customer accounts receivable which are for
goods furnished or services rendered in the ordinary course of business and
which are payable in accordance with customary trade terms and (d) advances to
employees of the Borrower and its Subsidiaries for payment of reasonable
expenses in the ordinary course of business.

 

7.8.3.          The Borrower will not make any capital contribution to, or make
any Investment in, or purchase or make a commitment to purchase any interest in,
any Person except as permitted by Section 7.8.1.

 

7.8.4.          No Guarantor will make any capital contribution to or make any
Investment in, or to purchase or make a commitment to purchase any interest in,
any Person except as permitted by Section 7.8.2.

 

7.8.5.          (i) The Borrower will not, directly or indirectly, make any
Restricted Payment without the prior written consent of the Required Lenders
except as specifically permitted in the definition of such defined term;
provided, that the Borrower may make the following Restricted Payments: (a) the
declaration and payment of dividends or distributions by the Borrower solely in
Capital Stock (other than Disqualified Stock) of the Borrower, and (b) the
Borrower may (i) so long as no Default or Event of Default is occurring, make
payments to directors, officers, members of management, employees or consultants
of the Borrower or any Subsidiary (or their transferees, estates or
beneficiaries under their estates) upon their death, disability, retirement,
severance or termination of employment or service for the acquisition by the
Borrower from such Persons of Capital Stock in the Borrower or any Subsidiary;
provided that the aggregate cash consideration paid for all such payments shall
not exceed $250,000 in any calendar year, and (ii) make cashless repurchases of
securities that are deemed to occur upon the exercise or vesting of options,
rights or shares of stock held by directors, officers, members of management,
employees or consultants of the Borrower or any Subsidiary to the extent such
securities represent a portion of the exercise price of or withholding taxes
attributable to such options, rights or shares.

 

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(ii)         No Guarantor will, directly or indirectly, make any Restricted
Payment without the prior written consent of the Required Lenders except as
specifically permitted in the definition of such defined term; provided, that
any Guarantor may declare or pay dividends or distributions to the Borrower or
any other Guarantor.

 

7.8.6.          (i) The Borrower shall not form or acquire any Subsidiaries,
either directly or indirectly through other Subsidiaries, without the prior
written consent of the Required Lenders (which consent shall not be unreasonably
withheld), unless such Subsidiary executes a joinder to this Agreement and such
other reasonably requested documents and instruments, each in form and substance
reasonably satisfactory to the Collateral Agent and the Required Lenders within
20 days of such formation or acquisition (or such later date as may be agreed by
the Collateral Agent).

 

(ii)         No Guarantor will form or acquire any Subsidiaries, either directly
or indirectly through other Subsidiaries, without the prior written consent of
the Required Lenders (which consent shall not be unreasonably withheld), unless
such Subsidiary executes a joinder to this Agreement and such other reasonably
requested documents and instruments, each in form and substance reasonably
satisfactory to the Collateral Agent and the Required Lenders within 20 days of
such formation or acquisition (or such later date as may be agreed by the
Collateral Agent).

 

7.9.         Consolidation, Merger, Maintenance, Change of Control; Disposition
of Property; Restrictive Agreements; Hedging Agreements; Modification of
Organizational Documents; Issuance of Equity Interests.

 

7.9.1.          (i) The Borrower will not (a) consolidate or merge with or into
any other Person, (b) sell, lease or otherwise transfer all or substantially all
of its Property to any other Person, (c) terminate, or fail to maintain, its
existence as the type of entity represented in Section 6.1 and in its state of
formation represented in Section 6.1, (d) terminate, or fail to maintain, its
good standing and qualification to transact business in all jurisdictions where
the nature of its business requires the same (except where the failure to
maintain its good standing or qualification could not reasonably be expected to
have a Material Adverse Effect) or (e) permit a Change of Control Event to
occur.

 

(ii)         No Guarantor will (a) consolidate or merge with or into any other
Person other than a Guarantor or the Borrower, (b) sell, lease or otherwise
transfer all or substantially all of its Property to any other Person other than
the Borrower or another Guarantor unless such Person assumes the applicable
Guarantor’s Obligations hereunder, (c) terminate, or fail to maintain, its
existence as the type of entity represented in Section 6.1 and in its state of
formation represented in Section 6.1, or (d) terminate, or fail to maintain, its
good standing and qualification to transact business in all jurisdictions where
the nature of its business requires the same (except where the failure to
maintain its good standing or qualification could not reasonably be expected to
have a Material Adverse Effect).

 

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7.9.2.          (i) The Borrower will not Dispose of any of its property other
than pursuant to a Permitted Disposition.

 

(ii)         No Guarantor will Dispose of any of its property other than
pursuant to a Permitted Disposition.

 

7.9.3.          The Borrower will not be or become party to or bound by any
agreement (including any undertaking in connection with the incurrence of Debt
or issuance of securities) which imposes any material limitation on the
disposition of the Collateral taken as a whole, other than the Loan Documents or
the Second Lien Documents.

 

7.9.4.          (i) The Borrower will not enter into any Hedging Transaction
unless such Hedging Transaction is an Acceptable Hedging Transaction.

 

(ii)         No Guarantor will enter into any Hedging Transaction unless such
Hedging Transaction is an Acceptable Hedging Transaction.

 

7.9.5.          (i) The Borrower will not amend its Organizational Documents in
any respect which would be materially adverse to the interests of the Lenders.

 

(ii)         No Guarantor will amend its Organizational Documents in any respect
which would be materially adverse to the interests of the Lenders.

 

7.10.         Primary Business; Continuous Operations; Location of Borrower’s
Office; Ownership of Assets.

 

7.10.1.          (i) The primary business of the Borrower shall at all times be
and remain the oil and gas exploration, development and production business. The
Borrower shall continuously remain in operation in a manner reasonably necessary
to manage its Properties and business affairs.

 

(ii)         The primary business of each Guarantor shall at all times be and
remain the oil and gas exploration, development and production business. Each
Guarantor shall continuously remain in operation in a manner reasonably
necessary to manage its Properties and business affairs.

 

7.10.2.          The location of the Borrower’s principal place of business and
executive office shall remain at the address for the Borrower set forth on the
signature page hereof, unless the Borrower provides the Lenders with written
notice of such change within 10 days thereof.

 

7.10.3.          (i) The Borrower will at all times own, both beneficially and
of record, all assets reflected in its financial statements delivered to the
Lenders from time to time, subject only to Permitted Liens and unless such
assets are disposed in a manner not inconsistent with the terms of this
Agreement.

 

(ii)         Each Guarantor will at all times own, both beneficially and of
record, all assets reflected in its financial statements delivered to the
Lenders from time to time except as otherwise specifically disclosed therein and
unless such assets are disposed in a manner not inconsistent with the terms of
this Agreement.

 

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7.11.        Operation of Properties and Equipment; Compliance with and
Maintenance of Contracts; Duties as Nonoperator.

 

7.11.1.          (i) The Borrower shall at all times maintain, develop and
operate its Oil and Gas Properties in a good and workmanlike manner and will
observe and comply in all material respects with all of the terms and
provisions, express or implied, of all oil and gas leases relating to such Oil
and Gas Properties so long as such oil and gas leases are capable of producing
hydrocarbons in commercial quantities, to the extent that the failure to so
observe and comply could reasonably be expected to have a Material Adverse
Effect.

 

(ii)         Each Guarantor shall at all times maintain, develop and operate its
Oil and Gas Properties in a good and workmanlike manner and will observe and
comply in all material respects with all of the terms and provisions, express or
implied, of all oil and gas leases relating to such Oil and Gas Properties so
long as such oil and gas leases are capable of producing hydrocarbons in
commercial quantities, to the extent that the failure to so observe and comply
could reasonably be expected to have a Material Adverse Effect.

 

7.11.2.          (i) The Borrower shall comply with all agreements applicable to
or relating to its Oil and Gas Properties or the production and sale of
hydrocarbons therefrom and all applicable proration and conservation Laws of the
jurisdictions in which such Properties are located, to the extent that the
failure to so comply with such Laws or agreements could reasonably be expected
to have a Material Adverse Effect.

 

(ii)         Each Guarantor shall comply with all agreements applicable to or
relating to its Oil and Gas Properties or the production and sale of
hydrocarbons therefrom and all applicable proration and conservation Laws of the
jurisdictions in which such Properties are located, to the extent that the
failure to so comply with such Laws or agreements could reasonably be expected
to have a Material Adverse Effect.

 

7.12.        Transactions with Affiliates.

 

7.12.1.          The Borrower will not engage in any transaction with an
Affiliate, except for (i) transactions that are in the ordinary course of
Borrower’s business, upon fair and reasonable terms that are no less favorable
to Borrower than would be obtained in an arm’s length transaction with a
non-affiliated Person, (ii) transactions between Borrower and any Guarantor,
(iii) transactions set forth on Schedule 7.12 or (iv) as otherwise permitted by
the Loan Documents.

 

7.12.2.          No Guarantor will engage in any transaction with an Affiliate,
except for (i) transactions that are in the ordinary course of such Guarantor’s
business, upon fair and reasonable terms that are no less favorable to such
Guarantor than would be obtained in an arm’s length transaction with a
non-affiliated Person, (ii) transactions between such Guarantor and the
Borrower, (iii) transactions between such Guarantor and any other Guarantor,
(iv) transactions set forth on Schedule 7.12 or (v) as otherwise permitted by
the Loan Documents.

 

7.13.        [Reserved].

 

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7.14.        Compliance with Laws and Documents.

 

7.14.1.          (i) The Borrower will not, directly or indirectly, violate the
provisions of any Laws, its Organizational Documents or any written agreement,
contract or commitment to which the Borrower is a party, by which the Borrower
is bound, or to which any Property of the Borrower may be subject (and in any
case, except for this Agreement and the other Loan Documents) if, in any such
case, violation, alone or when combined with all other such violations, could
reasonably be expected to have or does have a Material Adverse Effect.

 

(ii)         No Guarantor will, directly or indirectly, violate the provisions
of any Laws, its Organizational Documents or any written agreement, contract or
commitment to which such Guarantor is a party, by which such Guarantor is bound,
or to which any Property of such Guarantor may be subject (and in any case,
except for this Agreement and the other Loan Documents), if, in any such case,
such violation, alone or when combined with all other such violations, could
reasonably be expected to have or does have a Material Adverse Effect.

 

7.15.        Certain Financial Covenants.

 

7.15.1.          Beginning with the testing period ending on December 31, 2018,
the Borrower shall not permit the Asset Coverage Ratio, as of June 30 and
December 31 of each fiscal year, to be less than 1.00 to 1.00.

 

7.16.        Additional Documents; Quantity of Documents; Title Data; Additional
Information.

 

7.16.1.          The Borrower shall execute and deliver or cause to be executed
and delivered such other and further instruments or documents as in the
reasonable judgment of the Required Lenders may be required to better effectuate
the transactions contemplated herein and in the other Loan Documents.

 

7.16.2.          Reserved.

 

7.16.3.          Within sixty (60) days following a written request therefor
from the Required Lenders, the Borrower shall cause to be delivered to the
Lenders title opinions, in form and substance and from attorneys reasonably
acceptable to the Required Lenders, or other confirmation of title reasonably
acceptable to the Required Lenders, covering Oil and Gas Properties that are
covered by the Mortgages and constitute not less than eighty percent (80%) by
PV-9 Value of the Oil and Gas Properties; and promptly, but in any event within
sixty (60) days following notice from the Required Lenders of any defect,
material in the reasonable opinion of the Required Lenders, in the title of the
mortgagor under any Mortgage to any Oil and Gas Property covered thereby, clear
such title defect, and in the event any such title defects are not cured in a
timely manner, pay all reasonable and documented related costs and fees incurred
by the Required Lenders in attempting to do so.

 

7.16.4.          The Borrower shall furnish to the Lenders, promptly upon the
request of the Required Lenders, such additional financial or other information
concerning the assets, liabilities, operations, and transactions of the Borrower
and each Guarantor as the Required Lenders may from time to time reasonably
request; and notify the Lenders not later than ten (10) days following the
occurrence of any condition or event that may change the proper location for the
filing of any financing statement or other public notice or recording for the
purpose of perfecting a Lien in any Collateral, including any change in its name
or state of organization; and upon the reasonable request of the Required
Lenders, execute such additional Security Documents as may be reasonably
necessary or appropriate in connection therewith.

 

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7.17.       Environmental Indemnification. The Borrower shall, on a current
basis, indemnify, defend and hold each Indemnified Party harmless on a current
basis from and against any and all claims, losses, damages, liabilities, fines,
penalties, charges, administrative and judicial proceedings and orders,
judgments, remedial actions, requirements and enforcement actions of any kind,
and all costs and expenses incurred in connection therewith (including, without
limitation, reasonable attorneys’ fees and expenses), arising directly or
indirectly, in whole or in part, from (a) the presence of any Hazardous
Substances on, under, or from any Property of the Borrower, whether prior to or
during the term hereof, (b) any activity carried on or undertaken on or off any
Property of the Borrower, whether prior to or during the term hereof, and
whether by the Borrower or any predecessor in title, employee, agent,
contractor, or subcontractor of the Borrower or any other person at any time
occupying or present on such Property, in connection with the handling,
treatment, removal, storage, decontamination, cleanup, transportation, or
disposal of any Hazardous Substances at any time located or present on or under
such Property, (c) any residual contamination on or under any Property of the
Borrower, or (d) any contamination of any Property or natural resources arising
in connection with the generation, use, handling, storage, transportation or
disposal of any Hazardous Substances by the Borrower or any employee, agent,
contractor, or subcontractor of the Borrower while such persons are acting
within the scope of their relationship with the Borrower, irrespective of
whether any of such activities were or will be undertaken in accordance with
applicable requirements of law, AND REGARDLESS OF WHETHER ANY PERSON (INCLUDING
THE PERSON FROM WHOM INDEMNIFICATION IS SOUGHT) ALLEGES OR PROVES THE SOLE,
CONCURRENT, CONTRIBUTORY OR COMPARATIVE NEGLIGENCE OF THE PERSON SEEKING
INDEMNIFICATION OR OF ANY OTHER INDEMNIFIED PARTY, OR THE SOLE OR CONCURRENT
STRICT LIABILITY IMPOSED ON THE PERSON SEEKING INDEMNIFICATION OR ON ANY OTHER
INDEMNIFIED PARTY, but not any of the foregoing in this Section arising from the
willful misconduct or the gross negligence on the part of the Indemnified Party
seeking indemnification under this Section as determined by a final
non-appealable judgment of a court of competent jurisdiction; with the foregoing
indemnity surviving satisfaction of all obligations and the termination of this
Agreement.

 

7.18.        Anti-Terrorism Laws. Neither the Borrower nor any of the other
Obligated Parties shall (a) deal in, or otherwise engage in any transaction
relating to, any property or interests in property blocked pursuant to Executive
Order No. 13224; or (b) engage in or conspire to engage in any transaction that
evades or avoids, or has the purpose of evading or avoiding, or attempts to
violate, (i) any of the prohibitions set forth in Executive Order No. 13224 or
the USA Patriot Act or (ii) any prohibitions set forth in the rules or
regulations issued by OFAC or any sanctions against targeted foreign countries,
terrorism sponsoring organizations, and international narcotics traffickers
based on U.S. foreign policy. The Borrower shall deliver to the Lenders any
certification or other evidence requested from time to time by the Required
Lenders, in its reasonable discretion, confirming the Obligated Parties’
compliance with this Section.

 

7.19.        Control Agreements. Prior to the date that is the earlier of (a)
thirty (30) days after the Collateral Modification Date, and (b) May 31, 2017
(or, in any case, such later date as the Collateral Agent may agree in its sole
discretion), the Collateral Agent shall have received Control Agreements duly
executed and delivered by each of the parties thereto with respect to all of the
Borrower and Guarantors’ deposit accounts, securities accounts and commodity
accounts (other than the Excluded Accounts).

 

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ARTICLE  VIII
DEFAULTS; REMEDIES

 

8.1.         Events of Default; Acceleration of Maturity. If any one or more of
the following events (each an “Event of Default”) has occurred and has not been
waived by the Required Lenders (whatever the reason for such Event of Default
and whether it shall be voluntary or involuntary or be effected by operation of
law or pursuant to any judgment, decree or order of any court or any order, rule
or regulation of any administrative or governmental body or otherwise):

 

8.1.1.          (i) the Borrower shall fail to pay, when due, any principal of
(a) any Note or (b) any other Debt of the Borrower under this Agreement to the
Lenders.

 

(ii)         the Borrower shall fail to pay when due, any interest, fees or
other amounts payable hereunder and not covered by clause (i) above, if such
failure shall continue unremedied for a period of three (3) Business Days.

 

8.1.2.          (i) the Borrower shall fail to observe or perform any covenant
or agreement contained in Sections 7.2, 7.4, 7.6.2, 7.7, 7.8, 7.9 , 7.12, 7.15,
or 7.16.3.

 

(ii)         any Guarantor shall (a) fail to comply with the provisions of its
Guaranty, revoke or attempt to revoke such Guarantor’s Guaranty in whole or in
part or deny the validity or enforceability in whole or in part of such
Guarantor’s Guaranty or (c) fail to confirm in a writing reasonably satisfactory
to the Required Lenders that such Guarantor’s Guaranty is enforceable in
accordance with its terms within five (5) Business Days following a written
request therefor.

 

8.1.3.          Any Loan Party shall fail to observe or perform any covenant or
agreement contained in this Agreement, the other Loan Documents (other than
those covered by Sections 8.1.1 or 8.1.2), for a period of thirty (30) days
after the earlier to occur of (i) such Loan Party becoming aware thereof or (ii)
receipt by such Loan Party of written notice specifying such default from any
Lender.

 

8.1.4.          An Insolvency Proceeding shall be commenced by or against the
Borrower, which in the case of an involuntary Insolvency Proceeding, shall
remain undismissed or unstayed for a period of thirty (30) days; or an order for
relief shall be entered against the Borrower under the federal bankruptcy laws
as now or hereafter in effect which remains undismissed or unstayed for a period
of thirty (30) days.

 

8.1.5.          An Insolvency Proceeding shall be commenced by or against any
Guarantor, which in the case of an involuntary Insolvency Proceeding, shall
remain undismissed or unstayed for a period of thirty (30) days; or an order for
relief shall be entered against any Guarantor under the federal bankruptcy laws
as now or hereafter in effect which remains undismissed or unstayed for a period
of thirty (30) days.

 

8.1.6.          (i) the Borrower (a) shall default in the payment of any of its
Material Debts (other than the Note) and such default shall continue beyond any
applicable cure period, (b) shall default in the performance or observance of
any other provision contained in any agreements or instruments evidencing or
governing such Material Debt and such default is not waived and continues beyond
any applicable cure period or (c) any other event or condition occurs which
results in the acceleration of such Material Debt.

 

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(ii)         Any Guarantor (a) shall default in the payment of any of its
Material Debts (other than the Guaranty) and such default shall continue beyond
any applicable cure period, (b) shall default in the performance or observance
of any other provision contained in any agreements or instruments evidencing or
governing such Material Debt and such default is not waived and continues beyond
any applicable cure period or (c) any other event or condition occurs which
results in the acceleration of such Material Debt.

 

8.1.7.          (i) one or more judgments or orders for the payment of money
aggregating in excess of $1,000,000 shall be rendered against the Borrower which
in the reasonable opinion of the Required Lenders is not adequately covered by
insurance, and such judgment or order (a) shall continue unsatisfied or unstayed
(unless bonded with a supersede as bond at least equal to such judgment or
order) for a period of sixty (60) days or (b) is not fully paid and satisfied at
least thirty (30) days prior to the date on which any of its Property may be
lawfully sold to satisfy such judgment or order.

 

(ii)         one or more judgments or orders for the payment of money
aggregating in excess of $1,000,000 shall be rendered against any Guarantor
which in the opinion of the Required Lenders is not adequately covered by
insurance, and such judgment or order (a) shall continue unsatisfied or unstayed
(unless bonded with a supersede as bond at least equal to such judgment or
order) for a period of sixty (60) days or (b) is not fully paid and satisfied at
least thirty (30) days prior to the date on which any of its Property may be
lawfully sold to satisfy such judgment or order.

 

8.1.8.          any representation, warranty, certification or statement made or
deemed to have been made by or on behalf of the Borrower in this Agreement or by
the Borrower or any other Person in any certificate, financial statement or
other document delivered pursuant to this Agreement shall prove to have been
incorrect in any material respect when made. Without limiting the generality of
the foregoing sentence, such incorrect representation, warranty, certification
or statement shall be deemed to be incorrect in a material respect if such
incorrect representation, warranty, certification or statement (i) could
reasonably be expected to have any material adverse effect upon the validity,
performance or enforceability of any Loan Document, (ii) is or might reasonably
be expected to be material and adverse to the financial condition or business
operations of any Person or to the prospects of any Person, (iii) could
reasonably be expected to materially impair any Person’s ability to fulfill its
obligations under the terms and conditions of the Loan Documents or (iv) could
reasonably be expected to materially impair the Lenders’ ability to receive full
and timely payment of the Notes.

 

8.1.9.          prior to the Collateral Modification Date, any of the Security
Documents shall for any reason fail to create a valid and perfected Lien in
favor of the Collateral Agent in any Collateral purported to be covered thereby
except as expressly permitted by the terms thereof.

 

8.1.10.         a Change of Control Event shall occur.

 

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8.2.          Remedies. Upon the occurrence and during the continuation of an
Event of Default, the Required Lenders may (i) declare the outstanding principal
of and accrued interest on the Notes to be, and the same shall thereupon
forthwith become, due and payable without presentment, demand, protest, notice
of intent to accelerate, notice of acceleration or other notice of any kind, all
of which are hereby waived by the Borrower, (ii) proceed to foreclose the Liens
securing the Notes, (iii) terminate all commitments under Article II and (iv)
take such other actions as are permitted by law or the Loan Documents; provided
that in the case of any of the Events of Default specified in Sections 8.1.4 and
8.1.5 with respect to the Borrower, without any notice to the Borrower or any
other act by the Lenders, the Notes (together with accrued interest thereon and
all fees, expenses and other Obligations) shall become immediately due and
payable without presentment, demand, protest, notice of intent to accelerate,
notice of acceleration or other notice of any kind, all of which are hereby
waived by the Borrower.

 

8.3.          Suits for Enforcement. In case any one or more of the Events of
Default specified in Section 8.1 shall have occurred and be continuing, the
Lenders may, at their option and upon the direction of the Required Lenders,
proceed to protect and enforce their rights either by suit in equity or by
action at law, or both, whether for the specific performance of any covenant or
agreement contained in this Agreement or in aid of the exercise of any power
granted in this Agreement.

 

8.4.         Remedies Cumulative. No remedy herein conferred upon the Lenders is
intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.

 

8.5.         Remedies Not Waived. No course of dealing and no delay in
exercising any rights under this Agreement or under the other Loan Documents
shall operate as a waiver of any rights hereunder or thereunder of the Lenders.

 

ARTICLE  IX
MISCELLANEOUS

 

9.1.         Amendments, Waivers and Consents. Any provision of this Agreement,
the Notes or the other Loan Documents may be amended or waived (either generally
or in a particular instance and either retroactively or prospectively) by a
written instrument signed by the Borrower and the Required Lenders, and any
consent required of the Required Lenders herein must be in writing; provided,
however, that no such amendment or waiver shall, unless signed by all the
Lenders affected thereby (or, in the case of clause (e) or (f) below, each
Lender) (a) increase or decrease the Commitment of any Lender or subject any
Lender to any additional obligation (other than any increases pursuant to
Section 2.4), (b) reduce or forgive the principal of or rate of interest on any
Note or any fees to the Lenders hereunder (other than the application of the
default rate of interest pursuant to Section 3.2), (c) postpone the date fixed
for any payment of principal of or interest on any Note or any fees to the
Lenders hereunder or for the termination of the Commitments, (d) change the
percentage of the Commitments or of the aggregate unpaid principal amount of the
Notes which shall be required for the Lenders or any of them to take any action
under this Section or any other provision of this Agreement, (e) release, or
subordinate the Collateral Agent’s Liens, if any, on all or substantially all of
the Collateral of (f) release any Guarantor from the Guaranty; provided,
further, however, that no such amendment, waiver, consent or agreement shall
amend, modify or otherwise affect the rights or duties of the Collateral Agent
hereunder or under any other Loan Document without the prior written consent of
the Collateral Agent. Delivery of an executed counterpart of such written
instrument or of the signature page of such written instrument by telecopy,
e-mail, facsimile transmission, electronic mail in “portable document format”
(“.pdf’) form or other electronic means intended to preserve the original
graphic and pictorial appearance of the item being sent shall be effective
delivery of a manually executed counterpart of such written instrument.

 

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9.2.         Release of Guarantees and Liens. At such time as the Loans and the
other obligations under the Loan Documents (other than contingent
indemnification obligations) shall have been indefeasibly paid in full and the
Commitment has been terminated, the Collateral shall be released from the Liens
created by the Security Documents, and the Security Documents and all
obligations (other than those expressly stated to survive such termination) of
the Borrower and each Subsidiary under the Security Documents shall terminate,
all without delivery of any instrument or performance of any act by any Person.
If any of the Collateral shall be sold, transferred or otherwise disposed of by
the Borrower or any Subsidiary in a transaction permitted by this Agreement,
then the Collateral Agent, at the request and sole expense of the Borrower or
any Subsidiary, shall execute and deliver to the Borrower or any Subsidiary all
releases or other documents reasonably necessary or desirable for the release of
the Liens created by the Security Documents on such Collateral. At the request
and sole expense of the Borrower, a Guarantor shall be released from its
obligations hereunder and under the other Security Documents in the event that
all the Capital Stock of such Guarantor shall be Disposed of in a transaction
permitted by this Agreement; provided that, in the case of this sentence and the
immediately prior sentence, the Borrower shall have delivered to the Collateral
Agent, at least five (5) Business Days prior to the date of the proposed release
(or such shorter time as the Collateral Agent may agree), a written request for
release identifying the relevant Guarantor, summarizing the transaction and
stating that such transaction is in compliance with this Agreement and the other
Loan Documents (and the Lenders hereby authorize and direct the Collateral Agent
to conclusively rely on such certifications in performing its obligations under
this Section 9.2).

 

9.3.          Indemnity.

 

9.3.1.          Whether or not any credit is ever extended hereunder, and in
addition to any other indemnifications herein or in any other Loan Documents,
the Borrower agrees to indemnify and defend and hold harmless on a current basis
each Indemnified Party, from and against any and all liabilities, losses,
damages, costs, interest, charges, counsel fees and other expenses and penalties
of any kind which any of the Indemnified Parties may sustain or incur in
connection with any investigative, administrative or judicial proceeding
(whether or not the Lenders shall be designated a party thereto) or otherwise by
reason of or arising out of the execution and delivery of this Agreement or any
of the other Loan Documents and/or the consummation of the transactions
contemplated hereby or thereby. The indemnification provisions in this Section
shall be enforceable regardless of whether the liability is based on past or
present acts, past, present or future claims or legal requirements (including
any past, present or future bulk sales law, environmental law, fraudulent
transfer act, occupational safety and health law, or products liability,
securities or other legal requirement), AND REGARDLESS OF WHETHER ANY PERSON
(INCLUDING THE PERSON FROM WHOM INDEMNIFICATION IS SOUGHT) ALLEGES OR PROVES THE
SOLE, CONCURRENT, CONTRIBUTORY OR COMPARATIVE NEGLIGENCE OF THE PERSON SEEKING
INDEMNIFICATION OR OF ANY OTHER INDEMNIFIED PARTY, OR THE SOLE OR CONCURRENT
STRICT LIABILITY IMPOSED ON THE PERSON SEEKING INDEMNIFICATION OR ON ANY OTHER
INDEMNIFIED PARTY, but not any of the foregoing in this Section arising from the
willful misconduct or the gross negligence on the part of the Indemnified Party
seeking indemnification under this Section as determined in a final
non-appealable judgment of a court of competent jurisdiction with the foregoing
indemnity surviving satisfaction of all obligations and the termination of this
Agreement.

 

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9.3.2.          Any amount to be paid under Section 9.3 to the Collateral Agent
or any Lender shall be a demand obligation owing by the Borrower and shall bear
interest from the date of expenditure by such Lender until paid at a per annum
rate equal to the Default Rate. The obligations of the Borrower under Section
9.3 shall survive payment of the Notes and the assignment of any right
hereunder.

 

9.3.3.          To the extent that the Borrower fails to pay any amount required
to be paid by it to any Indemnified Party under Section 7.17 or Section 9.3.1,
each Lender severally agrees to pay to the Collateral Agent, such Lender’s pro
rata share of such unpaid amount with respect to the amounts to be paid to the
Collateral Agent (as determined as of the time that the applicable unreimbursed
expense or indemnity payment is sought); provided that the unreimbursed expense
or indemnified loss, claim, damage, liability or related expense, as the case
may be, was incurred by or asserted against the Collateral Agent in its capacity
as such. For purposes hereof, a Lender’s “pro rata share” shall be determined
based upon its share of outstanding Loans (or, if all Loans have been paid in
full, the aggregate remaining Obligations), determined as if no Lender were a
Defaulting Lender). All amounts due under this Section shall be payable not
later than ten (10) days after written demand therefor.

 

9.4.          Expenses.

 

9.4.1.          In addition to legal fees and expenses payable pursuant to
Section 4.1.1(i), if any, whether or not any credit is extended hereunder, the
Borrower shall pay (i) all reasonable and documented out-of-pocket expenses
incurred by the Collateral Agent, the Lenders and each of their respective
Affiliates, including the reasonable fees, charges and disbursements of counsel
for the Collateral Agent and the Lenders, in connection with the preparation and
administration of this Agreement and the other Loan Documents or any amendments,
modifications or waivers of the provisions hereof (whether or not the
transactions contemplated hereby or thereby shall be consummated), and (ii) all
reasonable and documented out-of-pocket expenses incurred by the Collateral
Agent or any Lender, including the reasonable fees, charges and disbursements of
any counsel for the Collateral Agent or any Lender, in connection with the
enforcement or protection of its rights in connection with this Agreement,
including its rights under this Section, or in connection with the Loans made
hereunder, including all such out-of-pocket expenses incurred during any
workout, restructuring or negotiations in respect of such Loans.

 

9.4.2.          THE BORROWER SHALL INDEMNIFY EACH INDEMNIFIED PARTY AGAINST ANY
TRANSFER TAXES, DOCUMENTARY TAXES, ASSESSMENTS OR CHARGES MADE BY ANY
GOVERNMENTAL AUTHORITY BY REASON OF THE EXECUTION AND DELIVERY OF THIS AGREEMENT
OR THE OTHER LOAN DOCUMENTS.

 

9.4.3.          Any amount to be paid under Section 9.4 shall be a demand
obligation owing by the Borrower and shall bear interest from the date of
expenditure until paid at a per annum rate equal to the Default Rate. The
obligations of the Borrower under Section 9.4 shall survive payment of the Notes
and the assignment of any right hereunder.

 

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9.5.          Taxes. The Borrower will, to the extent it may lawfully do so, pay
all Taxes (including interest and penalties but expressly excluding federal or
state income taxes) which may be payable in respect of the execution and
delivery of this Agreement or the other Loan Documents, or in respect of any
amendment of or waiver under or with respect to the foregoing, and will save the
Lenders and the Collateral Agent harmless on a current basis against any loss or
liability resulting from nonpayment or delay in payment of any such Taxes (as
limited above), other than income taxes payable by the Lenders. The obligations
of the Borrower under this Section shall survive the payment of the Notes and
the assignment of any right hereunder.

 

9.6.          Survival. All representations and warranties made by or on behalf
of the Borrower in this Agreement, the other Loan Documents or in any
certificate or other instrument delivered by it or in its behalf under any of
the foregoing shall be considered to have been relied upon by the Lenders and
shall survive the delivery to the Lenders of such Loan Documents or the
extension of the Loans (or any part thereof), regardless of any investigation
made by or on behalf of any Lenders.

 

9.7.          Applicable Law; Venue.

 

9.7.1.          This Agreement has been negotiated, is being executed and
delivered, and will be performed in whole or in part, in the State of New York.
This Agreement, the other Loan Documents, the entire relationship of the parties
hereto, and any litigation between the parties (whether grounded in contract,
tort, statute, law or equity) shall be governed by, construed in accordance
with, and interpreted and enforced pursuant to the Laws of the State of New York
(and the applicable federal Laws of the United States of America) without giving
effect to its choice of law principles, except to the extent the Laws of any
jurisdiction where Collateral is located require application of such Laws with
respect to such Collateral.

 

9.7.2.          The Borrower hereby irrevocably submits to the non-exclusive
jurisdiction of any United States federal or New York state court sitting in New
York County, New York 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 the Borrower hereby specifically consents to the jurisdiction of the
State District Courts of New York County, New York and the United States
District Court for the Southern District of New York. Nothing herein shall limit
the right of the Lenders or the Collateral Agent to bring proceedings against
the Borrower in the courts of any other jurisdiction. Any judicial proceeding by
the Borrower against the Lenders or any Affiliate of any Lender or the
Collateral Agent or any Affiliate of the Collateral Agent 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 the State District Courts of New York
County, New York, or in the United States District Court for the Southern
District of New York.

 

9.8.          WAIVER OF JURY TRIAL AND EXEMPLARY DAMAGES. THE BORROWER HEREBY
KNOWINGLY, VOLUNTARILY, INTENTIONALLY, IRREVOCABLY, AND UNCONDITIONALLY WAIVES
(A) ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING, COUNTERCLAIM,
OR OTHER LITIGATION THAT RELATES TO OR ARISES OUT OF ANY OF THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT OR THE ACTS OR OMISSIONS OF THE LENDER IN THE
ENFORCEMENT OF ANY OF THE TERMS OR PROVISIONS OF THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT OR OTHERWISE WITH RESPECT THERETO AND (B) TO THE MAXIMUM EXTENT
NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
LITIGATION ANY SPECIAL DAMAGES (AS DEFINED BELOW). THE PROVISIONS OF THIS
SECTION ARE A MATERIAL INDUCEMENT FOR THE LENDERS AND THE COLLATERAL AGENT
ENTERING INTO THIS AGREEMENT. AS USED IN THIS SECTION, “SPECIAL DAMAGES”
INCLUDES ALL SPECIAL, CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE DAMAGES (REGARDLESS
OF HOW NAMED).

 

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9.9.          Waiver of Deficiency Statute; Other Waivers.

 

9.9.1.          The Borrower waives any rights the Borrower has under, or any
requirements imposed by, Sections 51.003, 51.004 and 51.005 of the Texas
Property Code, as amended.

 

9.9.2.          Each Guarantor waives any rights such Guarantor has under, or
any requirements imposed by, (i) Section 17.001 of the Texas Civil Practice and
Remedies Code, as amended, (ii) Rule 31 of the Texas Rules of Civil Procedure,
as amended, and (iii) Sections 51.003, 51.004 and 51.005 of the Texas Property
Code, as amended.

 

9.10.        Headings. The headings in this Agreement are for purposes of
reference only and shall not limit or otherwise affect the meaning hereof and
words such as “hereunder” or” herein” shall refer to the entirety of this
Agreement unless specifically indicated otherwise.

 

9.11.        Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original and all of which together shall
constitute, one and the same instrument. This Agreement shall become effective
at such time as the counterparts hereof which, when taken together, bear the
signature of the Borrower, the Lenders and the Collateral Agent, shall be
delivered to or be in the possession of the Lenders and the Collateral Agent.
Delivery of an executed counterpart of a signature page of this Agreement by
telecopy, e-mail, facsimile transmission, electronic mail in “portable document
format” (“.pdf’) form or other electronic means intended to preserve the
original graphic and pictorial appearance of the item being sent shall be
effective as a delivery of a manually executed counterpart of this Agreement.

 

9.12.       Invalid Provisions, Severability. If any provision of this Agreement
or the other Loan Documents is held to be illegal, invalid, or unenforceable
under present or future laws effective during the term hereof or thereof, such
provision shall be fully severable, this Agreement and the other Loan Documents
shall be construed and enforced as if such illegal, invalid, or unenforceable
provision had never comprised a part thereof, and the remaining provisions
hereof and thereof shall remain in full force and effect and shall not be
affected by the illegal, invalid, or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision there shall be added automatically as a part of this Agreement or the
other Loan Documents a provision as similar in terms to such illegal, invalid,
or unenforceable provision as may be possible and be legal, valid and
enforceable.

 

9.13.        Communications Via Internet. The Borrower and each Guarantor (by
its or his/her execution of a Guaranty) hereby authorizes the Lenders and the
Collateral Agent and their respective counsel and agents to communicate and
transfer documents and other information (including confidential information)
concerning this transaction or the Borrower and such Guarantor and the business
affairs of the Borrower and such Guarantor via the Internet or other electronic
communication without regard to the lack of security of such communications.

 

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9.14.        USA Patriot Act Notice. The Collateral Agent and the Lenders hereby
notify the Borrower and the other Obligated Parties that pursuant to the
requirements of the USA Patriot Act, they are required to obtain, verify and
record information that identifies the Borrower and the other Obligated Parties,
which information includes the name and address of the Borrower and the other
Obligated Parties and other information that will allow them to identify the
Borrower and the other Obligated Parties in accordance with such Act.

 

9.15.        EXCULPATION PROVISIONS.

 

9.15.1.          EACH OF THE PARTIES HERETO SPECIFICALLY AGREES THAT IT HAS A
DUTY TO READ THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AND AGREES THAT IT IS
CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS; THAT IT HAS IN FACT READ THIS AGREEMENT AND IS FULLY INFORMED
AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS, CONDITIONS AND EFFECTS OF THIS
AGREEMENT; THAT IT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS
CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS, AND HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN
ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND THAT IT
RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF
THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH
LIABILITY. EACH PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE
VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS AGREEMENT OR THE
OTHER LOAN DOCUMENTS ON THE BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE OF
SUCH PROVISION OR THAT THE PROVISION IS NOT “CONSPICUOUS.”

 

9.15.2.          In the event of a dispute over the meaning or application of
this Agreement and the indemnities contained herein, the Lenders, the Collateral
Agent and the Borrower agree that this Agreement and indemnities contained
herein shall be construed fairly and reasonably and neither more strongly for
nor against either party.

 

9.16.        [Reserved].

 

9.17.          Interest Rate Limitation. Notwithstanding anything herein to the
contrary, if at any time the interest rate applicable to any Loan, together with
all fees, charges and other amounts which are treated as interest on such Loan
under applicable law (collectively the “Charges”), shall exceed the maximum
lawful rate (the “Maximum Rate”) which may be contracted for, charged, taken,
received or reserved by the Lender holding such Loan in accordance with
applicable law, the rate of interest payable in respect of such Loan hereunder,
together with all Charges payable in respect thereof, shall be limited to the
Maximum Rate and, to the extent lawful, the interest and Charges that would have
been payable in respect of such Loan but were not payable as a result of the
operation of this Section shall be cumulated and the interest and Charges
payable to such Lender in respect of other Loans or periods shall be increased
(but not above the Maximum Rate therefor) until such cumulated amount, together
with interest thereon at the Federal Funds Effective Rate to the date of
repayment, shall have been received by such Lender. In the event that,
notwithstanding Section 9.7.1, applicable law is the law of the State of Texas
and such applicable law provides for an interest ceiling under Chapter 303 of
the Texas Finance Code (the “Texas Finance Code”) as amended, for each day, the
ceiling shall be the “weekly ceiling” as defined in the Texas Finance Code and
shall be used in this Agreement and the other Loan Documents for calculating the
Maximum Rate and for all other purposes. Chapter 346 of the Texas Finance Code
(which regulates certain revolving credit accounts (formerly Tex. Rev. Civ.
Stat. Ann. Art. 5069, Ch. 15)) shall not apply to this Agreement or to any Loan,
nor shall this Agreement or any Loan be governed by or be subject to the
provisions of such Chapter 346 in any manner whatsoever.

 

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ARTICLE  X
SETOFF; TREATMENT OF PARTIAL PAYMENTS

 

10.1.        Setoff. In addition to, and without limitation of, any rights of
the Lenders under applicable law, if any Event of 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 the Lenders or any Affiliate thereof to or for the credit or
account of the Borrower may be offset and applied toward the payment of the
Obligations, whether or not the Obligations, or any part hereof, shall then be
due. Such Lender or Affiliate thereof making such an offset and application
shall give the Borrower written notice of such offset and application promptly
after effecting it.

 

10.2.        Adjustments. In the event that any payments made hereunder on the
Obligations at any particular time are insufficient to satisfy in full the
Obligations due and payable at such time, such payments shall be applied (i)
first, to that portion of the Obligations consisting of fees and expenses then
due and payable, (ii) second, towards payment of interest and premiums then due
hereunder, ratably among the parties entitled thereto in accordance with the
amounts of interest and premiums then due to such parties, (iii) third, to that
portion of the Obligations consisting of principal then due and payable, and
(iv) last, to any other Obligations or, to the extent not prohibited by Law, to
the Obligations in such other order as the Required Lenders might elect.

 

ARTICLE  XI
BENEFIT OF AGREEMENT; ASSIGNMENTS

 

11.1.        Successors and Assigns. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Borrower, the
Guarantors, the Lenders and the Collateral Agent and their respective successors
and permitted assigns, except that neither the Borrower nor the Guarantors shall
have any right to assign their rights or obligations under the Loan Documents.

 

11.2.        Assignments; Effective Date; Participations; Register.

 

11.2.1.          Any Lender may at any time assign to one or more banks or other
entities (each a “Purchaser”) all or any part of its rights and obligations
under the Loan Documents. Such assignment shall be in such form as may be agreed
by the parties thereto and, provided no Event of Default is continuing,
reasonably acceptable to the Borrower (the “Assignment Agreement”). So long as
no Event of Default has occurred and is continuing, the consent of the Borrower
shall be required prior to an assignment becoming effective with respect to a
Purchaser which is not a Lender or an Affiliate thereof. Each such assignment
shall (unless it is to a Lender or an Affiliate thereof or the Borrower and the
Required Lenders otherwise consent) be in the amount of at least $1,000,000 (or
any whole multiple of $500,000 in excess thereof), unless the relevant
assignment is to an Affiliate of the assigning Lender or is an assignment of the
entire Commitment of the assigning Lender (calculated as of the date of the
assignment). Promptly following receipt of an executed Assignment Agreement, the
Purchaser shall send to the Borrower a copy thereof. No Purchaser shall be
permitted to have an initial Commitment of less than $1,000,000, although such
minimum Commitment may consist of an aggregate amount acquired by such Purchaser
from two or more Lenders.

 

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11.2.2.          Upon delivery to the Borrower and the Lenders of a notice of
assignment in form and substance reasonably satisfactory to the Borrower and the
Required Lenders (a “Notice of Assignment”), together with any consents required
by Section 11.2.1 above, such assignment shall become effective on the effective
date specified in such Notice of Assignment. The Notice of Assignment shall
contain a representation by the Purchaser to the effect that none of the
consideration used to make the purchase of the Commitment and Loans under the
applicable Assignment Agreement are “plan assets” as defined under ERISA and
that the rights and interests of the Purchaser in and under the Loan Documents
will not be “plan assets” under ERISA. On and after the effective date of such
assignment, such Purchaser shall for all purposes be a Lender party to this
Agreement and any other Loan Document executed by 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 or the Lenders shall be required to release the transferor
Lender with respect to the percentage of the Aggregate Commitment and Loans
assigned to such Purchaser. If the assignor no longer holds any rights or
obligations under this Agreement, such assignor shall cease to be a “Lender”
hereunder, except that its rights to indemnification and reimbursement of
expenses shall survive such assignment and shall not be affected thereby. Upon
the consummation of any assignment to a Purchaser pursuant to this Section
11.2.2, the transferor Lender and the Borrower shall make appropriate
arrangements so that replacement Notes are issued to such transferor Lender and
new Notes or, as appropriate, replacement Notes, are issued to such Purchaser,
in each case in principal amounts reflecting their Commitment, as adjusted
pursuant to such assignment.

 

11.2.3.          Any Lender may at any time grant to one or more Persons (each a
“Participant”) participating interests in its Commitment or its Note. In the
event of any such grant by a Lender of a participating interest to a
Participant, whether or not upon notice to the Borrowers, such Lender shall
remain responsible for the performance of its obligations hereunder, and the
Borrower and the Collateral Agent shall continue to deal solely and directly
with such Lender in connection with such Lender’s rights and obligations under
this Agreement. Any agreement pursuant to which any Lender may grant such a
participating interest shall provide that such Lender shall retain the sole
right and responsibility to enforce the obligations of the Borrower hereunder,
including, without limitation, the right to approve any amendment, modification
or waiver of any provision of this Agreement; provided that such participation
agreement may provide that such Lender will not agree to any modification,
amendment or waiver of this Agreement described in the proviso to the first
sentence of Section 9.1 without the consent of the Participant. Each Lender that
sells a participation interest pursuant to this Section 11.2.3 shall notify the
Borrower and the Collateral Agent of the principal amount of each such
Participant’s participation interest with respect to the Notes. In the event
that any Lender sells to a Participant participating interests in all or any
portion of its Note and the other rights and interests of that Lender hereunder,
such Lender, as non-fiduciary agent on behalf of Borrower, shall maintain a
register on which it enters the name of all such Participants and the principal
amount (and stated interest) of the portion of the Note subject to the
participation.

 

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11.2.4.          The Borrower shall keep at its principal executive office a
register that contains (i) the name of each Lender, the contact person for such
Lender, and the mailing address, email address, telephone number and fax number
for such Lender, and (ii) the current principal balance of all Loans owing by
the Borrower to each Lender. Upon the written request by the Collateral Agent or
any Lender, the Borrower shall promptly provide such information to the
requesting party. Each of the Loan Parties and the Lenders acknowledge and agree
that the recipient of such information (including but not limited to the
Collateral Agent) shall be entitled to rely on such written information provided
by the Borrower.

 

11.3.        Dissemination of Information. The Borrower and each Guarantor
authorizes each Lender to disclose to any Transferee and any prospective
Transferee any and all information in the Lender’s possession concerning the
Borrower, the Guarantors and their respective Affiliates.

 

ARTICLE  XII
NOTICES

 

12.1.        Notices. Except as otherwise specifically permitted herein, 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 or
the Collateral 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 provided to the other parties hereto from time to time, 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 Lenders and the
Borrower in accordance with the provisions of this Section. 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 (the receipt thereof shall be deemed to
have been acknowledged upon the sending Person’s receipt of its facsimile
machine’s confirmation of successful transmission; provided that if the day on
which such facsimile is received is not a Business Day or is after 4:00 p.m. CT
on a Business Day, then the receipt of such facsimile shall be deemed to have
been acknowledged on the next following Business Day), (ii) if given by mail,
three (3) Business Days after such communication is deposited in the mail 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; except that notices to any
Lender under Article II shall not be effective until received by such Lender.

 

12.2.        Change of Address. The Borrower, the Collateral Agent and the
Lenders may each change the address for service of notice upon it by a notice in
writing to each of the other parties hereto.

 

ARTICLE  XIII
ENTIRE AGREEMENT

 

THIS AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT BETWEEN THE PARTIES HERETO WITH
RESPECT TO THE SUBJECT HEREOF AND SHALL SUPERSEDE ANY PRIOR AGREEMENT BETWEEN
THE PARTIES HERETO, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT HEREOF.
FURTHERMORE, IN THIS REGARD, THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT AMONG
THE PARTIES THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF SUCH PARTIES.

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FORM OF BRIDGE LOAN NOTE

 

$[_],000,000 New York, New York [DATE]

 

FOR VALUE RECEIVED and WITHOUT GRACE, the undersigned (the “Borrower”)

 

promises to pay to the order of [                        ] (“Bridge Lender”) the
amount of $[_],000,000, or so much thereof as may be advanced and be outstanding
under this Bridge Loan Note pursuant to the Credit and Guaranty Agreement dated
as of September 29, 2016 by and between the Borrower, the Bridge Lender and the
other lenders party thereto (as amended, restated, or supplemented from time to
time, the “Credit Agreement”), together with interest at the rates and
calculated as provided in the Credit Agreement.

 

Reference is hereby made to the Credit Agreement for matters governed thereby,
including, without limitation, certain events which will entitle the holder
hereof to accelerate the maturity of all amounts due hereunder. Capitalized
terms used but not defined in this Note shall have the meanings assigned to such
terms in the Credit Agreement.

 

The date and amount of each Bridge Loan made by the Bridge Lender to the
Borrower, and each payment made on account of the principal thereof, will be
recorded by the Bridge Lender on its books and, prior to any transfer of this
Bridge Loan Note, may be endorsed by the Bridge Lender on the schedules attached
hereto or any continuation thereof or on any separate record maintained by the
Bridge Lender. Failure to make any such notation or to attach a schedule shall
not affect the Bridge Lender’s or the Borrower’s rights or obligations in
respect of such Bridge Loans or affect the validity of such transfer by the
Bridge Lender of this Bridge Loan Note.

 

This Bridge Loan Note is issued pursuant to and shall be governed by the Credit
Agreement and the holder of the Bridge Loan Note shall be entitled to the
benefits of the Credit Agreement. This Bridge Loan Note shall finally mature on
the Final Maturity Date.

 

Without being limited thereto or thereby, this Bridge Loan Note is secured by
the Security Documents.

 

The Borrower, and each surety, endorser, guarantor, and other party ever liable
for payment of any sums of money payable on this Bridge Loan Note, jointly and
severally waive presentment and demand for payment, protest, notice of protest
and nonpayment, and notice of the intention to accelerate, and agree that their
liability on this Bridge Loan Note shall not be affected by any renewal or
extension in the time of payment hereof, by any indulgences, or by any release
or change in any security for the payment of this Bridge Loan Note, and hereby
consent to any and all renewals, extensions, indulgences, releases, or changes,
regardless of the number of such renewals, extensions, indulgences, releases, or
changes.

 

THIS BRIDGE LOAN NOTE SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF THE STATE
OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF RELATING TO CONFLICTS OF
LAW.

 

 1 

 

 

    Lilis Energy, Inc.         By:     Name:     Title:  

 

LOANS AND PAYMENT OF
PRINCIPAL AND INTEREST

 

Principal   Amount of 
Loan   Principal Paid
or Prepaid   Amount of
Interest Paid   Unpaid Principal
Balance   Interest Paid 
to                                                                          
                                                                       

 

 2 

 

 

FORM OF INCREMENTAL BRIDGE LOAN NOTE

 

$[_],000,000 New York, New York [DATE]

 

FOR VALUE RECEIVED and WITHOUT GRACE, the undersigned (the “Borrower”)

 

promises to pay to the order of [           ] (“Incremental Bridge Lender”) the
amount of $[_],000,000, or so much thereof as may be advanced and be outstanding
under this Incremental Bridge Loan Note pursuant to the Credit and Guaranty
Agreement dated as of September 29, 2016 by and between the Borrower, the
Incremental Bridge Lender and the other lenders party thereto (as amended,
restated, or supplemented from time to time, the “Credit Agreement”), together
with interest at the rates and calculated as provided in the Credit Agreement.

 

Reference is hereby made to the Credit Agreement for matters governed thereby,
including, without limitation, certain events which will entitle the holder
hereof to accelerate the maturity of all amounts due hereunder. Capitalized
terms used but not defined in this Note shall have the meanings assigned to such
terms in the Credit Agreement.

 

The date and amount of each Incremental Bridge Loan made by the Incremental
Bridge Lender to the Borrower, and each payment made on account of the principal
thereof, will be recorded by the Incremental Bridge Lender on its books and,
prior to any transfer of this Incremental Bridge Loan Note, may be endorsed by
the Incremental Bridge Lender on the schedules attached hereto or any
continuation thereof or on any separate record maintained by the Incremental
Bridge Lender. Failure to make any such notation or to attach a schedule shall
not affect the Incremental Bridge Lender’s or the Borrower’s rights or
obligations in respect of such Incremental Bridge Loans or affect the validity
of such transfer by the Incremental Bridge Lender of this Incremental Bridge
Loan Note.

 

This Incremental Bridge Loan Note is issued pursuant to and shall be governed by
the Credit Agreement and the holder of the Incremental Bridge Loan Note shall be
entitled to the benefits of the Credit Agreement. This Incremental Bridge Loan
Note shall finally mature on the Final Maturity Date.

 

Without being limited thereto or thereby, this Incremental Bridge Loan Note is
secured by the Security Documents.

 

The Borrower, and each surety, endorser, guarantor, and other party ever liable
for payment of any sums of money payable on this Incremental Bridge Loan Note,
jointly and severally waive presentment and demand for payment, protest, notice
of protest and nonpayment, and notice of the intention to accelerate, and agree
that their liability on this Incremental Bridge Loan Note shall not be affected
by any renewal or extension in the time of payment hereof, by any indulgences,
or by any release or change in any security for the payment of this Incremental
Bridge Loan Note, and hereby consent to any and all renewals, extensions,
indulgences, releases, or changes, regardless of the number of such renewals,
extensions, indulgences, releases, or changes.

 

 1 

 

 

THIS INCREMENTAL BRIDGE LOAN NOTE SHALL BE GOVERNED AND CONTROLLED BY THE LAWS
OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF RELATING TO
CONFLICTS OF LAW.

 

    Lilis Energy, Inc.         By:     Name:     Title:  

 

LOANS AND PAYMENT OF
PRINCIPAL AND INTEREST

 

Principal   Amount of 
Loan   Principal Paid
or Prepaid   Amount of
Interest Paid   Unpaid Principal
Balance   Interest Paid 
to                                                                          
                                          

 

 2 

 

 

FORM OF COMPLIANCE CERTIFICATE

 

______________       , 20_

 

[Lender Contact Information]

 

Re:Credit and Guaranty Agreement dated September 29, 2016, by and between Lilis
Energy, Inc., as borrower, Brushy Resources Inc., ImPetro Operating, LLC, Lilis
Operating Company LLC, and ImPetro Resources, LLC, as guarantors, and the
lenders party thereto (as amended, restated, or supplemented from time to time,
the “Credit Agreement”). Terms defined in the Credit Agreement are used herein
as therein defined unless otherwise defined herein.

 

Ladies and Gentlemen:

 

Pursuant to applicable requirements of the Credit Agreement, the undersigned, as
a Responsible Representative of the Borrower, hereby certifies to you the
following information is true and correct as of the date hereof or for the
period indicated, as the case may be:

 

[1.          To the best of the knowledge of the undersigned, no Default exists
as of the date hereof or has occurred since the date of our previous
certification to you, if any.]

 

[1.          To the best of the knowledge of the undersigned, the following
Defaults exist as of the date hereof or have occurred since the date of our
previous certification to you, if any, and the actions set forth below are being
taken to remedy such circumstances:]

 

2.          The compliance of the Borrower with certain financial covenants of
the Credit Agreement, as of the close of business on
                                                (the “Determination Date”), is
evidenced by the following:

 

(a)          [TO COME]

 

3.          To the best knowledge of the undersigned, the financial statements
being delivered to the Lenders concurrently herewith pursuant to the Credit
Agreement fairly and accurately reflect in all material respects the financial
condition and results of operation of the Persons identified therein for the
periods and as of the dates set forth therein.

 

4.          The circled answers to the following statements are each true and
correct as of the Determination Date:

 

(a)          The annual statement of assets and liabilities of the Borrower as
of its most recent fiscal year-end and the related financial statements have
been delivered to the Lenders pursuant to Section 7.2.1(i). YES NO

 

 1 

 

 

(b)          The quarterly statement of assets and liabilities of the Borrower
as of the last day of its most recently ended fiscal quarter (other than the
last fiscal quarter of each fiscal year) and the related financial statements
have been delivered to the Lenders pursuant to Section 7.2.1(ii). YES NO

 

(c)          The federal income tax return for the year most recently ended for
each Person indicated below has been properly filed with the appropriate
Tribunal and (if a copy thereof has been requested by the Required Lenders) a
copy thereof has been delivered to the Lenders pursuant to Section 7.2.1 (iv),

 

(i)          of the Borrower. YES NO

 

(ii)         of               . YES NO

 

(iii)        of               . YES NO

 

(iv)        of               . YES NO

 

5.          The oil and gas production report being delivered by the Borrower to
the Lenders under Section 7.2.2 of the Credit Agreement is, to the best
knowledge of the undersigned, in compliance with the provisions of such Section
and to the best knowledge of the undersigned is true and correct in all material
respects as of the date thereof and for the time periods covered thereby.

 

The undersigned has reviewed the terms of this Agreement and the other Loan
Documents, and has made, or caused to be made under my supervision, a review of
the transactions and financial condition of the Borrower during the period
covered by the financial statements included herewith, and such review has not
disclosed the existence during such period, and the undersigned does not have
knowledge of the existence as of the date of this certificate, of any condition
or event which constitutes a Default, except as set forth in paragraph I above.

 

Each capitalized term used but not defined herein shall have the meaning
assigned to such term in the Credit Agreement.

 

  Very truly yours,       [______________________]

 

 2 

 

 

EXHIBIT 6.4.1

 

SUBSIDIARIES

 

Brushy Resources, Inc.

 

Impetro Resources, LLC

 

Lilis Operating Company, LLC

 

Impetro Operating, LLC

 

 

 

 

SCHEDULE 2.1

 

[Reserved.]

 

 

 

 

SCHEDULE 2.2

 

Lender  Bridge Loan Closing      Commitment  RBC Investor Services Trust ITF
110952002  $6,200,000  INVESTOR COMPANY ITS 5J5505C  $2,000,000  Sprott Resource
Lending Corp.  $1,750,000  Trace Capital Inc.  $1,450,000  One E LP  $1,000,000 
Jayvee & Co. ITF YTCF6310002  $850,000  Resource Income Partners Limited
Partnership  $750,000  NGPI Canada Inc.  $500,000  Peter Ellis  $300,000  Thomas
Rootham  $200,000  Total  $15,000,000 

 

 

 

 

SCHEDULE 2.3

 

Lender  Incremental Bridge     Loan Closing
Commitment  RBC Investor Services Trust ITF 110952002  $4,100,000  Earlston
Investments Inc.  $1,550,000  Mac & Co. ITF YVRF1001002  $1,300,000  Resource
Income Partners Limited Partnership  $1,000,000  Skylake Capital Growth Ltd. 
$1,000,000  Trace Capital Inc.  $1,500,000  Sugarman GM&P Partner Corporation 
$800,000  Thomas Rootham  $800,000  Sprott Credit Income Opportunities Fund 
$750,000  Sprott Private Resource Lending (M), LP  $571,400  Jayvee & Co. ITF
YTCF6310002  $550,000  Sprott Resource Lending Corp.  $428,600  NGPI Canada
Inc.  $350,000  Peter Ellis  $300,000  Total  $15,000,000