Exhibit 10.3

Execution Version

 

 

 

LOGO [g271327g13g36.jpg]

CREDIT AGREEMENT

dated as of December 14, 2011

among

Memorial Production Operating LLC,

as Borrower,

Memorial Production Partners LP,

as Parent Guarantor,

Wells Fargo Bank, National Association,

as Administrative Agent,

JPMorgan Chase Bank, N.A.,

as Syndication Agent,

BNP Paribas,

Citibank, N.A., and

Comerica Bank,

as Co-Documentation Agents,

and

The Lenders Party Hereto

 

 

Wells Fargo Securities, LLC and J.P. Morgan Securities LLC

Co-Lead Arrangers and Joint Bookrunners

 

 

 

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TABLE OF CONTENTS

 

 

         Page  

ARTICLE I

DEFINITIONS AND ACCOUNTING MATTERS

  

  

Section 1.01  

Terms Defined Above

     1    Section 1.02  

Certain Defined Terms

     1    Section 1.03  

Types of Loans and Borrowings

     26    Section 1.04  

Terms Generally; Rules of Construction

     26    Section 1.05  

Accounting Terms and Determinations; GAAP

     27   

ARTICLE II

THE CREDITS

  

  

Section 2.01  

Commitments

     27    Section 2.02  

Loans and Borrowings

     27    Section 2.03  

Requests for Borrowings

     28    Section 2.04  

Interest Elections

     29    Section 2.05  

Funding of Borrowings

     31    Section 2.06  

Termination and Reduction of Aggregate Maximum Credit Amounts

     31    Section 2.07  

Borrowing Base

     32    Section 2.08  

Letters of Credit

     35    Section 2.09  

Defaulting Lenders

     39   

ARTICLE III

PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES

  

  

Section 3.01  

Repayment of Loans

     41    Section 3.02  

Interest

     41    Section 3.03  

Alternate Rate of Interest

     42    Section 3.04  

Prepayments

     42    Section 3.05  

Fees

     44   

ARTICLE IV

PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS

  

  

Section 4.01  

Payments Generally; Pro Rata Treatment; Sharing of Set-offs

     45    Section 4.02  

Presumption of Payment by the Borrower

     46    Section 4.03  

Certain Deductions by the Administrative Agent

     46    Section 4.04  

Disposition of Proceeds

     47   

ARTICLE V

INCREASED COSTS; BREAK FUNDING PAYMENTS; TAXES; ILLEGALITY

  

  

Section 5.01  

Increased Costs

     47    Section 5.02  

Break Funding Payments

     48    Section 5.03  

Taxes

     49    Section 5.04  

Mitigation Obligations; Replacement of Lenders

     52    Section 5.05  

Illegality

     53   

 

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         Page  

ARTICLE VI

CONDITIONS PRECEDENT

  

  

Section 6.01  

Effective Date

     53    Section 6.02  

Each Credit Event

     56   

ARTICLE VII

REPRESENTATIONS AND WARRANTIES

  

  

Section 7.01  

Organization; Powers

     57    Section 7.02  

Authority; Enforceability

     58    Section 7.03  

Approvals; No Conflicts

     58    Section 7.04  

Financial Condition; No Material Adverse Change

     58    Section 7.05  

Litigation

     59    Section 7.06  

Environmental Matters

     59    Section 7.07  

Compliance with the Laws and Agreements; No Defaults or Borrowing Base
Deficiency

     60    Section 7.08  

Investment Company Act

     61    Section 7.09  

Taxes

     61    Section 7.10  

ERISA

     61    Section 7.11  

Disclosure; No Material Misstatements

     62    Section 7.12  

Insurance

     62    Section 7.13  

Restriction on Liens

     62    Section 7.14  

Subsidiaries

     63    Section 7.15  

Location of Business and Offices

     63    Section 7.16  

Properties; Titles, Etc

     63    Section 7.17  

Maintenance of Properties

     64    Section 7.18  

Gas Imbalances, Prepayments

     64    Section 7.19  

Marketing of Production

     65    Section 7.20  

Swap Agreements

     65    Section 7.21  

Use of Loans and Letters of Credit

     65    Section 7.22  

Solvency

     65    Section 7.23  

Foreign Corrupt Practices

     66    Section 7.24  

OFAC

     66   

ARTICLE VIII

AFFIRMATIVE COVENANTS

  

  

Section 8.01  

Financial Statements; Other Information

     66    Section 8.02  

Notices of Material Events

     69    Section 8.03  

Existence; Conduct of Business

     70    Section 8.04  

Payment of Obligations

     70    Section 8.05  

Performance of Obligations under Loan Documents

     70    Section 8.06  

Operation and Maintenance of Properties

     70    Section 8.07  

Insurance

     71    Section 8.08  

Books and Records; Inspection Rights

     72    Section 8.09  

Compliance with Laws

     72    Section 8.10  

Environmental Matters

     72    Section 8.11  

Further Assurances

     73   

 

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         Page   Section 8.12  

Reserve Reports

     74    Section 8.13  

Title Information

     75    Section 8.14  

Additional Collateral; Additional Guarantors

     76    Section 8.15  

ERISA Compliance

     76    Section 8.16  

Commodity Price Risk Management Policy

     77   

ARTICLE IX

NEGATIVE COVENANTS

  

  

Section 9.01  

Financial Covenants

     77    Section 9.02  

Debt

     77    Section 9.03  

Liens

     78    Section 9.04  

Dividends, Distributions and Repayment of Permitted Senior Unsecured Notes

     78    Section 9.05  

Investments and Loans

     79    Section 9.06  

Nature of Business; No International Operations

     80    Section 9.07  

Limitation on Leases

     80    Section 9.08  

Proceeds of Notes

     80    Section 9.09  

ERISA Compliance

     81    Section 9.10  

Sale or Discount of Receivables

     82    Section 9.11  

Mergers, Etc.

     82    Section 9.12  

Sale of Properties

     82    Section 9.13  

Environmental Matters

     83    Section 9.14  

Transactions with Affiliates

     83    Section 9.15  

Subsidiaries

     84    Section 9.16  

Negative Pledge Agreements; Dividend Restrictions

     84    Section 9.17  

Gas Imbalances, Take-or-Pay or Other Prepayments

     84    Section 9.18  

Swap Agreements

     84    Section 9.19  

Acquisition Documents

     85    Section 9.20  

Marketing Activities

     85    Section 9.21  

Holding Company

     86    Section 9.22  

Sale and Leaseback

     86    Section 9.23  

Amendments to Organizational Documents; Changes in Fiscal Year End

     86   

ARTICLE X

EVENTS OF DEFAULT; REMEDIES

  

  

Section 10.01  

Events of Default

     86    Section 10.02  

Remedies

     88   

ARTICLE XI

THE AGENTS

  

  

Section 11.01  

Appointment; Powers

     90    Section 11.02  

Duties and Obligations of Administrative Agent

     90    Section 11.03  

Action by Administrative Agent

     91    Section 11.04  

Reliance by Administrative Agent

     91    Section 11.05  

Subagents

     92    Section 11.06  

Resignation of Administrative Agent

     92    Section 11.07  

Agents as Lenders

     92   

 

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         Page   Section 11.08  

No Reliance

     92    Section 11.09  

Administrative Agent May File Proofs of Claim

     93    Section 11.10  

Authority of Administrative Agent to Release Collateral and Liens

     94    Section 11.11  

The Arranger, the Syndication Agent and the Documentation Agents

     94    Section 11.12  

Intercreditor Agreements

     94   

ARTICLE XII

MISCELLANEOUS

  

  

Section 12.01  

Notices

     94    Section 12.02  

Waivers; Amendments

     95    Section 12.03  

Expenses, Indemnity; Damage Waiver

     96    Section 12.04  

Successors and Assigns

     99    Section 12.05  

Survival; Revival; Reinstatement

     102    Section 12.06  

Counterparts; Integration; Effectiveness

     103    Section 12.07  

Severability

     103    Section 12.08  

Right of Setoff

     104    Section 12.09  

GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS

     104    Section 12.10  

Headings

     105    Section 12.11  

Confidentiality

     105    Section 12.12  

Interest Rate Limitation

     106    Section 12.13  

EXCULPATION PROVISIONS

     107    Section 12.14  

Collateral Matters; Swap Agreements

     107    Section 12.15  

No Third Party Beneficiaries

     108    Section 12.16  

USA Patriot Act Notice

     108   

 

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ANNEXES, EXHIBITS AND SCHEDULES

 

Annex I  

List of Maximum Credit Amounts

Annex II  

Existing Letters of Credit

Exhibit A  

Form of Note

Exhibit B  

Form of Borrowing Request

Exhibit C  

Form of Interest Election Request

Exhibit D  

Form of Compliance Certificate

Exhibit E-1  

Security Instruments as of the Effective Date

Exhibit E-2  

Form of Guaranty Agreement

Exhibit E-3  

Form of Security Agreement

Exhibit F  

Form of Assignment and Assumption

Exhibit G-1  

Form of U.S. Tax Compliance Certificate (Foreign Lenders; not partnerships)

Exhibit G-2  

Form of U.S. Tax Compliance Certificate (Foreign Participants; not partnerships)

Exhibit G-3  

Form of U.S. Tax Compliance Certificate (Foreign Participants; partnerships)

Exhibit G-4  

Form of U.S. Tax Compliance Certificate (Foreign Lenders; partnerships)

Schedule 7.05  

Litigation

Schedule 7.06  

Environmental Matters

Schedule 7.14  

Loan Parties and Subsidiaries

Schedule 7.18  

Gas Imbalances

Schedule 7.19  

Marketing Contracts

Schedule 7.20  

Swap Agreements

Schedule 9.05  

Investments

 

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THIS CREDIT AGREEMENT dated as of December 14, 2011, is among: Memorial
Production Operating LLC, a limited liability company duly formed and existing
under the laws of the State of Delaware (the “Borrower”), Memorial Production
Partners LP, a limited partnership duly formed and existing under the laws of
the State of Delaware (the “Parent”); each of the Lenders from time to time
party hereto; Wells Fargo Bank, National Association (in its individual
capacity, “Wells Fargo”), as administrative agent for the Lenders (in such
capacity, together with its successors in such capacity, the “Administrative
Agent”); JPMorgan Chase Bank, N.A., as syndication agent for the Lenders (in
such capacity, together with its successors in such capacity, the “Syndication
Agent”); and BNP Paribas, Citibank, N.A., and Comerica Bank, as co-documentation
agents for the Lenders (collectively, in such capacity, together with their
respective successors in such capacity, the “Documentation Agents”).

R E C I T A L S

A. The Borrower has requested that the Lenders provide certain loans to and
extensions of credit on behalf of the Borrower.

B. The Lenders have agreed to make such loans and extensions of credit subject
to the terms and conditions of this Agreement.

C. In consideration of the mutual covenants and agreements herein contained and
of the loans, extensions of credit and commitments hereinafter referred to, the
parties hereto agree as follows:

ARTICLE I

DEFINITIONS AND ACCOUNTING MATTERS

Section 1.01 Terms Defined Above. As used in this Agreement, each term defined
above has the meaning indicated above.

Section 1.02 Certain Defined Terms. As used in this Agreement, the following
terms have the meanings specified below:

“ABR”, when used in reference to any Loan or Borrowing, refers to whether such
Loan, or the Loans comprising such Borrowing, are bearing interest at a rate
determined by reference to the Alternate Base Rate.

“Acquisition” means one or more acquisitions of certain oil, gas and mineral
Properties pursuant to the terms and conditions of Acquisition Documents.

“Acquisition Documents” means (a) the Initial Acquisition Documents and
(b) definitive documentation for other Acquisitions including documents similar
to the Initial Acquisition Documents for such other Acquisitions.

“Acquisition Properties” means the Oil and Gas Properties and other properties
acquired by the Borrower pursuant to Acquisition Documents.

“Act” has the meaning assigned such term in Section 12.16.

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“Adjusted LIBO Rate” means, with respect to any Eurodollar Borrowing for any
Interest Period, an interest rate per annum (rounded upwards, if necessary, to
the next 1/100 of 1%) equal to the LIBO Rate for such Interest Period multiplied
by the Statutory Reserve Rate.

“Administrative Questionnaire” means an Administrative Questionnaire in a form
supplied by the Administrative Agent.

“Affected Loans” has the meaning assigned such term in Section 5.05.

“Affiliate” means, with respect to a specified Person, another Person that
directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified. “Affiliated”
shall have the correlative meaning thereto.

“Agency Fee Letter” means that certain fee letter agreement dated as of July 18,
2011 among Wells Fargo, Wells Fargo Securities, LLC and the Borrower, as the
same may from time to time be amended, modified, supplemented or restated.

“Agents” means, collectively, the Administrative Agent, the Syndication Agent
and the Documentation Agents; and “Agent” shall mean either the Administrative
Agent, the Syndication Agent or any Documentation Agent, as the context
requires.

“Aggregate Maximum Credit Amounts” at any time shall equal the sum of the
Maximum Credit Amounts, as the same may be reduced or terminated pursuant to
Section 2.06.

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

“Alternate Base Rate” means, for any day, a rate per annum equal to the greatest
of (a) the Prime Rate in effect on such day, (b) the Federal Funds Effective
Rate in effect on such day plus  1/2 of 1% and (c) the Adjusted LIBO Rate for a
one month Interest Period on such day (or if such day is not a Business Day, the
immediately preceding Business Day) plus 1%; provided that, for the avoidance of
doubt, the Adjusted LIBO Rate for any day shall be based on the rate (rounded
upwards, if necessary, to the next 1/100 of 1%) at which dollar deposits of
$5,000,000 with a one month maturity are offered by the principal London office
of the Administrative Agent in immediately available funds in the London
interbank market at approximately 11:00 a.m., London time, on such day (or the
immediately preceding Business Day if such day is not a day on which banks are
open for dealings in dollar deposits in the London interbank market). Any change
in the Alternate Base Rate due to a change in the Prime Rate, the Federal Funds
Effective Rate or the Adjusted LIBO Rate shall be effective from and including
the effective date of such change in the Prime Rate, the Federal Funds Effective
Rate or the Adjusted LIBO Rate, respectively.

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

 

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Borrowing Base Utilization Grid

 

 

Borrowing Base

Utilization

Percentage

     <25%        
  ³25%
<50%   
       
  ³50%
<75%   
       
  ³75%
<90%   
        ³90%    Eurodollar Loans      1.750%         2.000%         2.250%      
  2.500%         2.750%    ABR Loans      0.750%         1.000%         1.250%
        1.500%         1.750%    Commitment Fee Rate      0.375%         0.375%
        0.500%         0.500%         0.500%   

Each change in the Applicable Margin shall apply during the period commencing on
the effective date of such change and ending on the date immediately preceding
the effective date of the next such change; provided that if at any time the
Borrower fails to deliver a Reserve Report pursuant to Section 8.12 and such
failure continues for more than 10 Business Days from the date when such Reserve
Report is due, then the “Applicable Margin” means the rate per annum set forth
on the grid when the Borrowing Base Utilization Percentage is at its highest
level until such Reserve Report is delivered.

“Applicable Percentage” means, with respect to any Lender, the percentage of the
Aggregate Maximum Credit Amounts represented by such Lender’s Maximum Credit
Amount as such percentage is set forth on Annex I; provided that in the case of
Section 2.09 when a Defaulting Lender shall exist, “Applicable Percentage” as
used in such Section 2.09 shall mean the percentage of the Aggregate Maximum
Credit Amounts (disregarding any Defaulting Lender’s Maximum Credit Amounts)
represented by such Lender’s Maximum Credit Amount.

“Appointed Directors” means members of the board of directors of Devco that were
appointed or nominated by any NGP Party.

“Approved Counterparty” means (i) any Lender or any Affiliate of a Lender or
(ii) any other Person whose long term senior unsecured debt rating is BBB+/Baa1
by S&P or Moody’s (or their equivalent) or higher.

“Approved Fund” means any Person (other than a natural person) that is engaged
in making, purchasing, holding or investing in bank loans and similar extensions
of credit in the ordinary course of its business and that is administered or
managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an
Affiliate of an entity that administers or manages a Lender.

“Approved Petroleum Engineers” means (a) Netherland, Sewell & Associates, Inc.,
(b) Ryder Scott Company Petroleum Consultants, L.P., (c) W.D. Von Gonten & Co.
Petroleum Engineering, (d) Cawley, Gillespie & Associates, Inc., (e) Miller and
Lents, Ltd., and (f) any other independent petroleum engineers reasonably
acceptable to the Administrative Agent.

“Arranger” means Wells Fargo Securities, LLC and J.P. Morgan Securities LLC, in
their capacities as the co-lead arrangers and joint bookrunners hereunder.

“Assignment and Assumption” means an assignment and assumption entered into by a
Lender and an assignee (with the consent of any party whose consent is required
by Section 12.04(a)), and accepted by the Administrative Agent, in the form of
Exhibit F or any other form approved by the Administrative Agent.

 

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“Availability” means, at any time, (a) the then effective Borrowing Base minus
(b) the total Revolving Credit Exposures.

“Availability Period” means the period from and including the Effective Date to
but excluding the Termination Date.

“Available Cash” has the meaning ascribed to such term in the Partnership
Agreement as in effect on the Effective Date, with such amendments thereto as
consented to in writing by the Majority Lenders; provided that, unless the
Borrower and the Majority Lenders otherwise agree in writing, if at any time the
Borrower owns, directly or indirectly, 100% of the Equity Interests of the
Parent, “Available Cash” will be calculated in a manner which is consistent
with, and has a substantially similar economic effect as, the calculation of
“Available Cash” during prior periods, except that the “Partnership Group” as
defined in the Partnership Agreement will consist of the Borrower and its
Subsidiaries (rather than the Parent and its Subsidiaries) and the “Partnership”
as defined in the Partnership Agreement will be the Borrower (rather than the
Parent).

“Bank Products” means any of the following bank services: (a) commercial credit
cards, (b) stored value cards, and (c) treasury management services (including,
without limitation, controlled disbursement, automated clearinghouse
transactions, return items, overdrafts and interstate depository network
services).

“Bank Products Provider” means any Lender or Affiliate of a Lender that provides
Bank Products to the Parent, the Borrower, or any other Guarantor.

“Board” means the Board of Governors of the Federal Reserve System of the United
States of America or any successor Governmental Authority.

“Borrowing” means Loans of the same Type, made, converted or continued on the
same date and, in the case of Eurodollar Loans, as to which a single Interest
Period is in effect.

“Borrowing Base” means at any time an amount equal to the amount determined in
accordance with Section 2.07, as the same may be adjusted from time to time
pursuant to Section 8.13(c).

“Borrowing Base Deficiency” occurs if at any time the total Revolving Credit
Exposures exceeds the Borrowing Base then in effect.

“Borrowing Base Utilization Percentage” means, as of any day, the fraction
expressed as a percentage, the numerator of which is the sum of the Revolving
Credit Exposures of the Lenders on such day, and the denominator of which is the
Borrowing Base in effect on such day.

“Borrowing Base Value” means, with respect to any Oil and Gas Property of a Loan
Party or any Swap Agreement in respect of commodities, the value the
Administrative Agent attributed to such asset in connection with the most recent
determination of the Borrowing Base (which Borrowing Base was approved by the
requisite Lenders in accordance with Section 2.07).

 

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“Borrowing Request” means a request by the Borrower for a Borrowing in
accordance with Section 2.03.

“Business Day” means any day that is not a Saturday, Sunday or other day on
which commercial banks in New York City or Houston, Texas are authorized or
required by law to remain closed; and if such day relates to a Borrowing or
continuation of, a payment or prepayment of principal of or interest on, or a
conversion of or into, or the Interest Period for, a Eurodollar Loan or a notice
by the Borrower with respect to any such Borrowing or continuation, payment,
prepayment, conversion or Interest Period, any day which is also a day on which
banks are open for dealings in dollar deposits in the London interbank market.

“Capital Leases” means, in respect of any Person, all leases which shall have
been, or should have been, in accordance with GAAP, recorded as capital leases
on the balance sheet of the Person liable for the payment of rent thereunder.

“Casualty Event” means any loss, casualty or other insured damage to, or any
nationalization, taking under power of eminent domain or by condemnation or
similar proceeding of, any Property of the Borrower or any of any other Loan
Party having a fair market value in excess of $15,000,000.

“Change in Control” means the occurrence of any of the following:

(a) the acquisition of ownership, directly or indirectly, beneficially or of
record, by any Person or group (within the meaning of the Securities Exchange
Act of 1934 and the rules of the SEC thereunder as in effect on the date hereof)
other than Devco, the Borrower or any NGP Party, of Equity Interests
representing more than 35% of the aggregate ordinary voting power represented by
the issued and outstanding Equity Interests of the Parent;

(b) at any time prior to a Devco IPO, members of the board of directors of Devco
that are not Appointed Directors shall constitute a majority of the board of
directors of Devco;

(c) the General Partner shall cease to be the sole general partner of the
Parent, with substantially the same powers to manage the Parent as are granted
to the General Partner under the Partnership Agreement on the Effective Date,
other than as a result of the acquisition, directly or indirectly, by the
Borrower or Devco of 100% of the Equity Interests of the Parent;

(d) the Parent shall at any time cease to own 100% of the Equity Interests of
the Borrower, other than as a result of the acquisition, directly or indirectly,
by the Borrower of 100% of the Equity Interests of the Parent;

(e) Devco shall fail to directly, or indirectly, own beneficially, or to have
the power to vote or direct the voting of, Equity Interests representing more
than a majority of the aggregate ordinary voting power represented by the issued
and outstanding Equity Interests of the General Partner, other than as a result
of the acquisition, directly or indirectly, by the Parent or the Borrower of
Equity Interests representing more than a majority of the aggregate ordinary
voting power represented by the issued and outstanding Equity Interests of the
General Partner; or

 

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(f) the Borrower or another Loan Party ceases to own 100% of the Equity
Interests of each Guarantor (other than the Parent).

“Change in Law” means (a) the adoption of any law, rule or regulation after the
date of this Agreement, (b) any change in any law, rule or regulation or in the
interpretation or application thereof by any Governmental Authority after the
date of this Agreement or (c) compliance by any Lender or the Issuing Bank (or,
for purposes of Section 5.01(b)), by any lending office of such Lender or by
such Lender’s or the Issuing Bank’s holding company, if any) with any request,
guideline or directive (whether or not having the force of law) of any
Governmental Authority made or issued after the date of this Agreement; provided
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 the Bank 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 in each case be deemed to be a “Change in Law,”
regardless of the date enacted, adopted or issued.

“Code” means the Internal Revenue Code of 1986, as amended from time to time,
and any successor statute.

“Commitment” means, with respect to each Lender, the commitment of such Lender
to make Loans and to acquire participations in Letters of Credit hereunder,
expressed as an amount representing the maximum aggregate amount of such
Lender’s Revolving Credit Exposure hereunder, as such commitment may be
(a) modified from time to time pursuant to Section 2.06 and (b) modified from
time to time pursuant to assignments by or to such Lender pursuant to
Section 12.04(a). The amount representing each Lender’s Commitment shall at any
time be the lesser of such Lender’s Maximum Credit Amount and such Lender’s
Applicable Percentage of the then effective Borrowing Base.

“Commitment Fee Rate” has the meaning set forth in the definition of “Applicable
Margin”.

“Consolidated EBITDAX” means, with respect to the Parent and the Consolidated
Subsidiaries, for any period, Consolidated Net Income for such period plus,
without duplication and to the extent reflected as a charge in the statement of
such Consolidated Net Income for such period, the sum of interest expense
(including realized and unrealized losses on interest rate derivative
contracts); income tax expense; depreciation, depletion and amortization
expense; impairment of goodwill and long-lived assets (including Oil and Gas
Properties); accretion of asset retirement obligations; unrealized losses on
commodity derivative contracts; realized losses upon the early termination or
other monetization of commodity derivative contracts; losses on sale of assets;
noncash unit-based compensation expenses; exploration costs; and fees and
expenses expensed and paid in cash in connection with the Parent IPO and the
credit facility provided under this Agreement; minus, without duplication and to
the extent included in the

 

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statement of such Consolidated Net Income for such period, the sum of interest
income (including realized and unrealized gains on interest rate derivative
contracts); income tax benefit; unrealized gains on commodity derivative
contracts; realized gains upon the early termination or other monetization of
commodity derivative contracts; and gains on sales of assets. For the purposes
of calculating Consolidated EBITDAX for any period of four consecutive fiscal
quarters (each, a “Reference Period”) pursuant to any determination of the
financial ratio contained in Section 9.01(a), if during such Reference Period,
the Parent or any Consolidated Subsidiary shall have made a Material Disposition
or Material Acquisition, the Consolidated EBITDAX for such Reference Period
shall be calculated after giving pro forma effect thereto as if such Material
Disposition or Material Acquisition, as applicable, occurred on the first day of
such Reference Period. As used in this definition, “Material Acquisition” means
any acquisition of Property or series of related acquisitions of Property that
involves the payment of consideration by the Parent and the Consolidated
Subsidiaries in excess of (1) $5,000,000 in the aggregate during a fiscal
quarter or (2) $3,000,000 for any single acquisition or series of related
acquisitions of Property; and “Material Disposition” means any disposition of
Property or series of related dispositions of Property that yields gross
proceeds to the Parent or any of the Consolidated Subsidiaries in excess of
(1) $5,000,000 in the aggregate during a fiscal quarter or (2) $3,000,000 for
any single disposition or series of related dispositions of Property.

“Consolidated Net Income” means, with respect to the Parent and the Consolidated
Subsidiaries, for any period, the aggregate of the net income (or loss) of the
Parent and the Consolidated Subsidiaries after allowances for taxes for such
period determined on a consolidated basis in accordance with GAAP; provided that
there shall be excluded from such net income (to the extent otherwise included
therein) the following: (a) the net income of any Person in which the Parent or
any Consolidated Subsidiary has an interest (which interest does not cause the
net income of such other Person to be consolidated with the net income of the
Parent and the Consolidated Subsidiaries in accordance with GAAP), except to the
extent of the amount of dividends or distributions actually paid in cash during
such period by such other Person to the Parent or to a Consolidated Subsidiary,
as the case may be; (b) the net income (but not loss) during such period of any
Consolidated Subsidiary to the extent that the declaration or payment of
dividends or similar distributions or transfers or loans by that Consolidated
Subsidiary is not at the time permitted by operation of the terms of its charter
or any agreement, instrument or Governmental Requirement applicable to such
Consolidated Subsidiary or is otherwise restricted or prohibited, in each case
determined in accordance with GAAP; (c) the net income (or loss) of any Person
acquired in a pooling-of-interests transaction for any period prior to the date
of such transaction; (d) any extraordinary gains or losses during such period;
and (e) any gains or losses attributable to writeups or writedowns of assets,
including ceiling test writedowns.

“Consolidated Net Interest Expense” means, with respect to the Parent and the
Consolidated Subsidiaries, for any period, the difference between (a) the sum of
(i) all interest, premium payments, debt discount, fees, charges and related
expenses of the Parent and the Consolidated Subsidiaries in connection with
borrowed money (including capitalized interest) or in connection with the
deferred purchase price of assets, in each case to the extent treated as
interest in accordance with GAAP, and (ii) the portion of rent expense of the
Parent and the Consolidated Subsidiaries with respect to such period under
Capital Leases that is treated as interest in accordance with GAAP, and (b) the
sum of (i) interest income actually received in cash by the Parent and the
Consolidated Subsidiaries and (ii) net amounts of realized cash on interest rate
Swap Agreements, in the case of (a) and (b), for such period.

 

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“Consolidated Subsidiaries” means each Subsidiary of the Parent (whether now
existing or hereafter created or acquired) the financial statements of which
shall be (or should have been) consolidated with the financial statements of the
Parent in accordance with GAAP.

“Control” means the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or otherwise. For the
purposes of this definition, and without limiting the generality of the
foregoing, any Person that owns directly or indirectly 10% or more of the Equity
Interests having ordinary voting power for the election of the directors or
other governing body of a Person (other than as a limited partner of such other
Person) will be deemed to “control” such other Person. “Controlling” and
“Controlled” have meanings correlative thereto.

“Debt” means, for any Person, the sum of the following (without duplication):
(a) all obligations of such Person for borrowed money or evidenced by bonds,
bankers’ acceptances, debentures, notes or other similar instruments; (b) all
obligations of such Person (whether contingent or otherwise) in respect of
letters of credit, surety or other bonds and similar instruments; (c) all
accounts payable and all accrued expenses, liabilities or other obligations of
such Person to pay the deferred purchase price of Property or services; (d) all
obligations under Capital Leases; (e) all obligations under Synthetic Leases;
(f) all Debt (as defined in the other clauses of this definition) of others
secured by (or for which the holder of such Debt has an existing right,
contingent or otherwise, to be secured by) a Lien on any Property of such
Person, whether or not such Debt is assumed by such Person; (g) all Debt (as
defined in the other clauses of this definition) of others guaranteed by such
Person or in which such Person otherwise assures a creditor against loss of the
Debt (howsoever such assurance shall be made) to the extent of the lesser of the
amount of such Debt and the maximum stated amount of such guarantee or assurance
against loss; (h) all obligations or undertakings of such Person to maintain or
cause to be maintained the financial position or covenants of others or to
purchase the Debt or Property of others; (i) obligations to deliver commodities,
goods or services, including, without limitation, Hydrocarbons, in consideration
of one or more advance payments, other than gas balancing arrangements in the
ordinary course of business; (j) obligations to pay for goods or services even
if such goods or services are not actually received or utilized by such Person;
(k) any Debt (as defined in the other clauses of this definition) of a
partnership for which such Person is liable either by agreement, by operation of
law or by a Governmental Requirement but only to the extent of such liability;
(l) Disqualified Capital Stock; and (m) the undischarged balance of any
production payment created by such Person or for the creation of which such
Person directly or indirectly received payment. The Debt of any Person shall
include all obligations of such Person of the character described above to the
extent such Person remains legally liable in respect thereof notwithstanding
that any such obligation is not included as a liability of such Person under
GAAP. Direct or indirect obligations of a Person in respect of Swap Agreements
shall not constitute Debt.

“Default” means any event or condition which constitutes an Event of Default or
which upon notice, lapse of time or both would, unless cured or waived, become
an Event of Default.

 

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“Defaulting Lender” means any Lender that (a) has failed, within two Business
Days of the date required to be funded or paid, to (i) fund any portion of its
Loans, (ii) fund any portion of its participations in Letters of Credit or
(iii) pay over to any Loan Party any other amount required to be paid by it
hereunder; (b) has notified the Borrower or any Loan Party in writing, or has
made a public statement, to the effect that it does not intend or expect to
comply with any of its funding obligations under this Agreement or generally
under other agreements in which it commits to extend credit; (c) has failed,
within three Business Days after request by the Administrative Agent or a Loan
Party, acting in good faith, to provide a certification in writing from an
authorized officer of such Lender that it will comply with its obligations to
fund prospective Loans and participations in then outstanding Letters of Credit
under this Agreement; provided that such Lender shall cease to be a Defaulting
Lender pursuant to this clause (c) upon such Loan Party’s receipt of such
certification in form and substance satisfactory to it and the Administrative
Agent; or (d) has (or whose bank holding company has) been placed into
receivership, conservatorship or bankruptcy; provided that a Lender shall not
become a Defaulting Lender solely as a result of the acquisition or maintenance
of an ownership interest in such Lender or Person controlling such Lender or the
exercise of control over a Lender or Person controlling such Lender by a
Governmental Authority or an instrumentality thereof, so long as such ownership
interest does not result in or provide such Lender with immunity from the
jurisdiction of courts within the United States or from the enforcement of
judgments or writs of attachment on its assets or permit such Lender (or such
Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts
or agreements made with such Lender.

“Devco” means Memorial Resources Development LLC, a Delaware limited liability
company.

“Devco IPO” means the initial public offering of Equity Interests of Devco on
the New York Stock Exchange, NASDAQ or another nationally recognized stock
exchange reasonably acceptable to the Administrative Agent.

“Disqualified Capital Stock” means any Equity Interest that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable) or upon the happening of any event, matures or is mandatorily
redeemable for any consideration other than other Equity Interests (which would
not constitute Disqualified Capital Stock), pursuant to a sinking fund
obligation or otherwise, or is convertible or exchangeable for Debt or
redeemable for any consideration other than other Equity Interests (which would
not constitute Disqualified Capital Stock) at the option of the holder thereof,
in whole or in part, on or prior to the date that is one year after the earlier
of (a) the Maturity Date and (b) the date on which there are no Loans, LC
Exposure or other obligations hereunder outstanding and all of the Commitments
are terminated.

“dollars” or “$” refers to lawful money of the United States of America.

“Domestic Subsidiary” means any Subsidiary that is organized under the laws of
the United States of America or any State thereof or the District of Columbia.

“Effective Date” means the date on which the conditions specified in
Section 6.01 are satisfied (or waived in accordance with Section 12.02).

 

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“Engineering Reports” has the meaning assigned such term in Section 2.07(c)(i).

“Environmental Laws” means any and all Governmental Requirements pertaining in
any way to health, safety, the environment or the preservation or reclamation of
natural resources or the management, Release or threatened Release of any
Hazardous Materials, in effect in any and all jurisdictions in which the
Borrower or any of the other Loan Parties is conducting or at any time has
conducted business, or where any Property of the Borrower or any of the other
Loan Parties is located, including without limitation, the Oil Pollution Act of
1990, as amended (“OPA”), the Clean Air Act, as amended, the Comprehensive
Environmental, Response, Compensation, and Liability Act of 1980, as amended
(“CERCLA”), the Federal Water Pollution Control Act, as amended, the
Occupational Safety and Health Act of 1970, as amended, the Resource
Conservation and Recovery Act of 1976, as amended (“RCRA”), the Safe Drinking
Water Act, as amended, the Toxic Substances Control Act, as amended, the
Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous
Materials Transportation Act, as amended, and other environmental conservation
or protection Governmental Requirements.

“Environmental Permit” means any permit, registration, license, notice,
approval, consent, exemption, variance, or other authorization required under or
issued pursuant to applicable Environmental Laws.

“Equity Interests” means shares of capital stock, partnership interests,
membership interests in a limited liability company, beneficial interests in a
trust or other equity ownership interests in a Person, and any warrants, options
or other rights entitling the holder thereof to purchase or acquire any such
Equity Interest.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
and any successor statute.

“ERISA Affiliate” means each trade or business (whether or not incorporated)
which together with the Borrower or any other Loan Party would be deemed to be a
“single employer” within the meaning of section 4001(b)(1) of ERISA or
subsections (b), (c), (m) or (o) of section 414 of the Code.

“ERISA Event” means (a) a “Reportable Event” described in section 4043 of ERISA
and the regulations issued thereunder, (b) the withdrawal of the Parent, the
Borrower, any other Loan Party or any ERISA Affiliate from a Plan during a plan
year in which it was a “substantial employer” as defined in section 4001(a)(2)
of ERISA, (c) the filing of a notice of intent to terminate a Plan or the
treatment of a Plan amendment as a termination under section 4041 of ERISA,
(d) the institution of proceedings to terminate a Plan by the PBGC, (e) receipt
of a notice of withdrawal liability pursuant to Section 4202 of ERISA or (f) any
other event or condition which constitutes grounds under section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any Plan.

“Eurodollar”, when used in reference to any Loan or Borrowing, means that such
Loan is, or the Loans comprising such Borrowing are, bearing interest at a rate
determined by reference to the Adjusted LIBO Rate.

 

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“Event of Default” has the meaning assigned such term in Section 10.01.

“Excepted Liens” means: (a) Liens for Taxes, assessments or other governmental
charges or levies which are not delinquent or which are being contested in good
faith by appropriate action and for which adequate reserves have been maintained
in accordance with GAAP; (b) Liens in connection with workers’ compensation,
unemployment insurance or other social security, old age pension or public
liability obligations which are not delinquent or which are being contested in
good faith by appropriate action and for which adequate reserves have been
maintained in accordance with GAAP; (c) statutory landlord’s liens, operators’,
vendors’, carriers’, warehousemen’s, repairmen’s, mechanics’, suppliers’,
workers’, materialmen’s, construction or other like Liens arising by operation
of law in the ordinary course of business or incident to the exploration,
development, operation and maintenance of Oil and Gas Properties each of which
is in respect of obligations that are not delinquent or which are being
contested in good faith by appropriate action and for which adequate reserves
have been maintained in accordance with GAAP; (d) contractual Liens which arise
in the ordinary course of business under operating agreements, joint venture
agreements, oil and gas partnership agreements, oil and gas leases, farm-out
agreements, division orders, contracts for the sale, transportation or exchange
of oil and natural gas, unitization and pooling declarations and agreements,
area of mutual interest agreements, overriding royalty agreements, marketing
agreements, processing agreements, net profits agreements, development
agreements, gas balancing or deferred production agreements, injection,
repressuring and recycling agreements, salt water or other disposal agreements,
seismic or other geophysical permits or agreements, and other agreements which
are usual and customary in the oil and gas business and are for claims which are
not delinquent or which are being contested in good faith by appropriate action
and for which adequate reserves have been maintained in accordance with GAAP;
provided that any such Lien referred to in this clause does not materially
impair the use of the Property covered by such Lien for the purposes for which
such Property is held by the Borrower or any of the other Loan Parties or
materially impair the value of such Property subject thereto; (e) Liens arising
solely by virtue of any statutory or common law provision relating to banker’s
liens, rights of set-off or similar rights and remedies and burdening only
deposit accounts or other funds maintained with a creditor depository
institution; provided that no such deposit account is a dedicated cash
collateral account or is subject to restrictions against access by the depositor
in excess of those set forth by regulations promulgated by the Board and no such
deposit account is intended by the Borrower or any of the other Loan Parties to
provide collateral to the depository institution; (f) Immaterial Title
Deficiencies and easements, restrictions, servitudes, permits, conditions,
covenants, exceptions or reservations in any Property of the Borrower or any of
the other Loan Parties for the purpose of roads, pipelines, transmission lines,
transportation lines, distribution lines for the removal of gas, oil, coal or
other minerals or timber, and other like purposes, or for the joint or common
use of real estate, rights of way, facilities and equipment, that do not secure
any monetary obligations and which in the aggregate do not materially impair the
use of such Property for the purposes of which such Property is held by the
Borrower or any of the other Loan Parties or materially impair the value of such
Property subject thereto; (g) Liens on cash or securities pledged to secure
performance of tenders, surety and appeal bonds, government contracts,
performance and return of money bonds, bids, trade contracts, leases, statutory
obligations, regulatory obligations and other obligations of a like nature
incurred in the ordinary course of business, (h) Liens in favor of the
depository bank arising under documentation governing deposit accounts or in any
Control Agreement (as defined in the Security Agreement)

 

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which Liens secure the payment of returned items, settlement item amounts, bank
fees, or similar items or fees, and (i) judgment and attachment Liens not giving
rise to an Event of Default; provided that any appropriate legal proceedings
which may have been duly initiated for the review of such judgment shall not
have been finally terminated or the period within which such proceeding may be
initiated shall not have expired and no action to enforce such Lien has been
commenced; provided, further that (i) Liens described in clauses (a) through
(e) shall remain “Excepted Liens” only for so long as no action to enforce such
Lien has been commenced and no intention to subordinate the first priority Lien
granted in favor of the Administrative Agent and the Lenders is to be hereby
implied or expressed by the permitted existence of such Excepted Liens and
(ii) the term “Excepted Liens” shall not include any Lien securing Debt for
borrowed money other than the Indebtedness.

“Excluded Taxes” means, with respect to the Administrative Agent, any Lender,
the Issuing Bank or any other recipient of any payment to be made by or on
account of any obligation of the Borrower or any Guarantor hereunder or under
any other Loan Document, (a) taxes imposed on (or measured by) its net income
and franchise taxes (including the Texas Margin Tax) imposed on it (in lieu of
income taxes), in each case, by the United States of America or such other
jurisdiction under the laws of which such recipient is organized or in which its
principal office is located or, in the case of any Lender, in which its
applicable lending office is located, (b) any branch profits taxes imposed by
the United States of America or any similar tax imposed by any other
jurisdiction in which the Borrower or any Guarantor is located, (c) in the case
of a Foreign Lender (other than an assignee pursuant to a request by the
Borrower under Section 5.04(b)), any withholding tax that is imposed on amounts
payable to such Foreign Lender at the time such Foreign Lender becomes a party
to this Agreement (or designates a new lending office) or is attributable to
such Foreign Lender’s failure to comply with Section 5.03(f), except to the
extent that such Foreign Lender (or its assignor, if any) was entitled, at the
time of designation of a new lending office (or assignment), to receive
additional amounts with respect to such withholding tax pursuant to
Section 5.03(a) or Section 5.03(c) and (d) any United States federal withholding
taxes imposed by FATCA.

“Existing Letters of Credit” means the letters of credit listed on Annex II
hereto.

“FATCA” means Sections 1471 through 1474 of the Code as of the date of this
Agreement and any regulations or official interpretations thereof.

“FCPA” means the Foreign Corrupt Practices Act of 1977, as amended.

“Federal Flood Insurance” means federally backed Flood Insurance available under
the National Flood Insurance Program to owners of real property improvements
located in Special Flood Hazard Areas in a community participating in the
National Flood Insurance Program.

“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 Administrative Agent from three Federal funds brokers of
recognized standing selected by it.

 

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“FEMA” means the Federal Emergency Management Agency, a component of the United
States Department of Homeland Security that administers the National Flood
Insurance Program.

“Financial Officer” means, for any Person, the chief financial officer (or prior
to the appointment of a chief financial officer, the Vice President of Finance),
principal accounting officer, treasurer or controller of such Person. Unless
otherwise specified, all references herein to a Financial Officer means a
Financial Officer of the General Partner.

“Financial Statements” means the financial statement or statements of the Parent
and its Consolidated Subsidiaries referred to in Section 7.04(a).

“Flood Insurance” means, for any owned real property located in a Special Flood
Hazard Area, Federal Flood Insurance or private insurance that meets or exceeds
the requirements set forth by FEMA in its Mandatory Purchase of Flood Insurance
Guidelines. Flood Insurance shall be in commercially reasonable amounts not less
than the minimum policy amounts required under the National Flood Insurance
Program, or as otherwise required by the Administrative Agent in good faith and
in the exercise of reasonable credit judgment, with deductibles not to exceed
$250,000 for losses to buildings and $250,000 for losses to contents of
buildings.

“Flood Insurance Regulations” means (i) the National Flood Insurance Act of 1968
as now or hereafter in effect or any successor statute thereto, (ii) the Flood
Disaster Protection Act of 1973 as now or hereafter in effect or any successor
statute thereto, (iii) the National Flood Insurance Reform Act of 1994 (amending
42 USC 4001, et seq.), as the same may be amended or recodified from time to
time, and (iv) the Flood Insurance Reform Act of 2004 and any regulations
promulgated thereunder.

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

“Foreign Subsidiary” means any Subsidiary that is not a Domestic Subsidiary.

“GAAP” means generally accepted accounting principles in the United States of
America as in effect from time to time subject to the terms and conditions set
forth in Section 1.05.

“General Partner” means Memorial Production Partners GP LLC, a Delaware limited
liability company.

“Governmental Authority” means the government of the United States of America,
any other nation or any political subdivision thereof, whether state or local,
and any agency, authority, instrumentality, regulatory body, court, central bank
or other entity exercising executive, legislative, judicial, taxing, regulatory
or administrative powers or functions of or pertaining to government.

 

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“Governmental Requirement” means any law, statute, code, ordinance, order,
determination, rule, regulation, judgment, decree, injunction, franchise,
permit, certificate, license, rules of common law, authorization or other
directive or requirement, whether now or hereinafter in effect, of any
Governmental Authority.

“Guarantors” means, collectively, the Parent, each Material Subsidiary and each
other Domestic Subsidiary or other Person that guarantees the Indebtedness
pursuant to Section 8.14(b).

“Guaranty Agreement” means each agreement executed by one or more Guarantors in
substantially the form of Exhibit E-2 unconditionally guarantying, on a joint
and several basis, payment of the Indebtedness, as the same may be amended,
modified or supplemented from time to time.

“Hazardous Material” means any substance regulated or as to which liability
might arise under any applicable Environmental Law including: (a) any chemical,
compound, material, product, byproduct, substance or waste defined as or
included in the definition or meaning of “hazardous substance,” “hazardous
material,” “hazardous waste,” “solid waste,” “toxic waste,” “extremely hazardous
substance,” “toxic substance,” “contaminant,” “pollutant,” or words of similar
meaning or import found in any applicable Environmental Law; (b) Hydrocarbons,
petroleum products, petroleum substances, natural gas, oil, oil and gas waste,
crude oil, and any components, fractions, or derivatives thereof; and
(c) radioactive materials, explosives, asbestos or asbestos containing
materials, polychlorinated biphenyls, radon, infectious or medical wastes.

“Highest Lawful Rate” means, with respect to each Lender, the maximum
nonusurious interest rate, if any, that at any time or from time to time may be
contracted for, taken, reserved, charged or received on the Notes or on other
Indebtedness under laws applicable to such Lender which are presently in effect
or, to the extent allowed by law, under such applicable laws which may hereafter
be in effect and which allow a higher maximum nonusurious interest rate than
applicable laws allow as of the date hereof.

“Hydrocarbon Interests” means all rights, titles, interests and estates now or
hereafter acquired in and to oil and gas leases, oil, gas and mineral leases, or
other liquid or gaseous hydrocarbon leases, mineral fee interests, overriding
royalty and royalty interests, net profit interests and production payment
interests, including any reserved or residual interests of whatever nature.
Unless otherwise indicated herein, each reference to the term “Hydrocarbon
Interests” shall mean Hydrocarbons of the Loan Parties.

“Hydrocarbons” means oil, gas, casinghead gas, drip gasoline, natural gasoline,
condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all
products refined or separated therefrom. Unless otherwise indicated herein, each
reference to the term “Hydrocarbons” shall mean Hydrocarbons of the Loan
Parties.

“Immaterial Title Deficiencies” means minor defects or deficiencies in title
which do not diminish more than 2% of the aggregate value of the Oil and Gas
Properties evaluated in the Reserve Report used in the most recent determination
of the Borrowing Base.

 

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“Indebtedness” means any and all amounts owing or to be owing by the Borrower or
any other Loan Party (whether direct or indirect (including those acquired by
assumption), absolute or contingent, due or to become due, now existing or
hereafter arising): (a) to any Agent, the Issuing Bank or any Lender under any
Loan Document including, without limitation, all interest on any of the Loans
(including any interest that accrues after the commencement of any case,
proceeding or other action relating to the bankruptcy, insolvency or
reorganization of any Loan Party (or could accrue but for the operation of
applicable bankruptcy or insolvency laws), whether or not such interest is
allowed or allowable as a claim in any such case, proceeding or other action);
(b) to any Secured Swap Provider under any Swap Agreement including any Swap
Agreement in existence prior to the date hereof, but excluding any additional
transactions or confirmations entered into (i) (x) in the case of a Secured Swap
Provider of the type described in clauses (a) or (b) of the definition thereof,
after such Secured Swap Provider ceases to be a Lender or an Affiliate of a
Lender or (y) in the case of a Secured Swap Provider of the type described in
clause (c) of the definition thereof, after there are three or more Lenders
party to this Agreement (or Affiliates of such Lenders) that are recognized
providers of Swap Agreements, or (ii) after assignment by a Secured Swap
Provider to a Person who is not, at the time of such assignment, a Secured Swap
Provider; (c) to any Bank Products Provider in respect of Bank Products; and
(d) all renewals, extensions and/or rearrangements of any of the above.

“Indemnified Parties” means the Administrative Agent, each other Secured Party
and their respective officers, directors, employees, representatives, agents,
attorneys, accountants and experts.

“Indemnified Taxes” means Taxes other than Excluded Taxes.

“Information Memorandum” means the Confidential Information Memorandum dated
July, 2011 relating to the Loan Parties and the Transactions.

“Initial Acquisition” means the acquisition by the Borrower of certain oil, gas
and mineral Properties from the Sellers pursuant to the terms and conditions of
Initial Acquisition Documents.

“Initial Acquisition Documents” means (a) the Purchase and Sale Agreement dated
as of December 14, 2011 among Memorial Resource Development LLC, a Delaware
limited liability company (“MRD”), Classic Hydrocarbons Holdings, L.P., a Texas
limited partnership, Classic Hydrocarbons Operating, LLC, a Texas limited
liability company, Craton Energy Holdings III, LP, a Texas limited partnership,
General Partner, Parent, and the Borrower, (b) the Contribution, Conveyance and
Assumption Agreement dated as of December 14, 2011 among MRD, BlueStone Natural
Resources Holdings, LLC, a Delaware limited liability company, BlueStone Natural
Resources, LLC, a Delaware limited liability company, General Partner, Parent
and the Borrower, (c) the Contribution, Conveyance and Assumption Agreement
dated as of December 14, 2011 among MRD, WHT Energy Partners LLC, a Delaware
limited liability company, General Partner, Parent and the Borrower, and (d) all
bills of sale, assignments, agreements, instruments and documents executed and
delivered in connection therewith, as amended.

“Initial Acquisition Properties” means the Oil and Gas Properties and other
Properties acquired by the Borrower from the Sellers pursuant to Initial
Acquisition Documents.

 

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“Initial Reserve Report” means, collectively, the one or more Reserve Reports
with respect to the Initial Acquisition Properties as of December 31, 2010 or
January 1, 2011, as the case may be, upon which the Lenders have relied upon in
the determination of the initial Borrowing Base hereunder.

“Interest Election Request” means a request by the Borrower to convert or
continue a Borrowing in accordance with Section 2.04.

“Interest Payment Date” means (a) with respect to any ABR Loan, the last day of
each March, June, September and December, and (b) with respect to any Eurodollar
Loan, the last day of the Interest Period applicable to the Borrowing of which
such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest
Period of more than three months’ duration, each day prior to the last day of
such Interest Period that occurs at intervals of three months’ duration after
the first day of such Interest Period.

“Interest Period” means with respect to any Eurodollar Borrowing, the period
commencing on the date of such Borrowing and ending on the numerically
corresponding day in the calendar month that is one, two, three or six months
thereafter, as the Borrower may elect; provided that (a) if any Interest Period
would end on a day other than a Business Day, such Interest Period shall be
extended to the next succeeding Business Day unless such next succeeding
Business Day would fall in the next calendar month, in which case such Interest
Period shall end on the next preceding Business Day and (b) any Interest Period
pertaining to a Eurodollar Borrowing that commences on the last Business Day of
a calendar month (or on a day for which there is no numerically corresponding
day in the last calendar month of such Interest Period) shall end on the last
Business Day of the last calendar month of such Interest Period. For purposes
hereof, the date of a Borrowing initially shall be the date on which such
Borrowing is made and thereafter shall be the effective date of the most recent
conversion or continuation of such Borrowing.

“Interim Redetermination” has the meaning assigned such term in Section 2.07(b).

“Interim Redetermination Date” means the date on which a Borrowing Base that has
been redetermined pursuant to an Interim Redetermination becomes effective as
provided in Section 2.07(d).

“Investment” means, for any Person: (a) the acquisition (whether for cash,
Property, services or securities or otherwise) of Equity Interests of any other
Person or any agreement to make any such acquisition (including, without
limitation, any “short sale” or any sale of any securities at a time when such
securities are not owned by the Person entering into such short sale); (b) the
making of any deposit with, or advance, loan or capital contribution to,
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 90 days representing the purchase price of inventory or
supplies sold by such Person in the ordinary course of business); (c) the
purchase or acquisition (in one or a series of transactions) of Property of
another Person that constitutes a business unit; or (d) the entering

 

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into of any guarantee of, or other contingent obligation (including the deposit
of any Equity Interests to be sold) with respect to, Debt or other liability of
any other Person and (without duplication) any amount committed to be advanced,
lent or extended to such Person.

“Issuing Bank” means Wells Fargo, in its capacity as the issuer of Letters of
Credit hereunder, and its successors in such capacity as provided in
Section 2.08(i). The Issuing Bank may, in its discretion, arrange for one or
more Letters of Credit to be issued by Affiliates of the Issuing Bank, in which
case the term “Issuing Bank” shall include any such Affiliate with respect to
Letters of Credit issued by such Affiliate.

“LC Commitment” at any time means $30,000,000.

“LC Disbursement” means a payment made by the Issuing Bank pursuant to a Letter
of Credit.

“LC Exposure” means, at any time, the sum of (a) the aggregate undrawn amount of
all outstanding Letters of Credit at such time plus (b) the aggregate amount of
all LC Disbursements that have not yet been reimbursed by or on behalf of the
Borrower at such time. The LC Exposure of any Lender at any time shall be its
Applicable Percentage of the total LC Exposure at such time.

“Lenders” means the Persons listed on Annex I and any Person that shall have
become a party hereto pursuant to an Assignment and Assumption, other than any
such Person that ceases to be a party hereto pursuant to an Assignment and
Assumption.

“Letter of Credit” means, collectively, any standby letter of credit issued
pursuant to this Agreement and any Existing Letters of Credit.

“Letter of Credit Agreements” means all letter of credit applications and other
agreements (including any amendments, modifications or supplements thereto)
submitted by the Borrower, or entered into by the Borrower, with the Issuing
Bank relating to any Letter of Credit.

“LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest
Period, the rate appearing on Reuters Screen LIBOR01 Page (or on any successor
or substitute page of such service, or any successor to or substitute for such
service, providing rate quotations comparable to those currently provided on
such page of such service, as determined by the Administrative Agent from time
to time for purposes of providing quotations of interest rates applicable to
dollar deposits in the London interbank market) at approximately 11:00 a.m.,
London time, two Business Days prior to the commencement of such Interest
Period, as the rate for dollar deposits with a maturity comparable to such
Interest Period. In the event that such rate is not available at such time for
any reason, then the “LIBO Rate” with respect to such Eurodollar Borrowing for
such Interest Period shall be the rate (rounded upwards, if necessary, to the
next 1/100 of 1%) at which dollar deposits of an amount comparable to such
Eurodollar Borrowing and for a maturity comparable to such Interest Period are
offered by the principal London office of the Administrative Agent in
immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period.

 

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“Lien” means any interest in Property securing an obligation owed to, or a claim
by, a Person other than the owner of the Property, whether such interest is
based on the common law, statute or contract, and whether such obligation or
claim is fixed or contingent, and including but not limited to (a) the lien or
security interest arising from a mortgage, encumbrance, pledge, security
agreement, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes or (b) production payments and the like payable out of Oil
and Gas Properties. The term “Lien” shall include easements, restrictions,
servitudes, permits, conditions, covenants, exceptions or reservations. For the
purposes of this Agreement, the Borrower or any other Loan Party shall be deemed
to be the owner of any Property which it has acquired or holds subject to a
conditional sale agreement, or leases under a financing lease or other
arrangement pursuant to which title to the Property has been retained by or
vested in some other Person in a transaction intended to create a financing.

“Liquidate,” “Liquidated” and “Liquidation” when used in reference to any Swap
Agreement or any portion thereof have the correlative meanings to the term “Swap
Liquidation”.

“Loan Documents” means this Agreement, the Notes, the Letter of Credit
Agreements, the Letters of Credit, the Agency Fee Letter, and the Security
Instruments.

“Loan Parties” means the Borrower, the Parent and each other Guarantor.

“Loans” means the loans made by the Lenders to the Borrower pursuant to this
Agreement.

“Majority Lenders” means, at any time while no Loans or LC Exposure is
outstanding, Lenders having greater than fifty percent (50%) of the Aggregate
Maximum Credit Amounts; and at any time while any Loans or LC Exposure is
outstanding, Lenders holding greater than fifty percent (50%) of the outstanding
aggregate principal amount of the Loans and participation interests in Letters
of Credit (without regard to any sale by a Lender of a participation in any Loan
under Section 12.04(c)); provided that the Maximum Credit Amounts and the
principal amount of the Loans and participation interests in Letters of Credit
of the Defaulting Lenders (if any) shall be excluded from the determination of
Majority Lenders.

“Material Adverse Effect” means a material adverse change in, or material
adverse effect on (a) the business, operations, Property, or condition
(financial or otherwise) of the Borrower and the other Loan Parties taken as a
whole, (b) the ability of the Borrower individually, or the other Loan Parties,
taken as a whole, to perform any of its or their obligations under any Loan
Document, (c) the validity or enforceability of any Loan Document or (d) the
rights and remedies of or benefits available to the Administrative Agent, any
other Agent, the Issuing Bank or any Lender under any Loan Document.

“Material Indebtedness” means Debt (other than the Loans and Letters of Credit),
or obligations in respect of one or more Swap Agreements, of any one or more of
the Borrower and the other Loan Parties in an aggregate principal amount
exceeding $15,000,000. For purposes of determining Material Indebtedness, the
“principal amount” of the obligations of the Borrower or any other Loan Party in
respect of any Swap Agreement at any time shall be the Swap Termination Value.

 

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“Material Subsidiary” means, as of any date, any Domestic Subsidiary that (a) is
a Wholly-Owned Subsidiary and (b) together with its Subsidiaries, owns Property
having a fair market value of $5,000,000 or more.

“Maturity Date” means December 14, 2016.

“Maximum Credit Amount” means, as to each Lender, the amount set forth opposite
such Lender’s name on Annex I under the caption “Maximum Credit Amounts”, as the
same may be (a) reduced or terminated from time to time in connection with a
reduction or termination of the Aggregate Maximum Credit Amounts pursuant to
Section 2.06(b), or (b) modified from time to time pursuant to any assignment
permitted by Section 12.04(a).

“Moody’s” means Moody’s Investors Service, Inc. and any successor thereto that
is a nationally recognized rating agency.

“Mortgaged Property” means any Property owned by the Borrower or any Guarantor
which is subject to the Liens existing and to exist under the terms of the
Security Instruments.

“Multiemployer Plan” means a Plan which is a multiemployer plan as defined in
section 3(37) or 4001 (a)(3) of ERISA.

“National Flood Insurance Program” means the program created by the United
States Congress pursuant to the Flood Insurance Regulations, that mandates the
purchase of flood insurance to cover real property improvements located in
Special Flood Hazard Areas in participating communities and provides protection
to property owners through a federal insurance program.

“New Borrowing Base Notice” has the meaning assigned such term in
Section 2.07(d).

“NGP Parties” means, collectively, Natural Gas Partners VIII, L.P., a Delaware
limited partnership, Natural Gas Partners IX, L.P., a Delaware limited
partnership, and each of their Affiliated private equity funds or management
companies.

“Notes” means the promissory notes of the Borrower described in Section 2.02(d)
and being substantially in the form of Exhibit A, together with all amendments,
modifications, replacements, extensions and rearrangements thereof.

“OFAC” means the Office of Foreign Assets Control of the United States
Department of Treasury.

“Oil and Gas Properties” means (a) Hydrocarbon Interests; (b) the Properties now
or hereafter pooled or unitized with Hydrocarbon Interests; (c) all presently
existing or future unitization, communitization, pooling agreements and
declarations of pooled units and the units created thereby (including without
limitation all units created under orders, regulations and rules of any
Governmental Authority) which may affect all or any portion of the Hydrocarbon
Interests; (d) all operating agreements, contracts and other agreements,
including production sharing contracts and agreements, which relate to any of
the Hydrocarbon Interests or the production, sale, purchase, exchange or
processing of Hydrocarbons from or attributable to such

 

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Hydrocarbon Interests; (e) all Hydrocarbons in and under and which may be
produced and saved or attributable to the Hydrocarbon Interests, including all
oil in tanks, and all rents, issues, profits, proceeds, products, revenues and
other incomes from or attributable to the Hydrocarbon Interests; (f) all
tenements, hereditaments, appurtenances and Properties in any manner
appertaining, belonging, affixed or incidental to the Hydrocarbon Interests and
(g) all Properties, rights, titles, interests and estates described or referred
to above, including any and all Property, real or personal, now owned or
hereinafter acquired and situated upon, used, held for use or useful in
connection with the operating, working or development of any of such Hydrocarbon
Interests or Property (excluding drilling rigs, automotive equipment, rental
equipment or other personal Property which may be on such premises for the
purpose of drilling a well or for other similar temporary uses) and including
any and all oil wells, gas wells, injection wells or other wells, buildings,
structures, fuel separators, liquid extraction plants, plant compressors, pumps,
pumping units, field gathering systems, tanks and tank batteries, fixtures,
valves, fittings, machinery and parts, engines, boilers, meters, apparatus,
equipment, appliances, tools, implements, cables, wires, towers, casing, tubing
and rods, surface leases, rights-of-way, easements and servitudes together with
all additions, substitutions, replacements, accessions and attachments to any
and all of the foregoing.

“Organizational Documents” means, (a) with respect to any corporation, the
certificate or articles of incorporation and the bylaws (or equivalent or
comparable constitutive documents with respect to any non US jurisdiction);
(b) with respect to any limited liability company, the certificate or articles
of formation or organization and operating agreement; and (c) with respect to
any partnership, joint venture, trust or other form of business entity, the
partnership, joint venture or other applicable agreement of formation or
organization and any agreement, instrument, filing or notice with respect
thereto filed in connection with its formation or organization with the
applicable Governmental Authority in the jurisdiction of its formation or
organization and, if applicable, any certificate or articles of formation or
organization of such entity.

“Other Taxes” means any and all present or future stamp or documentary taxes or
any other excise or Property taxes, charges or similar levies arising from any
payment made hereunder or from the execution, delivery or enforcement of, or
otherwise with respect to, this Agreement and any other Loan Document.

“Parent IPO” means the initial public offering of Equity Interests of the
Parent.

“Parent IPO Prospectus” means the prospectus filed as part of the S-1
Registration Statement filed by the Parent with the SEC regarding the Parent
IPO.

“Participant” has the meaning set forth in Section 12.04(c)(i).

“Participant Register” has the meaning set forth in Section 12.04(c)(i).

“Partnership Agreement” means the First Amended and Restated Agreement of
Limited Partnership of the Parent, dated December 14, 2011, by and among the
General Partner, Devco and the other Persons party thereto.

“PBGC” means the Pension Benefit Guaranty Corporation, or any successor thereto.

 

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“Permitted Senior Unsecured Notes” means those notes that may be issued by the
Parent or the Borrower (or by any Loan Party as co-issuer); provided that such
Senior Unsecured Notes shall: (a) be in a principal amount not to exceed the
greater of (i) $300,000,000 and (ii) 100% of the Borrowing Base in effect at the
time of issuance (before giving effect to any reduction thereto pursuant to
Section 2.07(e)) in the aggregate; (b) be unsecured; (c) not provide for any
scheduled payment of principal, scheduled mandatory Redemption or scheduled
sinking fund payment on or before the date that is at least 180 days following
the Maturity Date in effect at the time of issuance; and (d) contain covenants
and events of default that are, taken as a whole, no more restrictive with
respect to the Loan Parties than the covenants and Events of Default herein (as
determined in good faith by senior management of the General Partner).

“Person” means any natural person, corporation, limited liability company,
trust, joint venture, association, company, partnership, Governmental Authority
or other entity.

“Plan” means any employee pension benefit plan, as defined in section 3(2) of
ERISA, which (a) is currently or hereafter sponsored, maintained or contributed
to by the Borrower, any other Loan Party or an ERISA Affiliate or (b) was at any
time during the six calendar years preceding the date hereof, sponsored,
maintained or contributed to by the Borrower or any other Loan Party or an ERISA
Affiliate.

“Prime Rate” means the rate of interest per annum publicly announced from time
to time by Wells Fargo as its prime rate in effect at its principal office in
San Francisco; each change in the Prime Rate shall be effective from and
including the date such change is publicly announced as being effective. Such
rate is set by the Administrative Agent as a general reference rate of interest,
taking into account such factors as the Administrative Agent may deem
appropriate; it being understood that many of the Administrative Agent’s
commercial or other loans are priced in relation to such rate, that it is not
necessarily the lowest or best rate actually charged to any customer and that
the Administrative Agent may make various commercial or other loans at rates of
interest having no relationship to such rate.

“Property” means any interest in any kind of property or asset, whether real,
personal or mixed, or tangible or intangible, including, without limitation,
cash, securities, accounts and contract rights.

“Proposed Borrowing Base” has the meaning assigned to such term in
Section 2.07(c)(i).

“Proposed Borrowing Base Notice” has the meaning assigned to such term in
Section 2.07(c)(ii).

“Proved Developed Non-Producing Reserves” has the meaning assigned such term in
the SPE Definitions.

“Proved Reserves” has the meaning assigned such term in the SPE Definitions.

“Proved Undeveloped Reserves” has the meaning assigned such term in the SPE
Definitions.

 

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“Redemption” means with respect to any Debt, the repurchase, redemption,
prepayment, repayment, satisfaction and discharge or defeasance or any other
acquisition or retirement for value (or the segregation of funds with respect to
any of the foregoing) of any such Debt. “Redeem” has the correlative meaning
thereto.

“Redetermination Date” means, with respect to any Scheduled Redetermination or
any Interim Redetermination, the date that the redetermined Borrowing Base
related thereto becomes effective pursuant to Section 2.07(d).

“Register” has the meaning assigned such term in Section 12.04(b)(iv).

“Regulation D” means Regulation D of the Board, as the same may be amended,
supplemented or replaced from time to time.

“Related Parties” means, with respect to any specified Person, such Person’s
Affiliates and the respective directors, officers, employees, agents and
advisors (including attorneys, accountants and experts) of such Person and such
Person’s Affiliates.

“Release” means any depositing, spilling, leaking, pumping, pouring, placing,
emitting, discarding, abandoning, emptying, discharging, migrating, injecting,
escaping, leaching, dumping, or disposing.

“Remedial Work” has the meaning assigned such term in Section 8.10(a).

“Required Lenders” means, at any time while no Loan or LC Exposure is
outstanding, Lenders having at least sixty-six and two-thirds percent (66 2/3%)
of the Aggregate Maximum Credit Amounts; and at any time while any Loan or LC
Exposure is outstanding, Lenders holding at least sixty-six and two-thirds
percent (66 2/3%) of the outstanding aggregate principal amount of the Loans and
participation interests in Letters of Credit (without regard to any sale by a
Lender of a participation in any Loan under Section 12.04(c)); provided that the
Maximum Credit Amounts and the principal amount of the Loans and participation
interests in Letters of Credit of the Defaulting Lenders (if any) shall be
excluded from the determination of Required Lenders.

“Reserve Report” means a report, in form and substance reasonably satisfactory
to the Administrative Agent, setting forth, as of each January 1st or July 1st
(or such other date in the event of an Interim Redetermination) the oil and gas
reserves attributable to the Oil and Gas Properties of the Borrower and the
other Loan Parties, together with a projection of the rate of production and
future net income, taxes, operating expenses and capital expenditures with
respect thereto as of such date, based upon pricing assumptions consistent with
SEC reporting requirements at the time of such report and reflecting Swap
Agreements in place with respect to such production.

“Responsible Officer” means, as to any Person, the Chief Executive Officer, the
President, any Financial Officer or any Vice President of such Person. Unless
otherwise specified, all references to a Responsible Officer herein shall mean a
Responsible Officer of the Borrower.

 

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“Restricted Payment” means any dividend or other distribution (whether in cash,
securities or other Property) with respect to any Equity Interests in the
Borrower or any of the other Loan Parties, or any payment (whether in cash,
securities or other Property), including any sinking fund or similar deposit, on
account of the purchase, redemption, retirement, acquisition, cancellation or
termination of any such Equity Interests in the Borrower or any of the other
Loan Parties or any option, warrant or other right to acquire any such Equity
Interests in the Borrower or any of the other Loan Parties.

“Revolving Credit Exposure” means, with respect to any Lender at any time, the
sum of the outstanding principal amount of such Lender’s Loans and LC Exposure
at such time.

“Rolling Period” means (a) for the fiscal quarters ending on September 30, 2011,
December 31, 2011 and March 31, 2012, the period commencing on July 1, 2011 and
ending on the last day of such applicable fiscal quarter and (b) for the fiscal
quarter ending on June 30, 2012, and for each fiscal quarter thereafter, the
period of four (4) consecutive fiscal quarters ending on the last day of such
applicable fiscal quarter.

“S&P” means Standard & Poor’s Ratings Group, a division of The McGraw-Hill
Companies, Inc., and any successor thereto that is a nationally recognized
rating agency.

“Scheduled Redetermination” has the meaning assigned such term in
Section 2.07(b).

“Scheduled Redetermination Date” means the date on which a Borrowing Base that
has been redetermined pursuant to a Scheduled Redetermination becomes effective
as provided in Section 2.07(d).

“SEC” means the Securities and Exchange Commission or any successor Governmental
Authority.

“Secured Parties” means each Lender, each Issuing Bank, each Secured Swap
Provider, each Bank Products Provider, each Indemnified Party and any legal
owner, holder, assignee or pledgee of any of the Indebtedness.

“Secured Swap Provider” means any (a) Person that is a party to a Swap Agreement
with the Parent or any of its Subsidiaries that entered into such Swap Agreement
before or while such Person was a Lender or an Affiliate of a Lender, whether or
not such Person at any time ceases to be a Lender or an Affiliate of a Lender,
as the case may be, (b) assignee of any Person described in clause (a) above so
long as such assignee is a Lender or an Affiliate of a Lender, or (c) any other
Approved Counterparty that (i) entered into such Swap Agreement at any time
after the Effective Date when there were less than three Lenders party to this
Agreement (or Affiliates of such Lenders) that are recognized providers of Swap
Agreements and (ii) entered into an intercreditor agreement with the
Administrative Agent in form and substance reasonably acceptable to the
Administrative Agent and providing for any proceeds realized from the
liquidation or other disposition of collateral under the Security Instruments to
be applied in accordance with Section 10.02(c).

“Security Agreement” means a Pledge and Security Agreement among the Borrower,
the Guarantors and the Administrative Agent in substantially the form of Exhibit
E-3 (or otherwise

 

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in form and substance reasonably acceptable to the Administrative Agent)
granting Liens and a security interest on the Loan Parties’ personal property
constituting Collateral (as defined therein) in favor of the Administrative
Agent for the benefit of the Secured Parties to secure the Indebtedness, as the
same may be amended, modified, supplemented or restated from time to time.

“Security Instruments” means the Guaranty Agreement, the Security Agreement,
mortgages, deeds of trust and other agreements, instruments or certificates
described or referred to in Exhibit E-1, and any and all other agreements,
instruments, consents or certificates now or hereafter executed and delivered by
the Borrower or any other Loan Party (other than Swap Agreements or
participation or similar agreements between any Lender and any other lender or
creditor with respect to any Indebtedness pursuant to this Agreement) in
connection with, or as security for the payment or performance of the
Indebtedness, the Notes, this Agreement, or reimbursement obligations under the
Letters of Credit, as such agreements may be amended, modified, supplemented or
restated from time to time.

“Sellers” mean, collectively, Classic Hydrocarbons Holdings, L.P., a Texas
limited partnership, and/or certain of its Affiliates, BlueStone Natural
Resources Holdings, LLC, a Delaware limited liability company, and/or certain of
its Affiliates (including Columbus Energy, LLC, a Delaware limited liability
company), and WHT Energy Partners LLC, a Delaware limited liability company,
and/or certain of its Affiliates.

“Special Flood Hazard Area” means an area that FEMA’s current flood maps
indicate has at least a one percent (1%) chance of a flood equal to or exceeding
the base flood elevation (a 100-year flood) in any given year.

“Specified Acquisition” means an Acquisition for which: (a) a binding and
enforceable purchase and sale agreement has been signed by a Loan Party; and
(b) at the time of the signing of the applicable purchase and sale agreement,
the ratio of Availability to the then effective Borrowing Base is at least 0.10
to 1.0.

“SPE Definitions” means with respect to any term, the definition thereof adopted
by the Board of Directors, Society for Petroleum Engineers (SPE) Inc., March
1997.

“Statutory Reserve Rate” means a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board to which the Administrative Agent is subject with
respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred
to as “Eurocurrency Liabilities” in Regulation D). Such reserve percentages
shall include those imposed pursuant to Regulation D. Eurodollar Loans shall be
deemed to constitute eurocurrency funding and to be subject to such reserve
requirements without benefit of or credit for proration, exemptions or offsets
that may be available from time to time to any Lender under Regulation D or any
comparable regulation. The Statutory Reserve Rate shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.

 

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“subsidiary” means, with respect to any Person (the “parent”) at any date, any
other Person the accounts of which would be consolidated with those of the
parent in the parent’s consolidated financial statements if such financial
statements were prepared in accordance with GAAP as of such date, as well as any
other Person (a) of which Equity Interests representing more than 50% of the
equity or more than 50% of the ordinary voting power (irrespective of whether or
not at the time Equity Interests of any other class or classes of such Person
shall have or might have voting power by reason of the happening of any
contingency) or, in the case of a partnership, any general partnership interests
are, as of such date, owned, controlled or held, or (b) that is, as of such
date, otherwise Controlled, by the parent or one or more subsidiaries of the
parent or by the parent and one or more subsidiaries of the parent.

“Subsidiary” means (a) any subsidiary of the Parent or (b) at any time when the
Borrower owns, directly or indirectly, 100% of the Equity Interests of the
Parent, any subsidiary of the Borrower.

“Swap Agreement” means any agreement with respect to any swap, forward, future
or derivative transaction (including floors, caps and collars) or option or
similar agreement, 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; provided that
no phantom stock or similar plan providing for payments only on account of
services provided by current or former directors, officers, employees or
consultants of the Borrower or the other Loan Parties shall be a Swap Agreement.

“Swap Liquidation” means the sale, assignment, novation, liquidation, unwind or
termination of all or any part of any Swap Agreement (other than, in each case,
at its scheduled maturity).

“Swap Termination Value” means, in respect of any Swap Agreement, after taking
into account the effect of any legally enforceable netting agreement relating to
such Swap Agreement, (a) for any date on or after the date such Swap Agreement
has been closed out and the termination value determined in accordance
therewith, such termination value and (b) for any date prior to the date
referenced in clause (a), the amount determined as the mark-to-market value for
such Swap Agreement, as determined by the Borrower in good faith, so long as no
Event of Default has occurred and is continuing.

“Synthetic Leases” means, in respect of any Person, all leases which shall have
been, or should have been, in accordance with GAAP, treated as operating leases
on the financial statements of the Person liable (whether contingently or
otherwise) for the payment of rent thereunder and which were properly treated as
indebtedness for borrowed money for purposes of U.S. federal income taxes, if
the lessee in respect thereof is obligated to either purchase for an amount in
excess of, or pay upon early termination an amount in excess of, 80% of the
residual value of the Property subject to such operating lease upon expiration
or early termination of such lease.

 

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“Taxes” means any and all present or future taxes, levies, imposts, duties,
deductions, charges or withholdings imposed by any Governmental Authority.

“Termination Date” means the earlier of the Maturity Date and the date of
termination of the Commitments pursuant to this Agreement, whether pursuant to
Section 2.06(b), Section 10.02 or otherwise.

“Transactions” means, with respect to (a) the Borrower, the execution, delivery
and performance by the Borrower of this Agreement, each other Loan Document and
the Initial Acquisition Documents to which it is a party, the Initial
Acquisition, the borrowing of Loans, the use of the proceeds thereof and the
issuance of Letters of Credit hereunder, and the grant of Liens by the Borrower
on Mortgaged Properties and other Properties pursuant to the Security
Instruments, (b) each Guarantor, the execution, delivery and performance by such
Guarantor of each Loan Document and Initial Acquisition Document to which it is
a party, the Initial Acquisition, the guaranteeing of the Indebtedness and the
other obligations under the Guaranty Agreement by such Guarantor and such
Guarantor’s grant of the security interests and provision of collateral under
the Security Instruments, and the grant of Liens by such Guarantor on Mortgaged
Properties and other Properties pursuant to the Security Instruments and
(c) with respect to the Parent, the Parent IPO.

“Type”, when used in reference to any Loan or Borrowing, refers to whether the
rate of interest on such Loan, or on the Loans comprising such Borrowing, is
determined by reference to the Alternate Base Rate or the Adjusted LIBO Rate.

“Unused Commitment” means (a) the then effective Borrowing Base minus (b) the
total Revolving Credit Exposures. With respect to each Lender, such Lender’s
Unused Commitment is such Lender’s Applicable Percentage of the Unused
Commitment.

“U.S. Tax Compliance Certificate” has the meaning set forth in Section 5.03(f).

“Wholly-Owned Subsidiary” means any Subsidiary of which all of the outstanding
Equity Interests (other than any directors’ qualifying shares mandated by
applicable law), on a fully-diluted basis, are owned by the Parent or one or
more of the Wholly-Owned Subsidiaries or are owned by the Parent and one or more
of the Wholly-Owned Subsidiaries.

“Withholding Agent” means any Loan Party or the Administrative Agent.

Section 1.03 Types of Loans and Borrowings. For purposes of this Agreement,
Loans and Borrowings, respectively, may be classified and referred to by Type
(e.g., a “Eurodollar Loan” or a “Eurodollar Borrowing”).

Section 1.04 Terms Generally; Rules of Construction. The definitions of terms
herein shall apply equally to the singular and plural forms of the terms
defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words “include,”
“includes” and “including” as used in this Credit Agreement shall be deemed to
be followed by the phrase “without limitation.” The word “will” shall be
construed to have the same meaning and effect as the word “shall.” Unless the
context requires otherwise (a) any definition of or reference to any agreement,
instrument or other document herein shall be

 

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construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented, restated or otherwise modified (subject to
any restrictions on such amendments, supplements or modifications set forth in
the Loan Documents), (b) any reference herein to any law shall be construed as
referring to such law as amended, modified, codified or reenacted, in whole or
in part, and in effect from time to time, (c) any reference herein to any Person
shall be construed to include such Person’s successors and assigns (subject to
the restrictions contained in the Loan Documents), (d) the words “herein,”
“hereof” and “hereunder,” and words of similar import, shall be construed to
refer to this Agreement in its entirety and not to any particular provision
hereof, (e) with respect to the determination of any time period, the word
“from” means “from and including” and the word “to” means “to and including” and
(f) any reference herein to Articles, Sections, Annexes, Exhibits and Schedules
shall be construed to refer to Articles and Sections of, and Annexes, Exhibits
and Schedules to, this Agreement. No provision of this Agreement or any other
Loan Document shall be interpreted or construed against any Person solely
because such Person or its legal representative drafted such provision.

Section 1.05 Accounting Terms and Determinations; GAAP. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all financial statements and certificates and reports as to financial matters
required to be furnished to the Administrative Agent or the Lenders hereunder
shall be prepared, in accordance with GAAP, applied on a basis consistent with
the Financial Statements except for changes in which Borrower’s independent
certified public accountants concur and which are disclosed to Administrative
Agent on the next date on which financial statements are required to be
delivered to the Lenders pursuant to Section 8.01(a); provided that, unless the
Borrower and the Majority Lenders shall otherwise agree in writing, no such
change shall modify or affect the manner in which compliance with the covenants
contained herein is computed such that all such computations shall be conducted
utilizing financial information presented consistently with prior periods.

ARTICLE II

THE CREDITS

Section 2.01 Commitments. Subject to the terms and conditions set forth herein,
each Lender agrees to make Loans to the Borrower during the Availability Period
in an aggregate principal amount that will not result in (a) such Lender’s
Revolving Credit Exposure exceeding such Lender’s Commitment or (b) the total
Revolving Credit Exposures exceeding the total Commitments. Within the foregoing
limits and subject to the terms and conditions set forth herein, the Borrower
may borrow, repay and reborrow the Loans.

Section 2.02 Loans and Borrowings.

(a) Borrowings; Several Obligations. Each Loan shall be made as part of a
Borrowing consisting of Loans made by the Lenders ratably in accordance with
their respective Commitments. The failure of any Lender to make any Loan
required to be made by it shall not relieve any other Lender of its obligations
hereunder; provided that the Commitments are several and no Lender shall be
responsible for any other Lender’s failure to make Loans as required.

 

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(b) Types of Loans. Subject to Section 3.03, each Borrowing shall be comprised
entirely of ABR Loans or Eurodollar Loans as the Borrower may request in
accordance herewith. Each Lender at its option may make any Eurodollar Loan by
causing any domestic or foreign branch or Affiliate of such Lender to make such
Loan; provided that any exercise of such option shall not affect the obligation
of the Borrower to repay such Loan in accordance with the terms of this
Agreement.

(c) Minimum Amounts; Limitation on Number of Borrowings. At the commencement of
each Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an
aggregate amount that is an integral multiple of $1,000,000. At the time that
each ABR Borrowing is made, such Borrowing shall be in an aggregate amount that
is an integral multiple of $500,000; provided that an ABR Borrowing may be in an
aggregate amount that is equal to the entire unused balance of the total
Commitments or that is required to finance the reimbursement of an LC
Disbursement as contemplated by Section 2.08(e). Borrowings of more than one
Type may be outstanding at the same time; provided that there shall not at any
time be more than a total of ten Eurodollar Borrowings outstanding.
Notwithstanding any other provision of this Agreement, the Borrower shall not be
entitled to request, or to elect to convert or continue, any Borrowing if the
Interest Period requested with respect thereto would end after the Maturity
Date.

(d) Notes. The Loans made by each Lender shall be evidenced by a single
promissory note of the Borrower in substantially the form of Exhibit A, dated,
in the case of (i) any Lender party hereto as of the date of this Agreement, as
of the date of this Agreement, or (ii) any Lender that becomes a party hereto
pursuant to an Assignment and Assumption, as of the effective date of the
Assignment and Assumption, payable to such Lender in a principal amount equal to
its Maximum Credit Amount as in effect on such date, and otherwise duly
completed. In the event that any Lender’s Maximum Credit Amount increases or
decreases for any reason (whether pursuant to Section 2.06, Section 12.04(b) or
otherwise), the Borrower shall deliver or cause to be delivered on the effective
date of such increase or decrease, a new Note payable to such Lender in a
principal amount equal to its Maximum Credit Amount after giving effect to such
increase or decrease, and otherwise duly completed. The date, amount, Type,
interest rate and, if applicable, Interest Period of each Loan made by each
Lender, and all payments made on account of the principal thereof, shall be
recorded by such Lender on its books for its Note, and, prior to any transfer,
may be endorsed by such Lender on a schedule attached to such Note or any
continuation thereof or on any separate record maintained by such Lender.
Failure to make any such notation or to attach a schedule shall not affect any
Lender’s or the Borrower’s rights or obligations in respect of such Loans or
affect the validity of such transfer by any Lender of its Note.

Section 2.03 Requests for Borrowings. To request a Borrowing, the Borrower shall
notify the Administrative Agent of such request by telephone (or electronic
communication approved by the Administrative Agent) in the case of a Eurodollar
Borrowing, not later than 12:00 noon, New York City time, three Business Days
before the date of the proposed Borrowing or in the case of an ABR Borrowing,
not later than 11:00 a.m., New York City time, on the date of the proposed
Borrowing; provided that no such notice shall be required for any deemed request
of an ABR Borrowing to finance the reimbursement of an LC Disbursement as
provided in Section 2.08(e). Each such telephonic (or electronic communication)
Borrowing

 

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Request shall be irrevocable and shall be confirmed promptly by hand delivery or
telecopy to the Administrative Agent of a written Borrowing Request in
substantially the form of Exhibit B and signed by the Borrower. Each such
telephonic (or electronic communication) and written Borrowing Request shall
specify the following information in compliance with Section 2.02:

(i) the aggregate amount of the requested Borrowing;

(ii) the date of such Borrowing, which shall be a Business Day;

(iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar
Borrowing;

(iv) in the case of a Eurodollar Borrowing, the initial Interest Period to be
applicable thereto, which shall be a period contemplated by the definition of
the term “Interest Period”;

(v) the amount of the then effective Borrowing Base, the current total Revolving
Credit Exposures (without regard to the requested Borrowing) and the pro forma
total Revolving Credit Exposures (giving effect to the requested Borrowing); and

(vi) the location and number of the Borrower’s account to which funds are to be
disbursed, which shall comply with the requirements of Section 2.05.

If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be an ABR Borrowing. If no Interest Period is specified with
respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed
to have selected an Interest Period of one month’s duration. Each Borrowing
Request shall constitute a representation that the amount of the requested
Borrowing shall not cause the total Revolving Credit Exposures to exceed the
total Commitments (i.e., the lesser of the Aggregate Maximum Credit Amounts and
the then effective Borrowing Base).

Promptly following receipt of a Borrowing Request in accordance with this
Section 2.03, the Administrative Agent shall advise each Lender of the details
thereof and of the amount of such Lender’s Loan to be made as part of the
requested Borrowing.

Section 2.04 Interest Elections.

(a) Conversion and Continuance. Each Borrowing initially shall be of the Type
specified in the applicable Borrowing Request and, in the case of a Eurodollar
Borrowing, shall have an initial Interest Period as specified in such Borrowing
Request. Thereafter, the Borrower may elect to convert such Borrowing to a
different Type or to continue such Borrowing and, in the case of a Eurodollar
Borrowing, may elect Interest Periods therefor, all as provided in this
Section 2.04. The Borrower may elect different options with respect to different
portions of the affected Borrowing, in which case each such portion shall be
allocated ratably among the Lenders holding the Loans comprising such Borrowing,
and the Loans comprising each such portion shall be considered a separate
Borrowing.

 

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(b) Interest Election Requests. To make an election pursuant to this
Section 2.04, the Borrower shall notify the Administrative Agent of such
election by telephone (or by electronic communication approved by the
Administrative Agent) by the time that a Borrowing Request would be required
under Section 2.03 if the Borrower were requesting a Borrowing of the Type
resulting from such election to be made on the effective date of such election.
Each such telephonic (or electronic communication) Interest Election Request
shall be irrevocable and shall be confirmed promptly by hand delivery or
telecopy to the Administrative Agent of a written Interest Election Request in
substantially the form of Exhibit C and signed by the Borrower.

(c) Information in Interest Election Requests. Each telephonic (or electronic
communication) and written Interest Election Request shall specify the following
information in compliance with Section 2.02:

(i) the Borrowing to which such Interest Election Request applies and, if
different options are being elected with respect to different portions thereof,
the portions thereof to be allocated to each resulting Borrowing (in which case
the information to be specified pursuant to Section 2.04(c)(iii) and (iv) shall
be specified for each resulting Borrowing);

(ii) the effective date of the election made pursuant to such Interest Election
Request, which shall be a Business Day;

(iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar
Borrowing; and

(iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period
to be applicable thereto after giving effect to such election, which shall be a
period contemplated by the definition of the term “Interest Period.”

If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month’s duration.

(d) Notice to Lenders by the Administrative Agent. Promptly following receipt of
an Interest Election Request, the Administrative Agent shall advise each Lender
of the details thereof and of such Lender’s portion of each resulting Borrowing.

(e) Effect of Failure to Deliver Timely Interest Election Request and Events of
Default and Borrowing Base Deficiencies on Interest Election. If the Borrower
fails to deliver a timely Interest Election Request with respect to a Eurodollar
Borrowing prior to the end of the Interest Period applicable thereto, then,
unless such Borrowing is repaid as provided herein, at the end of such Interest
Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding
any contrary provision hereof, if an Event of Default or a Borrowing Base
Deficiency has occurred and is continuing: (i) no outstanding Borrowing may be
converted to or continued as a Eurodollar Borrowing (and any Interest Election
Request that requests the conversion of any Borrowing to, or continuation of any
Borrowing as, a Eurodollar Borrowing shall be ineffective) and (ii) unless
repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the
end of the Interest Period applicable thereto.

 

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Section 2.05 Funding of Borrowings.

(a) Funding by Lenders. Each Lender shall make each Loan to be made by it
hereunder on the proposed date thereof by wire transfer of immediately available
funds by 1:00 p.m., New York City time, to the account of the Administrative
Agent most recently designated by it for such purpose by notice to the Lenders.
The Administrative Agent will make such Loans available to the Borrower by
promptly crediting the amounts so received, in like funds, to an account of the
Borrower maintained with the Administrative Agent and designated by the Borrower
in the applicable Borrowing Request; provided that ABR Loans made to finance the
reimbursement of an LC Disbursement as provided in Section 2.08(e) shall be
remitted by the Administrative Agent to the Issuing Bank. Nothing herein shall
be deemed to obligate any Lender to obtain the funds for its Loan in any
particular place or manner or to constitute a representation by any Lender that
it has obtained or will obtain the funds for its Loan in any particular place or
manner.

(b) Presumption of Funding by the Lenders. Unless the Administrative Agent shall
have received notice from a Lender prior to the proposed date of any Borrowing
that such Lender will not make available to the Administrative Agent such
Lender’s share of such Borrowing, the Administrative Agent may assume that such
Lender has made such share available on such date in accordance with
Section 2.05(a) and may, in reliance upon such assumption, make available to the
Borrower a corresponding amount. In such event, if a Lender has not in fact made
its share of the applicable Borrowing available to the Administrative Agent,
then the applicable Lender and the Borrower severally agree to pay to the
Administrative Agent forthwith on demand such corresponding amount with interest
thereon, for each day from and including the date such amount is made available
to the Borrower to but excluding the date of payment to the Administrative
Agent, at (i) in the case of such Lender, the greater of the Federal Funds
Effective Rate and a rate determined by the Administrative Agent in accordance
with banking industry rules on interbank compensation or (ii) in the case of the
Borrower, the interest rate applicable to ABR Loans. If such Lender pays such
amount to the Administrative Agent, then such amount shall constitute such
Lender’s Loan included in such Borrowing.

Section 2.06 Termination and Reduction of Aggregate Maximum Credit Amounts.

(a) Scheduled Termination of Commitments. Unless previously terminated, the
Commitments shall terminate on the Maturity Date. If at any time the Aggregate
Maximum Credit Amounts or the Borrowing Base is terminated or reduced to zero,
then the Commitments shall terminate on the effective date of such termination
or reduction.

(b) Optional Termination and Reduction of Aggregate Credit Amounts.

(i) The Borrower may at any time terminate, or from time to time reduce, the
Aggregate Maximum Credit Amounts; provided that (A) each reduction of the
Aggregate Maximum Credit Amounts shall be in an amount that is an integral
multiple of $1,000,000 and not less than $5,000,000 and (B) the Borrower shall
not terminate or reduce the Aggregate Maximum Credit Amounts if (1) after giving
effect to any concurrent prepayment of the Loans in accordance with
Section 3.04(c), the total Revolving Credit Exposures would exceed the total
Commitments or (2) the Aggregate Maximum Credit Amounts would be less than
$10,000,000 (unless with respect to this clause (2), the Aggregate Credit
Amounts are reduced to $0).

 

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(ii) The Borrower shall notify the Administrative Agent of any election to
terminate or reduce the Aggregate Maximum Credit Amounts under
Section 2.06(b)(i) at least three Business Days prior to the effective date of
such termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any notice, the Administrative Agent
shall advise the Lenders of the contents thereof. Each notice delivered by the
Borrower pursuant to this Section 2.06(b)(ii) shall be irrevocable; provided
that a notice of termination of the Aggregate Maximum Credit Amounts delivered
by the Borrower may state that such notice is conditioned upon the effectiveness
of other credit facilities or other agreements, in which case such notice may be
revoked by the Borrower (by notice to the Administrative Agent on or prior to
the specified effective date) if such condition is not satisfied. Any
termination or reduction of the Aggregate Maximum Credit Amounts shall be
permanent and may not be reinstated. Each reduction of the Aggregate Maximum
Credit Amounts shall be made ratably among the Lenders in accordance with each
Lender’s Applicable Percentage.

Section 2.07 Borrowing Base.

(a) Initial Borrowing Base. For the period from and including the Effective Date
to but excluding the first Redetermination Date, the amount of the Borrowing
Base shall be $300,000,000. Notwithstanding the foregoing, the Borrowing Base
may be subject to further adjustments from time to time pursuant to
Section 2.07(e), Section 2.07(f), or Section 8.13(c).

(b) Scheduled and Interim Redeterminations. The Borrowing Base shall be
redetermined semi-annually in accordance with this Section 2.07 (a “Scheduled
Redetermination”), and, subject to Section 2.07(d), such redetermined Borrowing
Base shall become effective and applicable to the Borrower, the Agents, the
Issuing Bank and the Lenders on April 1st and October 1st of each year (or, in
each case, such date promptly thereafter as reasonably practicable), commencing
April 1, 2012. In addition, the Borrower may, by notifying the Administrative
Agent thereof, and the Administrative Agent may, at the direction of the
Required Lenders, by notifying the Borrower thereof, one time between each
Scheduled Redetermination, each elect to cause the Borrowing Base to be
redetermined between Scheduled Redeterminations (an “Interim Redetermination”)
in accordance with this Section 2.07.

(c) Scheduled and Interim Redetermination Procedure.

(i) Each Scheduled Redetermination and each Interim Redetermination shall be
effectuated as follows: Upon receipt by the Administrative Agent of (A) the
Reserve Report and the certificate required to be delivered by the Borrower to
the Administrative Agent, in the case of a Scheduled Redetermination, pursuant
to Section 8.12(a) and (c), and, in the case of an Interim Redetermination,
pursuant to Section 8.12(b) and (c), and (B) such other reports, data and
supplemental information, including, without limitation, the information
provided pursuant to Section 8.12(c), as may, from time to time, be reasonably
requested by the Majority Lenders (the Reserve Report, such certificate and such
other reports, data and supplemental information being the “Engineering
Reports”), the Administrative Agent

 

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shall evaluate the information contained in the Engineering Reports and shall,
in its sole discretion, propose a new Borrowing Base (the “Proposed Borrowing
Base”) based upon such information and such other information (including,
without limitation, the status of title information with respect to the Oil and
Gas Properties as described in the Engineering Reports and the existence of any
other Debt, the Loan Parties’ other assets, liabilities, fixed charges, cash
flow, business, properties, prospects, management and ownership, hedged and
unhedged exposure to price, price and production scenarios, interest rate and
operating cost changes) as the Administrative Agent deems appropriate in its
sole discretion and consistent with its normal and customary oil and gas lending
criteria as it exists at the particular time. In no event shall the Proposed
Borrowing Base exceed the Aggregate Maximum Credit Amounts;

(ii) The Administrative Agent shall notify the Borrower and the Lenders of the
Proposed Borrowing Base (the “Proposed Borrowing Base Notice”) after the
Administrative Agent has received complete Engineering Reports from the Borrower
and has had a reasonable opportunity to determine the Proposed Borrowing Base in
accordance with Section 2.07(c)(i); and

(iii) Any Proposed Borrowing Base that would increase the Borrowing Base then in
effect must be approved by all of the Lenders as provided in this
Section 2.07(c)(iii); and any Proposed Borrowing Base that would decrease or
maintain the Borrowing Base then in effect must be approved by the Required
Lenders as provided in this Section 2.07(c)(iii). Upon receipt of the Proposed
Borrowing Base Notice, each Lender shall have 15 days to agree with the Proposed
Borrowing Base or disagree with the Proposed Borrowing Base by proposing an
alternate Borrowing Base. If at the end of such 15-day period, all of the
Lenders, in the case of a Proposed Borrowing Base that would increase the
Borrowing Base then in effect, or the Required Lenders, in the case of a
Proposed Borrowing Base that would decrease or maintain the Borrowing Base then
in effect, have approved, as aforesaid, then the Proposed Borrowing Base shall
become the new Borrowing Base, effective on the date specified in
Section 2.07(d). If, however, at the end of such 15-day period, all of the
Lenders or the Required Lenders, as applicable, have not approved, as aforesaid,
then the Administrative Agent shall poll the Lenders to ascertain the highest
Borrowing Base then acceptable to (x) in the case of a decrease or
reaffirmation, a number of Lenders sufficient to constitute the Required Lenders
and (y) in the case of an increase, all of the Lenders, and such amount shall
become the new Borrowing Base, effective on the date specified in
Section 2.07(d).

(d) Effectiveness of a Redetermined Borrowing Base. After a redetermined
Borrowing Base is approved by all of the Lenders or the Required Lenders, as
applicable, pursuant to Section 2.07(c)(iii), the Administrative Agent shall
notify the Borrower and the Lenders of the amount of the redetermined Borrowing
Base (the “New Borrowing Base Notice”), and such amount shall become the new
Borrowing Base, effective and applicable to the Borrower, the Administrative
Agent, the Issuing Bank and the Lenders:

(i) in the case of a Scheduled Redetermination, (A) if the Administrative Agent
shall have received the Engineering Reports required to be delivered by the
Borrower pursuant to Section 8.12(a) and (c) in a timely and complete manner,
then on or about the April 1st or October 1st (or, in each case, such date
promptly thereafter as reasonably practicable), as applicable, following such
notice, or (B) if the Administrative Agent shall not

 

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have received the Engineering Reports required to be delivered by the Borrower
pursuant to Section 8.12(a) and (c) in a timely and complete manner, then on the
Business Day next succeeding delivery of such notice; and

(ii) in the case of an Interim Redetermination, on the Business Day next
succeeding delivery of such notice.

Such amount shall then become the Borrowing Base until the next Scheduled
Redetermination Date, the next Interim Redetermination Date or the next
adjustment to the Borrowing Base under Section 2.07(e), Section 2.07(f), or
Section 8.13(c), whichever occurs first. Notwithstanding the foregoing, no
Scheduled Redetermination or Interim Redetermination shall become effective
until the New Borrowing Base Notice related thereto is received by the Borrower.

(e) Automatic Reduction of Borrowing Base – Issuance of Permitted Senior
Unsecured Notes. In addition to other automatic reductions of the Borrowing Base
set forth herein, upon any issuance of Permitted Senior Unsecured Notes (other
than Permitted Senior Unsecured Notes that refinance or replace then existing
Permitted Senior Unsecured Notes, up to the principal amount of such then
existing Permitted Senior Unsecured Notes), the Borrowing Base shall
automatically be decreased an amount equal to 25% of the notional amount of
Permitted Senior Unsecured Notes issued at such time. Such decrease in the
Borrowing Base shall occur without any vote of Lenders or action by
Administrative Agent. Upon any such redetermination, the Administrative Agent
shall promptly deliver a New Borrowing Base Notice to the Borrower and the
Lenders.

(f) Automatic Reduction of the Borrowing Base – Asset Dispositions or Swap
Liquidations. In addition to the other automatic reductions of the Borrowing
Base set forth herein, if at any time the aggregate Borrowing Base Value of Oil
and Gas Properties sold or disposed of pursuant to Section 9.12(d), together
with the Swap Agreements in respect of commodities Liquidated, in any period
between redeterminations of the Borrowing Base, exceeds ten percent (10%) of the
Borrowing Base as of the last redetermination, then the Borrowing Base shall be
automatically reduced, effective immediately upon such sale, disposition or Swap
Liquidation by an amount equal to the Borrowing Base Value of such Properties
sold or disposed of and Swap Agreements in respect of commodities Liquidated and
such new Borrowing Base shall be effective and applicable to the Borrower, the
Administrative Agent, the Issuing Banks and the Lenders until the next
redetermination or modification of the Borrowing Base pursuant to this
Agreement; provided that for purposes of this Section 2.07(f), a Swap Agreement
shall not be deemed to have been Liquidated if, (x) such Swap Agreement is
novated from the existing counterparty to an Approved Counterparty, with the
Borrower or the applicable Loan Party being the “remaining party” for purposes
of such novation, or (y) upon its termination, it is replaced, in a
substantially contemporaneous transaction, with one or more Swap Agreements with
approximately the same mark-to-market value and without cash payments to any
Loan Party in connection therewith. Such decrease in the Borrowing Base shall
occur without any vote of Lenders or action by Administrative Agent. Upon any
such redetermination, the Administrative Agent shall promptly deliver a New
Borrowing Base Notice to the Borrower and the Lenders.

 

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Section 2.08 Letters of Credit.

(a) General. Subject to the terms and conditions set forth herein, the Borrower
may request the issuance of dollar denominated Letters of Credit for its own
account or for the account of any of its Subsidiaries, in a form reasonably
acceptable to the Administrative Agent and the Issuing Bank, at any time and
from time to time during the Availability Period; provided that the Borrower may
not request the issuance, amendment, renewal or extension of Letters of Credit
hereunder if a Borrowing Base Deficiency exists at such time or would exist as a
result thereof. In the event of any inconsistency between the terms and
conditions of this Agreement and the terms and conditions of any form of letter
of credit application or other agreement submitted by the Borrower to, or
entered into by the Borrower with, the Issuing Bank relating to any Letter of
Credit, the terms and conditions of this Agreement shall control.

(b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. The
Existing Letters of Credit shall be deemed to have been issued hereunder as of
the Effective Date. To request the issuance of a Letter of Credit (or the
amendment, renewal or extension of an outstanding Letter of Credit), the
Borrower shall hand deliver or telecopy (or transmit by electronic
communication, if arrangements for doing so have been approved by the Issuing
Bank) to the Issuing Bank and the Administrative Agent (not less than five
Business Days in advance of the requested date of issuance, amendment, renewal
or extension) a notice:

(i) requesting the issuance of a Letter of Credit or identifying the Letter of
Credit to be amended, renewed or extended;

(ii) specifying the date of issuance, amendment, renewal or extension (which
shall be a Business Day);

(iii) specifying the date on which such Letter of Credit is to expire (which
shall comply with Section 2.08(c));

(iv) specifying the amount of such Letter of Credit;

(v) specifying the name and address of the beneficiary thereof and such other
information as shall be necessary to prepare, amend, renew or extend such Letter
of Credit; and

(vi) specifying the amount of the then effective Borrowing Base and whether a
Borrowing Base Deficiency exists at such time, the current total Revolving
Credit Exposures (without regard to the requested Letter of Credit or the
requested amendment, renewal or extension of an outstanding Letter of Credit)
and the pro forma total Revolving Credit Exposures (giving effect to the
requested Letter of Credit or the requested amendment, renewal or extension of
an outstanding Letter of Credit).

Each notice shall constitute a representation by the Borrower that after giving
effect to the requested issuance, amendment, renewal or extension, as
applicable, (x) the LC Exposure shall not exceed the LC Commitment and (y) the
total Revolving Credit Exposures shall not exceed the total Commitments (i.e.
the lesser of the Aggregate Maximum Credit Amounts and the then

 

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effective Borrowing Base). No letter of credit issued by the Issuing Bank (if
the Issuing Bank is not the Administrative Agent) shall be deemed to be a
“Letter of Credit” issued under this Agreement unless the Issuing Bank has
requested and received written confirmation from the Administrative Agent that
the representations by Borrower contained in the foregoing clauses (x) and
(y) are true and correct.

If requested by the Issuing Bank, the Borrower also shall submit a letter of
credit application on the Issuing Bank’s standard form in connection with any
request for a Letter of Credit; provided that, in the event of any conflict
between such application and the terms of the Loan Documents, the terms of the
Loan Documents shall control.

(c) Expiration Date. Each Letter of Credit shall expire at or prior to the close
of business on the earlier of (i) the date one year after the date of the
issuance of such Letter of Credit (or, in the case of any renewal, which renewal
may be provided for in the initial Letter of Credit, or extension thereof, one
year after such renewal or extension) and (ii) the date that is five Business
Days prior to the Maturity Date.

(d) Participations. By the issuance of a Letter of Credit (or an amendment to a
Letter of Credit increasing the amount thereof) and without any further action
on the part of the Issuing Bank or the Lenders, the Issuing Bank hereby grants
to each Lender, and each Lender hereby acquires from the Issuing Bank, a
participation in such Letter of Credit equal to such Lender’s Applicable
Percentage of the aggregate amount available to be drawn under such Letter of
Credit. In consideration and in furtherance of the foregoing, each Lender hereby
absolutely and unconditionally agrees to pay to the Administrative Agent, for
the account of the Issuing Bank, such Lender’s Applicable Percentage of each LC
Disbursement made by the Issuing Bank and not reimbursed by the Borrower on the
date due as provided in Section 2.08(e), or of any reimbursement payment
required to be refunded to the Borrower for any reason. Each Lender acknowledges
and agrees that its obligation to acquire participations pursuant to this
Section 2.08(d) in respect of Letters of Credit is absolute and unconditional
and shall not be affected by any circumstance whatsoever, including any
amendment, renewal or extension of any Letter of Credit or the occurrence and
continuance of a Default, the existence of a Borrowing Base Deficiency or
reduction or termination of the Commitments, and that each such payment shall be
made without any offset, abatement, withholding or reduction whatsoever.

(e) Reimbursement. If the Issuing Bank shall make any LC Disbursement in respect
of a Letter of Credit, the Borrower shall reimburse such LC Disbursement by
paying to the Administrative Agent an amount equal to such LC Disbursement not
later than 12:00 noon, New York City time, (i) on the date that such LC
Disbursement is made, if the Borrower shall have received notice of such LC
Disbursement prior to 10:00 a.m., New York City time, on such date, or (ii) the
Business Day immediately following the day that the Borrower receives such
notice, if such notice is not received prior to such time on the day of receipt;
provided that the Borrower shall, subject to the conditions to Borrowing set
forth herein, be deemed to have requested, and the Borrower does hereby request
under such circumstances, that such payment be financed with an ABR Borrowing in
an equivalent amount and, to the extent so financed, the Borrower’s obligation
to make such payment shall be discharged and replaced by the resulting ABR
Borrowing. If the Borrower fails to make such payment when due, the
Administrative Agent shall notify each Lender of the applicable LC Disbursement,
the payment then due from

 

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the Borrower in respect thereof and such Lender’s Applicable Percentage thereof.
Promptly following receipt of such notice, each Lender shall pay to the
Administrative Agent its Applicable Percentage of the payment then due from the
Borrower, in the same manner as provided in Section 2.05 with respect to Loans
made by such Lender (and Section 2.05 shall apply, mutatis mutandis, to the
payment obligations of the Lenders), and the Administrative Agent shall promptly
pay to the Issuing Bank the amounts so received by it from the Lenders. Promptly
following receipt by the Administrative Agent of any payment from the Borrower
pursuant to this Section 2.08(e), the Administrative Agent shall distribute such
payment to the Issuing Bank or, to the extent that Lenders have made payments
pursuant to this Section 2.08(e) to reimburse the Issuing Bank, then to such
Lenders and the Issuing Bank as their interests may appear. Any payment made by
a Lender pursuant to this Section 2.08(e) to reimburse the Issuing Bank for any
LC Disbursement (other than the funding of ABR Loans as contemplated above)
shall not constitute a Loan and shall not relieve the Borrower of its obligation
to reimburse such LC Disbursement.

(f) Obligations Absolute. The Borrower’s obligation to reimburse LC
Disbursements as provided in Section 2.08(e) shall be absolute, unconditional
and irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement under any and all circumstances whatsoever and irrespective of
(i) any lack of validity or enforceability of any Letter of Credit, any Letter
of Credit Agreement or this Agreement, or any term or provision therein,
(ii) any draft or other document presented under a Letter of Credit proving to
be forged, fraudulent or invalid in any respect or any statement therein being
untrue or inaccurate in any respect, (iii) payment by the Issuing Bank under a
Letter of Credit against presentation of a draft or other document that does not
comply with the terms of such Letter of Credit or any Letter of Credit
Agreement, or (iv) any other event or circumstance whatsoever, whether or not
similar to any of the foregoing, that might, but for the provisions of this
Section 2.08(f), constitute a legal or equitable discharge of, or provide a
right of setoff against, the Borrower’s obligations hereunder. Neither the
Administrative Agent, the Lenders nor the Issuing Bank, nor any of their Related
Parties shall have any liability or responsibility by reason of or in connection
with the issuance or transfer of any Letter of Credit or any payment or failure
to make any payment thereunder (irrespective of any of the circumstances
referred to in the preceding sentence), or any error, omission, interruption,
loss or delay in transmission or delivery of any draft, notice or other
communication under or relating to any Letter of Credit (including any document
required to make a drawing thereunder), any error in interpretation of technical
terms or any consequence arising from causes beyond the control of the Issuing
Bank; provided that the foregoing shall not be construed to excuse the Issuing
Bank from liability to the Borrower to the extent of any direct damages (as
opposed to consequential damages, claims in respect of which are hereby waived
by the Borrower to the extent permitted by applicable law) suffered by the
Borrower that are caused by the Issuing Bank’s failure to exercise care when
determining whether drafts and other documents presented under a Letter of
Credit comply with the terms thereof. The parties hereto expressly agree that,
in the absence of gross negligence or willful misconduct on the part of the
Issuing Bank (as finally determined by a court of competent jurisdiction), the
Issuing Bank shall be deemed to have exercised all requisite care in each such
determination. In furtherance of the foregoing and without limiting the
generality thereof, the parties agree that, with respect to documents presented
which appear on their face to be in substantial compliance with the terms of a
Letter of Credit, the Issuing Bank may, in its sole discretion, either accept
and make payment upon such documents without responsibility for further
investigation, regardless of any notice or information to the contrary, or
refuse to accept and make payment upon such documents if such documents are not
in strict compliance with the terms of such Letter of Credit.

 

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(g) Disbursement Procedures. The Issuing Bank shall, promptly following its
receipt thereof, examine all documents purporting to represent a demand for
payment under a Letter of Credit. The Issuing Bank shall promptly notify the
Administrative Agent and the Borrower by telephone (confirmed by telecopy) of
such demand for payment and whether the Issuing Bank has made or will make an LC
Disbursement thereunder; provided that any failure to give or delay in giving
such notice shall not relieve the Borrower of its obligation to reimburse the
Issuing Bank and the Lenders with respect to any such LC Disbursement.

(h) Interim Interest. If the Issuing Bank shall make any LC Disbursement, then,
until the Borrower shall have reimbursed the Issuing Bank for such LC
Disbursement (either with its own funds or a Borrowing under Section 2.08(e)),
the unpaid amount thereof shall bear interest, for each day from and including
the date such LC Disbursement is made to but excluding the date that the
Borrower reimburses such LC Disbursement, at the rate per annum then applicable
to ABR Loans. Interest accrued pursuant to this Section 2.08(h) shall be for the
account of the Issuing Bank, except that interest accrued on and after the date
of payment by any Lender pursuant to Section 2.08(e) to reimburse the Issuing
Bank shall be for the account of such Lender to the extent of such payment.

(i) Replacement of the Issuing Bank. The Issuing Bank may be replaced at any
time by written agreement among the Borrower, the Administrative Agent, the
replaced Issuing Bank and the successor Issuing Bank. The Administrative Agent
shall notify the Lenders of any such replacement of the Issuing Bank. At the
time any such replacement shall become effective, the Borrower shall pay all
unpaid fees accrued for the account of the replaced Issuing Bank pursuant to
Section 3.05(b). From and after the effective date of any such replacement,
(i) the successor Issuing Bank shall have all the rights and obligations of the
Issuing Bank under this Agreement with respect to Letters of Credit to be issued
thereafter and (ii) references herein to the term “Issuing Bank” shall be deemed
to refer to such successor or to any previous Issuing Bank, or to such successor
and all previous Issuing Banks, as the context shall require. After the
replacement of the Issuing Bank hereunder, the replaced Issuing Bank shall
remain a party hereto and shall continue to have all the rights and obligations
of the Issuing Bank under this Agreement with respect to Letters of Credit
issued by it prior to such replacement, but shall not be required to issue
additional Letters of Credit.

(j) Cash Collateralization. If (i) any Event of Default shall occur and be
continuing and the Borrower receives notice from the Administrative Agent or the
Majority Lenders demanding the deposit of cash collateral pursuant to this
Section 2.08(j), or (ii) the Borrower is required to pay to the Administrative
Agent the excess attributable to an LC Exposure in connection with any
prepayment pursuant to Section 3.04(c), then the Borrower shall deposit, in an
account with the Administrative Agent, in the name of the Administrative Agent
and for the benefit of the Lenders, an amount in cash equal to, in the case of
an Event of Default, the LC Exposure, and in the case of a payment required by
Section 3.04(c), the amount of such excess as provided in Section 3.04(c), as of
such date plus any accrued and unpaid interest thereon; provided that the
obligation to deposit such cash collateral shall become effective immediately,
and such deposit shall become immediately due and payable, without

 

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demand or other notice of any kind, upon the occurrence of any Event of Default
with respect to the Borrower or any Loan Party described in Section 10.01(h) or
Section 10.01(i). The Borrower hereby grants to the Administrative Agent, for
the benefit of the Issuing Bank and the Lenders, an exclusive first priority and
continuing perfected security interest in and Lien on such account and all cash,
checks, drafts, certificates and instruments, if any, from time to time
deposited or held in such account, all deposits or wire transfers made thereto,
any and all investments purchased with funds deposited in such account, all
interest, dividends, cash, instruments, financial assets and other Property from
time to time received, receivable or otherwise payable in respect of, or in
exchange for, any or all of the foregoing, and all proceeds, products,
accessions, rents, profits, income and benefits therefrom, and any substitutions
and replacements therefor. The Borrower’s obligation to deposit amounts pursuant
to this Section 2.08(j) shall be absolute and unconditional, without regard to
whether any beneficiary of any such Letter of Credit has attempted to draw down
all or a portion of such amount under the terms of a Letter of Credit, and, to
the fullest extent permitted by applicable law, shall not be subject to any
defense or be affected by a right of set-off, counterclaim or recoupment which
the Borrower or any of its Subsidiaries may now or hereafter have against any
such beneficiary, the Issuing Bank, the Administrative Agent, the Lenders or any
other Person for any reason whatsoever. Such deposit shall be held as collateral
securing the payment and performance of the Borrower’s and the Guarantor’s
obligations under this Agreement and the other Loan Documents. The
Administrative Agent shall have exclusive dominion and control, including the
exclusive right of withdrawal, over such account. Other than any interest earned
on the investment of such deposits, which investments shall be made at the
option and reasonable discretion of the Administrative Agent and at the
Borrower’s risk and expense, such deposits shall not bear interest. Interest or
profits, if any, on such investments shall accumulate in such account. Moneys in
such account shall be applied by the Administrative Agent to reimburse the
Issuing Bank for LC Disbursements for which it has not been reimbursed and, to
the extent not so applied, shall be held for the satisfaction of the
reimbursement obligations of the Borrower for the LC Exposure at such time or,
if the maturity of the Loans has been accelerated, be applied to satisfy other
obligations of the Borrower and the Guarantors under this Agreement or the other
Loan Documents. If the Borrower is required to provide an amount of cash
collateral hereunder as a result of the occurrence of an Event of Default, and
the Borrower is not otherwise required to pay to the Administrative Agent the
excess attributable to an LC Exposure in connection with any prepayment pursuant
to Section 3.04(c), then such amount (to the extent not applied as aforesaid)
shall be returned to the Borrower within three Business Days after all Events of
Default have been cured or waived. If the Borrower is required to pay to the
Administrative Agent as cash collateral the excess attributable to an LC
Exposure in connection with any prepayment pursuant to Section 3.04(c), then
upon the expiration or termination of any Letter of Credit, so long as no Event
of Default is then continuing, and so long as the Borrower does not have any
obligation at such time to deposit cash collateral pursuant to Section 2.09, the
Administrative Agent shall return to the Borrower, within three Business Days
after such expiration or termination, all or such portion of any such cash
collateral (to the extent not previously applied as aforesaid) as exceeds the
excess, if any, of the total of the then existing Revolving Credit Exposures
over the total Commitments then in effect.

Section 2.09 Defaulting Lenders. Notwithstanding any provision of this Agreement
to the contrary, if any Lender becomes a Defaulting Lender, and any LC Exposure
exists at the time a Lender becomes a Defaulting Lender, then:

 

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(a) all or any part of such LC Exposure shall be reallocated among the
non-Defaulting Lenders in accordance with their respective Applicable
Percentages but only to the extent (x) the sum of all non-Defaulting Lenders’
Revolving Credit Exposures does not exceed the total of all non-Defaulting
Lenders’ Commitments and (y) the conditions set forth in Section 6.02 are
satisfied at such time;

(b) if the reallocation described in clause (a) above cannot, or can only
partially, be effected, the Borrower shall within one Business Day following
notice by the Administrative Agent, cash collateralize such Defaulting Lender’s
LC Exposure (after giving effect to any partial reallocation pursuant to
clause (a) above) in accordance with the procedures set forth in Section 2.08(j)
for so long as such LC Exposure is outstanding;

(c) if the Borrower cash collateralizes any portion of such Defaulting Lender’s
LC Exposure pursuant to this Section 2.09, the Borrower shall not be required to
pay any fees to such Defaulting Lender pursuant to Section 3.05(b) with respect
to such Defaulting Lender’s LC Exposure during the period such Defaulting
Lender’s LC Exposure is cash collateralized;

(d) if the LC Exposure of the non-Defaulting Lenders is reallocated pursuant to
this Section 2.09, then the fees payable to the Lenders pursuant to
Section 3.05(a) and Section 3.05(b) shall be adjusted in accordance with such
non-Defaulting Lenders’ Applicable Percentages; or

(e) if any Defaulting Lender’s LC Exposure is neither cash collateralized nor
reallocated pursuant to this Section 2.09, then, without prejudice to any rights
or remedies of the Issuing Bank or any Lender hereunder, all commitment fees
that otherwise would have been payable to such Defaulting Lender (solely with
respect to the portion of such Defaulting Lender’s Commitment that was utilized
by such LC Exposure) under Section 3.05(a) and letter of credit fees payable
under Section 3.05(b) with respect to such Defaulting Lender’s LC Exposure shall
be payable to the Issuing Bank until such LC Exposure is cash collateralized
and/or reallocated.

Notwithstanding any provision of this Agreement to the contrary, so long as any
Lender is a Defaulting Lender, the Issuing Bank shall not be required to issue,
amend or increase any Letter of Credit, unless it is satisfied that the related
exposure will be 100% covered by the Commitments of the non-Defaulting Lenders
and/or cash collateral will be provided by the Borrower in accordance with
Section 2.08(j), and participating interests in any such newly issued or
increased Letter of Credit shall be allocated among non-Defaulting Lenders in a
manner consistent with Section 2.09(a) (and any Defaulting Lender shall not
participate therein). Nothing in this Section 2.09 shall relieve any Defaulting
Lender from any liability it may have to the Administrative Agent, any Loan
Party, any non-Defaulting Lender, any Issuing Bank or any other Agent in
connection with any obligation any such Defaulting Lender has under this
Agreement.

 

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ARTICLE III

PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES

Section 3.01 Repayment of Loans. The Borrower hereby unconditionally promises to
pay to the Administrative Agent for the account of each Lender the then unpaid
principal amount of each Loan on the Termination Date.

Section 3.02 Interest.

(a) ABR Loans. The Loans comprising each ABR Borrowing shall bear interest at
the Alternate Base Rate plus the Applicable Margin, but in no event to exceed
the Highest Lawful Rate.

(b) Eurodollar Loans. The Loans comprising each Eurodollar Borrowing shall bear
interest at the Adjusted LIBO Rate for the Interest Period in effect for such
Borrowing plus the Applicable Margin, but in no event to exceed the Highest
Lawful Rate.

(c) Post-Default Rate and Borrowing Base Deficiency Rate. Notwithstanding the
foregoing, if an Event of Default has occurred and is continuing, or if any
principal of or interest on any Loan, including payments due resulting from
Borrowing Base Deficiencies or any fee or other amount payable by the Borrower
or any Guarantor hereunder or under any other Loan Document is not paid when
due, whether at stated maturity, upon acceleration or otherwise, and including
any payments in respect of a Borrowing Base Deficiency under Section 3.04(c),
then, all Loans outstanding, in the case of an Event of Default, and such
overdue amount, in the case of a failure to pay amounts when due, shall bear
interest, after as well as before judgment, at a rate per annum equal to two
percent (2%) plus the rate applicable to ABR Loans as provided in
Section 3.02(a), but in no event to exceed the Highest Lawful Rate.

(d) Interest Payment Dates. Accrued interest on each Loan shall be payable in
arrears on each Interest Payment Date for such Loan and on the Termination Date;
provided that (i) interest accrued pursuant to Section 3.02(c) shall be payable
on demand, (ii) in the event of any repayment or prepayment of any Loan (other
than an optional prepayment of an ABR Loan prior to the Termination Date),
accrued interest on the principal amount repaid or prepaid shall be payable on
the date of such repayment or prepayment, and (iii) in the event of any
conversion of any Eurodollar Loan prior to the end of the current Interest
Period therefor, accrued interest on such Loan shall be payable on the effective
date of such conversion.

(e) Interest Rate Computations. All interest hereunder shall be computed on the
basis of a year of 360 days, unless such computation would exceed the Highest
Lawful Rate, in which case interest shall be computed on the basis of a year of
365 days (or 366 days in a leap year), except that interest computed by
reference to the Alternate Base Rate at times when the Alternate Base Rate is
based on the Prime Rate shall be computed on the basis of a year of 365 days (or
366 days in a leap year), and in each case shall be payable for the actual
number of days elapsed (including the first day but excluding the last day). The
applicable Alternate Base Rate, Adjusted LIBO Rate or LIBO Rate shall be
determined by the Administrative Agent, and such determination shall be
conclusive absent manifest error, and be binding upon the parties hereto.

 

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Section 3.03 Alternate Rate of Interest. If prior to the commencement of any
Interest Period for a Eurodollar Borrowing:

(a) the Administrative Agent determines (which determination shall be conclusive
absent manifest error) that adequate and reasonable means do not exist for
ascertaining the Adjusted LIBO Rate or the LIBO Rate for such Interest Period;
or

(b) the Administrative Agent is advised by the Majority Lenders that the
Adjusted LIBO Rate or LIBO Rate, as applicable, for such Interest Period will
not adequately and fairly reflect the cost to such Lenders of making or
maintaining their Loans included in such Borrowing for such Interest Period;

then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective,
and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such
Borrowing shall be made either as an ABR Borrowing or at an alternate rate of
interest determined by the Majority Lenders as their cost of funds.

Section 3.04 Prepayments.

(a) Optional Prepayments. The Borrower shall have the right at any time and from
time to time to prepay any Borrowing in whole or in part, subject to prior
notice in accordance with Section 3.04(b).

(b) Notice and Terms of Optional Prepayment. The Borrower shall notify the
Administrative Agent by telephone (confirmed by telecopy) of any prepayment
hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later
than 12:00 p.m., New York City time, three Business Days before the date of
prepayment, or (ii) in the case of prepayment of an ABR Borrowing, not later
than 12:00 p.m., New York City time, one Business Day before the date of
prepayment. Each such notice shall be irrevocable and shall specify the
prepayment date and the principal amount of each Borrowing or portion thereof to
be prepaid; provided that, if a notice of prepayment is given in connection with
a conditional notice of termination of the Commitments as contemplated by
Section 2.06(b), then such notice of prepayment may be revoked if such notice of
termination is revoked in accordance with Section 2.06(b). Promptly following
receipt of any such notice relating to a Borrowing, the Administrative Agent
shall advise the Lenders of the contents thereof. Each partial prepayment of any
Borrowing shall be in an amount that would be permitted in the case of an
advance of a Borrowing of the same Type as provided in Section 2.02. Each
prepayment of a Borrowing shall be applied ratably to the Loans included in the
prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the
extent required by Section 3.02.

(c) Mandatory Prepayments.

(i) If, after giving effect to any termination or reduction of the Aggregate
Maximum Credit Amounts pursuant to Section 2.06(b), the total Revolving Credit

 

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Exposures exceeds the total Commitments, then the Borrower shall (A) prepay the
Borrowings on the date of such termination or reduction in an aggregate
principal amount equal to such excess, and (B) if any excess remains after
prepaying all of the Borrowings as a result of an LC Exposure, pay to the
Administrative Agent on behalf of the Lenders an amount equal to such excess to
be held as cash collateral as provided in Section 2.08(j).

(ii) Upon any redetermination of the amount of the Borrowing Base in accordance
with Section 2.07 (other than Section 2.07(e) or Section 2.07(f)) or adjustment
to the amount of the Borrowing Base in accordance with Section 8.13(c), if a
Borrowing Base Deficiency exists, then the Borrower shall within 30 days
following receipt of the New Borrowing Base Notice in accordance with
Section 2.07(d) or the date the adjustment occurs, as applicable, provide
written notice (the “Election Notice”) to the Administrative Agent stating the
action which the Borrower proposes to remedy such Borrowing Base Deficiency, and
the Borrower shall thereafter, at its option, either (A) on the date of delivery
of the Election Notice, prepay the Borrowings in an aggregate principal amount
sufficient to eliminate such Borrowing Base Deficiency, (B) eliminate such
Borrowing Base Deficiency by making five consecutive mandatory prepayments of
principal on the Borrowings, each of which shall be in the amount of 1/5th of
the amount of such Borrowing Base Deficiency, with each such payment being due
on the date that is 30 days, 60 days, 90 days, 120 days and 150 days,
respectively, following the Borrower’s receipt of the New Borrowing Base Notice
in accordance with Section 2.07(d) or the date the adjustment occurs, as
applicable, (C) within 30 days following the delivery of the Election Notice,
submit (and pledge as Mortgaged Properties) additional Oil and Gas Properties
owned by the Loan Parties for consideration in connection with the determination
of the Borrowing Base which the Administrative Agent and the Lenders deem
sufficient in their sole discretion to eliminate such Borrowing Base Deficiency,
or (D) within 30 days following the delivery of the Election Notice, eliminate
such excess through a combination of prepayments and submission of additional
Oil and Gas Properties as set forth in subclauses (A) and (C) above. If any
Borrowing Base Deficiency remains after prepaying all of the Borrowings as a
result of LC Exposure, then the Borrower shall pay to the Administrative Agent
on behalf of the Lenders an amount equal to such remaining Borrowing Base
Deficiency to be held as cash collateral as provided in Section 2.08(j). The
Borrower shall be obligated to deposit such cash collateral amount within five
Business Days following its receipt of the New Borrowing Base Notice in
accordance with Section 2.07(d) or the date the adjustment occurs, as
applicable; provided that all payments required to be made pursuant to this
Section 3.04(c)(ii) must be made on or prior to the Termination Date.

(iii) Upon any adjustments to the Borrowing Base pursuant to Section 2.07(e) or
Section 2.07(f), if the total Revolving Credit Exposures exceeds the Borrowing
Base as adjusted, then the Borrower shall (A) prepay the Borrowings in an
aggregate principal amount equal to such excess, and (B) if any excess remains
after prepaying all of the Borrowings as a result of an LC Exposure, pay to the
Administrative Agent on behalf of the Lenders an amount equal to such excess to
be held as cash collateral as provided in Section 2.08(j). The Borrower shall be
obligated to make such prepayment and/or deposit of cash collateral on the date
it or any Subsidiary receives proceeds as a result of such issuance of Permitted
Senior Unsecured Notes or disposition; provided that all payments required to be
made pursuant to this Section 3.04(c)(iii) must be made on or prior to the
Termination Date.

 

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(iv) Each prepayment of Borrowings pursuant to this Section 3.04(c) shall be
applied, first, ratably to any ABR Borrowings then outstanding, and, second, to
any Eurodollar Borrowings then outstanding, and if more than one Eurodollar
Borrowing is then outstanding, to such Eurodollar Borrowing in such order as the
Borrower may direct.

(v) Each prepayment of Borrowings pursuant to this Section 3.04(c) shall be
applied ratably to the Loans included in the prepaid Borrowings. Prepayments
pursuant to this Section 3.04(c) shall be accompanied by accrued interest to the
extent required by Section 3.02.

(d) No Premium or Penalty. Prepayments permitted or required under this
Section 3.04 shall be without premium or penalty, except as required under
Section 5.02.

Section 3.05 Fees.

(a) Commitment Fees. The Borrower agrees to pay to the Administrative Agent for
the account of each Lender a commitment fee, which shall accrue at the
applicable Commitment Fee Rate on the average daily amount of the Unused
Commitment of such Lender during the period from and including the date of this
Agreement to but excluding the Termination Date. Accrued commitment fees shall
be payable in arrears on the last day of March, June, September and December of
each year and on the Termination Date, commencing on the first such date to
occur after the date hereof. All commitment fees shall be computed on the basis
of a year of 360 days, unless such computation would exceed the Highest Lawful
Rate, in which case interest shall be computed on the basis of a year of
365 days (or 366 days in a leap year), and shall be payable for the actual
number of days elapsed (including the first day but excluding the last day).

(b) Letter of Credit Fees. The Borrower agrees to pay (i) to the Administrative
Agent for the account of each Lender a participation fee with respect to its
participations in Letters of Credit, which shall accrue at the same Applicable
Margin used to determine the interest rate applicable to Eurodollar Loans on the
average daily amount of such Lender’s LC Exposure (excluding any portion thereof
attributable to unreimbursed LC Disbursements) during the period from and
including the date of this Agreement to but excluding the later of the date on
which such Lender’s Commitment terminates and the date on which such Lender
ceases to have any LC Exposure, (ii) to the Issuing Bank a fronting fee, which
shall accrue at the rate of 0.125% per annum on the average daily amount of the
LC Exposure (excluding any portion thereof attributable to unreimbursed LC
Disbursements) during the period from and including the date of this Agreement
to but excluding the later of the date of termination of the Commitments and the
date on which there ceases to be any LC Exposure, provided that in no event
shall such fee be less than $500 during any quarter, and (iii) to the Issuing
Bank, for its own account, its standard fees with respect to the issuance,
amendment, renewal or extension of any Letter of Credit or processing of
drawings thereunder. Participation fees and fronting fees accrued through and
including the last day of March, June, September and December of each year shall
be payable on the third Business Day following such last day, commencing on the
first such date to occur after the date of this Agreement; provided that all
such fees shall be payable on the Termination Date and any such fees accruing
after the Termination Date shall be payable on demand. Any other fees payable to
the Issuing Bank

 

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pursuant to this Section 3.05(b) shall be payable within 10 Business Days after
demand. All participation fees and fronting fees shall be computed on the basis
of a year of 360 days, unless such computation would cause interest hereunder to
exceed the Highest Lawful Rate, in which case such fees shall be computed on the
basis of a year of 365 days (or 366 days in a leap year), and shall be payable
for the actual number of days elapsed (including the first day but excluding the
last day).

(c) Administrative Agent Fees. The Borrower agrees to pay to the Administrative
Agent, for its own account, fees payable in the amounts and at the times
separately agreed upon between the Borrower and the Administrative Agent in the
Agency Fee Letter.

(d) Defaulting Lender Fees. The Borrower shall not be obligated to pay the
Administrative Agent any Defaulting Lender’s ratable share of the fees described
in Sections 3.05(a) and (b) for the period commencing on the day such Defaulting
Lender becomes a Defaulting Lender and continuing for so long as such Lender
continues to be a Defaulting Lender.

ARTICLE IV

PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS

Section 4.01 Payments Generally; Pro Rata Treatment; Sharing of Set-offs.

(a) Payments by the Borrower. The Borrower shall make each payment required to
be made by it hereunder (whether of principal, interest, fees or reimbursement
of LC Disbursements, or of amounts payable under Section 5.01, Section 5.02,
Section 5.03 or otherwise) prior to 12:00 p.m., New York City time, on the date
when due, in immediately available funds, without defense, deduction,
recoupment, set-off or counterclaim. Fees, once paid, shall be fully earned and
shall not be refundable under any circumstances. Any amounts received after such
time on any date may, in the discretion of the Administrative Agent, be deemed
to have been received on the next succeeding Business Day for purposes of
calculating interest thereon. All such payments shall be made to the
Administrative Agent at its offices specified in Section 12.01, except payments
to be made directly to the Issuing Bank as expressly provided herein and except
that payments pursuant to Section 5.01, Section 5.02, Section 5.03 and
Section 12.03 shall be made directly to the Persons entitled thereto. The
Administrative Agent shall distribute any such payments received by it for the
account of any other Person to the appropriate recipient promptly following
receipt thereof. If any payment hereunder shall be due on a day that is not a
Business Day, the date for payment shall be extended to the next succeeding
Business Day, and, in the case of any payment accruing interest, interest
thereon shall be payable for the period of such extension. All payments
hereunder shall be made in dollars.

(b) Application of Insufficient Payments. If at any time insufficient funds are
received by and available to the Administrative Agent to pay fully all amounts
of principal, unreimbursed LC Disbursements, interest and fees then due
hereunder, such funds shall be applied (i) first, towards payment of interest
and fees then due hereunder, ratably among the parties entitled thereto in
accordance with the amounts of interest and fees then due to such parties, and
(ii) second, towards payment of principal and unreimbursed LC Disbursements then
due hereunder, ratably among the parties entitled thereto in accordance with the
amounts of principal and unreimbursed LC Disbursements then due to such parties.

 

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(c) Sharing of Payments by Lenders. If any Lender shall, by exercising any right
of set-off or counterclaim or otherwise, obtain payment in respect of any
principal of or interest on any of its Loans or participations in LC
Disbursements resulting in such Lender receiving payment of a greater proportion
of the aggregate amount of its Loans and participations in LC Disbursements and
accrued interest thereon than the proportion received by any other Lender, then
the Lender receiving such greater proportion shall purchase (for cash at face
value) participations in the Loans and participations in LC Disbursements of
other Lenders to the extent necessary so that the benefit of all such payments
shall be shared by the Lenders ratably in accordance with the aggregate amount
of principal of and accrued interest on their respective Loans and
participations in LC Disbursements; provided that (i) if any such participations
are purchased and all or any portion of the payment giving rise thereto is
recovered, such participations shall be rescinded and the purchase price
restored to the extent of such recovery, without interest, and (ii) the
provisions of this Section 4.01(c) shall not be construed to apply to any
payment made by the Borrower pursuant to and in accordance with the express
terms of this Agreement or any payment obtained by a Lender as consideration for
the assignment of or sale of a participation in any of its Loans or
participations in LC Disbursements to any assignee or participant, other than to
the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions
of this Section 4.01(c) shall apply). The Borrower consents to the foregoing and
agrees, to the extent it may effectively do so under applicable law, that any
Lender acquiring a participation pursuant to the foregoing arrangements may
exercise against the Borrower rights of set-off and counterclaim with respect to
such participation as fully as if such Lender were a direct creditor of the
Borrower in the amount of such participation.

Section 4.02 Presumption of Payment by the Borrower. Unless the Administrative
Agent shall have received notice from the Borrower prior to the date on which
any payment is due to the Administrative Agent for the account of the Lenders or
the Issuing Bank that the Borrower will not make such payment, the
Administrative Agent may assume that the Borrower has made such payment on such
date in accordance herewith and may, in reliance upon such assumption,
distribute to the Lenders or the Issuing Bank, as the case may be, the amount
due. In such event, if the Borrower has not in fact made such payment, then each
of the Lenders or the Issuing Bank, as the case may be, severally agrees to
repay to the Administrative Agent forthwith on demand the amount so distributed
to such Lender or Issuing Bank with interest thereon, for each day from and
including the date such amount is distributed to it to but excluding the date of
payment to the Administrative Agent, at the greater of the Federal Funds
Effective Rate and a rate determined by the Administrative Agent in accordance
with banking industry rules on interbank compensation.

Section 4.03 Certain Deductions by the Administrative Agent. If any Lender shall
fail to make any payment required to be made by it pursuant to Section 2.05(a),
Section 2.08(d), Section 2.08(e), or Section 4.02 or otherwise hereunder, then
the Administrative Agent may, in its discretion (notwithstanding any contrary
provision hereof), apply any amounts thereafter received by the Administrative
Agent for the account of such Lender to satisfy such Lender’s obligations under
such Sections until all such unsatisfied obligations are fully paid. If at any

 

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time prior to the acceleration or maturity of the Loans, the Administrative
Agent shall receive any payment in respect of principal of a Loan or a
reimbursement of an LC Disbursement while one or more Defaulting Lenders shall
be party to this Agreement, the Administrative Agent shall apply such payment
first to the Borrowing(s) for which such Defaulting Lender(s) shall have failed
to fund its pro rata share until such time as such Borrowing(s) are paid in full
or each Lender (including each Defaulting Lender) is owed its Applicable
Percentage of all Loans then outstanding. After acceleration or maturity of the
Loans, all principal will be paid ratably as provided in Section 10.02(c).

Section 4.04 Disposition of Proceeds. The Security Instruments contain an
assignment by the Borrower and/or the Guarantors unto and in favor of the
Administrative Agent for the benefit of the Secured Parties of all of the
Borrower’s or each Guarantor’s interest in and to production and all proceeds
attributable thereto which may be produced from or allocated to the Mortgaged
Property. The Security Instruments further provide in general for the
application of such proceeds to the satisfaction of the Indebtedness and other
obligations described therein and secured thereby. Notwithstanding the
assignment contained in such Security Instruments, until the occurrence of an
Event of Default, (a) the Administrative Agent and the Lenders agree that they
will neither notify the purchaser or purchasers of such production nor take any
other action to cause such proceeds to be remitted to the Administrative Agent
or the Lenders, but the Administrative Agent and the Lenders will instead permit
such proceeds to be paid to the Borrower and its Subsidiaries and (b) the
Lenders hereby authorize the Administrative Agent to take such actions as may be
necessary to cause such proceeds to be paid to the Borrower and/or such
Subsidiaries.

ARTICLE V

INCREASED COSTS; BREAK FUNDING PAYMENTS; TAXES; ILLEGALITY

Section 5.01 Increased Costs.

(a) Eurodollar Changes in Law. If any Change in Law shall:

(i) impose, modify or deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of, or credit
extended by, any Lender (except any such reserve requirement reflected in the
Adjusted LIBO Rate); or

(ii) impose on any Lender or the London interbank market any other condition
affecting this Agreement or Eurodollar Loans made by such Lender;

and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to reduce the amount of any sum received or
receivable by such Lender (whether of principal, interest or otherwise), then
the Borrower will pay to such Lender such additional amount or amounts as will
compensate such Lender for such additional costs incurred or reduction suffered.

(b) Capital Requirements. If any Lender or the Issuing Bank determines that any
Change in Law regarding capital requirements has or would have the effect of
reducing the rate of return on such Lender’s or the Issuing Bank’s capital or on
the capital of such Lender’s or the Issuing Bank’s holding company, if any, as a
consequence of this Agreement or the Loans

 

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made by, or participations in Letters of Credit held by, such Lender, or the
Letters of Credit issued by the Issuing Bank, to a level below that which such
Lender or the Issuing Bank or such Lender’s or the Issuing Bank’s holding
company could have achieved but for such Change in Law (taking into
consideration such Lender’s or the Issuing Bank’s policies and the policies of
such Lender’s or the Issuing Bank’s holding company with respect to capital
adequacy), then from time to time the Borrower will pay to such Lender or the
Issuing Bank, as the case may be, such additional amount or amounts as will
compensate such Lender or the Issuing Bank or such Lender’s or the Issuing
Bank’s holding company for any such reduction suffered.

(c) Certificates. A certificate of a Lender or the Issuing Bank setting forth
the amount or amounts necessary to compensate such Lender or the Issuing Bank or
its holding company, as the case may be, as specified in Section 5.01(a) or
(b) shall be delivered to the Borrower and shall be conclusive absent manifest
error. The Borrower shall pay such Lender or the Issuing Bank, as the case may
be, the amount shown as due on any such certificate within 10 Business Days
after receipt thereof.

(d) Effect of Failure or Delay in Requesting Compensation. Failure or delay on
the part of any Lender or the Issuing Bank to demand compensation pursuant to
this Section 5.01 shall not constitute a waiver of such Lender’s or the Issuing
Bank’s right to demand such compensation; provided that the Borrower shall not
be required to compensate a Lender or the Issuing Bank pursuant to this
Section 5.01 for any increased costs or reductions incurred more than 365 days
prior to the date that such Lender or the Issuing Bank, as the case may be,
notifies the Borrower of the Change in Law giving rise to such increased costs
or reductions and of such Lender’s or the Issuing Bank’s intention to claim
compensation therefor; provided further that, if the Change in Law giving rise
to such increased costs or reductions is retroactive, then the 365-day period
referred to above shall be extended to include the period of retroactive effect
thereof.

Section 5.02 Break Funding Payments. In the event of (a) the payment of any
principal of any Eurodollar Loan other than on the last day of an Interest
Period applicable thereto (including as a result of an Event of Default),
(b) the conversion of any Eurodollar Loan into an ABR Loan other than on the
last day of the Interest Period applicable thereto, (c) the failure to borrow,
convert, continue or prepay any Eurodollar Loan on the date specified in any
notice delivered pursuant hereto, or (d) the assignment of any Eurodollar Loan
other than on the last day of the Interest Period applicable thereto as a result
of a request by the Borrower pursuant to Section 5.04(a), then, in any such
event, the Borrower shall compensate each Lender for the loss, cost and expense
attributable to such event (exclusive of any lost profits or opportunity costs
or processing or other related fees). In the case of a Eurodollar Loan, such
loss, cost or expense to any Lender shall be deemed to include an amount
determined by such Lender to be the excess, if any, of (i) the amount of
interest which would have accrued on the principal amount of such Loan had such
event not occurred, at the Adjusted LIBO Rate that would have been applicable to
such Loan, for the period from the date of such event to the last day of the
then current Interest Period therefor (or, in the case of a failure to borrow,
convert or continue, for the period that would have been the Interest Period for
such Loan), over (ii) the amount of interest which would accrue on such
principal amount for such period at the interest rate which such Lender would
bid were it to bid, at the commencement of such period, for dollar deposits of a
comparable amount and period from other banks in the eurodollar market.

 

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A certificate of any Lender setting forth any amount or amounts that such Lender
is entitled to receive pursuant to this Section 5.02 shall be delivered to the
Borrower and shall be conclusive absent manifest error. The Borrower shall pay
such Lender the amount shown as due on any such certificate within 10 Business
Days after receipt thereof; provided, that the Borrower shall not have any
obligation to make any payment for any loss, cost or expense incurred by a
Lender as a result of an event described in this Section 5.02 if such event
occurred more than 180 days prior to the date such Lender notifies the Borrower
of the amount thereof.

Section 5.03 Taxes.

(a) Payments Free of Taxes. Any and all payments by or on account of any
obligation of the Borrower or any Guarantor under any Loan Document shall be
made free and clear of and without deduction for any Indemnified Taxes or Other
Taxes; provided that if the Borrower or any Guarantor shall be required to
deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum
payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 5.03(a)), the Administrative Agent, Lender or Issuing Bank (as the
case may be) receives an amount equal to the sum it would have received had no
such deductions been made, (ii) the Borrower or such Guarantor shall make such
deductions and (iii) the Borrower or such Guarantor shall pay the full amount
deducted to the relevant Governmental Authority in accordance with applicable
law.

(b) Payment of Other Taxes by the Borrower. The Borrower shall pay any Other
Taxes to the relevant Governmental Authority in accordance with applicable law.

(c) Indemnification by the Borrower. The Borrower shall indemnify the
Administrative Agent, each Lender and the Issuing Bank, within 10 Business Days
after written demand therefor, for the full amount of any Indemnified Taxes or
Other Taxes paid by the Administrative Agent, such Lender or the Issuing Bank,
as the case may be, on or with respect to any payment by or on account of any
obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes
imposed or asserted on or attributable to amounts payable under this
Section 5.03) and any penalties, interest and reasonable expenses arising
therefrom or with respect thereto, whether or not such Indemnified Taxes or
Other Taxes were correctly or legally imposed or asserted by the relevant
Governmental Authority. A certificate of the Administrative Agent, a Lender or
the Issuing Bank as to the amount of such payment or liability under this
Section 5.03 shall be delivered to the Borrower and shall be conclusive absent
manifest error; provided, that the Borrower shall not have any obligation to
indemnify the Administrative Agent, such Lender or the Issuing Bank for any
amounts paid by the Administrative Agent, such Lender or the Issuing Bank under
this Section 5.03 more than two years prior to the date the Administrative
Agent, such Lender or the Issuing Bank notifies the Borrower of the amount of
such payment.

(d) Indemnification by the Lenders. Each Lender shall severally indemnify the
Administrative Agent, within 10 days after demand therefor, for (i) any
Indemnified Taxes attributable to such Lender (but only to the extent that
Borrower has not already indemnified the Administrative Agent for such
Indemnified Taxes and without limiting the obligation of the Borrower to do so),
(ii) any Taxes attributable to such Lender’s failure to comply with the

 

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provisions of Section 12.04(c) relating to the maintenance of a Participant
Register and (iii) any Excluded Taxes attributable to such Lender, in each case,
that are payable or paid by the Administrative Agent in connection with any Loan
Document, and any reasonable expenses arising therefrom or with respect thereto,
whether or not such Taxes were correctly or legally imposed or asserted by the
relevant Governmental Authority. A certificate as to the amount of such payment
or liability delivered to any Lender by the Administrative Agent shall be
conclusive absent manifest error. Each Lender hereby authorizes the
Administrative Agent to set off and apply any and all amounts at any time owing
to such Lender under any Loan Document or otherwise payable by the
Administrative Agent to the Lender from any other source against any amount due
to the Administrative Agent under this paragraph (d).

(e) Evidence of Payments. As soon as practicable after any payment of
Indemnified Taxes or Other Taxes by the Borrower or a Guarantor to a
Governmental Authority, the Borrower shall deliver to the Administrative Agent
the original or a certified copy of a receipt issued by such Governmental
Authority evidencing such payment, a copy of the return reporting such payment
or other evidence of such payment reasonably satisfactory to the Administrative
Agent.

(f) Status of Lenders.

(i) Any Lender that is entitled to an exemption from or reduction of withholding
tax with respect to payments made under any Loan Document shall deliver to the
Withholding Agent, at the time or times reasonably requested by the Withholding
Agent, such properly completed and executed documentation reasonably requested
by the Withholding Agent as will permit such payments to be made without
withholding or at a reduced rate of withholding. In addition, any Lender, if
reasonably requested by the Withholding Agent, shall deliver such other
documentation prescribed by applicable law or reasonably requested by the
Withholding Agent as will enable the Withholding Agent to determine whether or
not such Lender is subject to backup withholding or information reporting
requirements. Notwithstanding anything to the contrary in the preceding two
sentences, the completion, execution and submission of such documentation (other
than such documentation set forth in Section 5.03(f)(ii)(A) and (ii)(B) and
Section 5.03(g) below) shall not be required if in the Lender’s reasonable
judgment such completion, execution or submission would subject such Lender to
any material unreimbursed cost or expense or would materially prejudice the
legal or commercial position of such Lender.

(ii) Without limiting the generality of the foregoing, in the event that the
Borrower is a “United States person” as defined in Section 7701(a)(30) of the
Code,

(A) any Lender that is a “United States person” as defined in Section 7701(a)(3)
of the Code shall deliver to the Withholding Agent on or prior to the date on
which such Lender becomes a Lender under this Agreement (and from time to time
thereafter upon the reasonable request of the Withholding Agent), executed
originals of IRS Form W-9 certifying that such Lender is exempt from U.S.
federal backup withholding tax;

(B) any Foreign Lender shall, to the extent it is legally entitled to do so,
deliver to the Withholding Agent (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
reasonable request of the Withholding Agent), whichever of the following is
applicable:

 

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(1) in the case of a Foreign Lender claiming the benefits of an income tax
treaty to which the United States is a party (x) with respect to payments of
interest under any Loan Document, executed originals of IRS Form W-8BEN
establishing an exemption from, or reduction of, U.S. federal withholding Tax
pursuant to the “interest” article of such tax treaty and (y) with respect to
any other applicable payments under any Loan Document, IRS Form W-8BEN
establishing an exemption from, or reduction of, U.S. federal withholding tax
pursuant to the “business profits” or “other income” article of such tax treaty;

(2) executed originals of IRS Form W-8ECI;

(3) in the case of a Foreign Lender claiming the benefits of the exemption for
portfolio interest under Section 881(c) of the Code, (x) a certificate
substantially in the form of Exhibit G-1 to the effect that such Foreign Lender
is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code, a “10
percent shareholder” of the Borrower within the meaning of Section 871(h)(3)(B)
of the Code, or a “controlled foreign corporation” described in
Section 881(c)(3)(C) of the Code (a “U.S. Tax Compliance Certificate”) and
(y) executed originals of IRS Form W-8BEN; or

(4) to the extent a Foreign Lender is not the beneficial owner, executed
originals of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN, a
U.S. Tax Compliance Certificate substantially in the form of Exhibit G-2 or
Exhibit G-3, IRS Form W-9, and/or other certification documents from each
beneficial owner, as applicable; provided that if the Foreign Lender is a
partnership and one or more direct or indirect partners of such Foreign Lender
are claiming the portfolio interest exemption, such Foreign Lender may provide a
U.S. Tax Compliance Certificate substantially in the form of Exhibit G-4 on
behalf of each such direct and indirect partner; and

(C) any Foreign Lender shall, to the extent it is legally entitled to do so,
deliver to the Withholding Agent (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
reasonable request of the Withholding Agent), executed originals of any other
form prescribed by applicable law as a basis for claiming exemption from or a
reduction in U.S. federal withholding tax, duly completed, together with such
supplementary documentation as may be prescribed by applicable law to permit the
Withholding Agent to determine the withholding or deduction required to be made.

Each Lender agrees that if any form or certification it previously delivered
expires or becomes obsolete or inaccurate in any respect, it shall update such
form or certification or promptly notify the Withholding Agent in writing of its
legal inability to do so.

(g) FATCA. If a payment made to a Lender under this Agreement would be subject
to United States Federal withholding tax imposed by FATCA if such Lender fails
to comply with the applicable reporting requirements of FATCA (including those
contained in

 

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Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall
deliver to the Withholding Agent, at the time or times prescribed by law and at
such time or times reasonably requested by the Withholding Agent, such
documentation prescribed by applicable law (including as prescribed by
Section 1471(b)(3)(C)(i) of the Code) and such additional documentation
reasonably requested by the Withholding Agent as may be necessary for the
Withholding Agent to comply with its obligations under FATCA, to determine that
such Lender has complied with such Lender’s obligations under FATCA or to
determine the amount to deduct and withhold from such payment. Solely for
purposes of this Section 5.03(g), “FATCA” shall include any amendments made to
FATCA after the date of this Agreement.

Section 5.04 Mitigation Obligations; Replacement of Lenders.

(a) Designation of Different Lending Office. If any Lender requests compensation
under Section 5.01, or if the Borrower is required to pay any additional amount
to any Lender or any Governmental Authority for the account of any Lender
pursuant to Section 5.03, then such Lender shall use reasonable efforts to
designate a different lending office for funding or booking its Loans hereunder
or to assign its rights and obligations hereunder to another of its offices,
branches or affiliates, if, in the reasonable judgment of such Lender, such
designation or assignment (i) would eliminate or reduce amounts payable pursuant
to Section 5.01 or Section 5.03, as the case may be, in the future and
(ii) would not subject such Lender to any unreimbursed cost or expense and would
not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to
pay all reasonable costs and expenses incurred by any Lender in connection with
any such designation or assignment.

(b) Replacement of Lenders. If any Lender requests compensation under
Section 5.01, or if the Borrower is required to pay any additional amount to any
Lender or any Governmental Authority for the account of any Lender pursuant to
Section 5.03, or if any Lender shall require that its Loans be made and/or
maintained as ABR Loans rather than Eurodollar Loans pursuant to Section 5.05,
or if any Lender becomes a Defaulting Lender hereunder, then the Borrower may,
at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 12.04(a)), all its interests, rights and obligations under this
Agreement to an assignee that shall assume such obligations (which assignee may
be another Lender, if a Lender accepts such assignment); provided that (i) the
Borrower shall have received the prior written consent of the Administrative
Agent, which consent shall not unreasonably be withheld, (ii) such Lender shall
have received payment of an amount equal to the outstanding principal of its
Loans and participations in LC Disbursements, accrued interest thereon, accrued
fees (subject to Section 3.05(d)) and all other amounts payable to it hereunder,
from the assignee (to the extent of such outstanding principal and accrued
interest and fees) or the Borrower (in the case of all other amounts), and
(iii) in the case of any such assignment resulting from a claim for compensation
under Section 5.01 or payments required to be made pursuant to Section 5.03,
such assignment will result in a reduction in such compensation or payments. A
Lender shall not be required to make any such assignment and delegation if,
prior thereto, as a result of a waiver by such Lender or otherwise, the
circumstances entitling the Borrower to require such assignment and delegation
cease to apply.

 

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Section 5.05 Illegality. Notwithstanding any other provision of this Agreement,
in the event that it becomes unlawful for any Lender or its applicable lending
office to honor its obligation to make or maintain Eurodollar Loans either
generally or having a particular Interest Period hereunder, then (a) such Lender
shall promptly notify the Borrower and the Administrative Agent thereof and such
Lender’s obligation to make such Eurodollar Loans shall be suspended (the
“Affected Loans”) until such time as such Lender may again make and maintain
such Eurodollar Loans and (b) all Affected Loans which would otherwise be made
by such Lender shall be made instead as ABR Loans (and, if such Lender so
requests by notice to the Borrower and the Administrative Agent, all Affected
Loans of such Lender then outstanding shall be automatically converted into ABR
Loans on the date specified by such Lender in such notice) and, to the extent
that Affected Loans are so made as (or converted into) ABR Loans, all payments
of principal which would otherwise be applied to such Lender’s Affected Loans
shall be applied instead to its ABR Loans.

ARTICLE VI

CONDITIONS PRECEDENT

Section 6.01 Effective Date. The obligations of the Lenders to make Loans and of
the Issuing Bank to issue Letters of Credit hereunder (exclusive of the Existing
Letters of Credit) shall not become effective until the date on which each of
the following conditions is satisfied (or waived in accordance with
Section 12.02):

(a) the Administrative Agent, the Arranger and the Lenders shall have received
all commitment, facility and agency fees and all other fees and amounts due and
payable on or prior to the Effective Date, including, to the extent invoiced,
reimbursement or payment of all reasonable out-of-pocket expenses required to be
reimbursed or paid by the Borrower hereunder (including, without limitation, the
reasonable fees and expenses of Vinson & Elkins L.L.P., counsel to the
Administrative Agent);

(b) the Administrative Agent shall have received a certificate of the Secretary
or an Assistant Secretary of the Borrower and each Guarantor setting forth
(i) resolutions of its board of directors (or comparable governing body) with
respect to the authorization of the Borrower or such Guarantor to execute and
deliver the Loan Documents to which it is a party and to enter into the
transactions contemplated in those documents, (ii) the officers of the Borrower
or such Guarantor (y) who are authorized to sign the Loan Documents to which the
Borrower or such Guarantor is a party and (z) who will, until replaced by
another officer or officers duly authorized for that purpose, act as its
representative for the purposes of signing documents and giving notices and
other communications in connection with this Agreement and the transactions
contemplated hereby, (iii) specimen signatures of such authorized officers, and
(iv) the Organizational Documents of the Borrower and such Guarantor, certified
as being true and complete. The Administrative Agent and the Lenders may
conclusively rely on such certificate until the Administrative Agent receives
notice in writing from the Borrower to the contrary;

(c) the Administrative Agent shall have received certificates of the appropriate
State agencies with respect to the existence, qualification and good standing of
the Loan Parties;

 

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(d) the Administrative Agent shall have received from each party hereto
counterparts (in such number as may be requested by the Administrative Agent) of
this Agreement signed on behalf of such party;

(e) the Administrative Agent shall have received duly executed Notes payable to
each Lender in a principal amount equal to its Maximum Credit Amount dated as of
the date hereof;

(f) the Administrative Agent shall have received from each party thereto duly
executed counterparts (in such number as may be requested by the Administrative
Agent) of the Security Instruments, including the Security Agreement, the
Guaranty Agreement, the mortgages and the other Security Instruments described
on Exhibit E-1. In connection with the execution and delivery of the Security
Instruments, the Administrative Agent shall:

(i) be reasonably satisfied that the Security Instruments will, when properly
recorded (or when the applicable financing statements related thereto are
properly filed) create first priority, perfected Liens (subject only to Excepted
Liens identified in clauses (a) to (d) and (f) of the definition thereof, but
subject to the provisos at the end of such definition) on at least 80% of the
total value of the Oil and Gas Properties evaluated in the Initial Reserve
Report and on all other Property purported to be pledged as collateral pursuant
to the Security Instruments; and

(ii) have received certificates, together with undated, blank stock powers for
each such certificate, representing all of the issued and outstanding Equity
Interests required to be pledged pursuant to Section 8.14;

(g) the Administrative Agent shall have received an opinion of Akin Gump Strauss
Hauer & Feld L.L.P., special counsel to the Loan Parties, in form and substance
reasonably acceptable to the Administrative Agent and its counsel;

(h) the Administrative Agent shall have received a certificate of insurance
coverage of the Loan Parties evidencing that the Loan Parties are carrying
insurance in accordance with Section 7.12;

(i) the Administrative Agent shall have received title information as the
Administrative Agent may reasonably require satisfactory to the Administrative
Agent setting forth the status of title to at least 80% of the total value of
the Oil and Gas Properties evaluated in the Initial Reserve Report;

(j) the Administrative Agent shall be reasonably satisfied with the
environmental condition of the Oil and Gas Properties of the Loan Parties
(including the Initial Acquisition Properties);

(k) the Administrative Agent shall have received a certificate of a Responsible
Officer of the Borrower certifying that the Borrower has received all consents
and approvals required by Section 7.03;

 

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(l) the Administrative Agent shall have received the financial statements
referred to in Section 7.04(a) and the Initial Reserve Report accompanied by a
certificate covering the matters described in Section 8.12(c);

(m) the Administrative Agent shall have received appropriate UCC search
certificates and county-level real property record search results reflecting no
prior Liens encumbering the Properties of the Loan Parties for each jurisdiction
requested by the Administrative Agent; other than those being assigned or
released on or prior to the Effective Date or Liens permitted by Section 9.03;

(n) the Administrative Agent shall have received (i) a certificate of a
Responsible Officer of the Borrower certifying: (A) that the Borrower is
concurrently consummating the Initial Acquisition in accordance with all
Governmental Requirements and the terms of the Initial Acquisition Documents
(with all of the material conditions precedent thereto having been satisfied in
all material respects by the parties thereto and with no provision of such
Initial Acquisition Documents having been waived, amended, supplemented or
otherwise modified in any material respect without the approval of the
Administrative Agent (such approval not to be unreasonably withheld or delayed))
and acquiring substantially all of the Initial Acquisition Properties
contemplated by the Initial Acquisition Documents; and (B) as to the final
purchase price for the Initial Acquisition Properties after giving effect to all
adjustments as of the closing date contemplated by the Initial Acquisition
Documents and specifying, by category, the amount of such adjustment; (ii) a
true and complete executed copy of each of the Initial Acquisition Documents,
which Initial Acquisition Documents shall have terms and conditions reasonably
satisfactory to the Administrative Agent; (iii) original counterparts or copies,
certified as true and complete, of the assignments, deeds and leases for all of
the Initial Acquisition Properties; and (iv) such other related documents and
information as the Administrative Agent shall have reasonably requested;

(o) the Administrative Agent shall have received from the Borrower a written
policy regarding the Loan Parties’ marketing activities for Hydrocarbons and
furnish a copy thereof to the Administrative Agent and the Lenders, such policy
to be in form and substance reasonably satisfactory to the Majority Lenders;

(p) on the Effective Date, none of the Loan Parties shall have any Debt (other
than Indebtedness or Debt permitted hereunder);

(q) the Administrative Agent shall have received the Initial Reserve Report;

(r) the consummation of the Parent IPO pursuant to an effective registration
statement under the Securities Act filed on Form S-1 shall have occurred on
terms and conditions acceptable to the Administrative Agent, the gross cash
equity proceeds of which shall have been used in a manner consistent with the
“Use of Proceeds” set forth in the Parent IPO Prospectus;

(s) the Administrative Agent shall have received evidence reasonably
satisfactory to Administrative Agent, concurrently with the funding of the
initial Loan under this Agreement and that upon such payment, all Liens
encumbering the Initial Acquisition Properties will be released (other than the
Liens securing the Indebtedness and created pursuant to the Security Instruments
and Excepted Liens identified in clauses (a) to (d) and (f) of the definition
thereof, subject to the provisos at the end of such definition);

 

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(t) since December 31, 2010, there shall not have occurred any Material Adverse
Effect;

(u) all governmental and third party approvals necessary in connection with the
Transactions, the financing contemplated hereby and the continuing operations of
the Loan Parties (including shareholder approvals, if any) shall have been
obtained on terms reasonably satisfactory to the Administrative Agent and shall
be in full force and effect;

(v) the Administrative Agent shall have received, and satisfactorily completed
its review of, information regarding litigation, tax, accounting, labor,
insurance, pension liabilities (actual or contingent), real estate leases,
material contracts, debt agreements, property ownership, and contingent
liabilities of the Parent, the Borrower and their respective subsidiaries;

(w) the Administrative Agent and the Lenders shall have received a pro forma
balance sheet as to the Parent and the Consolidated Subsidiaries after giving
effect to all elements of the Transactions to be effected on or before the
Effective Date, and forecasts prepared by management of the Borrower, of balance
sheets and income statements on a quarterly basis for the first year following
the Effective Date and on an annual basis for each year thereafter during the
term of this Agreement;

(x) the capitalization, structure and equity ownership of each Loan Party after
giving effect to the consummation of the Transactions shall be reasonably
satisfactory to the Administrative Agent;

(y) after giving effect to the initial Borrowings hereunder on the Effective
Date, Availability shall be not less than $160,000,000; and

(z) the Administrative Agent shall have received such other documents as the
Administrative Agent or special counsel to the Administrative Agent may
reasonably request.

Without limiting the generality of the provisions of Section 11.04, for purposes
of determining compliance with the conditions specified in this Section 6.01,
each Lender that has signed this Agreement shall be deemed to have consented to,
approved or accepted or to be satisfied with, each document or other matter
required under this Section 6.01 to be consented to or approved by or acceptable
or satisfactory to a Lender unless the Administrative Agent shall have received
notice from such Lender prior to the Effective Date specifying its objection
thereto. All documents executed or submitted pursuant to this Section 6.01 by
and on behalf of the Parent or any of its Subsidiaries shall be in form and
substance reasonably satisfactory to the Administrative Agent and its counsel.
The Administrative Agent shall notify the Borrower and the Lenders of the
Effective Date, and such notice shall be conclusive and binding.

Section 6.02 Each Credit Event. The obligation of each Lender to make a Loan on
the occasion of any Borrowing (including the initial funding), and of the
Issuing Bank to issue, amend, renew or extend any Letter of Credit, is subject
to the satisfaction of the following conditions:

 

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(a) at the time of and immediately after giving effect to such Borrowing or the
issuance, amendment, renewal or extension of such Letter of Credit, as
applicable, no Default or Borrowing Base Deficiency shall have occurred and be
continuing;

(b) at the time of and immediately after giving effect to such Borrowing or the
issuance, amendment, renewal or extension of such Letter of Credit, as
applicable, no event, development or circumstance has occurred or shall then
exist that has resulted in, or could reasonably be expected to have, a Material
Adverse Effect;

(c) the representations and warranties of the Loan Parties set forth in this
Agreement and in the other Loan Documents shall be true and correct in all
material respects on and as of the date of such Borrowing or the date of
issuance, amendment, renewal or extension of such Letter of Credit, as
applicable, except that (i) to the extent any such representations and
warranties are expressly limited to an earlier date, in which case, on and as of
the date of such Borrowing or the date of issuance, amendment, renewal or
extension of such Letter of Credit, as applicable, such representations and
warranties shall continue to be true and correct in all material respects as of
such specified earlier date and (ii) to the extent that any such representation
and warranty is qualified by materiality, such representation and warranty shall
continue to be true and correct in all respects;

(d) the making of such Loan or the issuance, amendment, renewal or extension of
such Letter of Credit, as applicable, shall not be prohibited by any applicable
Governmental Requirement, and no litigation shall be pending or threatened,
which does or, with respect to any threatened litigation, seeks to, enjoin,
prohibit or restrain, the making or repayment of any Loan, the issuance,
amendment, renewal, extension or repayment of any Letter of Credit or any
participations therein or the consummation of the transactions contemplated by
this Agreement or any other Loan Document; and

(e) the receipt by the Administrative Agent of a Borrowing Request in accordance
with Section 2.03 or a request for a Letter of Credit in accordance with
Section 2.08(b), as applicable.

Each request for a Borrowing and each request for the issuance, amendment,
renewal or extension of any Letter of Credit shall be deemed to constitute a
representation and warranty by the Borrower on the date thereof as to the
matters, and to the extent, specified in Section 6.02(a) through (e).

ARTICLE VII

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to the Lenders that:

Section 7.01 Organization; Powers. Each of the Loan Parties is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization, has all requisite power and authority, and has all material
governmental licenses, authorizations,

 

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consents and approvals necessary, to own its assets and to carry on its business
as now conducted, and is qualified to do business in, and is in good standing
in, every jurisdiction where such qualification is required, except where
failure to have such power, authority, licenses, authorizations, consents,
approvals and qualifications could not reasonably be expected to have a Material
Adverse Effect.

Section 7.02 Authority; Enforceability. The Transactions are within the Loan
Parties’ respective corporate powers and have been duly authorized by all
necessary corporate and, if required, stockholder action (including, without
limitation, any action required to be taken by any class of directors of the
Borrower or any other Person, whether interested or disinterested, in order to
ensure the due authorization of the Transactions). Each Loan Document and
Initial Acquisition Document to which any Loan Party is a party has been duly
executed and delivered by the Borrower and such Guarantor and constitutes a
legal, valid and binding obligation of the Loan Parties, as applicable,
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors’ rights
generally and subject to general principles of equity, regardless of whether
considered in a proceeding in equity or at law.

Section 7.03 Approvals; No Conflicts. The Transactions (a) do not require any
consent or approval of, registration or filing with, or any other action by, any
Governmental Authority or any other third Person (including shareholders,
members, partners or any class of directors or managers, whether interested or
disinterested, of the Borrower or any other Person), nor is any such consent,
approval, registration, filing or other action necessary for the validity or
enforceability of any Loan Document or the consummation of the transactions
contemplated thereby, except such as have been obtained or made and are in full
force and effect other than (i) the recording and filing of the Security
Instruments as required by this Agreement and (ii) those third party approvals
or consents which, if not made or obtained, would not cause a Default hereunder,
could not reasonably be expected to have a Material Adverse Effect or do not
have an adverse effect on the enforceability of the Loan Documents, (b) will not
violate any applicable law or regulation or the charter, bylaws or other
Organizational Documents of any Loan Party or any order of any Governmental
Authority, (c) will not violate or result in a default under any indenture or
other material agreement binding upon any Loan Party or its Properties, or give
rise to a right thereunder to require any payment to be made by any Loan Party
and (d) will not result in the creation or imposition of any Lien on any
material Property of any Loan Party (other than the Liens created by the Loan
Documents).

Section 7.04 Financial Condition; No Material Adverse Change.

(a) The Borrower has heretofore furnished to the Lenders the combined balance
sheet and statements of income, unit holders equity and cash flows of “Memorial
Production Partners LP Predecessor” as described in Note 1 to such financial
statements (i) as of and for the fiscal year ended December 31, 2010, reported
on by KPMG LLP, independent public accountants, and (ii) as of and for the
fiscal quarter and the portion of the fiscal year ended June 30, 2011, certified
by its chief financial officer. Such financial statements present fairly, in all
material respects, the financial position and results of operations and cash
flows of the Parent and its Consolidated Subsidiaries as of such dates and for
such periods in accordance with GAAP, subject to year-end audit adjustments and
the absence of footnotes in the case of the unaudited quarterly financial
statements.

 

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(b) Since December 31, 2010, (i) there has been no event, development or
circumstance that has had or could reasonably be expected to have a Material
Adverse Effect and (ii) the business of the Borrower and the other Loan Parties
has been conducted only in the ordinary course consistent with past business
practices.

(c) No Loan Party has on the date hereof any material Debt (including
Disqualified Capital Stock) or any contingent liabilities, off-balance sheet
liabilities or partnerships, liabilities for taxes, unusual forward or long-term
commitments or unrealized or anticipated losses from any unfavorable
commitments, except as referred to or reflected or provided for in the Financial
Statements.

Section 7.05 Litigation.

(a) Except as set forth on Schedule 7.05, there are no actions, suits,
investigations or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of the Borrower, threatened
against or affecting any Loan Party (i) not fully covered by insurance (except
for normal deductibles) as to which there is a reasonable possibility of an
adverse determination that, if adversely determined, could reasonably be
expected, individually or in the aggregate, to result in a Material Adverse
Effect, (ii) that involve any Loan Document, any Initial Acquisition Document or
the Transactions or (iii) that could impair the consummation of the Initial
Acquisition on the time and in the manner contemplated by the Initial
Acquisition Documents or of the Parent IPO.

(b) Since the date of this Agreement, there has been no change in the status of
the matters disclosed in Schedule 7.05 that, individually or in the aggregate,
has resulted in a Material Adverse Effect.

Section 7.06 Environmental Matters. Except for such matters as set forth on
Schedule 7.06 or that, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect on any Loan Party:

(a) the Loan Parties and each of their respective Properties and operations
thereon are, and within all applicable statute of limitation periods have been,
in compliance with all applicable Environmental Laws;

(b) the Loan Parties have obtained all Environmental Permits required for their
respective operations and each of their Properties, with all such Environmental
Permits being currently in full force and effect, and none of Borrower or the
other Loan Parties has received any written notice or otherwise has knowledge
that any such existing Environmental Permit will be revoked or that any
application for any new Environmental Permit or renewal of any existing
Environmental Permit will be protested or denied;

(c) there are no claims, demands, suits, orders, inquiries, or proceedings
concerning any violation of, or any liability (including as a potentially
responsible party) under, any applicable Environmental Laws that is pending or,
to Borrower’s knowledge, threatened against any Loan Party or any of their
respective Properties or as a result of any operations at such Properties;

 

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(d) none of the Properties of the Loan Parties contain or have contained any:
(i) underground storage tanks; (ii) asbestos-containing materials;
(iii) landfills or dumps; (iv) hazardous waste management units as defined
pursuant to RCRA or any comparable state law; or (v) sites on or nominated for
the National Priority List promulgated pursuant to CERCLA or any state remedial
priority list promulgated or published pursuant to any comparable state law;

(e) there has been no Release or, to the Borrower’s knowledge, threatened
Release, of Hazardous Materials at, on, under or from the Loan Parties’
Properties, there are no investigations, remediations, abatements, removals, or
monitorings of Hazardous Materials required under applicable Environmental Laws
at such Properties and, to the knowledge of the Borrower, none of such
Properties are adversely affected by any Release or threatened Release of a
Hazardous Material originating or emanating from any other real property;

(f) none of the Loan Parties has received any written notice asserting an
alleged liability or obligation under any applicable Environmental Laws with
respect to the investigation, remediation, abatement, removal, or monitoring of
any Hazardous Materials at, under, or Released or threatened to be Released from
any real properties offsite the Borrower’s or any other Loan Party’s Properties
and, to the Borrower’s knowledge, there are no conditions or circumstances that
could reasonably be expected to result in the receipt of such written notice;

(g) there has been no exposure of any Person or Property to any Hazardous
Materials as a result of or in connection with the operations and businesses of
any of the Loan Parties’ Properties that could reasonably be expected to form
the basis for a claim for damages or compensation; and

(h) the Loan Parties have provided to the Lenders complete and correct copies of
all material environmental site assessment reports, investigations, studies,
analyses, and correspondence on environmental matters (including matters
relating to any alleged non-compliance with or liability under Environmental
Laws) that are in any of the Borrower’s or any other Loan Party’s possession or
control and relating to their respective Properties or operations thereon.

Section 7.07 Compliance with the Laws and Agreements; No Defaults or Borrowing
Base Deficiency.

(a) Each of the Loan Parties is in compliance with all Governmental Requirements
applicable to it or its Property and all agreements and other instruments
binding upon it or its Property, and possesses all licenses, permits,
franchises, exemptions, approvals and other governmental authorizations
necessary for the ownership of its Property and the conduct of its business,
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.

(b) None of the Loan Parties is in default nor has any event or circumstance
occurred which, but for the expiration of any applicable grace period or the
giving of notice, or both, would constitute a default or would require the
Borrower or any other Loan Party to Redeem or make any offer to Redeem under any
indenture, note, credit agreement or instrument pursuant to which any Material
Indebtedness is outstanding or by which the Borrower or any other Loan Party or
any of their Properties is bound.

 

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(c) No Default or Borrowing Base Deficiency has occurred and is continuing.

Section 7.08 Investment Company Act. None of the Loan Parties is an “investment
company” or a company “controlled” by an “investment company,” within the
meaning of, or subject to regulation under, the Investment Company Act of 1940,
as amended.

Section 7.09 Taxes. Each of the Loan Parties has timely filed or caused to be
filed all Tax returns and reports required to have been filed and has paid or
caused to be paid all Taxes required to have been paid by it, except (a) Taxes
that are being contested in good faith by appropriate proceedings and for which
the Borrower or such other Loan Party, as applicable, has set aside on its books
adequate reserves in accordance with GAAP or (b) to the extent that the failure
to do so could not reasonably be expected to result in a Material Adverse
Effect. The charges, accruals and reserves on the books of the Loan Parties in
respect of Taxes and other governmental charges are, in the reasonable opinion
of the Borrower, adequate. No Tax Lien has been filed and, to the knowledge of
the Borrower, no claim is being asserted with respect to any such Tax or other
such governmental charge.

Section 7.10 ERISA.

(a) the Loan Parties and each ERISA Affiliate have complied in all material
respects with ERISA and, where applicable, the Code regarding each Plan.

(b) Each Plan is, and has been, established and maintained in substantial
compliance with its terms, ERISA and, where applicable, the Code.

(c) No act, omission or transaction has occurred which could result in
imposition on the Borrower, any other Loan Party or any ERISA Affiliate (whether
directly or indirectly) of (i) either a civil penalty assessed pursuant to
subsections (c), (i), (l) or (m) of section 502 of ERISA or a tax imposed
pursuant to Chapter 43 of Subtitle D of the Code or (ii) breach of fiduciary
duty liability damages under section 409 of ERISA.

(d) Full payment when due has been made of all amounts which the Borrower, the
other Loan Parties or any ERISA Affiliate is required under the terms of each
Plan or applicable law to have paid as contributions to such Plan as of the date
hereof.

(e) None of the Loan Parties nor any ERISA Affiliate sponsors, maintains, or
contributes to an employee welfare benefit plan, as defined in section 3(1) of
ERISA, including, without limitation, any such plan maintained to provide
benefits to former employees of such entities, that may not be terminated by the
Borrower, any other Loan Party or any ERISA Affiliate in its sole discretion at
any time without any material liability.

(f) None of the Loan Parties nor any ERISA Affiliate sponsors, maintains or
contributes to, or has at any time in the six-year period preceding the date
hereof sponsored, maintained or contributed to, any employee pension benefit
plan, as defined in section 3(2) of ERISA, that is subject to Title IV of ERISA,
section 302 of ERISA or section 412 of the Code.

 

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Section 7.11 Disclosure; No Material Misstatements. The Borrower has disclosed
to the Administrative Agent and the Lenders all agreements, instruments and
corporate or other restrictions to which any Loan Party is subject, and all
other matters known to it, that, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect. Neither the
Information Memorandum nor any of the other reports, financial statements,
certificates or other information furnished by or on behalf of the Loan Parties
to the Administrative Agent or any Lender or any of their Affiliates in
connection with the negotiation of this Agreement or any other Loan Document or
delivered hereunder or under any other Loan Document (as modified or
supplemented by other information so furnished) contains any material
misstatement of fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided that, with respect to projected financial
information, the Borrower represents only that such information was prepared in
good faith based upon assumptions believed to be reasonable at the time. There
is no fact peculiar to the Loan Parties which could reasonably be expected to
have a Material Adverse Effect or in the future is reasonably likely to have a
Material Adverse Effect and which has not been set forth in this Agreement or
the Loan Documents or the other documents, certificates and statements furnished
to the Administrative Agent or the Lenders by or on behalf of the Loan Parties
prior to, or on, the date hereof in connection with the transactions
contemplated hereby. There are no statements or conclusions in any Reserve
Report which are based upon or include misleading information or fail to take
into account material information regarding the matters reported therein, it
being understood that projections concerning volumes attributable to the Oil and
Gas Properties of the Borrower and the other Loan Parties and production and
cost estimates contained in each Reserve Report are necessarily based upon
professional opinions, estimates and projections and that the Borrower and the
other Loan Parties do not warrant that such opinions, estimates and projections
will ultimately prove to have been accurate.

Section 7.12 Insurance. The Loan Parties have (a) all insurance policies
sufficient for the compliance by each of them with all material Governmental
Requirements and all material agreements including, without limitation, Flood
Insurance, if required and (b) insurance coverage in at least amounts and
against such risk (including, without limitation, public liability) that are
usually insured against by companies similarly situated and engaged in the same
or a similar business for the assets and operations of the Loan Parties. The
Administrative Agent and the Lenders have been named as additional insureds in
respect of such liability insurance policies and the Administrative Agent has
been named as loss payee with respect to Property loss insurance. No Loan Party
owns any material Building (as defined in the applicable Flood Insurance
Regulation) or material Manufactured (Mobile) Home (as defined in the applicable
Flood Insurance Regulation) for which such Loan Party has not delivered to the
Administrative Agent evidence reasonably satisfactory to the Administrative
Agent that (a) such Loan Party maintains Flood Insurance for such Building or
Manufactured (Mobile) Home or (b) such Building or Manufactured (Mobile) Home is
not located in a Special Flood Hazard Area.

Section 7.13 Restriction on Liens. None of the Loan Parties is a party to any
material agreement or arrangement, or subject to any order, judgment, writ or
decree, which either restricts or purports to restrict its ability to grant
Liens to the Administrative Agent and the Secured Parties on or in respect of
their Properties to secure the Indebtedness and the Loan Documents.

 

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Section 7.14 Subsidiaries. Except as set forth on Schedule 7.14 or as disclosed
in writing to the Administrative Agent (which shall promptly furnish a copy to
the Lenders), which shall be a supplement to Schedule 7.14, the Parent has no
Subsidiaries, the Parent has no Foreign Subsidiaries and each Subsidiary on such
schedule is a Wholly-Owned Subsidiary.

Section 7.15 Location of Business and Offices. The Borrower’s jurisdiction of
organization is Delaware; the name of the Borrower as listed in the public
records of its jurisdiction of organization is Memorial Production Operating
LLC; and the organizational identification number of the Borrower in its
jurisdiction of organization is 4992976 (or, in each case, as set forth in a
notice delivered to the Administrative Agent pursuant to Section 8.01(n) in
accordance with Section 12.01). The Borrower’s principal place of business and
chief executive offices are located at the address specified in Section 12.01
(or as set forth in a notice delivered pursuant to Section 8.01(n) and
Section 12.01(c)). Each Guarantor’s jurisdiction of organization, name as listed
in the public records of its jurisdiction of organization, organizational
identification number in its jurisdiction of organization, and the location of
its principal place of business and chief executive office is stated on
Schedule 7.14 (or as set forth in a notice delivered pursuant to
Section 8.01(n)).

Section 7.16 Properties; Titles, Etc.

(a) Each of the Loan Parties has good and defensible title to the Oil and Gas
Properties evaluated in the most recently delivered Reserve Report and good
title to all its material personal Properties, in each case, free and clear of
all Liens except Liens permitted by Section 9.03. After giving full effect to
the Excepted Liens, the Loan Party specified as the owner owns the net interests
in production attributable to the Hydrocarbon Interests as reflected in the most
recently delivered Reserve Report, and the ownership of such Properties shall
not in any material respect obligate such Loan Party to bear the costs and
expenses relating to the maintenance, development and operations of each such
Property in an amount in excess of the working interest of each Property set
forth in the most recently delivered Reserve Report that is not offset by a
corresponding proportionate increase in the Borrower’s or such other Loan
Party’s net revenue interest in such Property.

(b) All material leases and agreements necessary for the conduct of the business
of the Loan Parties are valid and subsisting, in full force and effect, and
there exists no default or event or circumstance which with the giving of notice
or the passage of time or both would give rise to a default under any such
leases or agreements, which could reasonably be expected to have a Material
Adverse Effect.

(c) The rights and Properties presently owned, leased or licensed by each Loan
Party including, without limitation, all easements and rights of way, include
all rights and Properties necessary to permit each Loan Party to conduct its
business in all material respects in the same manner as its business has been
conducted prior to the date hereof.

 

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(d) All of the Properties of the Loan Parties which are reasonably necessary for
the operation of their businesses are in good working condition and are
maintained in accordance with prudent business standards except for such failure
as to condition or maintenance as could not be reasonably expected to have a
Material Adverse Effect.

(e) Each Loan Party owns, or is licensed to use, all trademarks, tradenames,
copyrights, patents and other intellectual Property material to its business,
and the use thereof by the Borrower and such other Loan Parties does not
infringe upon the rights of any other Person, except for any such infringements
that, individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect. The Loan Parties either own or have valid
licenses or other rights to use all databases, geological data, geophysical
data, engineering data, seismic data, maps, interpretations and other technical
information used in their businesses as presently conducted, subject to the
limitations contained in the agreements governing the use of the same, which
limitations are customary for companies engaged in the business of the
exploration and production of Hydrocarbons, with such exceptions as could not
reasonably be expected to have a Material Adverse Effect.

Section 7.17 Maintenance of Properties. Except for such acts or failures to act
as could not be reasonably expected to have a Material Adverse Effect, the Oil
and Gas Properties (and Properties unitized therewith) of the Loan Parties have
been maintained, operated and developed in a good and workmanlike manner and in
conformity with all Governmental Requirements and in conformity with the
provisions of all leases, subleases or other contracts comprising a part of the
Hydrocarbon Interests and other contracts and agreements forming a part of the
Oil and Gas Properties of the Borrower and the other Loan Parties. Specifically
in connection with the foregoing, except for those as could not be reasonably
expected to have a Material Adverse Effect, (i) no Oil and Gas Property of the
Loan Parties is subject to having allowable production reduced below the full
and regular allowable (including the maximum permissible tolerance) because of
any overproduction (whether or not the same was permissible at the time) and
(ii) none of the wells comprising a part of the Oil and Gas Properties (or
Properties unitized therewith) of the Loan Parties is deviated from the vertical
more than the maximum permitted by Governmental Requirements, and such wells
are, in fact, bottomed under and are producing from, and the well bores are
wholly within, the Oil and Gas Properties (or in the case of wells located on
Properties unitized therewith, such unitized Properties) of the Loan Parties.
All pipelines, wells, gas processing plants, platforms and other material
improvements, fixtures and equipment owned in whole or in part by the Loan
Parties that are necessary to conduct normal operations are being maintained in
a state adequate to conduct normal operations, and with respect to such of the
foregoing which are operated by the Loan Parties, in a manner consistent with
the Loan Parties’ past practices (other than those the failure of which to
maintain in accordance with this Section 7.17 could not reasonably be expected
to have a Material Adverse Effect).

Section 7.18 Gas Imbalances, Prepayments. Except as set forth on Schedule 7.18
or on the most recent certificate delivered pursuant to Section 8.12(c), on a
net basis there are no gas imbalances, take or pay or other prepayments which
would require the Parent or any of its Subsidiaries to deliver Hydrocarbons
produced from their Oil and Gas Properties at some future time without then or
thereafter receiving full payment therefor exceeding one-half bcf of gas (on an
mcf equivalent basis) in the aggregate.

 

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Section 7.19 Marketing of Production. Except for contracts listed and in effect
on the date hereof on Schedule 7.19, and thereafter either disclosed in writing
to the Administrative Agent or included in the most recently delivered Reserve
Report (with respect to all of which contracts the Borrower represents that it
or its Subsidiaries are receiving a price for all production sold thereunder
which is computed substantially in accordance with the terms of the relevant
contract and are not having deliveries curtailed substantially below the subject
Property’s delivery capacity), no material agreements exist which are not
cancelable on 60 days notice or less without penalty or detriment for the sale
of production from the Borrower’s or the other Loan Parties’ Hydrocarbons
(including, without limitation, calls on or other rights to purchase,
production, whether or not the same are currently being exercised) that
(a) pertain to the sale of production at a fixed price and (b) have a maturity
or expiry date of longer than six (6) months from the date hereof.

Section 7.20 Swap Agreements. Schedule 7.20, as of the date hereof, and after
the date hereof, each report required to be delivered by the Borrower pursuant
to Section 8.01(e), sets forth, a true and complete list of all Swap Agreements
of the Borrower and each other Loan Party, the material terms thereof (including
the type, term, effective date, termination date and notional amounts or
volumes), the net mark-to-market value thereof, all credit support agreements
relating thereto and the counterparty to each such agreement.

Section 7.21 Use of Loans and Letters of Credit. The proceeds of the Loans and
the Letters of Credit shall be used to provide working capital for exploration
and production operations, to fund a portion of the purchase price of the
Initial Acquisition, for general corporate purposes (including financing
Acquisitions and Investments permitted hereunder), for Restricted Payments
permitted by Section 9.04 and to pay fees, commissions and expenses incurred in
connection with the Transactions. The Loan Parties are not engaged principally,
or as one of its or their important activities, in the business of extending
credit for the purpose, whether immediate, incidental or ultimate, of buying or
carrying margin stock (within the meaning of Regulation T, U or X of the Board).
No part of the proceeds of any Loan or Letter of Credit will be used for any
purpose which violates the provisions of Regulations T, U or X of the Board. No
Letter of Credit will be used to post margin or collateral to secure any Loan
Party’s obligations under any Swap Agreement with a Person other than a Lender
or an Affiliate of a Lender.

Section 7.22 Solvency. After giving effect to the transactions contemplated
hereby, (a) the aggregate assets (after giving effect to amounts that could
reasonably be received by reason of indemnity, offset, insurance or any similar
arrangement), at a fair valuation, of the Loan Parties, taken as a whole, will
exceed the aggregate Debt of the Loan Parties on a consolidated basis, as the
Debt becomes absolute and matures, (b) each of the Loan Parties will not have
incurred or intended to incur, and will not believe that it will incur, Debt
beyond its ability to pay such Debt (after taking into account the timing and
amounts of cash to be received by each of the Borrower and the Guarantors and
the amounts to be payable on or in respect of its liabilities, and giving effect
to amounts that could reasonably be received by reason of indemnity, offset,
insurance or any similar arrangement) as such Debt becomes absolute and matures
and (c) each of the Loan Parties will not have (and will have no reason to
believe that it will have thereafter) unreasonably small capital for the conduct
of its business.

 

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Section 7.23 Foreign Corrupt Practices. No Loan Party, nor any director,
officer, agent, employee or Affiliate of the Loan Parties is aware of or has
taken any action, directly or indirectly, that would result in a material
violation by such Persons of the FCPA, including without limitation, making use
of the mails or any means or instrumentality of interstate commerce corruptly in
furtherance of an offer, payment, promise to pay or authorization of the payment
of any money, or other property, gift, promise to give, or authorization of the
giving of anything of value to any “foreign official” (as such term is defined
in the FCPA) or any foreign political party or official thereof or any candidate
for foreign political office, in contravention of the FCPA; and, the Loan
Parties and their Affiliates have conducted their business in material
compliance with the FCPA and have instituted and maintain policies and
procedures designed to ensure, and which are reasonably expected to continue to
ensure, continued compliance therewith.

Section 7.24 OFAC. No Loan Party, nor any director, officer, agent, employee or
Affiliate of the Loan Parties is currently subject to any material U.S.
sanctions administered by OFAC, and the Borrower will not directly or indirectly
use the proceeds from the Loans or lend, contribute or otherwise make available
such proceeds to any Subsidiary, joint venture partner or other Person, for the
purpose of financing the activities of any Person currently subject to any U.S.
sanctions administered by OFAC.

ARTICLE VIII

AFFIRMATIVE COVENANTS

Until the Commitments have expired or been terminated and the principal of and
interest on each Loan and all fees payable hereunder and all other amounts
payable under the Loan Documents then outstanding shall have been paid in full
and all Letters of Credit shall have expired or terminated and all LC
Disbursements shall have been reimbursed, the Borrower covenants and agrees with
the Lenders that:

Section 8.01 Financial Statements; Other Information. The Borrower will furnish
or will cause the Parent to furnish to the Administrative Agent and each Lender:

(a) Annual Financial Statements. As soon as available, but in any event in
accordance with then applicable law and not later than 15 days after annual
financial statements are required to be delivered to the SEC, the Parent’s
audited consolidated balance sheet and related statements of operations,
partners’ equity and cash flows as of the end of and for such year, setting
forth in each case in comparative form the figures for the previous fiscal year,
all reported on by KPMG LLP or other independent public accountants of
recognized national standing (without a “going concern” or like qualification or
exception and without any qualification or exception as to the scope of such
audit) to the effect that such consolidated financial statements present fairly
in all material respects the financial condition and results of operations of
the Parent and its Consolidated Subsidiaries on a consolidated basis in
accordance with GAAP consistently applied; provided that the timely filing with
the SEC of the Parent’s annual report on Form 10-K will satisfy the reporting
requirements of this Section 8.01(a).

(b) Quarterly Financial Statements. For each of the first three fiscal quarters
of the Parent’s fiscal year, as soon as available, but in any event in
accordance with then

 

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applicable law and not later than 15 days after quarterly financial statements
are required to be delivered to the SEC, the Parent’s consolidated balance sheet
and related statements of operations, partners’ equity and cash flows as of the
end of and for such fiscal quarter and the then elapsed portion of the fiscal
year, setting forth in each case in comparative form the figures for the
corresponding period or periods of (or, in the case of the balance sheet, as of
the end of) the previous fiscal year, all certified by one of its Financial
Officers as presenting fairly in all material respects the financial condition
and results of operations of the Parent and its Consolidated Subsidiaries on a
consolidated basis in accordance with GAAP consistently applied, subject to
normal year-end audit adjustments and the absence of footnotes; provided that
the timely filing with the SEC of the Parent’s quarterly reports on Form 10-Q
will satisfy the reporting requirements of this Section 8.01(b).

(c) Certificate of Financial Officer — Compliance. Concurrently with any
delivery of financial statements under Section 8.01(a) or Section 8.01(b), a
certificate of a Financial Officer in substantially the form of Exhibit D hereto
(i) certifying as to whether a Default has occurred and, if a Default has
occurred, specifying the details thereof and any action taken or proposed to be
taken with respect thereto, (ii) setting forth reasonably detailed calculations
demonstrating compliance with Section 8.13(a), Section 8.14(a) and Section 9.01
and (iii) stating whether any change in GAAP or in the application thereof has
occurred since the date of the audited financial statements referred to in
Section 7.04 and, if any such change has occurred, specifying the effect of such
change on the financial statements accompanying such certificate.

(d) Certificate of Financial Officer — Consolidating Information. If, at any
time, all of the Subsidiaries of the Parent are not Consolidated Subsidiaries,
then concurrently with any delivery of financial statements under
Section 8.01(a) or Section 8.01(b), a certificate of a Financial Officer setting
forth consolidating spreadsheets that show all Consolidated Subsidiaries and the
eliminating entries, in such form as would be presentable to the auditors of the
Parent.

(e) Certificate of Financial Officer — Swap Agreements. Concurrently with any
delivery of financial statements under Section 8.01(a) and Section 8.01(b) and
the delivery of each Reserve Report hereunder, a certificate of a Financial
Officer, in form and substance satisfactory to the Administrative Agent, setting
forth as of a recent date, a reasonably detailed summary of the Swap Agreements
to which any Loan Party is a party on such date, which summary shall include
information that is sufficient (as reasonably determined by the Administrative
Agent) for purposes of determining the Borrowing Base hereunder including,
without limitation, the type, term, effective date, termination date and
notional amounts or volumes).

(f) Certificate of Insurer — Insurance Coverage. Concurrently with any delivery
of financial statements under Section 8.01(a), a certificate of insurance
coverage from each insurer with respect to the insurance required by
Section 8.07, in form and substance satisfactory to the Administrative Agent,
and, if requested by the Administrative Agent or any Lender, all copies of the
applicable policies.

 

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(g) Other Accounting Reports. Promptly upon receipt thereof, a copy of any
“management letter” received by the Borrower or any of the Loan Parties by
independent accountants that indicates, in the reasonable good faith judgment of
the board of directors (or comparable governing body), as applicable, of the
Borrower or any such other Loan Party, a material weakness in such Person’s
internal controls or procedures and the management’s responses thereto.

(h) SEC and Other Filings; Reports to Shareholders. Promptly after the same
become publicly available, copies of all periodic and other reports, proxy
statements and other materials filed by the Borrower or any other Loan Party
with the SEC, or with any national or foreign securities exchange, or
distributed by the Borrower to its equityholders generally, as the case may be;
provided that the timely filing with the SEC of any such materials or the
posting of such documents (or providing a link thereto) on the Borrower’s or
such other Loan Party’s website on the Internet at the Borrower’s or such other
Loan Party’s website address will satisfy the reporting requirements of this
Section 8.01(h).

(i) Notices Under Material Instruments. Promptly after the furnishing thereof,
copies of any financial statement, report or notice furnished to or by any
Person pursuant to the terms of any preferred stock designation, indenture, loan
or credit or other similar agreement, other than this Agreement and not
otherwise required to be furnished to the Lenders pursuant to any other
provision of this Section 8.01.

(j) Lists of Purchasers. Promptly following the written request of the
Administrative Agent, a list of all Persons purchasing material quantities of
Hydrocarbons from the Borrower or any other Loan Party.

(k) Notice of Sales of Oil and Gas Properties. In the event the Borrower or any
other Loan Party intends to sell, transfer, assign or otherwise dispose of any
Oil or Gas Properties or any Equity Interests in any Subsidiary in accordance
with Section 9.12, prior written notice of such disposition, the price thereof
and the anticipated date of closing and any other details thereof reasonably
requested by the Administrative Agent or any Lender.

(l) Notice of Casualty Events. Prompt written notice, and in any event within
five Business Days, of the occurrence of any Casualty Event or the commencement
of any action or proceeding that could reasonably be expected to result in a
Casualty Event.

(m) Issuance of Permitted Senior Unsecured Notes. In the event the Parent or the
Borrower intends to issue Permitted Senior Unsecured Notes, prior written notice
of such intended offering of such Permitted Senior Unsecured Notes, the amount
thereof, and the anticipated date of closing and promptly when available will
furnish a copy of the preliminary offering memorandum (if any) and the final
offering memorandum (if any).

(n) Information Regarding Borrower and Guarantors. Prompt written notice (and in
any event within 30 days prior thereto) of any change (i) in the Borrower or any
Guarantor’s corporate name or in any trade name used to identify such Person in
the conduct of its business or in the ownership of its Properties, (ii) in the
location of the Borrower’s or any Guarantor’s chief executive office or
principal place of business, (iii) in the Borrower’s or any

 

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Guarantor’s identity or corporate structure or in the jurisdiction in which such
Person is incorporated or formed, (iv) in the Borrower’s or any Guarantor’s
jurisdiction of organization or such Person’s organizational identification
number in such jurisdiction of organization, and (v) in the Borrower’s or any
Guarantor’s federal taxpayer identification number.

(o) Production Report and Lease Operating Statements. Concurrently with any
delivery of financial statements under Section 8.01(a) and Section 8.01(b), a
report setting forth, for each calendar month during the then current fiscal
year to date, the volume of production and sales attributable to production (and
the prices at which such sales were made and the revenues derived from such
sales) for each such calendar month from the Oil and Gas Properties, and setting
forth the related ad valorem, severance and production taxes and lease operating
expenses attributable thereto and incurred for each such calendar month.

(p) Notices of Certain Changes. Promptly, but in any event within five Business
Days after the execution thereof, copies of any amendment, modification or
supplement to any Organizational Document, any preferred stock designation or
any other organic document of the Borrower or any other Loan Party.

(q) Notices Relating to an Acquisition. In the event that (i) any Loan Party is
required or elects to purchase any of the Acquisition Properties which had been
excluded from, or return any of the Acquisition Properties which had been
included in, the Acquisition Properties in accordance with the terms of the
Acquisition Documents, (ii) any Loan Party is required to honor any preferential
purchase right in respect of any Acquisition Property which has not been waived,
(iii) any material matter being disputed in accordance with the terms of the
Acquisition Documents is resolved or (iv) the applicable Loan Party and the
seller(s) calculate and agree upon the “closing adjustment statement” or
“post-closing adjustment statement” as contemplated by the Acquisition
Documents, then, in each such case, the Borrower shall promptly give the
Administrative Agent notice in reasonable detail of such circumstances.

(r) Annual Budget and Updated Forecasted Financial Statements. Concurrently with
any delivery of financial statements under Section 8.01(a), an annual budget of
the Loan Parties in form and detail reasonably satisfactory to the
Administrative Agent and forecasts prepared by management of the Borrower of
consolidated balance sheets and income statements for the Loan Parties on a
quarterly basis for the first year following the year for which such financial
statements are then being delivered under Section 8.01(a) and on an annual basis
for each year thereafter during the term of this Agreement.

(s) Other Requested Information. Promptly following any request therefor, such
other information regarding the operations, business affairs and financial
condition of the Borrower or any other Loan Party (including, without
limitation, any Plan and any reports or other information required to be filed
with respect thereto under the Code or under ERISA), or compliance with the
terms of this Agreement or any other Loan Document, as the Administrative Agent
or any Lender may reasonably request.

Section 8.02 Notices of Material Events. The Borrower will furnish to the
Administrative Agent and each Lender prompt written notice of the following:

 

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(a) the occurrence of any Default;

(b) the filing or commencement of, or the threat in writing of, any action,
suit, proceeding, investigation or arbitration by or before any arbitrator or
Governmental Authority against or affecting the Borrower or any Affiliate
thereof not previously disclosed in writing to the Lenders or any material
adverse development in any action, suit, proceeding, investigation or
arbitration (whether or not previously disclosed to the Lenders) that, in either
case, if adversely determined, could reasonably be expected to result in a
Material Adverse Effect; and

(c) the occurrence of any ERISA Event that, alone or together with any other
ERISA Events that have occurred, could reasonably be expected to result in
liability of the Borrower and the other Loan Parties in an aggregate amount
exceeding $500,000; and

(d) any other development that results in, or could reasonably be expected to
result in, a Material Adverse Effect.

Each notice delivered under this Section 8.02 shall be accompanied by a
statement of a Responsible Officer setting forth the details of the event or
development requiring such notice and any action taken or proposed to be taken
with respect thereto.

Section 8.03 Existence; Conduct of Business. The Borrower will, and will cause
each other Loan Party to, do or cause to be done all things necessary to
preserve, renew and keep in full force and effect its legal existence and the
rights, licenses, permits, privileges and franchises material to the conduct of
its business and maintain, if necessary, its qualification to do business in
each other jurisdiction in which its Oil and Gas Properties is located or the
ownership of its Properties requires such qualification, except where the
failure to so qualify could not reasonably be expected to have a Material
Adverse Effect; provided that the foregoing shall not prohibit any merger,
consolidation, liquidation or dissolution permitted under Section 9.11.

Section 8.04 Payment of Obligations. The Borrower will, and will cause each
other Loan Party to, pay its obligations, including Tax liabilities of the
Borrower and all of the other Loan Parties before the same shall become
delinquent or in default, except where (a) the validity or amount thereof is
being contested in good faith by appropriate proceedings, (b) the Borrower or
such other Loan Party has set aside on its books adequate reserves with respect
thereto in accordance with GAAP and (c) the failure to make payment pending such
contest could not reasonably be expected to result in a Material Adverse Effect
or result in the seizure or levy of any material Property of the Borrower or any
other Loan Party.

Section 8.05 Performance of Obligations under Loan Documents. The Borrower will
pay the Notes according to the reading, tenor and effect thereof, and the
Borrower will, and will cause each other Loan Party to, do and perform every act
and discharge all of the obligations to be performed and discharged by it under
the Loan Documents, including, without limitation, this Agreement, at the time
or times and in the manner specified, taking into consideration any grace
periods therein.

Section 8.06 Operation and Maintenance of Properties. The Borrower at its sole
expense will, and will cause each other Loan Party to:

 

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(a) operate its Oil and Gas Properties and other material Properties or cause
such Oil and Gas Properties and other material Properties to be operated in a
careful and efficient manner in accordance with the practices of the industry
and in compliance with all applicable contracts and agreements and in compliance
with all Governmental Requirements, including, without limitation, applicable
pro ration requirements and Environmental Laws, and all applicable laws, rules
and regulations of every other Governmental Authority from time to time
constituted to regulate the development and operation of its Oil and Gas
Properties and the production and sale of Hydrocarbons and other minerals
therefrom, except, in each case, where the failure to comply could not
reasonably be expected to have a Material Adverse Effect;

(b) keep and maintain all Property material to the conduct of its business in
good working order and condition (ordinary wear and tear excepted), preserve,
maintain and keep in good repair, working order and efficiency (ordinary wear
and tear and obsolescence excepted) all of its material Oil and Gas Properties
and other material Properties, including, without limitation, all equipment,
machinery and facilities;

(c) promptly pay and discharge, or make reasonable and customary efforts to
cause to be paid and discharged, all delay rentals, royalties, expenses and
indebtedness accruing under the leases or other agreements affecting or
pertaining to its Oil and Gas Properties and will do all other things necessary
to keep materially unimpaired its rights with respect thereto and prevent any
forfeiture thereof or default thereunder, except, in each case, where the
failure to comply could not reasonably be expected to have a Material Adverse
Effect;

(d) promptly perform, or make reasonable and customary efforts to cause to be
performed, in accordance with industry standards, the obligations required by
each and all of the assignments, deeds, leases, sub-leases, contracts and
agreements affecting its interests in its Oil and Gas Properties and other
material Properties, except, in each case, where the failure to comply could not
reasonably be expected to have a Material Adverse Effect;

(e) operate its Oil and Gas Properties and other material Properties or cause or
make reasonable and customary efforts to cause such Oil and Gas Properties and
other material Properties to be operated in accordance with the practices of the
industry and in material compliance with all applicable contracts and agreements
and in compliance in all material respects with all Governmental Requirements;
and

(f) to the extent that a Loan Party is not the operator of any Property, the
Borrower shall use reasonable efforts to cause the operator to comply with this
Section 8.06.

Section 8.07 Insurance. The Borrower will, and will cause each other Loan Party
to, maintain, with financially sound and reputable insurance companies,
insurance (a) in such amounts and against such risks as are customarily
maintained by companies engaged in the same or similar businesses operating in
the same or similar locations and (b) in accordance with all Governmental
Requirements including, without limitation, Flood Insurance, if required. Within
30 days following the Effective Date, the loss payable clauses or provisions in
said insurance policy or policies insuring any of the collateral for the Loans
shall be endorsed in favor of and made payable to the Administrative Agent as
its interests may appear and such policies shall name the Administrative Agent
and the Lenders as “additional insureds” and provide that the insurer will
endeavor to give at least 30 days prior notice of any cancellation to the
Administrative Agent.

 

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Section 8.08 Books and Records; Inspection Rights. The Borrower will, and will
cause each other Loan Party to, keep proper books of record and account in which
full, true and correct entries are made of all dealings and transactions in
relation to its business and activities. The Borrower will, and will cause each
other Loan Party to, permit any representatives designated by the Administrative
Agent or any Lender, upon reasonable prior notice, to visit and inspect its
Properties, to examine and make extracts from its books and records, and to
discuss its affairs, finances and condition with its officers and independent
accountants, all at such reasonable times and as often as reasonably requested.

Section 8.09 Compliance with Laws. The Borrower will, and will cause each other
Loan Party to, comply with all laws, rules, regulations and orders of any
Governmental Authority applicable to it or its Property, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.

Section 8.10 Environmental Matters.

(a) The Borrower shall at its sole expense: (i) comply, and shall cause its
Properties and operations and each other Loan Party and each other Loan Party’s
Properties and operations to comply, with all applicable Environmental Laws, the
violation of which could be reasonably expected to have a Material Adverse
Effect; (ii) not Release or threaten to Release, and shall cause each Subsidiary
not to Release or threaten to Release, any Hazardous Material on, under, about
or from any of the Borrower’s or any other Loan Party’s Properties or any other
property offsite the Property to the extent caused by the Borrower’s or any
other Loan Party’s operations except in compliance with applicable Environmental
Laws, the Release or threatened Release of which could reasonably be expected to
have a Material Adverse Effect; (iii) timely obtain or file, and shall cause
each Subsidiary to timely obtain or file, all material Environmental Permits, if
any, required under applicable Environmental Laws to be obtained or filed in
connection with the operation or use of the Borrower’s or any other Loan Party’s
Properties, which failure to obtain or file could reasonably be expected to have
a Material Adverse Effect; (iv) promptly commence and diligently prosecute to
completion, and shall cause each other Loan Party to promptly commence and
diligently prosecute to completion, any assessment, evaluation, investigation,
monitoring, containment, cleanup, removal, repair, restoration, remediation or
other remedial obligations (collectively, the “Remedial Work”) in the event any
Remedial Work is required or reasonably necessary under applicable Environmental
Laws because of or in connection with the actual or suspected past, present or
future Release or threatened Release of any Hazardous Material on, under, about
or from any of the Borrower’s or any other Loan Party’s Properties, which
failure to commence and diligently prosecute to completion could reasonably be
expected to have a Material Adverse Effect; (v) conduct, and cause each other
Loan Party to conduct, its operations and businesses in a prudent manner
relative to the exposure of any Property or Person to Hazardous Materials that
could reasonably be expected to form the basis for a claim for damages or
compensation; and (vi) establish and implement, and shall cause each other Loan
Party to establish and implement, such procedures as may be necessary to
continuously determine and assure that the Borrower’s and each other Loan
Party’s obligations under this Section 8.10(a) are timely and fully satisfied,
which failure to establish and implement could reasonably be expected to have a
Material Adverse Effect.

 

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(b) The Borrower will promptly, but in no event later than five Business Days
after obtaining knowledge of the occurrence of a triggering event, notify the
Administrative Agent and the Lenders in writing of any threatened action,
investigation or inquiry by any Governmental Authority or any threatened demand
or lawsuit by any Person against the Borrower or any other Loan Party or their
Properties in connection with any Environmental Laws that, if adversely
determined, could reasonably be expected to result in liability (whether
individually or in the aggregate) in excess of $5,000,000, not fully covered by
insurance (subject to normal deductibles).

(c) The Borrower will, and will cause each other Loan Party to, provide
environmental assessments, audits and tests in accordance with the most current
version of the American Society of Testing Materials standards upon request by
the Administrative Agent and the Lenders and no more than once per year in the
absence of any Event of Default (or as otherwise required to be obtained by any
Governmental Authority), or in connection with any future Acquisitions; provided
that notwithstanding anything to the contrary in this Section 8.10(c), no
boring, subsurface sampling or phase II environmental review shall be required
with respect to any environmental assessments, audits or tests conducted
pursuant to this Section 8.10(c).

Section 8.11 Further Assurances.

(a) The Borrower at its sole expense will, and will cause each other Loan Party
to, promptly execute and deliver to the Administrative Agent all such other
documents, agreements and instruments reasonably requested by the Administrative
Agent to comply with, cure any defects or accomplish the conditions precedent,
covenants and agreements of the Borrower or any other Loan Party, as the case
may be, in the Loan Documents, including the Notes, or to further evidence and
more fully describe the collateral intended as security for the Indebtedness, or
to correct any omissions in this Agreement or the Security Instruments, or to
state more fully the obligations secured therein, or to perfect, protect or
preserve any Liens created pursuant to this Agreement or any of the Security
Instruments or the priority thereof, or to make any recordings, file any notices
or obtain any consents, all as may be reasonably necessary or appropriate, in
the reasonable discretion of the Administrative Agent, in connection therewith.

(b) The Borrower hereby authorizes the Administrative Agent to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Mortgaged Property without the signature of the Borrower or any
other Guarantor where permitted by law. A carbon, photographic or other
reproduction of the Security Instruments or any financing statement covering the
Mortgaged Property or any part thereof shall be sufficient as a financing
statement where permitted by law. The Borrower acknowledges and agrees that any
such financing statement may describe the collateral as “all assets” of the
applicable Loan Party or words of similar effect as may be required by the
Administrative Agent.

 

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Section 8.12 Reserve Reports.

(a) On or before February 28 and August 31 of each year, commencing February 28,
2012, the Borrower shall furnish to the Administrative Agent and the Lenders a
Reserve Report evaluating the Oil and Gas Properties of the Borrower and the
other Loan Parties as of the immediately preceding January 1 and July 1 (or
December 31 and June 30). The Reserve Report as of July 1 (or June 30) of each
year shall be prepared by or under the supervision of the chief engineer of the
Borrower who shall certify (i) there are no statements or conclusions in such
Reserve Report which are based upon or include misleading information or fail to
take into account material information regarding the matters reported therein,
it being understood that projections concerning volumes attributable to the Oil
and Gas Properties and production and cost estimates contained in any Reserve
Report are necessarily based upon professional opinions, estimates and
projections and that the Borrower and the other Loan Parties do not warrant that
such opinions, estimates and projections will ultimately prove to have been
accurate, and (ii) that such Reserve Report has been prepared in accordance with
the procedures used in the immediately preceding January 1 (or December 31)
Reserve Report. The Reserve Report as of January 1 of each year (or December 31
of the preceding year) shall be prepared by one or more Approved Petroleum
Engineers.

(b) In the event of an Interim Redetermination, the Borrower shall furnish to
the Administrative Agent and the Lenders a Reserve Report prepared by or under
the supervision of the chief engineer of the Borrower who shall certify such
Reserve Report to be true and accurate and to have been prepared in accordance
with the procedures used in the immediately preceding January 1 (or December 31)
Reserve Report. For any Interim Redetermination requested by the Administrative
Agent or the Borrower pursuant to Section 2.07(b), the Borrower shall provide
such Reserve Report with an “as of” date as required by the Administrative Agent
as soon as possible, but in no event later than 30 days following the receipt of
such request.

(c) With the delivery of each Reserve Report, the Borrower shall provide to the
Administrative Agent and the Lenders a certificate from a Responsible Officer
certifying that in all material respects: (i) the information contained in the
Reserve Report and any other information delivered in connection therewith is
true and correct, (ii) the Borrower or a Loan Party owns good and defensible
title to the Oil and Gas Properties evaluated in such Reserve Report and such
Properties are free of all Liens except for Liens permitted by Section 9.03,
(iii) except as set forth on an exhibit to the certificate, on a net basis there
are no gas imbalances, take or pay or other prepayments in excess of the volume
specified in Section 7.18 with respect to its Oil and Gas Properties evaluated
in such Reserve Report which would require the Borrower or any of the other Loan
Parties to deliver Hydrocarbons either generally or produced from such Oil and
Gas Properties at some future time without then or thereafter receiving full
payment therefor, (iv) none of their Oil and Gas Properties have been sold since
the date of the last Borrowing Base determination except as set forth on an
exhibit to the certificate, which certificate shall list all of its Oil and Gas
Properties sold and in such detail as reasonably required by the Administrative
Agent, (v) attached to the certificate is a list of all marketing agreements
entered into subsequent to the later of the date hereof or the most recently
delivered Reserve Report which the Borrower could reasonably be expected to have
been obligated to list on Schedule 7.19 had such agreement been in effect on the
date hereof and (vi) attached thereto is a schedule of the Oil and Gas
Properties evaluated by such Reserve Report that are Mortgaged Properties and
demonstrating the percentage of the total value of the Loan Parties’ Oil and Gas
Properties that the value of such Mortgaged Properties represent in compliance
with Section 8.14(a).

 

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Section 8.13 Title Information.

(a) On or before the delivery to the Administrative Agent and the Lenders of
each Reserve Report required by Section 8.12, the Borrower will deliver title
information in form and substance acceptable to the Administrative Agent
covering enough of the Oil and Gas Properties evaluated by such Reserve Report
that were not included in the immediately preceding Reserve Report, so that the
Administrative Agent shall have received together with title information
previously delivered to the Administrative Agent, satisfactory title information
on at least 80% of the total value of the Oil and Gas Properties evaluated by
such Reserve Report.

(b) If the Borrower has provided title information for additional Properties
under Section 8.13(a), the Borrower shall, within 90 days of notice from the
Administrative Agent that material title defects or exceptions exist with
respect to such additional Properties, either (i) cure any such material title
defects or exceptions (including defects or exceptions as to priority) that do
not constitute Excepted Liens pursuant to Section 9.03, raised by such
information, (ii) substitute acceptable Mortgaged Properties with no material
title defects or exceptions except for Excepted Liens (other than Excepted Liens
described in clauses (e), (g) and (h) of such definition) having an equivalent
value, or (iii) deliver title information in form and substance acceptable to
the Administrative Agent so that the Administrative Agent shall have received,
together with title information previously delivered to the Administrative
Agent, satisfactory title information on at least 80% of the value of the Oil
and Gas Properties evaluated by such Reserve Report.

(c) If the Borrower is unable to cure any material title defect requested by the
Administrative Agent or the Lenders to be cured within the 90-day period or the
Borrower does not comply with the requirements to provide acceptable title
information covering 80% of the value of the Oil and Gas Properties evaluated in
the most recent Reserve Report, such default shall not be a Default, but instead
the Administrative Agent and/or the Majority Lenders shall have the right to
exercise the following remedy in their sole discretion from time to time, and
any failure to so exercise this remedy at any time shall not be a waiver as to
future exercise of the remedy by the Administrative Agent or the Lenders. To the
extent that the Administrative Agent or the Majority Lenders are not satisfied
with title to any Mortgaged Property after the 90-day period has elapsed, such
unacceptable Mortgaged Property shall not count towards the 80% requirement, and
the Administrative Agent may send a notice to the Borrower and the Lenders that
the Borrowing Base then in effect shall be reduced by an amount as determined by
the Required Lenders to cause the Borrower to be in compliance with the
requirement to provide acceptable title information on 80% of the value of the
Oil and Gas Properties. This new Borrowing Base shall become effective
immediately after receipt of such notice.

 

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Section 8.14 Additional Collateral; Additional Guarantors.

(a) In connection with each redetermination of the Borrowing Base, the Borrower
shall review the Reserve Report and the list of current Mortgaged Properties (as
described in Section 8.12(c)(vi)) to ascertain whether the Mortgaged Properties
represent at least 80% of the total value of the Oil and Gas Properties
evaluated in the most recently completed Reserve Report after giving effect to
exploration and production activities, acquisitions, dispositions and
production. In the event that the Mortgaged Properties do not represent at least
80% of such total value, then the Borrower shall, and shall cause the other Loan
Parties to, grant, within 30 days of delivery of the certificate required under
Section 8.12(a), to the Administrative Agent as security for the Indebtedness a
first-priority Lien interest (provided that Excepted Liens of the type described
in clauses (a) to (d) and (f) of the definition thereof may exist, but subject
to the provisos at the end of such definition) on additional Oil and Gas
Properties of the Loan Parties not already subject to a Lien of the Security
Instruments such that after giving effect thereto, the Mortgaged Properties will
represent at least 80% of such total value. All such Liens will be created and
perfected by and in accordance with the provisions of deeds of trust, security
agreements and financing statements or other Security Instruments, all in form
and substance reasonably satisfactory to the Administrative Agent and in
sufficient executed (and acknowledged where necessary or appropriate)
counterparts for recording purposes.

(b) Each Loan Party shall, and shall cause each of its Material Subsidiaries to:
(i) unconditionally guaranty, on a joint and several basis, the prompt payment
and performance of the Indebtedness pursuant to the Guaranty Agreement and
(ii) grant to the Administrative Agent, pursuant to the Security Agreement, a
perfected, first-priority security interest in all of the issued and outstanding
Equity Interests in each Subsidiary of the Parent owned by such Material
Subsidiary. In connection therewith, the Parent shall, or shall cause such
Material Subsidiary, to promptly, but in any event within 10 Business Days after
the creation or acquisition thereof (or other similar event), (A) execute and
deliver an amendment or a supplement to the Guaranty Agreement as required by
the Administrative Agent, (B) execute and deliver an amendment or supplement to
the Security Agreement to pledge all of the Equity Interests in each Subsidiary
of the Parent owned by such Material Subsidiary (including, without limitation,
delivery of original stock or equity certificates evidencing the Equity
Interests of any such Subsidiary so owned, together with an appropriate undated
stock power for each certificate duly executed in blank by the registered owner
thereof), and (C) execute and deliver such other additional closing documents,
certificates and legal opinions as shall reasonably be requested by the
Administrative Agent. Parent and Borrower shall cause any Person that guarantees
the obligations with respect to any Permitted Senior Unsecured Notes to execute
and deliver to the Administrative Agent a Guaranty Agreement.

(c) The Parent will at all times cause the other material tangible and
intangible assets of the Parent and each Material Subsidiary to be subject to a
Lien of the Security Instruments.

Section 8.15 ERISA Compliance. The Borrower will promptly furnish and will cause
the other Loan Parties and any ERISA Affiliate to promptly furnish to the
Administrative Agent (i) promptly after the filing thereof with the United
States Secretary of Labor or the Internal Revenue Service, copies of each annual
and other report with respect to each Plan that is subject

 

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to Title IV of ERISA, section 302 of ERISA, or section 412 of the Code or any
trust created thereunder, and (ii) immediately upon becoming aware of the
occurrence of any “prohibited transaction,” as described in section 406 of ERISA
or in section 4975 of the Code, in connection with any Plan or any trust created
thereunder that could reasonably be expected to result in liability of the
Borrower and the other Loan Parties in an aggregate amount exceeding $500,000
(when taken together with all other such prohibited transactions that have
occurred within the preceding 12 months), a written notice signed by the
President or the principal Financial Officer, the Subsidiary or the ERISA
Affiliate, as the case may be, specifying the nature thereof, what action the
Borrower, such other Loan Party or the ERISA Affiliate is taking or proposes to
take with respect thereto, and, when known, any action taken or proposed by the
Internal Revenue Service or the Department of Labor with respect thereto.

Section 8.16 Commodity Price Risk Management Policy. The Loan Parties shall
maintain a commodity price risk management policy, which policy shall be
reasonably acceptable to the Administrative Agent; provided that such policy
shall be subject to the review of the Administrative Agent no more than once
every three years.

ARTICLE IX

NEGATIVE COVENANTS

Until the Commitments have expired or terminated and the principal of and
interest on each Loan and all fees payable hereunder and all other amounts
payable under the Loan Documents then outstanding have been paid in full and all
Letters of Credit have expired or terminated and all LC Disbursements shall have
been reimbursed, the Borrower covenants and agrees with the Lenders that:

Section 9.01 Financial Covenants.

(a) Interest Coverage Ratio. The Borrower will not, as of the last day of any
fiscal quarter, permit the Parent’s ratio of (i) Consolidated EBITDAX for the
Rolling Period ending on such day to (ii) Consolidated Net Interest Expense for
the Rolling Period ending on such day to be less than 2.50 to 1.00.

(b) Current Ratio. The Borrower will not permit, as of the last day of any
fiscal quarter, the Parent’s ratio of (i) consolidated current assets (including
the unused amount of the total Commitments (but only to the extent that the
Borrower is permitted to borrow such amount under the terms of this Agreement
including, without limitation, Section 6.02 hereof), and excluding non-cash
assets under ASC 815) to (ii) consolidated current liabilities (excluding
non-cash obligations under ASC 815 and current maturities under this Agreement)
of the Parent to be less than 1.0 to 1.0.

Section 9.02 Debt. The Borrower will not, and will not permit any other Loan
Party to, incur, create, assume or suffer to exist any Debt, except:

(a) the Notes or other Indebtedness arising under the Loan Documents or any
guaranty of or suretyship arrangement for the Notes or other Indebtedness
arising under the Loan Documents;

 

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(b) accounts payable and accrued expenses, liabilities or other obligations to
pay the deferred purchase price of Property or services, from time to time
incurred in the ordinary course of business which are not greater than 90 days
past the date of invoice or delinquent or which are being contested in good
faith by appropriate action and for which adequate reserves have been maintained
in accordance with GAAP;

(c) Debt under Capital Leases not to exceed $15,000,000;

(d) Debt associated with bonds or surety obligations required by Governmental
Requirements in connection with the operation of the Oil and Gas Properties;

(e) endorsements of negotiable instruments for collection in the ordinary course
of business;

(f) Debt under the Permitted Senior Unsecured Notes and guarantees thereof by
any Loan Party; and

(g) other Debt not to exceed $15,000,000 in the aggregate at any one time
outstanding.

Section 9.03 Liens. The Borrower will not, and will not permit any other Loan
Party to, create, incur, assume or permit to exist any Lien on any of its
Properties (now owned or hereafter acquired), except:

(a) Liens securing the payment of any Indebtedness;

(b) Excepted Liens;

(c) Liens securing Capital Leases permitted by Section 9.02(c) but only on the
Property under lease;

(d) Liens securing Debt permitted by Section 9.02(g); and

(e) Liens on cash in an aggregate amount of up to $10,000,000 securing any Swap
Agreement with any Approved Counterparty that is neither a Lender nor an
Affiliate of a Lender.

Notwithstanding the foregoing, none of the Liens permitted pursuant to this
Section 9.03 (other than Liens securing the Indebtedness and Excepted Liens) may
at any time attach to any Oil and Gas Properties evaluated in the Reserve Report
used in the most recent determination of the Borrowing Base.

Section 9.04 Dividends, Distributions and Repayment of Permitted Senior
Unsecured Notes.

(a) Restricted Payments. The Borrower will not, and will not permit any other
Loan Party to, declare or make, or agree to pay or make, directly or indirectly,
any Restricted Payment, return any capital to its stockholders or make any
distribution of its Property

 

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to its Equity Interest holders, except (i) the Parent may declare and pay
dividends with respect to its Equity Interests payable solely in additional
shares of its Equity Interests (other than Disqualified Capital Stock),
(ii) Subsidiaries may declare and pay dividends ratably with respect to their
Equity Interests, (iii) the Loan Parties may make Restricted Payments pursuant
to and in accordance with stock option plans or other benefit plans for
management or employees of Devco or the General Partner and its Subsidiaries,
and (iv) so long as no Borrowing Base Deficiency or Event of Default has
occurred and is continuing, or would exist after giving effect thereto, the
Parent (and, at any time when the Borrower owns, directly or indirectly, 100% of
the Equity Interests of the Parent, the Borrower) may make Restricted Payments
of Available Cash to holders of its Equity Interests in compliance with the
terms of its Organizational Documents; provided that the making of any such
Restricted Payment under this clause (iv) shall be deemed to constitute a
representation and warranty by the Borrower on the date thereof that the
conditions set forth in this clause (iv) have been met.

(b) Repayment of Permitted Senior Unsecured Notes; Amendment of Terms of
Permitted Senior Unsecured Notes. The Borrower will not, and will not permit any
other Loan Party to, prior to the date that is 180 days after the Maturity Date:
(i) call, make or offer to make any optional or voluntary Redemption of or
otherwise optionally or voluntarily Redeem (whether in whole or in part) the
Permitted Senior Unsecured Notes, except that, so long as no Default exists, the
Borrower may, substantially contemporaneously with its receipt of any cash
proceeds from any such issuance of Permitted Senior Unsecured Notes or sale of
Equity Interests, prepay or otherwise Redeem the Permitted Senior Unsecured
Notes in an amount equal to the amount of the net cash proceeds of a new
issuance of Permitted Senior Unsecured Notes or any sale of Equity Interests
(other than Disqualified Capital Stock) of the Borrower or the Parent or
(ii) amend, modify, waive or otherwise change, consent or agree to any
amendment, modification, waiver or other change to, any of the terms of the
Permitted Senior Unsecured Notes (except to the extent a new issuance of
Permitted Senior Unsecured Notes the proceeds of which were used to Redeem such
existing Permitted Senior Unsecured Notes pursuant to clause (i) would be
permitted to have such terms as so amended, modified, waived or otherwise
changed) if the effect thereof would be to (A) shorten its maturity or average
life, (B) increase the amount of any payment of principal thereof, (C) increase
the rate or shorten any period for payment of interest thereon, or (D) modify or
amend covenants or events of default such that the resulting covenants and
events of default in respect thereof, taken as a whole, are more restrictive
with respect to the Loan Parties than the covenants and Events of Default in
this Agreement without this Agreement being contemporaneously amended to add
similar provisions (as determined in good faith by senior management of the
General Partner).

Section 9.05 Investments and Loans. The Borrower will not, and will not permit
any other Loan Party to, make or permit to remain outstanding any Investments in
or to any Person or any loans made between the Parent and Borrower or any
intercompany loans, except that the foregoing restriction shall not apply to:

(a) Investments as of the Effective Date which are disclosed to the Lenders in
Schedule 9.05;

(b) accounts receivable arising in the ordinary course of business and
promissory notes received in settlement of any such accounts receivable;

 

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(c) direct obligations of the United States or any agency thereof, or
obligations guaranteed by the United States or any agency thereof, in each case
maturing within one year from the date of creation thereof;

(d) commercial paper maturing within one year from the date of creation thereof
having a rating of at least P-2 or A-2 from either Moody’s or S&P, respectively;

(e) deposits maturing within one year from the date of creation thereof with,
including certificates of deposit issued by, any Lender or any office located in
the United States of any other bank or trust company which is organized under
the laws of the United States or any state thereof, has capital, surplus and
undivided profits aggregating at least $100,000,000 (as of the date of such bank
or trust company’s most recent financial reports) and has a short term deposit
rating of no lower than A2 or P2, as such rating is set forth from time to time,
by S&P or Moody’s, respectively;

(f) deposits in money market funds investing not less than 90% of their assets
in Investments described in Section 9.05(c), Section 9.05(d) or Section 9.05(e);

(g) Investments (i) made by the Parent in or to the Borrower or any of the
Guarantors, (ii) made by any Subsidiary in or to the Borrower or any Guarantor,
and (iii) in an aggregate amount at any one time outstanding not to exceed
$15,000,000, made by the Parent or any Subsidiary in or to all other Domestic
Subsidiaries which are not Guarantors; and

(h) other Investments not to exceed $15,000,000 in the aggregate at any time.

Section 9.06 Nature of Business; No International Operations. The Borrower will
not, and will not permit any other Loan Party to, allow any material change to
be made in the character of its business as an independent oil and gas
exploration and production company. The Borrower will not, and will not permit
any of the other Loan Parties to, acquire or make any other expenditure (whether
such expenditure is capital, operating or otherwise) in or related to, any Oil
and Gas Properties not located within the geographical boundaries of the United
States.

Section 9.07 Limitation on Leases. The Borrower will not, and will not permit
any other Loan Party to, create, incur, assume or suffer to exist any obligation
for the payment of rent or hire of Property of any kind whatsoever (real or
personal but excluding Capital Leases to the extent such Capital Leases do not
go beyond the value and terms of the leased property and leases of Hydrocarbon
Interests), under leases or lease agreements which would cause the aggregate
amount of all payments made by the Borrower and the other Loan Parties pursuant
to all such leases or lease agreements, including, without limitation, any
residual payments at the end of any lease, to exceed $15,000,000 in any period
of twelve consecutive calendar months during the life of such leases.

Section 9.08 Proceeds of Notes. The Borrower will not permit the proceeds of the
Notes to be used for any purpose other than those described in the first
sentence of Section 7.21. Neither the Borrower nor any Person acting on behalf
of the Borrower has taken or will take any action which might cause any of the
Loan Documents to violate Regulations T, U or X or any other regulation of the
Board or to violate Section 7 of the Securities Exchange Act of 1934 or any rule
or regulation thereunder, in each case as now in effect or as the same may
hereinafter be

 

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in effect. If requested by the Administrative Agent, the Borrower will furnish
to the Administrative Agent and each Lender a statement to the foregoing effect
in conformity with the requirements of FR Form U-1 or such other form referred
to in Regulation U, Regulation T or Regulation X of the Board, as the case may
be.

Section 9.09 ERISA Compliance. The Borrower will not, and will not permit any
other Loan Party to, at any time:

(a) engage in, or permit any ERISA Affiliate to engage in, any transaction in
connection with which the Borrower, any other Loan Party or any ERISA Affiliate
could be subjected to either a civil penalty assessed pursuant to
subsections (c), (i) or (l) of section 502 of ERISA or a tax imposed by
Chapter 43 of Subtitle D of the Code;

(b) terminate, or permit any ERISA Affiliate to terminate, any Plan in a manner,
or take any other action with respect to any Plan, which could result in any
liability of the Borrower, any other Loan Party or any ERISA Affiliate to the
PBGC;

(c) fail to make, or permit any ERISA Affiliate to fail to make, full payment
when due of all amounts which, under the provisions of any Plan, agreement
relating thereto or applicable law, the Borrower, any other Loan Party or any
ERISA Affiliate is required to pay as contributions thereto;

(d) permit to exist, or allow any ERISA Affiliate to permit to exist, any
accumulated funding deficiency within the meaning of section 302 of ERISA or
section 412 of the Code, whether or not waived, with respect to any Plan;

(e) permit, or allow any ERISA Affiliate to permit, the actuarial present value
of the benefit liabilities under any Plan maintained by the Borrower, any other
Loan Party or any ERISA Affiliate which is regulated under Title IV of ERISA to
materially exceed the current value of the assets (computed on a plan
termination basis in accordance with Title IV of ERISA) of such Plan allocable
to such benefit liabilities such that a determination would result that any Plan
is, or is expected to be, in “at risk” status (as defined in Section 303(i)(4)
of ERISA or Section 430(i)(4) of the Code); provided that the term “actuarial
present value of the benefit liabilities” shall have the meaning specified in
section 4041 of ERISA;

(f) contribute to or assume an obligation to contribute to, or permit any ERISA
Affiliate to contribute to or assume an obligation to contribute to, any
Multiemployer Plan;

(g) acquire, or permit any ERISA Affiliate to acquire, an interest in any Person
that causes such Person to become an ERISA Affiliate with respect to the
Borrower or any other Loan Party or with respect to any ERISA Affiliate of the
Borrower or any other Loan Party if such Person sponsors, maintains or
contributes to, or at any time in the six-year period preceding such acquisition
has sponsored, maintained, or contributed to, (1) any Multiemployer Plan, or
(2) any other Plan that is subject to Title IV of ERISA under which the
actuarial present value of the benefit liabilities under such Plan materially
exceeds the current value of the assets (computed on a plan termination basis in
accordance with Title IV of ERISA) of such Plan allocable to such benefit
liabilities such that a determination would result that any Plan is, or is
expected to be, in “at risk” status (as defined in Section 303(i)(4) of ERISA or
Section 430(i)(4) of the Code);

 

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(h) incur, or permit any ERISA Affiliate to incur, a liability to or on account
of a Plan under sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA;

(i) contribute to or assume an obligation to contribute to, or permit any ERISA
Affiliate to contribute to or assume an obligation to contribute to, any
employee welfare benefit plan, as defined in section 3(1) of ERISA, including,
without limitation, any such plan maintained to provide benefits to former
employees of such entities, that may not be terminated by such entities in their
sole discretion at any time without any material liability; or

(j) amend, or permit any ERISA Affiliate to amend, a Plan resulting in an
increase in current liability such that the Borrower, any other Loan Party or
any ERISA Affiliate is required to provide security to such Plan under
section 401(a)(29) of the Code.

Section 9.10 Sale or Discount of Receivables. Except for receivables obtained by
the Loan Parties out of the ordinary course of business or the settlement of
joint interest billing accounts in the ordinary course of business or discounts
granted to settle collection of accounts receivable or the sale of defaulted
accounts arising in the ordinary course of business in connection with the
compromise or collection thereof and not in connection with any financing
transaction, the Borrower will not, and will not permit any other Loan Party to,
discount or sell (with or without recourse) any of its notes receivable or
accounts receivable.

Section 9.11 Mergers, Etc. The Borrower will not, and will not permit any other
Loan Party to, merge into or with or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (whether in one transaction or in a series of
transactions) all or substantially all of its Property to any other Person
(whether now owned or hereafter acquired) (any such transaction, a
“consolidation”) or liquidate, wind-up or dissolve (or suffer any liquidation or
dissolution), terminate or discontinue its business; provided that so long as no
Default has occurred and is continuing, or would result after giving effect
thereto, any Wholly-Owned Subsidiary of the Borrower may participate in a
consolidation with any other Wholly-Owned Subsidiary of the Borrower and the
Borrower may participate in a consolidation with any Wholly-Owned Subsidiary of
the Borrower so long as the Borrower is the surviving Person.

Section 9.12 Sale of Properties. The Borrower will not, and will not permit any
other Loan Party to, sell, assign, farm-out, convey or otherwise transfer any
Property except for:

(a) the sale of Hydrocarbons in the ordinary course of business;

(b) farmouts of undeveloped acreage and assignments in connection with such
farmouts;

(c) the sale or transfer of equipment that is no longer necessary for the
business of the Loan Party or is replaced by equipment of at least comparable
value and use;

 

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(d) sales or other dispositions (including Casualty Events), other than as
provided in clauses (a) through (c) or (e), of Oil and Gas Properties or any
interest therein or Subsidiaries owning Oil and Gas Properties; provided that
(i) the consideration received in respect of such sale or other disposition
shall be equal to or greater than the fair market value of the Oil and Gas
Property, interest therein or Subsidiary subject of such sale or other
disposition (in each case, as reasonably determined by the Borrower and, if
requested by the Administrative Agent, the Borrower shall deliver a certificate
of a Responsible Officer certifying to that effect), (ii) not less than 80% of
the proceeds of such sale or other disposition of Oil and Gas Property shall be
in cash, (iii) no Default or Event of Default has occurred and is continuing or
would result from such sale or disposition, as applicable, (iv) if such sale or
disposition would result in an automatic redetermination of the Borrowing Base
pursuant to Section 2.07(f), the Borrower delivers reasonable prior written
notice thereof to the Administrative Agent, (v) if a Borrowing Base Deficiency
would result from such sale or disposition as a result of an automatic
redetermination of the Borrowing Base pursuant to Section 2.07(f), the Borrower
prepays Borrowings, prior to or contemporaneously with the consummation of such
sale or disposition, to the extent that such prepayment would have been required
under Section 3.04(c)(iii) after giving effect to such automatic redetermination
of the Borrowing Base, and (vi) if any such sale or other disposition is of a
Subsidiary owning Oil and Gas Properties, such sale or other disposition shall
include all the Equity Interests of such Subsidiary; and

(e) sales and other dispositions of Properties not regulated by Section 9.12(a)
to (d) having a fair market value not to exceed $5,000,000 in the aggregate
during any 12-month period.

Section 9.13 Environmental Matters. The Borrower will not, and will not permit
any other Loan Party to, cause or permit any of its Property to be in violation
of, or do anything or permit anything to be done which will subject any such
Property to a Release or threatened Release of Hazardous Materials, exposure to
any Hazardous Materials, or to any Remedial Work, under any Environmental Laws,
assuming disclosure to the applicable Governmental Authority of all relevant
facts, conditions and circumstances, if any, pertaining to such Property where
such violations, Release or threatened Release, exposure, or Remedial work could
reasonably be expected to have a Material Adverse Effect.

Section 9.14 Transactions with Affiliates. The Borrower will not, and will not
permit any other Loan Party to, enter into any transaction, including, without
limitation, any purchase, sale, lease or exchange of Property or the rendering
of any service, with any Affiliate (other than the Guarantors) unless such
transactions are otherwise permitted under this Agreement and are upon fair and
reasonable terms no less favorable to it than it would obtain in a comparable
arm’s length transaction with a Person not an Affiliate; provided that the
foregoing restriction shall not apply to (a) reasonable and customary fees paid
to members of the board of directors (or comparable governing body) of the
Borrower or the Loan Parties, (b) compensation arrangements for directors (or
the members of the comparable governing body), officers and other employees of
the Borrower or the Loan Parties entered into in the ordinary course of
business, (c) transactions approved by the independent directors (or the
independent members of the comparable governing body) or the conflicts committee
of the board of directors (or comparable governing body) of the General Partner.

 

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Section 9.15 Subsidiaries. The Borrower will not, and will not permit any other
Loan Party to, create or acquire any additional subsidiary unless such
subsidiary is a Wholly-Owned Subsidiary and the Borrower gives written notice to
the Administrative Agent of such creation or acquisition and complies with
Section 8.14(b) and Section 8.14(c). The Parent shall not, and shall not permit
any Subsidiary to, sell, assign or otherwise dispose of any Equity Interests in
any Subsidiary except in compliance with Section 9.11. Neither the Parent nor
any Subsidiary shall have any Foreign Subsidiaries.

Section 9.16 Negative Pledge Agreements; Dividend Restrictions. The Borrower
will not, and will not permit any other Loan Party to, create, incur, assume or
suffer to exist any contract, agreement or understanding (other than this
Agreement, the Security Instruments, Capital Leases creating Liens permitted by
Section 9.03(c) or contracts, agreements or understandings creating Liens
permitted by Section 9.03(d)) which in any way prohibits or restricts the
granting, conveying, creation or imposition of any Lien on any of its Property
in favor of the Administrative Agent and the Secured Parties or, except for
restrictions substantially no more restrictive than those in Section 9.04(a)
hereof, restricts any Subsidiary from paying dividends or making distributions
to the Borrower or any Guarantor, or which, except for dividend or distribution
restrictions as aforesaid, requires the consent of or notice to other Persons in
connection therewith.

Section 9.17 Gas Imbalances, Take-or-Pay or Other Prepayments. The Borrower will
not, and will not permit any other Loan Party to, allow gas imbalances,
take-or-pay or other prepayments with respect to the Oil and Gas Properties of
the Borrower or any other Loan Party that would require the Borrower or such
other Loan Party to deliver Hydrocarbons at some future time without then or
thereafter receiving full payment therefor to exceed three bcf of gas (on an mcf
equivalent basis) in the aggregate.

Section 9.18 Swap Agreements. The Borrower will not, and will not permit any
other Loan Party to, enter into any Swap Agreements with any Person other than
(a) Swap Agreements in respect of commodities (i) with an Approved Counterparty
and (ii) the notional volumes for which (when aggregated with other commodity
Swap Agreements then in effect other than basis differential swaps on volumes
already hedged pursuant to other Swap Agreements) do not exceed, as of the date
such Swap Agreement is executed, 85% of the reasonably anticipated projected
production from proved Oil and Gas Properties included in the most recent
Reserve Report for each month during the period during which such Swap Agreement
is in effect for each of crude oil, natural gas and natural gas liquids, which
may be hedged with Swap Agreements for crude oil, each calculated separately;
provided that Proved Developed Non-Producing Reserves and Proved Undeveloped
Reserves, in the aggregate, do not account for greater than 25% of the total
Proved Reserves, (b) Swap Agreements that would be permitted by clause (a)
hereof pertaining to Oil and Gas Properties to be acquired pursuant to a
Specified Acquisition; provided that Swap Agreements pursuant to this
Section 9.18(b) must be Liquidated upon the earlier to occur of: (i) the date
that is 90 days after the execution of the purchase and sale agreement relating
to the Specified Acquisition to the extent that such Specified Acquisition has
not been consummated by such date and (ii) any Loan Party knows with reasonable
certainty that the Specified Acquisition will not be consummated, and (c) Swap
Agreements in respect of interest rates with an Approved Counterparty, as
follows: (i) Swap Agreements effectively converting interest rates from fixed to
floating, the notional amounts of which (when aggregated with all

 

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other Swap Agreements of the Loan Parties then in effect effectively converting
interest rates from fixed to floating) do not exceed 100% of the then
outstanding principal amount of the Loan Parties’ Debt for borrowed money which
bears interest at a fixed rate and (ii) Swap Agreements effectively converting
interest rates from floating to fixed, the notional amounts of which (when
aggregated with all other Swap Agreements of the Borrower and the other Loan
Parties then in effect effectively converting interest rates from floating to
fixed) do not exceed 100% of the then outstanding principal amount of the Loan
Parties’ Debt for borrowed money which bears interest at a floating rate. In no
event shall any Swap Agreement contain any requirement, agreement or covenant
for a Loan Party to post collateral or margin to secure their obligations under
such Swap Agreement or to cover market exposures, except to the extent permitted
under Section 9.03(e). Notwithstanding the foregoing, the Borrower will not, and
will not permit any of the other Loan Parties to, incur or permit to exist any
speculative Swap Agreements. Further, the Borrower will not, and will not permit
any other Loan Party to, Liquidate any Swap Agreement in respect of commodities
unless (x) if such Swap Liquidation would result in an automatic redetermination
of the Borrowing Base pursuant to Section 2.07(f), the Borrower delivers
reasonable prior written notice thereof to the Administrative Agent, and (y) if
a Borrowing Base Deficiency would result from such Swap Liquidation as a result
of an automatic redetermination of the Borrowing Base pursuant to
Section 2.07(f), the Borrower prepays Borrowings, prior to or contemporaneously
with the consummation of such Swap Liquidation to the extent that such
prepayment would have been required under Section 3.04(c)(iii) after giving
effect to such automatic redetermination of the Borrowing Base.

Section 9.19 Acquisition Documents. The Borrower will not, and will not permit
any other Loan Party to, amend, modify or supplement any of the Acquisition
Documents if the effect thereof could reasonably be expected to be materially
adverse to the Lenders or in contravention of the Loan Documents or any
Governmental Requirement (and provided that the Borrower promptly furnishes to
the Administrative Agent a copy of such amendment, modification or supplement).

Section 9.20 Marketing Activities.

(a) The Borrower will not, and will not permit any other Loan Party to, engage
in marketing activities for any Hydrocarbons or enter into any contracts related
thereto other than (i) contracts for the sale of Hydrocarbons scheduled or
reasonably estimated to be produced from their proved Oil and Gas Properties
during the period of such contract, (ii) contracts for the sale of Hydrocarbons
scheduled or reasonably estimated to be produced from proved Oil and Gas
Properties of third parties during the period of such contract associated with
the Oil and Gas Properties of the Borrower and the other Loan Parties that the
Borrower or one of the other Loan Parties has the right to market pursuant to
joint operating agreements, unitization agreements or other similar contracts
that are usual and customary in the oil and gas business and (iii) other
contracts for the purchase and/or sale of Hydrocarbons of third parties
(A) which have generally offsetting provisions (i.e. corresponding pricing
mechanics, delivery dates and points and volumes) such that no “position” is
taken and (B) for which appropriate credit support has been taken to alleviate
the material credit risks of the counterparty thereto.

(b) The Borrower will not, and will not permit any other Loan Party to, amend in
any material respect the written Hydrocarbon Marketing Policy delivered to the
Lenders pursuant to Section 6.01(o) without the prior written consent of the
Administrative Agent and the Majority Lenders.

 

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Section 9.21 Holding Company. The Parent will remain a holding company and not
own any real property, immovable property or material assets or engage in any
operations or business (other than its direct or indirect ownership of its
Subsidiaries, providing employees and related services to its Subsidiaries,
making or holding Investments permitted under Section 9.05 or issuing Permitted
Senior Unsecured Notes or providing guarantees thereof or of Indebtedness, in
each case as permitted hereunder).

Section 9.22 Sale and Leaseback. The Borrower shall not, and shall not permit
any other Loan Party to, enter into any arrangement, directly or indirectly,
with any Person whereby it shall sell or transfer any Property, whether now
owned or hereafter acquired, and thereafter rent or lease such Property which it
intends to use for substantially the same purpose or purposes as the Property
being sold or transferred.

Section 9.23 Amendments to Organizational Documents; Changes in Fiscal Year End.

(a) The Borrower shall not, and shall not permit any other Loan Party to, amend,
supplement or otherwise modify (or permit to be amended, supplemented or
modified) its Organizational Documents in any manner that would be adverse to
the Lenders in any material respect.

(b) The Borrower shall not, and shall not permit any other Loan Party to, change
the last day of its fiscal year from December 31 of each year, or the last days
of the first three fiscal quarters in each of its fiscal years from March 31,
June 30 and September 30 of each year, respectively.

ARTICLE X

EVENTS OF DEFAULT; REMEDIES

Section 10.01 Events of Default. The occurrence of one or more of the following
events shall constitute an “Event of Default”:

(a) the Borrower shall fail to pay any principal of any Loan or any
reimbursement obligation in respect of any LC Disbursement when and as the same
shall become due and payable, whether at the due date thereof or at a date fixed
for prepayment thereof, by acceleration or otherwise;

(b) the Borrower shall fail to pay any interest on any Loan or any fee or any
other amount (other than an amount referred to in Section 10.01(a)) payable
under any Loan Document, when and as the same shall become due and payable, and
such failure shall continue unremedied for a period of five days;

(c) any representation or warranty made or deemed made by or on behalf of the
Borrower or any other Loan Party in or in connection with any Loan Document or
any amendment or modification of any Loan Document or waiver under such Loan
Document, or in any report, certificate, financial statement or other document
furnished pursuant to or in connection with any Loan Document or any amendment
or modification thereof or waiver thereunder, shall prove to have been incorrect
in any material respect when made or deemed made;

 

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(d) any Loan Party shall fail to observe or perform any covenant, condition or
agreement contained in Section 8.01(i), Section 8.01(n), Section 8.02,
Section 8.03, Section 8.14, Section 8.15 or in Article IX of this Agreement;

(e) any Loan Party shall fail to observe or perform any covenant, condition or
agreement contained in this Agreement (other than those specified in
Section 10.01(a), Section 10.01(b), Section 10.01(c) or Section 10.01(d)) or any
other Loan Document, and such failure shall continue unremedied for a period of
30 days after the earlier to occur of (A) notice thereof from the Administrative
Agent to the Borrower (which notice will be given at the request of any Lender)
or (B) a Responsible Officer of the Borrower or such other Loan Party otherwise
becoming aware of such default;

(f) any Loan Party shall fail to make any payment (whether of principal or
interest and regardless of amount) in respect of any Material Indebtedness, when
and as the same shall become due and payable;

(g) (i) any event or condition occurs that results in any Material Indebtedness
becoming due prior to its scheduled maturity or (ii) any event or condition
(other than a “termination event” as set forth in Sections 5(b)(1), 5(b)(2),
5(b)(3) and 5(b)(4) of the 1992 ISDA Master Agreement form of the International
Swaps and Derivatives Association or in Sections 5(b)(1), 5(b)(2), 5(b)(3),
5(b)(4) and 5(b)(5) of the 2002 ISDA Master Agreement form of the International
Swaps and Derivatives Association) that enables or permits (after giving effect
to all applicable notice and cure periods) the holder or holders of any Material
Indebtedness or any trustee or agent on its or their behalf to cause any
Material Indebtedness to become due, or to require the Redemption thereof or any
offer to Redeem to be made in respect thereof, prior to its scheduled maturity
or require the Borrower or any other Loan Party to make an offer in respect
thereof;

(h) an involuntary proceeding shall be commenced or an involuntary petition
shall be filed seeking (i) liquidation, reorganization or other relief in
respect of the Borrower or any other Loan Party or its debts, or of a
substantial part of its assets, under any Federal, state or foreign bankruptcy,
insolvency, receivership or similar law now or hereafter in effect or (ii) the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for the Borrower or any other Loan Party or for a substantial
part of its assets, and, in any such case, such proceeding or petition shall
continue undismissed for 60 days or an order or decree approving or ordering any
of the foregoing shall be entered;

(i) any Loan Party shall (i) voluntarily commence any proceeding or file any
petition seeking liquidation, reorganization or other relief under any Federal,
state or foreign bankruptcy, insolvency, receivership or similar law now or
hereafter in effect, (ii) consent to the institution of, or fail to contest in a
timely and appropriate manner, any proceeding or petition described in
Section 10.01(h), (iii) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for the
Borrower or any other Loan Party

 

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or for a substantial part of its assets, (iv) file an answer admitting the
material allegations of a petition filed against it in any such proceeding,
(v) make a general assignment for the benefit of creditors or (vi) take any
action for the purpose of effecting any of the foregoing; or any stockholder of
the Borrower shall make any request or take any action for the purpose of
calling a meeting of the equityholders of the Borrower to consider a resolution
to dissolve and wind-up the Borrower’s affairs;

(j) any Loan Party shall become unable, admit in writing its inability or fail
generally to pay its debts as they become due;

(k) (i) one or more final, non-appealable judgments for the payment of money in
an aggregate amount in excess of $15,000,000 (to the extent not covered by
independent third party insurance provided by insurers of the highest claims
paying rating or financial strength as to which the insurer does not dispute
coverage and is not subject to an insolvency proceeding) or (ii) any one or more
final, non-appealable non-monetary judgments that have, or could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect,
shall be rendered against any Loan Party or any combination thereof and the same
shall remain undischarged for a period of 60 consecutive days during which
execution shall not be effectively stayed, or any action shall be legally taken
by a judgment creditor to attach or levy upon any assets of any Loan Party to
enforce any such judgment;

(l) the Loan Documents after delivery thereof shall for any reason, except to
the extent permitted by the terms thereof, cease to be in full force and effect
and valid, binding and enforceable in accordance with their terms against any
Loan Party party thereto or shall be repudiated by any of them, or cease to
create a valid and perfected Lien of the priority required thereby on any
material part of the collateral purported to be covered thereby, except to the
extent permitted by the terms of this Agreement, or the Borrower or any other
Loan Party or any of their Affiliates shall so state in writing;

(m) a Change in Control shall occur;

(n) an ERISA Event shall have occurred that, in the opinion of the Majority
Lenders, when taken together with all other ERISA Events that have occurred,
could reasonably be expected to result in liability of the Parent and its
Subsidiaries in an aggregate amount exceeding $10,000,000 for all periods; or

(o) the Parent shall cease to be a reporting company under Section 12 of the
Securities Exchange Act of 1934, as amended from time to time, and any successor
statute or the Equity Interests of the Parent shall cease to be listed on a
nationally recognized stock exchange.

Section 10.02 Remedies.

(a) In the case of an Event of Default other than one described in
Section 10.01(h), Section 10.01(i) or Section 10.01(j), at any time thereafter
during the continuance of such Event of Default, the Administrative Agent may,
and at the request of the Majority Lenders, shall, by notice to the Borrower,
take either or both of the following actions, at the same or different times:
(i) terminate the Commitments, and thereupon the Commitments shall terminate
immediately, and (ii) declare the Notes and the Loans then outstanding to be due
and payable in

 

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whole (or in part, in which case any principal not so declared to be due and
payable may thereafter be declared to be due and payable), and thereupon the
principal of the Loans so declared to be due and payable, together with accrued
interest thereon and all fees and other obligations of the Borrower and the
Guarantors accrued hereunder and under the Notes and the other Loan Documents
(including, without limitation, the payment of cash collateral to secure the LC
Exposure as provided in Section 2.08(j)), shall become due and payable
immediately, without presentment, demand, protest, notice of intent to
accelerate, notice of acceleration or other notice of any kind, all of which are
hereby waived by the Borrower and each Guarantor; and in case of an Event of
Default described in Section 10.01(h), Section 10.01(i) or Section 10.01(j), the
Commitments shall automatically terminate and the Notes and the principal of the
Loans then outstanding, together with accrued interest thereon and all fees and
the other obligations of the Borrower and the Guarantors accrued hereunder and
under the Notes and the other Loan Documents (including, without limitation, the
payment of cash collateral to secure the LC Exposure as provided in
Section 2.08(j)), shall automatically become due and payable, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower and each Guarantor.

(b) In the case of the occurrence of an Event of Default, the Administrative
Agent and the Lenders will have all other rights and remedies available at law
and equity.

(c) All proceeds realized from the liquidation or other disposition of
collateral or otherwise received after maturity of the Notes, whether by
acceleration or otherwise, shall be applied:

(i) first, to payment or reimbursement of that portion of the Indebtedness
constituting fees, expenses and indemnities payable to the Administrative Agent
in its capacity as such;

(ii) second, pro rata to payment or reimbursement of that portion of the
Indebtedness constituting fees, expenses and indemnities payable to the Lenders;

(iii) third, pro rata to payment of accrued interest on the Loans;

(iv) fourth, pro rata to payment of principal outstanding on the Loans and
Indebtedness referred to in clause (b) of the definition of Indebtedness owing
to a Secured Swap Provider;

(v) fifth, pro rata to any other Indebtedness;

(vi) sixth, to serve as cash collateral to be held by the Administrative Agent
to secure the LC Exposure; and

(vii) seventh, any excess, after all of the Indebtedness shall have been
indefeasibly paid in full in cash, shall be paid to the Borrower or as otherwise
required by any Governmental Requirement.

 

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ARTICLE XI

THE AGENTS

Section 11.01 Appointment; Powers. Each of the Lenders and the Issuing Bank
hereby irrevocably appoints the Administrative Agent as its agent and authorizes
the Administrative Agent to take such actions on its behalf and to exercise such
powers as are delegated to the Administrative Agent by the terms hereof and the
other Loan Documents, together with such actions and powers as are reasonably
incidental thereto.

Section 11.02 Duties and Obligations of Administrative Agent. The Administrative
Agent shall not have any duties or obligations except those expressly set forth
in the Loan Documents. Without limiting the generality of the foregoing, except
as may be necessary for the Administrative Agent to be an “agent,” “collateral
agent” or “representative” of the Secured Parties within the meaning of such
terms under Section 9-102(a)(72), 9-502 and 9-503 of the Uniform Commercial
Code, (a) the Administrative Agent shall not be subject to any fiduciary or
other implied duties, regardless of whether a Default has occurred and is
continuing (the use of the term “agent” herein and in the other Loan Documents
with reference to the Administrative Agent is not intended to connote any
fiduciary or other implied (or express) obligations arising under agency
doctrine of any applicable law; rather, such term is used merely as a matter of
market custom, and is intended to create or reflect only an administrative
relationship between independent contracting parties), (b) the Administrative
Agent shall have no duty to take any discretionary action or exercise any
discretionary powers, except as provided in Section 11.03, and (c) except as
expressly set forth herein, the Administrative Agent shall not have any duty to
disclose, and shall not be liable for the failure to disclose, any information
relating to the Borrower or any of the other Loan Parties that is communicated
to or obtained by the bank serving as Administrative Agent or any of its
Affiliates in any capacity. The Administrative Agent shall be deemed not to have
knowledge of any Default unless and until written notice thereof is given to the
Administrative Agent by the Borrower or a Lender, and shall not be responsible
for or have any duty to ascertain or inquire into (i) any statement, warranty or
representation made in or in connection with this Agreement or any other Loan
Document, (ii) the contents of any certificate, report or other document
delivered (or deemed delivered) hereunder or under any other Loan Document or in
connection herewith or therewith, (iii) the performance or observance of any of
the covenants, agreements or other terms or conditions set forth herein or in
any other Loan Document, (iv) the validity, enforceability, effectiveness or
genuineness of this Agreement, any other Loan Document or any other agreement,
instrument or document, (v) the satisfaction of any condition set forth in
Article VI or elsewhere herein, other than to confirm receipt of items expressly
required to be delivered to the Administrative Agent or as to those conditions
precedent expressly required to be to the Administrative Agent’s satisfaction,
(vi) the existence, value, perfection or priority of any collateral security or
the financial or other condition of the Borrower and the other Loan Parties or
any other obligor or guarantor, or (vii) any failure by the Borrower or any
other Person (other than itself) to perform any of its obligations hereunder or
under any other Loan Document or the performance or observance of any covenants,
agreements or other terms or conditions set forth herein or therein. For
purposes of determining compliance with the conditions specified in Article VI,
each Lender shall be deemed to have consented to, approved or accepted or to be
satisfied with, each document or other matter required thereunder to be
consented to or approved by or acceptable or satisfactory to a Lender unless the
Administrative Agent shall have received written notice from such Lender prior
to the proposed closing date specifying its objection thereto.

 

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Section 11.03 Action by Administrative Agent. The Administrative Agent shall
have no duty to take any discretionary action or exercise any discretionary
powers, except discretionary rights and powers expressly contemplated hereby or
by the other Loan Documents that the Administrative Agent is required to
exercise in writing as directed by the Required Lenders (or such other number or
percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 12.02) and in all cases the Administrative Agent shall be
fully justified in failing or refusing to take any discretionary action or
exercise any discretionary power hereunder or under any other Loan Documents
unless it shall (a) receive written instructions from the Required Lenders or
the Lenders, as applicable, (or such other number or percentage of the Lenders
as shall be necessary under the circumstances as provided in Section 12.02)
specifying the action to be taken and (b) be indemnified to its satisfaction by
the Lenders against any and all liability and expenses which may be incurred by
it by reason of taking or continuing to take any such action. The instructions
as aforesaid and any action taken or failure to act pursuant thereto by the
Administrative Agent shall be binding on all of the Lenders. If a Default has
occurred and is continuing, then the Administrative Agent shall take such action
with respect to such Default as shall be directed by the requisite Lenders in
the written instructions (with indemnities) described in this Section 11.03,
provided that, unless and until the Administrative Agent shall have received
such directions, the Administrative Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
Default as it shall deem advisable in the best interests of the Lenders. In no
event, however, shall the Administrative Agent be required to take any action
which exposes the Administrative Agent to personal liability or which is
contrary to this Agreement, the Loan Documents or applicable law. If a Default
has occurred and is continuing, neither the Syndication Agent nor the
Documentation Agents shall have any obligation to perform any act in respect
thereof. The Administrative Agent shall not be liable to any Lender or any
Issuing Bank for any action taken or not taken by it with the consent or at the
request of the Required Lenders or the Lenders (or such other number or
percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 12.02), and otherwise the Administrative Agent shall not be
liable for any action taken or not taken by it hereunder or under any other Loan
Document or under any other document or instrument referred to or provided for
herein or therein or in connection herewith or therewith INCLUDING ITS OWN
ORDINARY NEGLIGENCE, except for its own gross negligence or willful misconduct.

Section 11.04 Reliance by Administrative Agent. The Administrative Agent shall
be entitled to rely upon, and shall not incur any liability for relying upon,
any notice, request, certificate, consent, statement, instrument, document or
other writing reasonably believed by it to be genuine and to have been signed or
sent by the proper Person. The Administrative Agent also may rely upon any
statement made to it orally or by telephone and reasonably believed by it to be
made by the proper Person, and shall not incur any liability for relying thereon
and each of the Borrower, the Lenders and the Issuing Bank hereby waives the
right to dispute the Administrative Agent’s record of such statement, except in
the case of gross negligence or willful misconduct by the Administrative Agent.
The Administrative Agent may consult with legal counsel (who may be counsel for
the Borrower), independent accountants and other experts selected by it, and
shall not be liable for any action taken or not taken by it in accordance with

 

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the advice of any such counsel, accountants or experts. The Administrative Agent
may deem and treat the payee of any Note as the holder thereof for all purposes
hereof unless and until a written notice of the assignment or transfer thereof
permitted hereunder shall have been filed with the Administrative Agent.

Section 11.05 Subagents. The Administrative Agent may perform any and all its
duties and exercise its rights and powers by or through any one or more
sub-agents appointed by the Administrative Agent. The Administrative Agent and
any such sub-agent may perform any and all its duties and exercise its rights
and powers through their respective Related Parties. The exculpatory provisions
of the preceding Sections of this Article XI shall apply to any such sub-agent
and to the Related Parties of the Administrative Agent and any such sub-agent,
and shall apply to their respective activities in connection with the
syndication of the credit facilities provided for herein as well as activities
as Administrative Agent.

Section 11.06 Resignation of Administrative Agent. Subject to the appointment
and acceptance of a successor Administrative Agent as provided in this
Section 11.06, the Administrative Agent may resign at any time by notifying the
Lenders, the Issuing Bank and the Borrower. Upon any such resignation, the
Majority Lenders shall have the right, in consultation with the Borrower, to
appoint a successor. If no successor shall have been so appointed by the
Majority Lenders and shall have accepted such appointment within 30 days after
the retiring Administrative Agent gives notice of its resignation, then the
retiring Administrative Agent may, on behalf of the Lenders and the Issuing
Bank, appoint a successor Administrative Agent which shall be a bank with an
office in New York, New York that has capital, surplus and undivided profits
aggregating at least $100,000,000 (as of the date of such bank’s most recent
financial reports), or an Affiliate of any such bank. Upon the acceptance of its
appointment as Administrative Agent hereunder by a successor, such successor
shall succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder. The fees
payable by the Borrower to a successor Administrative Agent shall be the same as
those payable to its predecessor unless otherwise agreed between the Borrower
and such successor. After the Administrative Agent’s resignation hereunder, the
provisions of this Article XI and Section 12.03 shall continue in effect for the
benefit of such retiring Administrative Agent, its sub-agents and their
respective Related Parties in respect of any actions taken or omitted to be
taken by any of them while it was acting as Administrative Agent.

Section 11.07 Agents as Lenders. Each bank serving as an Agent hereunder shall
have the same rights and powers in its capacity as a Lender as any other Lender
and may exercise the same as though it were not an Agent, and such bank and its
Affiliates may accept deposits from, lend money to and generally engage in any
kind of business with the Borrower or any other Loan Party or other Affiliate
thereof as if it were not an Agent hereunder.

Section 11.08 No Reliance. Each Lender acknowledges that it has, independently
and without reliance upon the Administrative Agent, any other Agent or any other
Lender and based on such documents and information as it has deemed appropriate,
made its own credit analysis and decision to enter into this Agreement and each
other Loan Document to which it is a party. Each Lender also acknowledges that
it will, independently and without reliance upon the Administrative Agent, any
other Agent or any other Lender and based on such documents and

 

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information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any other Loan Document, any related agreement or any document furnished
hereunder or thereunder. The Agents shall not be required to keep themselves
informed as to the performance or observance by the Borrower or any of the other
Loan Parties of this Agreement, the Loan Documents or any other document
referred to or provided for herein or to inspect the Properties or books of the
Borrower or the other Loan Parties. Except for notices, reports and other
documents and information expressly required to be furnished to the Lenders by
the Administrative Agent hereunder, no Agent or the Arranger shall have any duty
or responsibility to provide any Lender with any credit or other information
concerning the affairs, financial condition or business of the Borrower (or any
of its Affiliates) which may come into the possession of such Agent or any of
its Affiliates. In this regard, each Lender acknowledges that Vinson & Elkins
L.L.P. is acting in this transaction as special counsel to the Administrative
Agent only, except to the extent otherwise expressly stated in any legal opinion
or any Loan Document. Each other party hereto will consult with its own legal
counsel to the extent that it deems necessary in connection with the Loan
Documents and the matters contemplated therein.

Section 11.09 Administrative Agent May File Proofs of Claim. In case of the
pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relative to the Borrower or any of the other Loan Parties, the
Administrative Agent (irrespective of whether the principal of any Loan shall
then be due and payable as herein expressed or by declaration or otherwise and
irrespective of whether the Administrative Agent shall have made any demand on
the Borrower) shall be entitled and empowered, by intervention in such
proceeding or otherwise:

(a) to file and prove a claim for the whole amount of the principal and interest
owing and unpaid in respect of the Loans and all other Indebtedness that are
owing and unpaid and to file such other documents as may be necessary or
advisable in order to have the claims of the Lenders and the Administrative
Agent (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Lenders and the Administrative Agent and their
respective agents and counsel and all other amounts due the Lenders and the
Administrative Agent under Section 12.03) allowed in such judicial proceeding;
and

(b) to collect and receive any monies or other property payable or deliverable
on any such claims and to distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Lender to make such payments to the Administrative Agent and, in the event
that the Administrative Agent shall consent to the making of such payments
directly to the Lenders, to pay to the Administrative Agent any amount due for
the reasonable compensation, expenses, disbursements and advances of the
Administrative Agent and its agents and counsel, and any other amounts due the
Administrative Agent under Section 12.03.

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

 

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Section 11.10 Authority of Administrative Agent to Release Collateral and Liens.
Each Lender and the Issuing Bank hereby authorizes the Administrative Agent to
release any collateral that is permitted to be sold or released pursuant to the
terms of the Loan Documents. Each Lender and the Issuing Bank hereby authorizes
the Administrative Agent to execute and deliver to the Borrower, at the
Borrower’s sole cost and expense and without the consent of any Lender or the
“Majority Lenders” or the “Required Lenders” being required, any and all
releases of Liens, termination statements, assignments or other documents
reasonably requested by the Borrower in connection with any sale or other
disposition of Property to the extent such sale or other disposition is
permitted by the terms of Section 9.12 or is otherwise authorized by the terms
of the Loan Documents.

Section 11.11 The Arranger, the Syndication Agent and the Documentation Agents.
The Arranger, the Syndication Agent and the Documentation Agents shall have no
duties, responsibilities or liabilities under this Agreement and the other Loan
Documents other than their respective duties, responsibilities and liabilities
in their respective capacities as Lenders hereunder.

Section 11.12 Intercreditor Agreements. The Lenders hereby authorize the
Administrative Agent to enter into any intercreditor agreement with any Secured
Swap Provider. Each Lender (by receiving the benefits thereunder and of the
collateral pledged pursuant to the Security Instruments) agrees to the terms of
each such intercreditor agreement and agrees that the terms thereof shall be
binding on such Lender and its successors and assigns, as if it were a party
thereto.

ARTICLE XII

MISCELLANEOUS

Section 12.01 Notices.

(a) Except in the case of notices and other communications expressly permitted
to be given by telephone (and subject to Section 12.01(b)), all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:

(i) if to the Borrower or the Parent, to it at Memorial Production Operating
LLC, 5 Houston Center, 1401 McKinney, Suite 1025, Houston, Texas, 77010, Attn:
Andrew J. Cozby, Vice President—Finance (Telecopy No. (713) 579-5740);

(ii) if to the Administrative Agent, to it at Wells Fargo Bank, National
Association, 1525 W WT Harris Blvd., Charlotte, NC 28262, Attn: Cathy Burke
(Telecopy No. (704) 715-0017), with a copy to Wells Fargo Bank, National
Association, 1000 Louisiana Street, 9th Floor, Houston, Texas 77002, Attn:
Richard A. Gould (Telecopy No. (713) 319-1925) and a further copy to Wells Fargo
Bank, National Association, 1000 Louisiana Street, 9th Floor, Houston, Texas
77002, Attn: Michael Real (Telecopy No. (713) 319-1925);

 

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(iii) if to the Issuing Bank, to it at Wells Fargo Bank, National Association,
1525 W WT Harris Blvd., Charlotte, NC 28262, Attn: Cathy Burke (Telecopy No.
(704) 715-0017); and

(iv) if to any other Lender, to it at its address (or telecopy number) set forth
in its Administrative Questionnaire.

(b) Notices and other communications to the Lenders hereunder may be delivered
or furnished by electronic communications pursuant to procedures approved by the
Administrative Agent; provided that the foregoing shall not apply to notices
pursuant to Article II, Article III, Article IV and Article V unless otherwise
agreed by the Administrative Agent and the applicable Lender. The Administrative
Agent or the Borrower may, in its discretion, agree to accept notices and other
communications to it hereunder by electronic communications pursuant to
procedures approved by it; provided that approval of such procedures may be
limited to particular notices or communications.

(c) Any party hereto may change its address or telecopy number for notices and
other communications hereunder by notice to the other parties hereto. All
notices and other communications given to any party hereto in accordance with
the provisions of this Agreement shall be deemed to have been given on the date
of receipt.

Section 12.02 Waivers; Amendments.

(a) No failure on the part of the Administrative Agent, any other Agent, the
Issuing Bank or any Lender to exercise and no delay in exercising, and no course
of dealing with respect to, any right, power or privilege, or any abandonment or
discontinuance of steps to enforce such right, power or privilege, under any of
the Loan Documents shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege under any of the Loan
Documents preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies of the Administrative
Agent, any other Agent, the Issuing Bank and the Lenders hereunder and under the
other Loan Documents are cumulative and are not exclusive of any rights or
remedies that they would otherwise have. No waiver of any provision of this
Agreement or any other Loan Document or consent to any departure by the Borrower
therefrom shall in any event be effective unless the same shall be permitted by
Section 12.02(b), and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. Without limiting the
generality of the foregoing, the making of a Loan or issuance of a Letter of
Credit shall not be construed as a waiver of any Default, regardless of whether
the Administrative Agent, any other Agent, any Lender or the Issuing Bank may
have had notice or knowledge of such Default at the time.

(b) Neither this Agreement nor any provision hereof nor any Security Instrument
nor any provision thereof may be waived, amended or modified except pursuant to
an agreement or agreements in writing entered into by the Borrower and the
Majority Lenders or by the Borrower and the Administrative Agent with the
consent of the Majority Lenders; provided that no such agreement shall
(i) increase the Commitment or the Maximum Credit Amount of any Lender without
the written consent of such Lender, (ii) increase the Borrowing Base without the
written consent of each Lender, decrease or maintain the Borrowing Base without
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of the Required Lenders, or modify in any manner Section 2.07 without the
consent of each Lender (other than any Defaulting Lender); provided that a
Scheduled Redetermination may be postponed by Required Lenders, (iii) reduce the
principal amount of any Loan or LC Disbursement or reduce the rate of interest
thereon, or reduce any fees payable hereunder, or reduce any other Indebtedness
hereunder or under any other Loan Document, without the written consent of each
Lender affected thereby, (iv) postpone the scheduled date of payment or
prepayment of the principal amount of any Loan or LC Disbursement, or any
interest thereon, or any fees payable hereunder, or any other Indebtedness
hereunder or under any other Loan Document, or reduce the amount of, waive or
excuse any such payment, or postpone or extend the Termination Date without the
written consent of each Lender affected thereby, (v) change Section 4.01(b) or
Section 4.01(c) in a manner that would alter the pro rata sharing of payments
required thereby, without the written consent of each Lender, (vi) waive or
amend Section 3.04(c), Section 6.01, Section 8.14 or Section 10.02(c) or change
the definition of the terms “Domestic Subsidiary,” “Foreign Subsidiary,”
“Material Subsidiary” or “Subsidiary,” without the written consent of each
Lender (other than any Defaulting Lender), (vii) waive or amend Section 12.14
without the written consent of each Lender (other than any Defaulting Lender)
and each Secured Swap Provider affected thereby, (viii) waive or amend
Section 12.15 without the written consent of each Secured Swap Provider affected
thereby, (ix) release any Guarantor (except as set forth in the Guaranty
Agreement), release all or substantially all of the collateral (other than as
provided in Section 11.10), or reduce the percentage set forth in
Section 8.14(a) to less than 80%, without the written consent of each Lender
(other than any Defaulting Lender), or (x) change any of the provisions of this
Section 12.02(b) or the definitions of “Required Lenders” or “Majority Lenders”
or any other provision hereof specifying the number or percentage of Lenders
required to waive, amend or modify any rights hereunder or under any other Loan
Documents or make any determination or grant any consent hereunder or any other
Loan Documents, without the written consent of each Lender (other than any
Defaulting Lender); provided further that no such agreement shall amend, modify
or otherwise affect the rights or duties of the Administrative Agent, any other
Agent or the Issuing Bank hereunder or under any other Loan Document without the
prior written consent of the Administrative Agent, such other Agent or the
Issuing Bank, as the case may be. Notwithstanding the foregoing, any supplement
to Schedule 7.14 (Loan Parties and Subsidiaries) shall be effective simply by
delivering to the Administrative Agent a supplemental schedule clearly marked as
such and, upon receipt, the Administrative Agent will promptly deliver a copy
thereof to the Lenders.

Section 12.03 Expenses, Indemnity; Damage Waiver.

(a) The Borrower shall pay (i) all reasonable and documented out-of-pocket
expenses incurred by the Administrative Agent and its Affiliates, including,
without limitation, the reasonable and documented fees, charges and
disbursements of counsel and other outside consultants for the Administrative
Agent, the reasonable and documented travel, photocopy, mailing, courier,
telephone and other similar expenses, including all Syndtrak (or similar
service) expenses, and the reasonable and documented cost of environmental
assessments and audits and surveys and appraisals, in connection with the
syndication of the credit facilities provided for herein, the preparation,
negotiation, execution, delivery and administration (both before and after the
execution hereof and including advice of counsel to the Administrative Agent as
to the rights and duties of the Administrative Agent and the Lenders with
respect thereto) of this Agreement and the other Loan Documents and any
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related to the provisions hereof or thereof (whether or not the transactions
contemplated hereby or thereby shall be consummated), (ii) all reasonable and
documented costs, expenses, Taxes, assessments and other charges incurred by any
Agent or any Lender in connection with any filing, registration, recording or
perfection of any security interest contemplated by this Agreement or any
Security Instrument or any other document referred to therein, (iii) all
reasonable and documented out-of-pocket expenses incurred by the Issuing Bank in
connection with the issuance, amendment, renewal or extension of any Letter of
Credit or any demand for payment thereunder, and (iv) if a Default has occurred,
all documented out-of-pocket expenses incurred by any Agent, the Issuing Bank or
any Lender, including the fees, charges and disbursements of any counsel for any
Agent, the Issuing Bank or any Lender, in connection with the enforcement or
protection of its rights in connection with this Agreement or any other Loan
Document, including its rights under this Section 12.03, or in connection with
the Loans made or Letters of Credit issued hereunder, including, without
limitation, all such out-of-pocket expenses incurred during any workout,
restructuring or negotiations in respect of such Loans or Letters of Credit.

(b) THE BORROWER SHALL INDEMNIFY EACH AGENT, THE ARRANGER, THE ISSUING BANK AND
EACH LENDER, AND EACH RELATED PARTY OF ANY OF THE FOREGOING PERSONS (EACH SUCH
PERSON BEING CALLED AN “INDEMNITEE”) AGAINST, AND DEFEND AND HOLD EACH
INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES, PENALTIES,
LIABILITIES AND RELATED EXPENSES, INCLUDING THE REASONABLE FEES, CHARGES AND
DISBURSEMENTS OF ANY COUNSEL FOR ANY INDEMNITEE, INCURRED BY OR ASSERTED AGAINST
ANY INDEMNITEE ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF (i) THE
EXECUTION OR DELIVERY OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY
AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, THE PERFORMANCE BY THE
PARTIES HERETO OR THE PARTIES TO ANY OTHER LOAN DOCUMENT OF THEIR RESPECTIVE
OBLIGATIONS HEREUNDER OR THEREUNDER OR THE CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED HEREBY OR BY ANY OTHER LOAN DOCUMENT (PROVIDED THAT THE
INDEMNIFICATION IN THIS CLAUSE (i) SHALL NOT EXTEND TO DISPUTES SOLELY BETWEEN
OR AMONG ANY AGENT, THE LENDERS OR THEIR RESPECTIVE AFFILIATES), (ii) THE
FAILURE OF THE BORROWER OR ANY OTHER LOAN PARTY TO COMPLY WITH THE TERMS OF ANY
LOAN DOCUMENT, INCLUDING THIS AGREEMENT, OR WITH ANY GOVERNMENTAL REQUIREMENT,
(iii) ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY WARRANTY OR
COVENANT OF THE BORROWER OR ANY GUARANTOR SET FORTH IN ANY OF THE LOAN DOCUMENTS
OR ANY INSTRUMENTS, DOCUMENTS OR CERTIFICATIONS DELIVERED IN CONNECTION
THEREWITH, (iv) ANY LOAN OR LETTER OF CREDIT OR THE USE OF THE PROCEEDS
THEREFROM, INCLUDING, WITHOUT LIMITATION, (A) ANY REFUSAL BY THE ISSUING BANK TO
HONOR A DEMAND FOR PAYMENT UNDER A LETTER OF CREDIT IF THE DOCUMENTS PRESENTED
IN CONNECTION WITH SUCH DEMAND DO NOT STRICTLY COMPLY WITH THE TERMS OF SUCH
LETTER OF CREDIT, OR (B) THE PAYMENT OF A DRAWING UNDER ANY LETTER OF CREDIT
NOTWITHSTANDING THE NON-COMPLIANCE, NON-DELIVERY OR OTHER IMPROPER PRESENTATION
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THEREWITH, (v) ANY OTHER ASPECT OF THE LOAN DOCUMENTS, (vi) THE OPERATIONS OF
THE BUSINESS OF THE BORROWER AND THE OTHER LOAN PARTIES BY THE BORROWER AND THE
OTHER LOAN PARTIES, (vii) ANY ASSERTION THAT THE LENDERS WERE NOT ENTITLED TO
RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THE SECURITY INSTRUMENTS, (viii) ANY
ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY OTHER LOAN PARTY REGARDING
ANY OF THEIR PROPERTIES OR OPERATIONS, INCLUDING, THE PRESENCE, GENERATION,
STORAGE, RELEASE, THREATENED RELEASE, USE, TRANSPORT, DISPOSAL, ARRANGEMENT OF
DISPOSAL OR TREATMENT OF HAZARDOUS MATERIALS ON OR AT ANY OF THEIR PROPERTIES,
(ix) THE BREACH OR NON-COMPLIANCE BY THE BORROWER OR ANY OTHER LOAN PARTY WITH
ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY OTHER LOAN PARTY,
(x) THE PAST OWNERSHIP BY THE BORROWER OR ANY OTHER LOAN PARTY OF ANY OF THEIR
PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES WHICH, THOUGH LAWFUL AND
FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT LIABILITY, (xi) THE
PRESENCE, USE, RELEASE, STORAGE, TREATMENT, DISPOSAL, GENERATION, THREATENED
RELEASE, TRANSPORT, ARRANGEMENT FOR TRANSPORT OR ARRANGEMENT FOR DISPOSAL OF
HAZARDOUS MATERIALS ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY THE
BORROWER OR ANY OTHER LOAN PARTY OR ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE OF
HAZARDOUS MATERIALS ON OR FROM ANY PROPERTY OWNED OR OPERATED BY THE BORROWER OR
ANY OF THE OTHER LOAN PARTIES, (xii) ANY ENVIRONMENTAL LIABILITY RELATED IN ANY
WAY TO THE BORROWER OR ANY OF THE OTHER LOAN PARTIES, OR (xiii) ANY OTHER
ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS,
OR (xiv) ANY ACTUAL OR PROSPECTIVE CLAIM, LITIGATION, INVESTIGATION OR
PROCEEDING RELATING TO ANY OF THE FOREGOING, WHETHER BASED ON CONTRACT, TORT OR
ANY OTHER THEORY AND REGARDLESS OF WHETHER ANY INDEMNITEE IS A PARTY THERETO,
AND SUCH INDEMNITY SHALL EXTEND TO EACH INDEMNITEE NOTWITHSTANDING THE SOLE OR
CONCURRENT NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR
PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT
LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT
(SECOND) OF TORTS OF ONE OR MORE OF THE INDEMNITEES OR BY REASON OF STRICT
LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR MORE OF THE INDEMNITEES; provided
THAT SUCH INDEMNITY SHALL NOT, AS TO ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT
THAT SUCH LOSSES, CLAIMS, DAMAGES, LIABILITIES OR RELATED EXPENSES (A) ARE
DETERMINED BY A COURT OF COMPETENT JURISDICTION BY FINAL AND NONAPPEALABLE
JUDGMENT TO HAVE RESULTED FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF
SUCH INDEMNITEE OR (B) ARE IN RESPECT OF ANY PROPERTY FOR ANY OCCURRENCE ARISING
FROM THE ACTS OR OMISSIONS OF THE ADMINISTRATIVE AGENT OR ANY LENDER DURING THE
PERIOD AFTER WHICH SUCH PERSON, ITS SUCCESSORS OR ASSIGNS HAVE OBTAINED TITLE
AND POSSESSION OF SUCH PROPERTY BY FORECLOSURE OR DEED IN LIEU OF FORECLOSURE).

 

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(c) To the extent that the Borrower fails to pay any amount required to be paid
by it to any Agent, the Arranger or the Issuing Bank under Section 12.03(a) or
(b), each Lender severally agrees to pay to such Agent, the Arranger or the
Issuing Bank, as the case may be, such Lender’s Applicable Percentage
(determined as of the time that the applicable unreimbursed expense or indemnity
payment is sought) of such unpaid amount; provided that the unreimbursed expense
or indemnified loss, claim, damage, liability or related expense, as the case
may be, was incurred by or asserted against such Agent, the Arranger or the
Issuing Bank in its capacity as such.

(d) To the extent permitted by applicable law, the Borrower shall not assert,
and hereby waives, any claim against any Indemnitee, on any theory of liability,
for special, indirect, consequential or punitive damages (as opposed to direct
or actual damages) arising out of, in connection with, or as a result of, this
Agreement, any other Loan Document or any agreement or instrument contemplated
hereby or thereby, the Transactions, any Loan or Letter of Credit or the use of
the proceeds thereof.

(e) All amounts due under this Section 12.03 shall be payable not later than ten
Business Days after written demand therefor accompanied by appropriate
documentation thereof.

Section 12.04 Successors and Assigns.

(a) The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns
permitted hereby (including any Affiliate of the Issuing Bank that issues any
Letter of Credit), except that (i) the Borrower may not assign or otherwise
transfer any of its rights or obligations hereunder without the prior written
consent of each Lender (and any attempted assignment or transfer by the Borrower
without such consent shall be null and void) and (ii) no Lender may assign or
otherwise transfer its rights or obligations hereunder except in accordance with
this Section 12.04. Nothing in this Agreement, expressed or implied, shall be
construed to confer upon any Person (other than the parties hereto, their
respective successors and assigns permitted hereby (including any Affiliate of
the Issuing Bank that issues any Letter of Credit), Participants (to the extent
provided in Section 12.04(c)) and, to the extent expressly contemplated hereby,
the Related Parties of each of the Administrative Agent, the Issuing Bank and
the Lenders and their respective successors and assigns permitted hereby) any
legal or equitable right, remedy or claim under or by reason of this Agreement.

(b) (i) Subject to the conditions set forth in Section 12.04(b)(ii), any Lender
may assign to one or more assignees all or a portion of its rights and
obligations under this Agreement (including all or a portion of its Commitment
and the Loans at the time owing to it) with the prior written consent (such
consent not to be unreasonably withheld) of:

(A) the Borrower, provided that no consent of the Borrower shall be required if
such assignment is to an assignee that is a Lender immediately prior to giving
effect to such assignment, an Affiliate of such a Lender, an Approved Fund or,
if an Event of Default has occurred and is continuing, is to any other assignee;
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(B) the Administrative Agent, provided that no consent of the Administrative
Agent shall be required for an assignment to an assignee that is a Lender
immediately prior to giving effect to such assignment.

(ii) Assignments shall be subject to the following additional conditions:

(A) except in the case of an assignment to an assignee that is a Lender
immediately prior to giving effect to such assignment or an Affiliate of a
Lender or an assignment of the entire remaining amount of the assigning Lender’s
Commitment or Loans, the amount of the Commitment or Loans of the assigning
Lender subject to each such assignment (determined as of the date the Assignment
and Assumption with respect to such assignment is delivered to the
Administrative Agent) shall not be less than $5,000,000 unless each of the
Borrower and the Administrative Agent otherwise consent, provided that no such
consent of the Borrower shall be required if an Event of Default has occurred
and is continuing;

(B) each partial assignment shall be made as an assignment of a proportionate
part of all the assigning Lender’s rights and obligations under this Agreement;

(C) the parties to each assignment shall execute and deliver to the
Administrative Agent an Assignment and Assumption, together with a processing
and recordation fee of $3,500;

(D) the assignee, if it shall not already be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire; and

(E) in no event may any Lender assign all or a portion of its rights and
obligations under this Agreement to the Parent or any Affiliate of the Parent.

(iii) Subject to Section 12.04(b)(iv) and the acceptance and recording thereof,
from and after the effective date specified in each Assignment and Assumption
the assignee thereunder shall be a party hereto and, to the extent of the
interest assigned by such Assignment and Assumption, have the rights and
obligations of a Lender under this Agreement, and the assigning Lender
thereunder shall, to the extent of the interest assigned by such Assignment and
Assumption, be released from its obligations under this Agreement (and, in the
case of an Assignment and Assumption covering all of the assigning Lender’s
rights and obligations under this Agreement, such Lender shall cease to be a
party hereto but shall continue to be entitled to the benefits of Section 5.01,
Section 5.02, Section 5.03 and Section 12.03). Any assignment or transfer by a
Lender of rights or obligations under this Agreement that does not comply with
this Section 12.04 shall be treated for purposes of this Agreement as a sale by
such Lender of a participation in such rights and obligations in accordance with
Section 12.04(c).

(iv) The Administrative Agent, acting solely for this purpose as an agent of the
Borrower, shall maintain at one of its offices a copy of each Assignment and
Assumption delivered to it and a register for the recordation of the names and
addresses of the Lenders, and the Maximum Credit Amount of, and principal amount
of the Loans and LC Disbursements owing to, each Lender pursuant to the terms
hereof from time to time (the “Register”). The entries in the Register shall be
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Administrative Agent, the Issuing Bank and the Lenders may treat each Person
whose name is recorded in the Register pursuant to the terms hereof as a Lender
hereunder for all purposes of this Agreement, notwithstanding notice to the
contrary. The Register shall be available for inspection by the Borrower, the
Issuing Bank and any Lender, at any reasonable time and from time to time upon
reasonable prior notice. In connection with any changes to the Register, if
necessary, the Administrative Agent will reflect the revisions on Annex I and
forward a copy of such revised Annex I to the Borrower, the Issuing Bank and
each Lender.

(v) Upon its receipt of a duly completed Assignment and Assumption executed by
an assigning Lender and an assignee, the assignee’s completed Administrative
Questionnaire and applicable tax forms (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in
Section 12.04(b) and any written consent to such assignment required by
Section 12.04(b), the Administrative Agent shall accept such Assignment and
Assumption and record the information contained therein in the Register. No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this Section 12.04(b).

(c) (i) Any Lender may, without the consent of the Borrower, the Administrative
Agent or the Issuing Bank, sell participations to one or more banks or other
entities (a “Participant”) in all or a portion of such Lender’s rights and
obligations under this Agreement (including all or a portion of its Commitment
and the Loans owing to it); provided that (A) such Lender’s obligations under
this Agreement shall remain unchanged, (B) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations
and (C) the Borrower, the Administrative Agent, the Issuing Bank and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender’s rights and obligations under this Agreement. Any
agreement or instrument pursuant to which a Lender sells such a participation
shall provide that such Lender shall retain the sole right to enforce this
Agreement and to approve any amendment, modification or waiver of any provision
of this Agreement; provided that such agreement or instrument may provide that
such Lender will not, without the consent of the Participant, agree to any
amendment, modification or waiver described in the proviso to Section 12.02 that
affects such Participant. In addition such agreement must provide that the
Participant be bound by the provisions of Section 12.03. Subject to
Section 12.04(c)(ii), the Borrower agrees that each Participant shall be
entitled to the benefits of Section 5.01, Section 5.02 and Section 5.03 (in each
case, without duplication of any benefits afforded the Lender granting such
participation) to the same extent as if it were a Lender and had acquired its
interest by assignment pursuant to Section 12.04(b). Each Lender that sells a
participation shall, acting solely for this purpose as an agent of the Borrower,
maintain a register on which it enters the name and address of each Participant
and the principal amounts (and stated interest) of each Participant’s interest
in the Loans or other obligations under the Loan Documents (the “Participant
Register”); provided that no Lender shall have any obligation to disclose all or
any portion of the Participant Register (including the identity of any
Participant or any information relating to a Participant’s interest in any
commitments, loans, letters of credit or its other obligations under any Loan
Document) to any Person except to the extent that such disclosure is necessary
to establish that such commitment, loan, letter of credit or other obligation is
in registered form under Section 5f.103-1(c) of the United States Treasury
Regulations. The entries in the Participant Register shall be conclusive absent
manifest error, and such Lender shall treat each Person whose name is recorded
in the Participant Register as the owner of such participation for all purposes
of this Agreement notwithstanding any notice to the contrary. For the avoidance
of doubt, the Administrative Agent (in its capacity as Administrative Agent)
shall have no responsibility for maintaining a Participant Register.

 

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(ii) A Participant shall not be entitled to receive any greater payment under
Section 5.01 or Section 5.03 than the applicable Lender would have been entitled
to receive with respect to the participation sold to such Participant, unless
the sale of the participation to such Participant is made with the Borrower’s
prior written consent. A Participant that would be a Foreign Lender if it were a
Lender shall not be entitled to the benefits of Section 5.03 unless the Borrower
is notified of the participation sold to such Participant and such Participant
agrees, for the benefit of the Borrower, to comply with Section 5.03(f) as
though it were a Lender.

(d) Any Lender may at any time pledge or assign a security interest in all or
any portion of its rights under this Agreement to secure obligations of such
Lender, including, without limitation, any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this Section 12.04(d) shall not apply
to any such pledge or assignment of a security interest; provided that no such
pledge or assignment of a security interest shall release a Lender from any of
its obligations hereunder or substitute any such pledgee or assignee for such
Lender as a party hereto.

(e) Notwithstanding any other provisions of this Section 12.04, no transfer or
assignment of the interests or obligations of any Lender or any grant of
participations therein shall be permitted if such transfer, assignment or grant
would require the Borrower and the Guarantors to file a registration statement
with the SEC or to qualify the Loans under the “Blue Sky” laws of any state.

Section 12.05 Survival; Revival; Reinstatement.

(a) All covenants, agreements, representations and warranties made by the
Borrower herein and in the certificates or other instruments delivered in
connection with or pursuant to this Agreement or any other Loan Document shall
be considered to have been relied upon by the other parties hereto and shall
survive the execution and delivery of this Agreement and the making of any Loans
and issuance of any Letters of Credit, regardless of any investigation made by
any such other party or on its behalf and notwithstanding that the
Administrative Agent, any other Agent, the Issuing Bank or any Lender may have
had notice or knowledge of any Default or incorrect representation or warranty
at the time any credit is extended hereunder, and shall continue in full force
and effect as long as the principal of or any accrued interest on any Loan or
any fee or any other amount payable under this Agreement is outstanding and
unpaid or any Letter of Credit is outstanding and so long as the Commitments
have not expired or terminated. The provisions of Section 5.01 (subject to
Section 5.01(d)), Section 5.02 (subject to the proviso in the last sentence
thereof), Section 5.03 (subject to the proviso in the last sentence of
Section 5.03(c)) and Section 12.03 (for a period of two years after the Maturity
Date) and Article XI shall survive and remain in full force and effect
regardless of the consummation of the transactions contemplated hereby, the
repayment of the Loans, the expiration or termination of the Letters of Credit
and the Commitments or the termination of this Agreement, any other Loan
Document or any provision hereof or thereof; provided, that any time limitation
on the survival of any provision hereunder shall be tolled for any claims filed
prior to the expiration of such time limitation until two months after final,
non-appealable adjudication of any such claim.

 

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(b) To the extent that any payments on the Indebtedness or proceeds of any
collateral are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or other Person under any bankruptcy law, common law or
equitable cause, then to such extent, the Indebtedness so satisfied shall be
revived and continue as if such payment or proceeds had not been received and
the Administrative Agent’s and the Lenders’ Liens, security interests, rights,
powers and remedies under this Agreement and each Loan Document shall continue
in full force and effect. In such event, each Loan Document shall be
automatically reinstated and the Borrower shall take such action as may be
reasonably requested by the Administrative Agent and the Lenders to effect such
reinstatement.

Section 12.06 Counterparts; Integration; Effectiveness.

(a) This Agreement may be executed in counterparts (and by different parties
hereto on different counterparts), each of which shall constitute an original,
but all of which when taken together shall constitute a single contract.

(b) This Agreement, the other Loan Documents and any separate letter agreements
with respect to fees payable to the Administrative Agent constitute the entire
contract among the parties relating to the subject matter hereof and thereof and
supersede any and all previous agreements and understandings, oral or written,
relating to the subject matter hereof and thereof. THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES HERETO AND
THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.

(c) Except as provided in Section 6.01, this Agreement shall become effective
when it shall have been executed by the Administrative Agent and when the
Administrative Agent shall have received counterparts hereof which, when taken
together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. Delivery of an executed counterpart
of a signature page of this Agreement by telecopy, facsimile or other similar
electronic means shall be effective as delivery of a manually executed
counterpart of this Agreement.

Section 12.07 Severability. Any provision of this Agreement or any other Loan
Document held to be invalid, illegal or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such invalidity,
illegality or unenforceability without affecting the validity, legality and
enforceability of the remaining provisions hereof or thereof; and the invalidity
of a particular provision in a particular jurisdiction shall not invalidate such
provision in any other jurisdiction.

 

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Section 12.08 Right of Setoff. If an Event of Default shall have occurred and be
continuing, each Lender and each of its Affiliates is hereby authorized at any
time and from time to time, to the fullest extent permitted by law, to set off
and apply any and all deposits (general or special, time or demand, provisional
or final) at any time held and other obligations (of whatsoever kind, including,
without limitations obligations under Swap Agreements) at any time owing by such
Lender or Affiliate to or for the credit or the account of the Borrower or any
other Loan Party against any of and all the obligations of the Borrower or any
other Loan Party owed to such Lender now or hereafter existing under this
Agreement or any other Loan Document, irrespective of whether or not such Lender
shall have made any demand under this Agreement or any other Loan Document and
although such obligations may be unmatured. The rights of each Lender under this
Section 12.08 are in addition to other rights and remedies (including other
rights of setoff) which such Lender or its Affiliates may have.

Section 12.09 GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS.

(a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS SHALL BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF
AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, IN EITHER CASE LOCATED IN NEW
YORK COUNTY, NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH
PARTY HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED BY LAW) IN RESPECT
OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING,
WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS
OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF
ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. THIS SUBMISSION
TO JURISDICTION IS NON-EXCLUSIVE AND DOES NOT PRECLUDE A PARTY FROM OBTAINING
JURISDICTION OVER ANOTHER PARTY IN ANY COURT OTHERWISE HAVING JURISDICTION.

(c) EACH PARTY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT THE ADDRESS
SPECIFIED IN SECTION 12.01 OR SUCH OTHER ADDRESS AS IS SPECIFIED PURSUANT TO
SECTION 12.01 (OR ITS ASSIGNMENT AND ASSUMPTION), SUCH SERVICE TO BECOME
EFFECTIVE 30 DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF A
PARTY OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANOTHER PARTY
IN ANY OTHER JURISDICTION.

 

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(d) EACH PARTY HEREBY (i) IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM
THEREIN; (ii) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW,
ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL,
EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN
ADDITION TO, ACTUAL DAMAGES; (iii) CERTIFIES THAT NO PARTY HERETO NOR ANY
REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (iv) ACKNOWLEDGES THAT IT
HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE LOAN DOCUMENTS AND THE
TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 12.09.

Section 12.10 Headings. Article and Section headings and the Table of Contents
used herein are for convenience of reference only, are not part of this
Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.

Section 12.11 Confidentiality. Each of the Administrative Agent, the Issuing
Bank and the Lenders agrees to maintain the confidentiality of the Information
(as defined below), except that Information may be disclosed (a) to its and its
Affiliates’ directors, officers, employees and agents, including accountants,
legal counsel and other advisors (it being understood that the Persons to whom
such disclosure is made will be informed of the confidential nature of such
Information and instructed to keep such Information confidential), (b) to the
extent requested by any regulatory authority, (c) to the extent required by
applicable laws or regulations or by any subpoena or similar legal process;
provided that, subject to the Borrower’s obligation to reimburse expenses under
Section 12.03, it shall use commercially reasonable efforts to seek to obtain
confidential treatment of such Information; provided further, that it shall not
be liable for failure to obtain such confidential treatment, (d) to any other
party to this Agreement or any other Loan Document, (e) in connection with the
exercise of any remedies hereunder or under any other Loan Document or any suit,
action or proceeding relating to this Agreement or any other Loan Document or
the enforcement of rights hereunder or thereunder, (f) subject to an agreement
containing provisions substantially the same as those of this Section 12.11, to
(i) any assignee of or Participant in, or any prospective assignee of or
Participant in, any of its rights or obligations under this Agreement or
(ii) any actual or prospective counterparty (or its advisors) to any Swap
Agreement relating to the Borrower and its obligations, (g) with the consent of
the Borrower or (h) to the extent such Information (i) becomes publicly
available other than as a result of a breach of this Section 12.11 or
(ii) becomes available to the Administrative Agent, the Issuing Bank or any
Lender on a nonconfidential basis from a source other than the Borrower. For the
purposes of this Section 12.11, “Information” means all information received
from the Borrower or any other Loan Party relating to the Borrower or any other
Loan Party and their businesses, other than any such information that is
available to the Administrative Agent, the Issuing Bank or any Lender on a
nonconfidential basis prior to disclosure by the Borrower or any other Loan
Party; provided that, in the case of information received from the Borrower or
any

 

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other Loan Party after the date hereof, such information is clearly identified
at the time of delivery as confidential. Any Person required to maintain the
confidentiality of Information as provided in this Section 12.11 shall be
considered to have complied with its obligation to do so if such Person has
exercised the same degree of care to maintain the confidentiality of such
Information as such Person would accord to its own confidential information.
Notwithstanding anything herein to the contrary, “Information” shall not
include, and the Borrower, the other Loan Parties, the Administrative Agent,
each Lender and the respective Affiliates of each of the foregoing (and the
respective partners, directors, officers, employees, agents, advisors and other
representatives of the aforementioned Persons), and any other party, may
disclose to any and all Persons, without limitation of any kind (a) any
information with respect to the United States federal and state income tax
treatment of the transactions contemplated hereby and any facts that may be
relevant to understanding the United States federal or state income tax
treatment of such transactions (“tax structure”), which facts shall not include
for this purpose the names of the parties or any other person named herein, or
information that would permit identification of the parties or such other
persons, or any pricing terms or other nonpublic business or financial
information that is unrelated to such tax treatment or tax structure, and
(b) all materials of any kind (including opinions or other tax analyses) that
are provided to the Borrower, the Administrative Agent or such Lender relating
to such tax treatment or tax structure.

Section 12.12 Interest Rate Limitation. It is the intention of the parties
hereto that each Lender shall conform strictly to usury laws applicable to it.
Accordingly, if the transactions contemplated hereby would be usurious as to any
Lender under laws applicable to it (including the laws of the United States of
America, the State of Texas or any other jurisdiction whose laws may be
mandatorily applicable to such Lender notwithstanding the other provisions of
this Agreement), then, in that event, notwithstanding anything to the contrary
in any of the Loan Documents or any agreement entered into in connection with or
as security for the Notes, it is agreed as follows: (i) the aggregate of all
consideration which constitutes interest under law applicable to any Lender that
is contracted for, taken, reserved, charged or received by such Lender under any
of the Loan Documents or agreements or otherwise in connection with the Notes
shall under no circumstances exceed the maximum amount allowed by such
applicable law, and any excess shall be canceled automatically and if
theretofore paid shall be credited by such Lender on the principal amount of the
Indebtedness (or, to the extent that the principal amount of the Indebtedness
shall have been or would thereby be paid in full, refunded by such Lender to the
Borrower); and (ii) in the event that the maturity of the Notes is accelerated
by reason of an election of the holder thereof resulting from any Event of
Default under this Agreement or otherwise, or in the event of any required or
permitted prepayment, then such consideration that constitutes interest under
law applicable to any Lender may never include more than the maximum amount
allowed by such applicable law, and excess interest, if any, provided for in
this Agreement or otherwise shall be canceled automatically by such Lender as of
the date of such acceleration or prepayment and, if theretofore paid, shall be
credited by such Lender on the principal amount of the Indebtedness (or, to the
extent that the principal amount of the Indebtedness shall have been or would
thereby be paid in full, refunded by such Lender to the Borrower). All sums paid
or agreed to be paid to any Lender for the use, forbearance or detention of sums
due hereunder shall, to the extent permitted by law applicable to such Lender,
be amortized, prorated, allocated and spread throughout the stated term of the
Loans evidenced by the Notes until payment in full so that the rate or amount of
interest on account of any Loans hereunder does not exceed the maximum amount
allowed by such applicable law. If at any time

 

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and from time to time (i) the amount of interest payable to any Lender on any
date shall be computed at the Highest Lawful Rate applicable to such Lender
pursuant to this Section 12.12 and (ii) in respect of any subsequent interest
computation period the amount of interest otherwise payable to such Lender would
be less than the amount of interest payable to such Lender computed at the
Highest Lawful Rate applicable to such Lender, then the amount of interest
payable to such Lender in respect of such subsequent interest computation period
shall continue to be computed at the Highest Lawful Rate applicable to such
Lender until the total amount of interest payable to such Lender shall equal the
total amount of interest which would have been payable to such Lender if the
total amount of interest had been computed without giving effect to this
Section 12.12. To the extent that Chapter 303 of the Texas Finance Code is
relevant for the purpose of determining the Highest Lawful Rate applicable to a
Lender, such Lender elects to determine the applicable rate ceiling under such
Chapter by the weekly ceiling from time to time in effect. Chapter 346 of the
Texas Finance Code does not apply to the Borrower’s obligations hereunder.

Section 12.13 EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO SPECIFICALLY
AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS; THAT IT HAS IN FACT READ THIS AGREEMENT
AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS, CONDITIONS
AND EFFECTS OF THIS AGREEMENT; THAT IT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL
COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND HAS RECEIVED THE ADVICE OF ITS
ATTORNEY IN ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND THAT
IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF
THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH
LIABILITY. EACH PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE
VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS ON THE BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE
OF SUCH PROVISION OR THAT THE PROVISION IS NOT “CONSPICUOUS.”

Section 12.14 Collateral Matters; Swap Agreements. The benefit of the Security
Instruments and of the provisions of this Agreement relating to any collateral
securing the Indebtedness shall also extend to and be available to the Secured
Swap Providers with respect to any Swap Agreement including any Swap Agreement
in existence prior to the date hereof, but excluding any additional transactions
or confirmations entered into (a) after such Secured Swap Provider ceases to be
a Secured Swap Provider or (b) after assignment by a Secured Swap Provider to a
Person who is not, at the time of such assignment, a Secured Swap Provider. No
Secured Swap Provider shall have any voting rights under any Loan Document as a
result of the existence of obligations owed to it under any such Swap
Agreements. No Secured Swap Provider that is not a Lender or an Affiliate of a
Lender will be entitled to the benefit of the Security Instruments and the
collateral pledged thereunder with respect to any Swap Agreement

 

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(including any trade or confirmation with respect thereto) for which such
Secured Swap Provider has not provided written notice to the Administrative
Agent of such Swap Agreement and the material terms thereof.

Section 12.15 No Third Party Beneficiaries. This Agreement, the other Loan
Documents, and the agreement of the Lenders to make Loans and the Issuing Bank
to issue, amend, renew or extend Letters of Credit hereunder are solely for the
benefit of the Borrower, and no other Person (including, without limitation, any
other Loan Party, any obligor, contractor, subcontractor, supplier or
materialsman) shall have any rights, claims, remedies or privileges hereunder or
under any other Loan Document against the Administrative Agent, any other Agent,
the Issuing Bank or any Lender for any reason whatsoever. Except as specified in
Section 12.14 and Section 12.03, there are no third party beneficiaries, except
that any Secured Swap Provider that is not a Lender or an Affiliate of a Lender,
shall be a beneficiary of Section 12.14 and the Security Instruments pursuant to
the terms thereof.

Section 12.16 USA Patriot Act Notice. Each Lender hereby notifies the Borrower
that pursuant to the requirements of the USA Patriot Act (Title III of Pub.
L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is required to
obtain, verify and record information that identifies the Borrower, which
information includes the name and address of the Borrower and other information
that will allow such Lender to identify the Borrower in accordance with the Act.

[SIGNATURES BEGIN NEXT PAGE]

 

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

 

BORROWER:    

MEMORIAL PRODUCTION OPERATING LLC,

a Delaware limited liability company

      By:  

Memorial Production Partners LP,

its sole member

      By:  

Memorial Production Partners GP LLC,

its general partner

       

By: /s/ John A. Weinzierl

Name: John A. Weinzierl

Title: President & Chief Executive Officer

 

PARENT:    

MEMORIAL PRODUCTION PARTNERS LP,

a Delaware limited partnership

      By:  

Memorial Production Partners GP LLC,

its general partner

               

By: /s/ John A. Weinzierl

Name: John A. Weinzierl

Title: President & Chief Executive Officer

 

Signature Page to Credit Agreement

MEMORIAL PRODUCTION OPERATING LLC

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

ADMINISTRATIVE AGENT:    

WELLS FARGO BANK, NATIONAL ASSOCIATION,

as Administrative Agent, Issuing Bank and a Lender

    By:   /s/ Michael Real     Name: Michael Real     Title: Director

 

Signature Page to Credit Agreement

MEMORIAL PRODUCTION OPERATING LLC

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

SYNDICATION AGENT:    

JPMORGAN CHASE BANK, N.A., as Syndication

Agent and a Lender

    By:   /s/ Michael A. Kamauf     Name: Michael A. Kamauf     Title:
Authorized Officer

 

Signature Page to Credit Agreement

MEMORIAL PRODUCTION OPERATING LLC

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

CO-DOCUMENTATION AGENT:     BNP PARIBAS, as Co-Documentation Agent and a Lender
    By:   /s/ Greg Smothers     Name: Greg Smothers     Title: Director    
By:   /s/ Edward Pak     Name: Edward Pak     Title: Director

 

Signature Page to Credit Agreement

MEMORIAL PRODUCTION OPERATING LLC

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

CO-DOCUMENTATION AGENT:     CITIBANK, N.A., as Co-Documentation Agent and a
Lender     By:   /s/ John F. Miller     Name: John F. Miller     Title:
Attorney-In-Fact

 

Signature Page to Credit Agreement

MEMORIAL PRODUCTION OPERATING LLC

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

CO-DOCUMENTATION AGENT:    

COMERICA BANK, as Co-Documentation Agent and a Lender

 

    By:   /s/ David Balderach     Name: David Balderach     Title: Senior Vice
President

 

Signature Page to Credit Agreement

MEMORIAL PRODUCTION OPERATING LLC

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

LENDER:     ROYAL BANK OF CANADA, as a Lender     By:   /s/ Jason York     Name:
Jason York     Title: Authorized Signatory

 

Signature Page to Credit Agreement

MEMORIAL PRODUCTION OPERATING LLC

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

LENDER:     TEXAS CAPITAL BANK, N.A., as a Lender     By:   /s/ Jeff Treadway  
  Name: Jeff Treadway     Title: Vice President

 

Signature Page to Credit Agreement

MEMORIAL PRODUCTION OPERATING LLC

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

LENDER:     U.S. BANK NATIONAL ASSOCIATION, as a Lender     By: /s/ Justin M.
Alexander    

Name: Justin M. Alexander

Title: Vice President

 

Signature Page to Credit Agreement

MEMORIAL PRODUCTION OPERATING LLC

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

LENDER:     UNION BANK, N.A., as a Lender     By: /s/ Brian Caddell     Name:
Brian Caddell     Title: Vice President

 

Signature Page to Credit Agreement

MEMORIAL PRODUCTION OPERATING LLC

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

ANNEX I

LIST OF MAXIMUM CREDIT AMOUNTS

Aggregate Maximum Credit Amounts

 

Name of Lender

   Applicable Percentage     Maximum Credit Amount  

Wells Fargo Bank, National Association

     20.83333333 %    $ 208,333,333.33   

JPMorgan Chase Bank, N.A.

     20.83333333 %    $ 208,333,333.33   

BNP Paribas

     11.66666666 %    $ 116,666,666.66   

Citibank, N.A.

     11.66666666 %    $ 116,666,666.66   

Comerica Bank

     11.66666666 %    $ 116,666,666.66   

Royal Bank of Canada

     5.83333333 %    $ 58,333,333.34   

Texas Capital Bank, N.A.

     5.83333333 %    $ 58,333,333.34   

U.S. Bank National Association

     5.83333333 %    $ 58,333,333.34   

Union Bank, N.A.

     5.83333333 %    $ 58,333,333.34   

TOTAL

     100.00 %    $ 1,000,000,000.00   

 

Annex I

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

ANNEX II

EXISTING LETTERS OF CREDIT

None.

 

Annex II

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

EXHIBIT A

FORM OF NOTE

 

$[            ]     [            ], 20[            ]

FOR VALUE RECEIVED, Memorial Production Operating LLC, a Delaware limited
liability company (the “Borrower”), hereby promises to pay to [            ]
(the “Lender”), at the principal office of Wells Fargo Bank, National
Association (the “Administrative Agent”), at [            ], the principal sum
of [            ] Dollars ($[            ]) (or such lesser amount as shall
equal the aggregate unpaid principal amount of the Loans made by the Lender to
the Borrower under the Credit Agreement, as hereinafter defined), in lawful
money of the United States of America and in immediately available funds, on the
dates and in the principal amounts provided in the Credit Agreement, and to pay
interest on the unpaid principal amount of each such Loan, at such office, in
like money and funds, for the period commencing on the date of such Loan until
such Loan shall be paid in full, at the rates per annum and on the dates
provided in the Credit Agreement.

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

This Note is one of the Notes referred to in the Credit Agreement dated as of
December 14, 2011 among the Borrower, the Administrative Agent, and the other
agents and lenders signatory thereto (including the Lender), and evidences Loans
made by the Lender thereunder (such Credit Agreement as the same may be amended,
supplemented or restated from time to time, the “Credit Agreement”). Capitalized
terms used but not defined in this Note have the respective meanings assigned to
them in the Credit Agreement.

This Note is issued pursuant to, and is subject to the terms and conditions set
forth in, the Credit Agreement and is entitled to the benefits provided for in
the Credit Agreement and the other Loan Documents. The Credit Agreement provides
for the acceleration of the maturity of this Note upon the occurrence of certain
events, for prepayments of Loans upon the terms and conditions specified therein
and other provisions relevant to this Note.

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

 

Exhibit A -1

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

MEMORIAL PRODUCTION OPERATING LLC, a Delaware limited liability company  

By: Memorial Production Partners LP,

       its sole member

 

By: Memorial Production Partners GP LLC,

       its general partner

     By:          Name:          Title:    

 

Exhibit A -2

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

EXHIBIT B

FORM OF BORROWING REQUEST

[[            ]], 20[            ]

Memorial Production Operating LLC, a Delaware limited liability company (the
“Borrower”), pursuant to Section 2.03 of the Credit Agreement dated as of
December 14, 2011 (together with all amendments, restatements, supplements or
other modifications thereto, the “Credit Agreement”) among the Borrower, Wells
Fargo Bank, National Association, as Administrative Agent and the other agents
and lenders (the “Lenders”) which are or become parties thereto (unless
otherwise defined herein, each capitalized term used herein is defined in the
Credit Agreement), hereby requests a Borrowing as follows:

(i) Aggregate amount of the requested Borrowing is $[            ];

(ii) Date of such Borrowing is [            ], 20[            ];

(iii) Requested Borrowing is to be [an ABR Borrowing] [a Eurodollar Borrowing];

(iv) In the case of a Eurodollar Borrowing, the initial Interest Period
applicable thereto is [            ];

(v) Amount of Borrowing Base in effect on the date hereof is $[            ];

(vi) Total Revolving Credit Exposures on the date hereof (i.e., outstanding
principal amount of Loans and total LC Exposure) is $[            ]; and

(vii) Pro forma total Revolving Credit Exposures (giving effect to the requested
Borrowing) is $[            ]; and

(viii) Location and number of the Borrower’s account to which funds are to be
disbursed, which shall comply with the requirements of Section 2.05 of the
Credit Agreement, is as follows:

[                 ]

[                 ]

[                 ]

[                 ]

[                 ]

 

Exhibit B -1

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

The undersigned certifies that he/she is the [            ] of the Borrower, and
that as such he/she is authorized to execute this certificate on behalf of the
Borrower. The undersigned further certifies, represents and warrants on behalf
of the Borrower that all conditions precedent to such Borrowing set forth in
Section 6.02 of the Credit Agreement including, without limitation, the absence
of any Default at the time of and immediately after giving effect to such
Borrowing, are satisfied and that the Borrower is entitled to receive the
requested Borrowing under the terms and conditions of the Credit Agreement.

 

 

MEMORIAL PRODUCTION OPERATING LLC, a Delaware limited liability company  

By: Memorial Production Partners LP,

       its sole member

 

By: Memorial Production Partners GP LLC,

       its general partner

     By:          Name:          Title:    

 

Exhibit B -2

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

EXHIBIT C

FORM OF INTEREST ELECTION REQUEST

[            ], 20[            ]

Memorial Production Operating LLC, a Delaware limited liability company (the
“Borrower”), pursuant to Section 2.04 of the Credit Agreement dated as of
December 14, 2011 (together with all amendments, restatements, supplements or
other modifications thereto, the “Credit Agreement”) among the Borrower, Wells
Fargo Bank, National Association, as Administrative Agent and the other agents
and lenders (the “Lenders”) which are or become parties thereto (unless
otherwise defined herein, each capitalized term used herein is defined in the
Credit Agreement), hereby makes an Interest Election Request as follows:

(i) The Borrowing to which this Interest Election Request applies, and if
different options are being elected with respect to different portions thereof,
the portions thereof to be allocated to each resulting Borrowing (in which case
the information specified pursuant to (iii) and (iv) below shall be specified
for each resulting Borrowing) is [            ];

(ii) The effective date of the election made pursuant to this Interest Election
Request is [            ], 20[            ];[and]

(iii) The resulting Borrowing is to be [an ABR Borrowing] [a Eurodollar
Borrowing][; and]

[(iv) [If the resulting Borrowing is a Eurodollar Borrowing] The Interest Period
applicable to the resulting Borrowing after giving effect to such election is
[            ]].

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

 

MEMORIAL PRODUCTION OPERATING LLC, a Delaware limited liability company  

By: Memorial Production Partners LP,

       its sole member

 

By: Memorial Production Partners GP LLC,

       its general partner

     By:          Name:          Title:    

 

Exhibit C -1

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EXHIBIT D

FORM OF

COMPLIANCE CERTIFICATE

The undersigned hereby certifies that he/she is the [            ] of Memorial
Production Operating LLC, a Delaware limited liability company (the “Borrower”),
and that as such he/she is authorized to execute this certificate on behalf of
the Borrower. With reference to the Credit Agreement dated as of December 14,
2011 (together with all amendments, restatements, supplements or other
modifications thereto being the “Agreement”) among the Borrower, Wells Fargo
Bank, National Association, as Administrative Agent, and the other agents and
lenders (the “Lenders”) which are or become a party thereto, and such Lenders,
the undersigned represents and warrants as follows (each capitalized term used
herein having the same meaning given to it in the Agreement unless otherwise
specified):

(a) The representations and warranties of the Borrower contained in Article VII
of the Agreement and in the Loan Documents and otherwise made in writing by or
on behalf of the Borrower pursuant to the Agreement and the Loan Documents were
true and correct when made, and are repeated at and as of the time of delivery
hereof and are true and correct in all material respects at and as of the time
of delivery hereof, except to the extent such representations and warranties are
expressly limited to an earlier date or the Majority Lenders have expressly
consented in writing to the contrary.

(b) The Borrower has performed and complied with all agreements and conditions
contained in the Agreement and in the Loan Documents required to be performed or
complied with by it prior to or at the time of delivery hereof [or specify
default and describe].

(c) Since [same date as audited financials in Section 7.04(a)], no change has
occurred, either in any case or in the aggregate, in the condition, financial or
otherwise, of the Borrower or any Subsidiary which could reasonably be expected
to have a Material Adverse Effect [or specify event].

(d) There exists no Default or Event of Default [or specify Default and
describe].

(e) Attached hereto are the detailed computations necessary to determine whether
the Borrower is in compliance with Section 8.13(a), Section 8.14(a), and
Section 9.01 as of the end of the [fiscal quarter][fiscal year] ending
[            ].

[(f) The Parent filed [Annual] [Quarterly] financial statements with the SEC on
[            ], 20[    ].]

 

Exhibit D - 1

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EXECUTED AND DELIVERED this [            ] day of [            ].

 

MEMORIAL PRODUCTION OPERATING LLC, a Delaware limited liability company  

By: Memorial Production Partners LP,

       its sole member

 

By:   Memorial Production Partners GP LLC, its general partner

  By:       Name:       Title:    

 

Exhibit D - 2

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EXHIBIT E-1

SECURITY INSTRUMENTS AS OF EFFECTIVE DATE

 

(1) Pledge and Security Agreement dated as of December 14, 2011 among the Loan
Parties and the Administrative Agent.

 

(2) Mortgage, Assignment of As-Extracted Collateral, Security Agreement, Fixture
Filing and Financing Statement dated as of December 14, 2011 by the Borrower, as
mortgagor, in favor of the Administrative Agent for the benefit of the Lenders
and others.

 

(3) Mortgage, Assignment of As-Extracted Collateral, Security Agreement, Fixture
Filing and Financing Statement dated as of December 14, 2011 by Columbus Energy,
LLC, as mortgagor, in favor of the Administrative Agent for the benefit of the
Lenders and others.

 

(4) Mortgage, Assignment of As-Extracted Collateral, Security Agreement, Fixture
Filing and Financing Statement dated as of December 14, 2011 by ETX I LLC, as
mortgagor, in favor of the Administrative Agent for the benefit of the Lenders
and others.

 

(5) Financing Statements in respect of items 1, 2, 3 and 4.

 

(6) Guaranty Agreement dated as of December 14, 2011 by the Guarantors party
thereto in favor of the Administrative Agent.

 

(7) Deposit Account Control Agreement dated as of December 14, 2011 among the
Borrower, the Administrative Agent, as secured party, and Wells Fargo Bank,
National Association, as depositary bank.

 

Exhibit E-1 - 1

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

EXHIBIT E-2

FORM OF GUARANTY AGREEMENT

[to be attached]

 

Exhibit E-2 - 1

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EXHIBIT E-3

FORM OF SECURITY AGREEMENT

[to be attached]

 

Exhibit E-3 - 1

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EXHIBIT F

FORM OF ASSIGNMENT AND ASSUMPTION

This Assignment and Assumption (the “Assignment and Assumption”) is dated as of
the Effective Date set forth below and is entered into by and between [Insert
name of Assignor] (the “Assignor”) and [Insert name of Assignee] (the
“Assignee”). Capitalized terms used but not defined herein shall have the
meanings given to them in the Credit Agreement identified below (as amended, the
“Credit Agreement”), receipt of a copy of which is hereby acknowledged by the
Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto
are hereby agreed to and incorporated herein by reference and made a part of
this Assignment and Assumption as if set forth herein in full.

For an agreed consideration, the Assignor hereby irrevocably sells and assigns
to the Assignee, and the Assignee hereby irrevocably purchases and assumes from
the Assignor, subject to and in accordance with the Standard Terms and
Conditions and the Credit Agreement, as of the Effective Date inserted by the
Administrative Agent as contemplated below (i) all of the Assignor’s rights and
obligations in its capacity as a Lender under the Credit Agreement and any other
documents or instruments delivered pursuant thereto to the extent related to the
amount and percentage interest identified below of all of such outstanding
rights and obligations of the Assignor under the respective facilities
identified below (including any letters of credit and guarantees included in
such facilities) and (ii) to the extent permitted to be assigned under
applicable law, all claims, suits, causes of action and any other right of the
Assignor (in its capacity as a Lender) against any Person, whether known or
unknown, arising under or in connection with the Credit Agreement, any other
documents or instruments delivered pursuant thereto or the loan transactions
governed thereby or in any way based on or related to any of the foregoing,
including contract claims, tort claims, malpractice claims, statutory claims and
all other claims at law or in equity related to the rights and obligations sold
and assigned pursuant to clause (i) above (the rights and obligations sold and
assigned pursuant to clauses (i) and (ii) above being referred to herein
collectively as the “Assigned Interest”). Such sale and assignment is without
recourse to the Assignor and, except as expressly provided in this Assignment
and Assumption, without representation or warranty by the Assignor.

 

1.    Assignor:     2.    Assignee:          [and is an Affiliate/Approved Fund
of [identify Lender]1] 3.    Borrower:   Memorial Production Operating LLC 4.   
Administrative Agent:   Wells Fargo Bank, National Association, as the
administrative agent under the Credit Agreement

 

 

1 

Select as applicable.

 

Exhibit F - 1

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

5.    Credit Agreement:    The Credit Agreement dated as of December 14, 2011
among Memorial Production Operating LLC, the Lenders parties thereto, Wells
Fargo Bank, National Association, as Administrative Agent, and the other agents
parties thereto 6.    Assigned Interest:   

 

Commitment

Assigned

  

Aggregate Amount of Commitment/Loans

for all Lenders

   Amount of

Commitment/Loans
Assigned

   Percentage Assigned

of

Commitment/Loans2

   $    $    %    $    $    %    $    $    %

Effective Date:             , 20            [TO BE INSERTED BY ADMINISTRATIVE
AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE
REGISTER THEREFOR.]

The terms set forth in this Assignment and Assumption are hereby agreed to:

ASSIGNOR

[NAME OF ASSIGNOR]

By:                                                             
                

    Title:

ASSIGNEE

[NAME OF ASSIGNEE]

By:                                                             
                

    Title:

 

 

2 

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

 

Exhibit F - 2

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

[Consented to and]3 Accepted:

WELLS FARGO BANK, NATIONAL ASSOCIATION, as

    Administrative Agent

By                                                                 

    Title:

[Consented to:]4

[NAME OF RELEVANT PARTY]

By                                                                 

    Title:

 

3 

To be added only if the consent of the Administrative Agent is required by the
terms of the Credit Agreement.

4 

To be added only if the consent of the Borrower and/or other parties (e.g.
Issuing Bank) is required by the terms of the Credit Agreement.

 

Exhibit F - 3

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

ANNEX 1

[                     ]5

STANDARD TERMS AND CONDITIONS FOR

ASSIGNMENT AND ASSUMPTION

1. Representations and Warranties.

1.1 Assignor. The Assignor (a) represents and warrants that (i) it is the legal
and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is
free and clear of any lien, encumbrance or other adverse claim and (iii) it has
full power and authority, and has taken all action necessary, to execute and
deliver this Assignment and Assumption and to consummate the transactions
contemplated hereby; and (b) assumes no responsibility with respect to (i) any
statements, warranties or representations made in or in connection with the
Credit Agreement or any other Loan Document, (ii) the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Loan
Documents or any collateral thereunder, (iii) the financial condition of the
Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in
respect of any Loan Document or (iv) the performance or observance by the
Borrower, any of its Subsidiaries or Affiliates or any other Person of any of
their respective obligations under any Loan Document.

1.2. Assignee. The Assignee (a) represents and warrants that (i) it has full
power and authority, and has taken all action necessary, to execute and deliver
this Assignment and Assumption and to consummate the transactions contemplated
hereby and to become a Lender under the Credit Agreement, (ii) it satisfies the
requirements, if any, specified in the Credit Agreement that are required to be
satisfied by it in order to acquire the Assigned Interest and become a Lender,
(iii) from and after the Effective Date, it shall be bound by the provisions of
the Credit Agreement as a Lender thereunder and, to the extent of the Assigned
Interest, shall have the obligations of a Lender thereunder, (iv) it has
received a copy of the Credit Agreement, together with copies of the most recent
financial statements delivered pursuant to Section 8.01 thereof, as applicable,
and such other documents and information as it has deemed appropriate to make
its own credit analysis and decision to enter into this Assignment and
Assumption and to purchase the Assigned Interest on the basis of which it has
made such analysis and decision independently and without reliance on the
Administrative Agent or any other Lender, and (v) if it is a Foreign Lender,
attached to the Assignment and Assumption is any documentation required to be
delivered by it pursuant to the terms of the Credit Agreement, duly completed
and executed by the Assignee; and (b) agrees that (i) it will, independently and
without reliance on the Administrative Agent, the Assignor or any other Lender,
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under the Loan Documents, and (ii) it will perform in accordance with their
terms all of the obligations which by the terms of the Loan Documents are
required to be performed by it as a Lender.

 

 

5 

Describe Credit Agreement at option of Administrative Agent.

 

Exhibit F - 4

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

2. Payments. From and after the Effective Date, the Administrative Agent shall
make all payments in respect of the Assigned Interest (including payments of
principal, interest, fees and other amounts) to the Assignor for amounts which
have accrued to but excluding the Effective Date and to the Assignee for amounts
which have accrued from and after the Effective Date.

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

 

Exhibit F - 5

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

EXHIBIT G-1

FORM OF U.S. TAX COMPLIANCE CERTIFICATE (FOREIGN LENDERS; NOT PARTNERSHIPS)

 

Exhibit G-1 - 1

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

EXHIBIT G-2

FORM OF U.S. TAX COMPLIANCE CERTIFICATE (FOREIGN PARTICIPANTS; NOT PARTNERSHIPS)

 

Exhibit G-2 - 1

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

EXHIBIT G-3

FORM OF U.S. TAX COMPLIANCE CERTIFICATE (FOREIGN PARTICIPANTS; PARTNERSHIPS)

 

Exhibit G-3 - 1

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

EXHIBIT G-4

FORM OF U.S. TAX COMPLIANCE CERTIFICATE (FOREIGN LENDERS; PARTNERSHIPS