Exhibit 10.3

 

 

 

CREDIT AGREEMENT

 

dated as of

 

April 26, 2017

 

among

 

LILIS ENERGY, INC.,

a Nevada corporation

 

The Guarantors from time to time Party Hereto,

 

The Lenders Party Hereto,

 

and

 

WILMINGTON TRUST, NATIONAL ASSOCIATION,

as Administrative Agent

 

 

 

FOR U.S. FEDERAL INCOME TAX PURPOSES, THE LOANS UNDER THIS AGREEMENT WERE ISSUED
WITH ORIGINAL ISSUE DISCOUNT UNDER SECTIONS 1272, 1273, AND 1275 OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED, AND THIS LEGEND IS REQUIRED BY SECTION 1275(c)
OF THE CODE. YOU MAY CONTACT ARIELLA FUCHS, GENERAL COUNSEL, 300 E. SONTERRA
BLVD SUITE 1220 SAN ANTONIO, TX 78258, (210) 999-5400, WHO WILL PROVIDE YOU WITH
FOLLOWING INFORMATION: (1) THE ISSUE PRICE AND DATE OF THE LOANS, (2) THE AMOUNT
OF ORIGINAL ISSUE DISCOUNT ON THE LOANS AND (3) THE YIELD TO MATURITY OF THE
LOANS.

 

 

 

 

TABLE OF CONTENTS

 

    Page       Article I. Definitions   1       Section 1.01 Defined Terms   1
Section 1.02 Terms Generally 25       Article II. The Credits 26       Section
2.01 Accounting Terms; GAAP 26 Section 2.02 Loans and Commitments 26 Section
2.03 Request for Loans 26 Section 2.04 Funding of Loans 27 Section 2.05
Repayment of Loans; Evidence of Debt 28 Section 2.06 Optional Prepayment of
Loans 28 Section 2.07 Mandatory Prepayment of Loans 29 Section 2.08 [Reserved]
30 Section 2.09 Payment of Make-Whole Amount 30 Section 2.10 Interest and Fees
30 Section 2.11 Increased Costs 31 Section 2.12 Taxes 32 Section 2.13 Payments
Generally; Pro Rata Treatment; Sharing of Set-offs 35       Article III.
Representations and Warranties 36       Section 3.01 Organization; Powers 36
Section 3.02 Authorization; Enforceability 37 Section 3.03 Governmental
Approvals; No Conflicts 37 Section 3.04 Financial Condition; No Material Adverse
Change 37 Section 3.05 Properties 37 Section 3.06 Litigation and Environmental
Matters 39 Section 3.07 Compliance with Laws and Agreements 39 Section 3.08
Investment Company Status 39 Section 3.09 Taxes 39 Section 3.10 ERISA 39 Section
3.11 Disclosure 40 Section 3.12 Labor Matters 40 Section 3.13 Capitalization and
Assets 40 Section 3.14 Margin Stock 40 Section 3.15 Bank Accounts 40 Section
3.16 Reserved 40 Section 3.17 Material Contracts 40 Section 3.18 Gas Imbalances
41 Section 3.19 Reserve Reports 41 Section 3.20 Sale of Production 41

 

 i 

 

 

Section 3.21 Anti-Corruption Laws and Sanctions 41 Section 3.22 No Foreign
Operations 41 Section 3.23 Solvency 42 Section 3.24 Reservation and Status of
Common Stock and Preferred Equity 42       Article IV. Conditions 42      
Section 4.01 Effective Date 42 Section 4.02 Conditions to each Delayed Term Loan
Draw 45       Article V. Affirmative Covenants 45       Section 5.01 Financial
Statements; Other Information 45 Section 5.02 Notices of Material Events 47
Section 5.03 Existence; Conduct of Business 48 Section 5.04 Payment of
Obligations 49 Section 5.05 Maintenance of Properties; Insurance 49 Section 5.06
Books and Records; Inspection Rights 49 Section 5.07 Compliance with Laws 49
Section 5.08 Environmental Matters 49 Section 5.09 Use of Proceeds 50 Section
5.10 Collateral Matters 50 Section 5.11 Title Data 51 Section 5.12 Swap
Agreements 51 Section 5.13 Operation of Oil and Gas Property 51 Section 5.14
Subsidiaries 51 Section 5.15 Pledged Capital Stock 52 Section 5.16 Accounts 52
Section 5.17 Further Assurances 52 Section 5.18 Post-Closing Matters 53      
Article VI. Negative Covenants 53       Section 6.01 Financial Covenant 53
Section 6.02 Indebtedness 53 Section 6.03 Liens 55 Section 6.04 Fundamental
Changes 56 Section 6.05 Disposition of Assets 56 Section 6.06 Nature of Business
57 Section 6.07 Investments 57 Section 6.08 Swap Agreements 58 Section 6.09
Restricted Payments 59 Section 6.10 Transactions with Affiliates 59 Section 6.11
Restrictive Agreements 60 Section 6.12 Disqualified Stock 60 Section 6.13
Certain Amendments to Organizational Documents 60 Section 6.14 Lease
Restrictions 60 Section 6.15 Anti-layering Covenant 60 Section 6.16 Sale and
Leaseback Transactions and other Off-Balance Sheet Liabilities 61 Section 6.17
Prohibition on Foreign Subsidiaries 61 Section 6.18 Certain Amendments to
Existing First Lien Loan Documents 61

 

 ii 

 

 

Article VII. Guarantee of Obligations 61       Section 7.01 Guarantee of Payment
61 Section 7.02 Guarantee Absolute 61 Section 7.03 Guarantee Irrevocable 61
Section 7.04 Reinstatement 62 Section 7.05 Subrogation 62 Section 7.06
Subordination 62 Section 7.07 Payments Generally 62 Section 7.08 Setoff 62
Section 7.09 Formalities 63 Section 7.10 Limitations on Guarantee 63 Section
7.11 Survival 63       Article VIII. Events of Default 63       Article IX. The
Administrative Agent 67       Section 9.01 Appointment and Authority 67 Section
9.02 Rights as a Lender 67 Section 9.03 Exculpatory Provisions 67 Section 9.04
Reliance by Administrative Agent 69 Section 9.05 Delegation of Duties 69 Section
9.06 Collateral and Guaranty Matters 70 Section 9.07 Resignation and Removal of
Administrative Agent 70 Section 9.08 Non-Reliance on Administrative Agent and
Other Lenders 71 Section 9.09 Administrative Agent May File Proofs of Claim 71  
    Article X. Miscellaneous 73       Section 10.01 Notices 73 Section 10.02
Waivers; Amendments 75 Section 10.03 Expenses; Indemnity; Damage Waiver 76
Section 10.04 Successors and Assigns 78 Section 10.05 Survival 82 Section 10.06
Counterparts; Integration; Effectiveness; Electronic Execution 82 Section 10.07
Severability 82 Section 10.08 Right of Setoff 82 Section 10.09 GOVERNING LAW;
JURISDICTION; CONSENT TO SERVICE OF PROCESS 83 Section 10.10 WAIVER OF JURY
TRIAL 83 Section 10.11 Headings 84 Section 10.12 Confidentiality 84 Section
10.13 Material Non-Public Information 84 Section 10.14 [Reserved] 85 Section
10.15 Interest Rate Limitation 85 Section 10.16 USA PATRIOT Act 85 Section 10.17
Release of Guarantees and Liens 85 Section 10.18 Board Observer Right and Board
Seats Upon Conversion 86 Section 10.19 Acknowledgement and Consent to Bail-In of
EEA Financial Institutions 86 Section 10.20 Intercreditor 87

 

 iii 

 

 

Article XI. CONVERSIONS 87       Section 11.01 Term Loan Conversion 87 Section
11.02 Delayed Draw Term Loan Conversion 88 Section 11.03 Fractional Shares 89
Section 11.04 Conversion at the Option of the Borrower 89 Section 11.05 Method
of Conversion 89 Section 11.06 Certain Covenants 90 Section 11.07 Lender
Investment Representations 91

 

 iv 

 

 

EXHIBITS:

 

Exhibit A – Form of Assignment and Assumption

Exhibit B – Form of Borrowing Request

Exhibit C – Form of Counterpart Agreement

Exhibit D – Form of Mortgage

Exhibit E – Form of Security Agreement

Exhibit F – Form of Note

Exhibits G-1 through G-4 – Form of Tax Certificates

Exhibit I - Form of Registration Rights Agreement

Exhibit J - Form of Lender Conversion Notice

Exhibit K - Form of Borrower Conversion Notice

 

SCHEDULES:

 

Schedule 2.01 – Commitments

Schedule 3.04 – Material Liabilities

Schedule 3.06 – Disclosed Matters

Schedule 3.13 – Capitalization

Schedule 3.15 – Bank Accounts

Schedule 3.17– Material Contracts

Schedule 3.18 – Gas Imbalances

Schedule 3.19 – Changes to Reserves

Schedule 3.20 – Marketing Agreements

Schedule 6.02 – Existing Indebtedness

Schedule 6.03 – Existing Liens

Schedule 6.07(c) – Existing Investments

Schedule 11.01 – Conversion Price Adjustment Principles

 

 v 

 

 

CREDIT AGREEMENT

 

This CREDIT AGREEMENT, dated as of April 26, 2017, is among LILIS ENERGY, INC.,
a Nevada corporation, as Borrower, CERTAIN SUBSIDIARIES OF BORROWER, as
Guarantors, the LENDERS party hereto, and WILMINGTON TRUST, NATIONAL
ASSOCIATION, as Administrative Agent.

 

RECITALS

 

WHEREAS, the Borrower, T.R Winston & Company, LLC, as initial collateral agent
and each of the financial institutions party thereto as lenders (the “Existing
Lenders”) are party to that certain Credit and Guaranty Agreement, dated as of
September 29, 2016 (as amended, amended and restated, or otherwise modified from
time to time, the “Existing First Lien Credit Agreement”), pursuant to which the
Existing Lenders provided certain loans and extensions of credit to the
Borrower;

 

WHEREAS, the Borrower desires that the Lenders extend certain term and delayed
draw credit facilities to the Borrower to provide funds necessary to repay a
portion of the debt of the Borrower under the Existing First Lien Credit
Agreement on the date hereof and for other purposes expressly set forth herein;

 

WHEREAS, each Guarantor is willing to guaranty all of the Obligations (as
defined herein) of the Borrower;

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties hereto do hereby agree as follows:

 

Article I.

Definitions

 

Section 1.01 Defined Terms. As used in this Agreement, the following terms have
the meanings specified below:

 

“Acceptable Security Interest” means, with respect to any Property, a Lien which
(a) exists in favor of the Administrative Agent for the benefit of the Secured
Parties, (b) is superior to all Liens or rights of any other Person in the
Property encumbered thereby (other than Permitted Prior Liens and, when
applicable, the Permitted Senior Liens), (c) secures the Obligations, and (d) is
perfected and enforceable to the extent required pursuant to the terms of this
Agreement and the Security Agreement.

 

“Accepting Lenders” has the meaning assigned to such term in Section 2.07(d).

 

“Acquisition” means, the acquisition by the Borrower or any Subsidiary, whether
by purchase, merger (and, in the case of a merger with any such Person, with
such Person being the surviving corporation) or otherwise, of all or
substantially all of the Capital Stock of, or all or substantially all of the
business, property or fixed assets of or a business line or unit or a division
of, any other Person engaged solely in the business of producing oil or natural
gas or the acquisition by the Borrower or any Subsidiary of Property consisting
of Oil and Gas Property.

 

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

 

 Page 1 

 

 

“Administrative Agent” means Wilmington Trust, National Association, in its
capacity as contractual representative of the Lenders hereunder, pursuant to
Article IX and not in its individual capacity, and any successor agent appointed
pursuant to Article IX.

 

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

 

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

 

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

 

“Aggregate Commitment” means, at any time, the sum of the Commitments of all the
Lenders at such time.

 

“Aggregate Credit Exposure” means, as of any date of determination, the sum of
the Credit Exposure of all of the Lenders as of such date.

 

“Agreement” means this Credit Agreement, dated as of April 26, 2017, as it may
be amended, restated, amended and restated, supplemented or otherwise modified
from time to time.

 

“Anti-Corruption Laws” shall mean all laws, rules, and regulations of any
jurisdiction applicable to the Borrower or any of its Affiliates from time to
time concerning or relating to bribery or corruption, including without
limitation the United States Foreign Corrupt Practices Act of 1977, as amended,
the UK Bribery Act 2010 and other similar legislation in any other
jurisdictions.

 

“Antitrust Clearance” means, with respect to any Conversion to which Section
11.06(f) is applicable, the expiration or termination of the waiting period
under the HSR Act, or the granting of early termination of the waiting period
under the HSR Act, or the expiration or termination of any applicable waiting or
suspension period or the grant of approval under any other Antitrust Laws.

 

“Antitrust Clearance Date” means, if applicable to any Conversion, the date that
Antitrust Clearance for such Conversion occurs.

 

“Antitrust Laws” means the Sherman Act, the Clayton Act, the HSR Act, the
Federal Trade Commission Act, and any other Law, whether domestic or foreign,
governing agreements in restraint of trade, monopolization, pre-merger
notification, the lessening of competition through merger or acquisition or
anti-competitive conduct, and any foreign investment Laws.

 

 Page 2 

 

 

“Applicable Percentage” means, with respect to any Lender at any time, a
percentage equal to a fraction, the numerator of which is such Lender’s Credit
Exposure at such time and the denominator of which is the Aggregate Credit
Exposure at such time.

 

“Applicable Rate” means 8.25% per annum.

 

“Approved Fund” has the meaning assigned to such term in Section 10.04.

 

“Approved Intercreditor Agreement” means an Approved Permitted RBL Intercreditor
Agreement or the Approved Permitted First Lien Intercreditor Agreement, as
applicable.

 

“Approved Permitted First Lien Intercreditor Agreement” means that certain
Intercreditor Agreement, dated as of the date hereof, by and among the Existing
Agent, the Administrative Agent and the Borrower.

 

“Approved Permitted RBL Intercreditor Agreement” means a customary intercreditor
agreement in form and substance satisfactory to the Lead Lender and the
Administrative Agent, which shall (a) at any time prior to the occurrence of the
Lender Conversions, include an express dollar limitation of $50,000,000 on any
Revolving Debt (excluding, for the avoidance of doubt, the amount of any secured
hedge and cash management obligations that are permitted under both the
Permitted RBL Credit Agreement and this Agreement), and (b) contain other
customary terms and provisions acceptable to the Lead Lender and the
Administrative Agent; provided that any such Approved Intercreditor Agreement
shall contain a provision which permits the Lenders to purchase the Indebtedness
under the Permitted RBL Credit Agreement (which shall include any hedge and cash
management obligations thereunder), at par plus accrued and unpaid interest and
such buy-out right shall be triggered upon an event of default under the
Permitted RBL Credit Agreement that is not cured, or waived by the lenders
providing such Indebtedness, within a specified period and will otherwise be on
customary terms acceptable to the Lead Lender and the Administrative Agent.

 

“Approved Petroleum Engineer” means Cawley Gillespie & Associates or any
reputable firm of independent petroleum engineers selected by the Borrower and
reasonably acceptable to the Lead Lender.

 

“Asset Coverage Ratio” means, as of any date of determination, the ratio as of
(a) the sum of (i) PV9 of the Proved Reserves attributable to the Oil and Gas
Properties of Credit Parties set forth in the most recently delivered Reserve
Report plus (ii) 70% of the book value of the undeveloped acreage owned by the
Credit Parties plus (iii) unrestricted cash and Cash Equivalents of the Credit
Parties to (b) the Total Funded Debt as of such date.

 

“Asset Sale” means any Disposition by any Credit Party of any Property other
than (a) Dispositions permitted by clauses (a), (b), (c), (d), and (f) (only
with respect to clause (i) thereof) and (i) of Section 6.05, and (b) any single
Disposition or series of related Dispositions that involves Properties having a
Fair Market Value not exceeding $250,000 and when aggregated together with all
other Dispositions under this clause (b) the total does not exceed $500,000.

 

“Assignment and Assumption” means an assignment and assumption entered into by a
Lender and an Eligible Assignee (with the consent of any Person whose consent is
required under 10.04), and accepted by the Administrative Agent, in the form of
Exhibit A or any other form approved by the Administrative Agent, provided that
any such other form shall provide that such Eligible Assignee makes the
Investment Representations for the benefit of the Borrower as provided in
Exhibit A.

 

“Bail-In Action” means the exercise of any Write-Down and Conversion Powers by
the applicable EEA Resolution Authority in respect of any liability of an EEA
Financial Institution.

 

 Page 3 

 

 

“Bail-In Legislation” means, with respect to any EEA Member Country implementing
Article 55 of Directive 2014/59/EU of the European Parliament and of the Council
of the European Union, the implementing law for such EEA Member Country from
time to time which is described in the EU Bail-In Legislation Schedule.

 

“Bankruptcy Event” means, with respect to any Person, such Person becomes the
subject of a bankruptcy or insolvency proceeding, or has had a receiver,
conservator, trustee, administrator, custodian, assignee for the benefit of
creditors or similar Person charged with the reorganization or liquidation of
its business appointed for it, or, in the good faith determination of the Lead
Lender, has taken any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any such proceeding or appointment, provided
that a Bankruptcy Event shall not result solely by virtue of any ownership
interest, or the acquisition of any ownership interest, in such Person by a
Governmental Authority or instrumentality thereof, unless such ownership
interest results in or provides such Person 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 permits such Person (or such Governmental
Authority or instrumentality) to reject, repudiate, disavow or disaffirm any
contracts or agreements made by such Person.

 

“Board” means the Board of Governors of the Federal Reserve System of the United
States of America.

 

“Board of Directors” means the board of directors of the Borrower.

 

“Borrower” means Lilis Energy, Inc., a Nevada corporation, and its successors
and permitted assigns.

 

“Borrower Conversion Notice” means a notice of exercise of the Borrower
Conversion Right substantially in the form of Exhibit K.

 

“Borrower Conversion Right” has the meaning assigned to such term in Section
11.04.

 

“Borrowing Base Deficiency” means a “Borrowing Base Deficiency” (or such similar
term) as defined in the Permitted RBL Credit Agreement.

 

“Borrowing Request” means a written request by the Borrower for a Loan in
accordance with Section 2.03, which shall be substantially in the form of
Exhibit B.

 

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

 

“Capital Lease Obligations” of any Person means the obligations of such Person
to pay rent or other amounts under any lease of (or other arrangement conveying
the right to use) real or personal property, or a combination thereof, which
obligations are required to be classified and accounted for as capital leases or
lease obligations on a balance sheet of such Person under GAAP, and the amount
of such obligations shall be the capitalized amount thereof determined in
accordance with GAAP.

 

“Capital Stock” 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.

 

 Page 4 

 

 

“Cash Equivalents” means (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition; (b)
certificates of deposit, time deposits, or overnight bank deposits having
maturities of six months or less from the date of acquisition issued by any
Lender or by any commercial bank organized under the laws of the United States
of America or any state thereof having combined capital and surplus of not less
than $500,000,000; (c) commercial paper of an issuer rated at least A-2 by S&P
or P-2 by Moody’s, or carrying an equivalent rating by a “nationally recognized
statistical rating organization” (within the meaning of proposed Rule 3b-10
promulgated by the SEC under the Exchange Act), if both of the two named rating
agencies cease publishing ratings of commercial paper issuers generally, and
maturing within six months from the date of acquisition; (d) repurchase
obligations of any Lender or of any commercial bank satisfying the requirements
of clause (b) of this definition, having a term of not more than thirty (30)
days with respect to securities issued or fully guaranteed or insured by the
United States government; (e) securities with maturities of one year or less
from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States, by any political subdivision or
taxing authority of any such state, commonwealth or territory, the securities of
which state, commonwealth, territory, political subdivision or taxing authority
(as the case may be) are rated at least A by S&P or A by Moody’s; (f) securities
with maturities of six months or less from the date of acquisition backed by
standby letters of credit issued by any Lender or any commercial bank satisfying
the requirements of clause (b) of this definition; and (g) shares of money
market mutual or similar funds which invest exclusively in assets satisfying the
requirements of clauses (a) through (f) of this definition.

 

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

 

“Certificate of Designations” means a Certificate of Designations for the Lender
Preferred Stock in a form that is reasonably acceptable to the Lead Lender.

 

“Change in Law” means the occurrence after the date of this Agreement or, with
respect to the Administrative Agent or any Lender, such later date on which the
Administrative Agent or such Lender becomes a party to this Agreement of (a) the
adoption of any law, rule, regulation or treaty, (b) any change in any law,
rule, regulation or treaty or in the interpretation or application thereof by
any Governmental Authority or (c) compliance by any Lender (or, for purposes of
Section 2.11(b), by any lending office of such Lender or by such Lender’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, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act
and all requests, rules, guidelines or directives thereunder or issued in
connection therewith and (y) 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
or foreign regulatory authorities, in each case pursuant to Basel III, shall be
deemed to be a “Change in Law” regardless of the date enacted, adopted or
issued.

 

“Change of Control” means

 

(a)any “person” or “group” (as such terms are used in sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), other
than any Lender or any Related Party thereof, is or becomes the beneficial owner
(as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that such
person or group shall be deemed to have “beneficial ownership” (within the
meaning of Rule 13d-3 under the Exchange Act) of all shares that such person or
group has the right to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, of more than 35% of the
total voting power of the outstanding Capital Stock (excluding any debt
securities convertible into equity) normally entitled to vote in the election of
directors (“Voting Stock”) of the Borrower (or its successor by merger,
consolidation or purchase of all or substantially all of its assets);

 

 Page 5 

 

 

(b)except as permitted by Section 6.04, a disposition by Borrower or a
Subsidiary pursuant to which Borrower or any Subsidiary sells, leases, licenses,
transfers, assigns or otherwise Disposes, in one or a series of related
transactions, all or substantially all of the properties and assets of Borrower
and its Subsidiaries taken as a whole;

 

(c)the Borrower’s stockholders approve any plan relating to the liquidation or
dissolution of the Borrower; or

 

(d)the occurrence of a “Change of Control” as such term is defined in the
Permitted RBL Credit Agreement or the Existing First Lien Credit Agreement.

 

“Charges” has the meaning assigned to such term in Section 10.15.

 

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

 

“Collateral” means all assets, whether now owned or hereafter acquired by any
Borrower or any other Credit Party, in which a Lien is granted or purported to
be granted to any Secured Party as security for any Obligation.

 

“Commitment” means, with respect to each Lender, the commitment of such Lender
to make Loans hereunder on the Effective Date and hereafter with respect to any
Delayed Term Loan Draw. The amount of each Lender’s Commitment as of the
Effective Date is set forth on Schedule 2.01.

 

“Commodity Exchange Act” means the Commodity Exchange Act (7 U.S.C. § 1 et
seq.), as amended from time to time, and any successor statute.

 

“Common Stock” means the common stock of the Borrower, par value $0.001 per
share.

 

“Connection Income Taxes” means Other Connection Taxes that are imposed on or
measured by net income (however denominated) or that are franchise Taxes or
branch profits Taxes.

 

“Consolidated Subsidiaries” means, for any Person, any Subsidiary or other
entity the accounts of which would be consolidated with those of such Person in
its consolidated financial statements 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.
“Controlling” and “Controlled” have meanings correlative thereto.

 

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

 

“Conversion” means any Lender Conversion or conversion of Loans to Common Stock
pursuant to the Borrower Conversion Right.

 

“Conversion Date” means, with respect to any Conversion, the later of (a) the
date of delivery of the Lender Conversion Notice or the Borrower Conversion
Notice, as applicable, with respect to such Conversion in accordance with
Section 11.05 or (b) if Section 11.06(f) is applicable to such Conversion, the
Antritrust Clearance Date for such Conversion.

 

 Page 6 

 

 

“Conversion Price” means $5.50 per share of Common Stock, subject to adjustment
based on the provisions of Schedule 11.01.

 

“Conversion Price Floor” has the meaning set forth in Schedule 11.01.

 

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

 

“Counterpart Agreement” means a Counterpart Agreement substantially in the form
of Exhibit C delivered by a Guarantor pursuant to Section 5.14.

 

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

 

“Credit Parties” means collectively, Borrower and each Guarantor, and each
individually, a “Credit Party”.

 

“Declining Lender” has the meaning assigned to such term in Section 2.07(d).

 

“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.

 

“Delayed Draw Take Back Debt” has the meaning set forth in Section 11.02(b).

 

“Delayed Draw Term Loan Commitment” means, as the context may require, (i) as of
any date of determination, the aggregate Delayed Draw Term Loan Commitment
Amounts of all Lenders as of such date, or (ii) the commitment of Lenders to
advance any Delayed Draw Term Loan.

 

“Delayed Draw Term Loan Commitment Amount” means, as to any Lender, the dollar
amount, if any, set forth opposite such Lender’s name on Schedule 2.01 under the
column “Delayed Draw Term Loan Commitment Amount” or as set forth in the
Assignment and Assumption pursuant to which such Lender became party hereto.

 

“Delayed Draw Term Loan Commitment Percentage” means, as to any Lender, (i) on
the Effective Date, the percentage, if any, set forth opposite such Lender’s
name on Schedule 2.01 under the column “Delayed Draw Term Loan Commitment
Percentage” and (ii) on any date following the Effective Date, the percentage
equal to (a) the Delayed Draw Term Loan Commitment Amount of such Lender on such
date, plus the principal amount of the Delayed Draw Term Loan held by such
Lender on such date divided by (b) the aggregate Delayed Draw Term Loan
Commitment Amounts of all Lenders on such date plus the aggregate principal
amount of the Delayed Draw Term Loan on such date.

 

“Delayed Draw Term Loan Conversion” has the meaning set forth in Section
11.02(b).

 

“Delayed Draw Term Loan Funding Period” means the period commencing on the
Effective Date and ending on February 28, 2019.

 

“Delayed Draw Term Loan Maturity Date” means April 26, 2021.

 

“Delayed Draw Term Loans” has the meaning set forth in Section 2.02(b).

 

“Delayed Term Loan Draw” has the meaning assigned to such term in Section
2.02(b).

 

“Disclosed Matters” means the actions, suits and proceedings disclosed in
Schedule 3.06.

 

 Page 7 

 

 

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

 

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

 

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

 

“EEA Financial Institution” means (a) any institution established in any EEA
Member Country which is subject to the supervision of an EEA Resolution
Authority, (b) any entity established in an EEA Member Country which is a parent
of an institution described in clause (a) of this definition, or (c) any
institution established in an EEA Member Country which is a subsidiary of an
institution described in clauses (a) or (b) of this definition and is subject to
consolidated supervision with its parent.“EEA Member Country” means any of the
member states of the European Union, Iceland, Liechtenstein and Norway.“EEA
Resolution Authority” means any public administrative authority or any person
entrusted with public administrative authority of any EEA Member Country
(including any delegee) having responsibility for the resolution of any EEA
Financial Institution.

 

“Effective Date” has the meaning specified in Section 4.01.

 

“Electronic Signature” means an electronic sound, symbol, or process attached
to, or associated with, a contract or other record and adopted by a person with
the intent to sign, authenticate or accept such contract or record.

 

“Eligible Assignee” means any Person that qualifies as an assignee pursuant to
Section 10.04(b)(i); provided that, notwithstanding the foregoing, “Eligible
Assignee” shall not include the Borrower or any of the Borrower’s Affiliates or
Subsidiaries.

 

“Eligible Contract Participant” means an “eligible contract participant” as
defined in the Commodity Exchange Act and the regulations thereunder.

 

“Environmental Laws” means all Requirements of Law relating in any way to
protection of the environment, preservation or reclamation of natural resources,
pollution, occupational health or safety, or the management, release or
threatened release of any Hazardous Material.

 

“Environmental Liability” means any liability, contingent or otherwise
(including any liability for damages, costs of environmental remediation, fines,
penalties or indemnities), of any Credit Party directly or indirectly resulting
from or based upon (a) violation of or liability under any Environmental Law,
(b) the generation, use, handling, transportation, storage, treatment or
disposal (or arrangement for the disposal) of any Hazardous Materials,
(c) exposure to any Hazardous Materials, (d) the release or threatened release
of any Hazardous Materials into the environment or (e) any contract, agreement
or other arrangement pursuant to which liability is assumed or imposed with
respect to any of the foregoing.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended
from time to time.

 

 Page 8 

 

 

“ERISA Affiliate” means any trade or business (whether or not incorporated)
that, together with any Credit Party, is treated as a single employer under
Section 414(b) or (c) of the Code or, solely for purposes of Section 302 or
Title IV of ERISA and Section 412 or 430 of the Code, is treated as a single
employer under Section 414 of the Code.

 

“ERISA Event” means: (a) any “reportable event”, as defined in Section 4043 of
ERISA or the regulations issued thereunder with respect to a Plan (other than an
event for which the 30-day notice period is waived); (b) the failure of any Plan
to satisfy the minimum funding standard applicable to that Plan for a plan year
under Section 412 or 430 of the Code or Section 302 of ERISA; (c) the filing
pursuant to Section  412(c) of the Code or Section  302(c) of ERISA of an
application for a waiver of the minimum funding standard with respect to any
Plan; (d) the incurrence by any Credit Party or any ERISA Affiliate of any
liability under Title IV of ERISA with respect to the termination of any Plan or
Multiemployer Plan; (e) the receipt by any Credit Party or any ERISA Affiliate
from the PBGC or a plan administrator of any notice relating to an intention to
terminate any Plan or Multiemployer Plan or to appoint a trustee to administer
any Plan; (f) the incurrence by any Credit Party or any ERISA Affiliate of any
liability with respect to the withdrawal or partial withdrawal from any Plan or
Multiemployer Plan; or (g) the receipt by any Credit Party or any ERISA
Affiliate of any notice concerning the imposition of Withdrawal Liability or a
determination that a Multiemployer Plan is, or is expected to be, insolvent
within the meaning of Title IV of ERISA.

 

“Event of Default” has the meaning assigned to such term in Article VIII.

 

“Exchange Act” has the meaning assigned to such term in the definition of
“Change of Control” in this Section 1.01.

 

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

 

“Excluded Hedges” means, collectively, Swap Agreements that (a) are basis
differential only swaps for volumes of natural gas included under other Swap
Agreements permitted by Section 6.08(a) or (b) are a hedge of volumes of
Hydrocarbons by means of a price “floor” for which there exists no deferred
obligation to pay the related premium or other purchase price or the only
deferred obligation is to either pay the premium or other purchase price on each
settlement date so long as such settlement date occurs at least monthly, or pay
the financing for such premium or other purchase price.

 

 Page 9 

 

 

“Excluded Taxes” means any of the following Taxes imposed on or with respect to
a Recipient or required to be withheld or deducted from a payment to a
Recipient, (a) Taxes imposed on or measured by net income (however denominated),
franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result
of such Recipient being organized under the laws of, or having its principal
office or, in the case of any Lender, its applicable lending office located in,
the jurisdiction imposing such Tax (or any political subdivision thereof) or
(ii) that are Other Connection Taxes, (b) in the case of a Lender, U.S. Federal
withholding Taxes imposed on amounts payable to or for the account of such
Lender with respect to an applicable interest in a Loan or Commitment pursuant
to a law in effect on the date on which (i) such Lender acquires such interest
in the Loan or Commitment (other than pursuant to an assignment under Section
2.14) or (ii) such Lender changes its lending office, except in each case to the
extent that, pursuant to Section 2.12, amounts with respect to such Taxes were
payable either to such Lender’s assignor immediately before such Lender acquired
the applicable interest in a Loan or Commitment or to such Lender immediately
before it changed its lending office, (c) Taxes attributable to such Recipient’s
failure to comply with Section 2.12(f) and (g) and (d) any U.S. Federal
withholding Taxes imposed under FATCA.

 

“Existing Agent” means T.R Winston & Company, LLC, or such other Person as may
act as collateral agent for the Existing Lenders from time to time.

 

“EU Bail-In Legislation Schedule” means the EU Bail-In Legislation Schedule
published by the Loan Market Association (or any successor Person), as in effect
from time to time.

 

“Existing First Lien Credit Agreement” has the meaning assigned to such term in
the recitals.

 

“Existing First Lien Debt” has the meaning assigned to such term in Section
6.02(i).

 

“Existing First Lien Obligations” means the “Obligations” as defined under the
Existing First Lien Credit Agreement in an amount not to exceed $15,000,000 of
principal plus accrued and unpaid interest (including interest that is paid in
kind) pursuant to the Existing First Lien Credit Agreement as in effect on the
date hereof or as amended in accordance with the terms of the Approved Permitted
First Lien Intercreditor Agreement.

 

“Existing First Lien Loan Documents” means the loan documents executed in
connection with the Existing First Lien Credit Agreement.

 

“Existing Lenders” has the meaning assigned to such term in the recitals.

 

“Fair Market Value” means, with respect to any asset or liability, the fair
market value of such asset or liability as determined by the Borrower in good
faith in accordance with generally accepted finance practices.

 

“FASB” means Financial Accounting Standards Board.

 

“FATCA” means Sections 1471 through 1474 of the Code, as of the date of this
Agreement (or any amended or successor version that is substantively comparable
and not materially more onerous to comply with), any current or future
regulations or official interpretations thereof, any agreements entered into
pursuant to Section 1471(b)(1) of the Code and any fiscal or regulatory
legislation, rules or practices adopted pursuant to any intergovernmental
agreement, treaty or convention among Governmental Authorities entered into in
connection with the implementation of the foregoing.

 

“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.

 

 Page 10 

 

 

“Fee Letter” means that certain Fee Letter by and between the Borrower and the
Administrative Agent dated as of the Effective Date, as may be amended,
restated, amended and restated, supplemented or otherwise modified from time to
time.

 

“Financial Officer” means the chief financial officer, principal accounting
officer, treasurer or controller of any Credit Party. Any document delivered
hereunder that is signed by a Financial Officer of a Credit Party shall be
conclusively presumed to have been authorized by all necessary corporate,
partnership and/or other action on the part of such Credit Party and such
Financial Officer shall be conclusively presumed to have acted on behalf of such
Credit Party.

 

“Foreign Lender” means a Lender that is not a U.S. Person.

 

“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 1.03.

 

“Gas Imbalance” means (a) a sale or utilization by the Borrower or any of its
Subsidiaries of volumes of natural gas in excess of its gross working interest,
(b) receipt of volumes of natural gas into a gathering system and redelivery by
the Borrower or any of its Subsidiaries of a larger or smaller volume of natural
gas under the terms of the applicable transportation agreement, or (c) delivery
to a gathering system of a volume of natural gas produced by the Borrower or any
of its Subsidiaries that is larger or smaller than the volume of natural gas
such gathering system redelivers for the account of the Borrower or any of its
Subsidiaries, as applicable.

 

“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 properly exercising executive, legislative, judicial, taxing,
regulatory or administrative powers or functions of or pertaining to government.

 

“Guarantee” of or by any Person (in this definition, the “guarantor”) means any
obligation, contingent or otherwise, of the guarantor guaranteeing or having the
economic effect of guaranteeing any Indebtedness or other obligation of any
other Person (the “primary obligor”) in any manner, whether directly or
indirectly, and including any obligation of the guarantor, direct or indirect,
(a) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation or to purchase (or to advance or
supply funds for the purchase of) any security for the payment thereof, (b) to
purchase or lease property, securities or services for the purpose of assuring
the owner of such Indebtedness or other obligation of the payment thereof,
(c) to maintain working capital, equity capital or any other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Indebtedness or other obligation or (d) as an account party
in respect of any letter of credit or letter of guaranty issued to support such
Indebtedness or obligation; provided, that the term Guarantee shall not include
endorsements for collection or deposit in the ordinary course of business.

 

“Guaranteed Liabilities” has the meaning assigned to such term in Section 7.01.

 

“Guarantor” means the Borrower (with respect to the Obligations of the other
Credit Parties) and each Domestic Subsidiary that is a party hereto or hereafter
executes and delivers to the Administrative Agent and the Lenders a Counterpart
Agreement pursuant to Section 5.14 or otherwise.

 

“Hazardous Materials” means all pollutants, contaminants, chemicals, materials,
substances, wastes, mixtures, pesticides, and any other substance or which
liability or standards of conduct may be imposed under any Environmental Law,
including petroleum or petroleum distillates, asbestos or asbestos containing
materials, polychlorinated biphenyls, radon gas, noise, odor, mold infectious or
medical wastes and all other materials, substances or wastes of any nature
regulated pursuant to any Environmental Law.

 

 Page 11 

 

 

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

 

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.

 

“Hydrocarbon Interests” all presently existing or after-acquired rights, titles
and interests in and to oil and gas leases, oil, gas and mineral leases, other
Hydrocarbon leases, mineral interests, mineral servitudes, overriding royalty
interests, royalty interests, net profits interests, production payment
interests and other similar interests. Unless otherwise qualified, all
references to a Hydrocarbon Interest or Hydrocarbon Interests in this Agreement
shall refer to a Hydrocarbon Interest or Hydrocarbon Interests of the Borrower
or the Guarantors.

 

“Hydrocarbons” means, collectively, oil, gas, casinghead gas, drip gasoline,
natural gasoline, condensate, distillate and all other liquid or gaseous
hydrocarbons and related minerals and all products therefrom, in each case
whether in a natural or a processed state.

 

“Incentive Partnership” means any trust or limited partnership to which a Credit
Party, as general partner, contributes a portion of its after-payout working
interest in wells drilled within certain areas, and key employees and
consultants who promote the drilling and acquisition programs, as limited
partners, contribute cash.

 

“Indebtedness” of any Person means, without duplication, (a) all obligations of
such Person for borrowed money, (b) all obligations of such Person evidenced by
bonds, debentures, notes or similar instruments, (c) all obligations of such
Person under conditional sale or other title retention agreements relating to
property acquired by such Person, (d) all obligations of such Person in respect
of the deferred purchase price of property or services (excluding those incurred
in the ordinary course of business which are not greater than sixty (60) days
past the due date or which are being contested in good faith by appropriate
action and for which adequate reserves have been maintained in accordance with
GAAP), (e) all Indebtedness of others secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien on property owned or acquired by such Person, whether or not the
Indebtedness secured thereby has been assumed by such Person, but limited to the
lesser of (i) the amount of such Indebtedness and (ii) the fair market value of
the property securing such Indebtedness, (f) all Guarantees by such Person of
Indebtedness of others to the extent of the lesser of the amount of such
Indebtedness and the maximum stated amount of such Guarantee, (g) all Capital
Lease Obligations of such Person, (h) all obligations, contingent or otherwise,
of such Person as an account party in respect of letters of credit and letters
of guaranty, (i) all obligations, contingent or otherwise, of such Person in
respect of bankers’ acceptances, (j) all net obligations (after giving effect to
any netting requirements) under any Swap Agreement that such Person would be
required to pay if the Swap Agreement were terminated at such time, (k)
attributable Indebtedness in respect of Sale and Leaseback Transactions and (l)
all obligations of such Person relating to any Production Payment. The
Indebtedness of any Person shall include the Indebtedness of any other entity
(including any partnership in which such Person is a general partner) to the
extent such Person is liable therefor as a result of such Person’s ownership
interest in or other relationship with such entity, except to the extent the
terms of such Indebtedness provide that such Person is not liable therefor.

 

“Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or
with respect to any payment made by or on account of any obligation of any
Credit Party under any Loan Document and (b) to the extent not otherwise
described in (a) hereof, Other Taxes.

 

“Indemnitee” has the meaning assigned to such term in Section 10.03.

 

“Ineligible Institution” has the meaning assigned to it in Section 10.04(b).

 

 Page 12 

 

 

“Information” has the meaning assigned to such term in Section 10.12.

 

“Initial Audited Financial Statements” has the meaning assigned to such term in
Section 3.04(a).

 

“Initial Reserve Report” has the meaning assigned to such term in Section
4.01(l).

 

“Initial Term Loan Maturity Date” means April 26, 2021.

 

“Interest Payment Date” means each March 31st, June 30th, September 30th and
December 31st of each fiscal year, or if such day is not a Business Day, the
immediately following Business Day thereafter.

 

“Investment Representations” has the meaning assigned to such term in Section
11.07.

 

“Investment” means all direct or indirect investments by such Person in other
Persons (including, without limitation, Affiliates) in the forms of loans
(including Guarantees or other obligations), advances or capital contributions
(excluding commission, travel and similar advances to officers and employees
made in the ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Capital Stock or other securities (excluding any
interest in an oil or natural gas leasehold to the extent constituting a
security under applicable law), together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.

 

“IRS” means the United States Internal Revenue Service.

 

“Lead Lender” means Värde.

 

“Lender Conversions” means the Term Loan Conversion and the Delayed Draw Term
Loan Conversion.

 

“Lender Preferred Stock” means a series of Preferred Stock established pursuant
to the Certificate of Designations and having the powers, designations,
preferences and rights, and qualifications, limitations and restrictions
thereof, set forth in the Certificate of Designations.

 

“Lenders” means the Persons listed on Schedule 2.01 and any other 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.

 

“Lien” means, with respect to any asset, (a) any mortgage, deed of trust, lien,
pledge, hypothecation, encumbrance, charge or security interest in, on or of
such asset, (b) the interest of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement (or any financing lease
having substantially the same economic effect as any of the foregoing) relating
to such asset and (c) in the case of securities, any purchase option, call or
similar right of a third party with respect to such securities.

 

“Loan Documents” means this Agreement, any promissory notes executed in
connection herewith, the Security Documents, the Pre-Approved Acquisition
Letter, any Approved Intercreditor Agreement, the Fee Letter, the Registration
Rights Agreement and any other agreements executed by any Credit Party in
connection with this Agreement and designated as a Loan Document therein.

 

“Loans” means the Term Loan and Delayed Draw Term Loans made by the Lenders to
the Borrower pursuant to this Agreement.

 

“Majority Lenders” means (i) at any time prior to the Effective Date, Lenders
having Commitments representing more than 50% of the Aggregate Commitment at
such time and (ii) at any time on and after the Effective Date, Lenders having
Credit Exposures representing more than 50% of the Aggregate Credit Exposure at
such time.

 

 Page 13 

 

 

“Make-Whole Amount” shall be a cash amount equal to the excess of:

 

(a)        the present value at such repayment, prepayment or acceleration date
or the date the Obligations otherwise become due and payable in full of (1) the
sum of the principal amount repaid, prepaid or accelerated plus (2) the interest
accruing on such principal amount from the date of such repayment, prepayment or
acceleration through the Maturity Date (excluding accrued but unpaid interest to
the date of such repayment, prepayment or acceleration), such present value to
be computed using a discount rate equal to the Treasury Rate plus 50 basis
points discounted to the repayment, prepayment or acceleration date on a
semi-annual basis (assuming a 360-day year consisting of twelve 30-day months),
over

 

(b)        the principal amount of the Loans repaid, prepaid or accelerated.

 

“Material Adverse Effect” means a material adverse effect on (a) the business,
assets, operations, financial condition or results of operations of the Borrower
and its Subsidiaries taken as a whole, (b) the ability of any Credit Party to
perform any of its obligations under this Agreement and the other Loan Documents
or (c) the validity or enforceability of any Loan Document against any Credit
Party which is a party thereto or the rights of or benefits available to the
Lenders under this Agreement and the other Loan Documents.

 

“Material Gas Imbalance” means, with respect to all gas balancing agreements to
which Borrower or any Subsidiary is a party or by which any Oil and Gas
Properties owned by Borrower or a Subsidiary is bound, a net overproduced Gas
Imbalance to Borrower and the Subsidiaries, taken as a whole, in excess of
$1,000,000.

 

“Material Indebtedness” means Indebtedness (other than the Loans) and
obligations in respect of one or more Swap Agreements of the Borrower or any one
or more of the Subsidiaries in an aggregate principal amount exceeding
$1,000,000. For purposes of determining Material Indebtedness, the “principal
amount” of the obligations of the Borrower or any Subsidiary in respect of any
Swap Agreement at any time shall be the Swap Termination Value.

 

“Material Sales Contract” means, as of any date of determination, any agreement
for the sale of Hydrocarbons from the Oil and Gas Properties to which the
Borrower or any Subsidiary is a party if the aggregate volume of Hydrocarbons
sold pursuant to such agreement during the twelve months immediately preceding
such date equals or exceeds 15% of the aggregate volume of Hydrocarbons sold by
the Borrower and the Subsidiaries, on a consolidated basis, from the Oil and Gas
Properties during the twelve months immediately preceding such date.

 

“Maturity Date” means, with respect to the Term Loan, the Initial Term Loan
Maturity Date or with respect to the Delayed Draw Term Loans, the Delayed Draw
Term Loan Maturity Date, as applicable and as the case may be.

 

“Maximum Liability” has the meaning assigned to such term in Section 7.10.

 

“Maximum Rate” has the meaning assigned to such term in Section 10.15.

 

“Moody’s” means Moody’s Investors Service, Inc.

 

“Mortgaged Properties” means the Oil and Gas Properties listed on Exhibit A to
each Mortgage executed on the Effective Date, together with any additional Oil
and Gas Properties of the Borrower or any Subsidiary over which a Mortgage may
hereafter be granted to Administrative Agent for the benefit of the Secured
Parties pursuant to Section 5.10.

 

 Page 14 

 

 

“Mortgages” means all mortgages, deeds of trust, amendments to mortgages,
security agreements, assignments of production, pledge agreements, collateral
mortgages, collateral chattel mortgages, collateral assignments, financing
statements and other documents, instruments and agreements evidencing, creating,
perfecting or otherwise establishing the Liens on the Mortgaged Properties as
required by Section 5.10, which shall be substantially in the form of Exhibit D
(with such changes thereto as may be reasonably acceptable to the Lead Lender
and the Administrative Agent).

 

“Multiemployer Plan” means a multiemployer plan as defined in Section 4001(a)(3)
of ERISA to which any Credit Party or any ERISA Affiliate contributes or has any
obligations or liabilities (current or contingent).

 

“Natural Gas” means all natural gas, distillate or sulphur, natural gas liquids
and all products recovered in the processing of natural gas (other than
condensate) including, without limitation, natural gasoline, coalbed methane
gas, casinghead gas, iso-butane, normal butane, propane and ethane (including
such methane allowable in commercial ethane).

 

“Net Cash Proceeds” means, (A) with respect to any Casualty Event or any
Disposition or series of related Dispositions of any assets (including any Oil
and Gas Property and Capital Stock of any Subsidiary) by the Borrower or any
Subsidiary, the excess, if any, of (a) the sum of cash and Cash Equivalents
received in connection with such Casualty Event or such Disposition or
Dispositions, but only as and when so received, over (b) the sum of (i) the
principal amount of any Indebtedness that is secured by such asset or assets and
that is required to be repaid in connection with such Casualty Event or such
Disposition or Dispositions (other than the Loans), (ii) the reasonable and
documented out-of-pocket expenses (including Taxes, brokers fees, commissions
and legal fees) incurred by the Borrower or such Subsidiary in connection with
such Casualty Event or such Disposition or Dispositions, and (iii) amounts
provided as a reserve, in accordance with GAAP, against any liabilities under
indemnification obligations or purchase price adjustments; provided that to the
extent that, and at the time that, any such amounts are released from such
reserves, such amounts shall constitute Net Cash Proceeds) (B) with respect to
any Hedge Modification by the Borrower or any Subsidiary, the excess, if any, of
(a) the sum of cash and Cash Equivalents received in connection with such Hedge
Modification (after giving effect to any netting arrangements), over (b) the
out-of-pocket expenses (including Taxes) incurred by the Borrower or such
Subsidiary in connection with such Hedge Modification, and (C) with respect to
any issuance or incurrence of Indebtedness that is not permitted by Section
6.02, the cash proceeds thereof, net of reasonable expenses (including Taxes,
brokers fees, commissions and legal fees) incurred by the Borrower or such
Subsidiary in connection therewith.

 

“Non-Core Assets” means the Hydrocarbon Interests of the Borrower and its
Subsidiaries not constituting Core Assets.

 

“NYMEX” means the New York Mercantile Exchange.

 

“Obligations” means all obligations, liabilities and indebtedness (monetary
(including post-petition interest, whether or not allowed) or otherwise) of each
Credit Party from time to time owed to the Administrative Agent, any Lender or
any of their Related Parties under any Loan Document, including any make-whole
amounts (including the Make-Whole Amount), any repayment or prepayment premiums
(including the Make-Whole Amount) and any accrued and unpaid interest, in each
case howsoever created, arising or evidenced, whether direct or indirect,
absolute or contingent, now or hereafter existing, or due or to become due and
including interest and fees that accrue after the commencement by or against any
Credit Party or Subsidiary of any bankruptcy or insolvency proceeding naming
such Person as the debtor in such proceeding, regardless of whether such
interest and fees are allowed claims in such proceeding and any make-whole
amounts (including the Make-Whole Amount). For the avoidance of doubt, it is
understood and agreed that any Make-Whole Amount shall be presumed to be the
liquidated damages sustained by each Lender as a result of the early termination
of the Loans and the Credit Parties agree that such amounts shall constitute
Obligations under this Agreement.

 

 Page 15 

 

 

“Off-Balance Sheet Liability” of a Person means (i) any repurchase obligation or
liability of such Person with respect to accounts or notes receivable sold by
such Person, (ii) any liability under any Sale and Leaseback Transaction which
is not a Capital Lease Obligation, (iii) any liability under any so-called
“synthetic lease” transaction entered into by such Person, (iv) any Material Gas
Imbalance, or (v) any obligation arising with respect to any other transaction
which is the functional equivalent of or takes the place of borrowing but which
does not constitute a liability on the balance sheets of such Person, but
excluding from the foregoing clauses, operating leases and usual and customary
oil, gas and mineral leases.

 

“Offer” has the meaning assigned to such term in Section 2.07(d).

 

“Oil and Gas Properties” means Hydrocarbon Interests; the properties now or
hereafter pooled or unitized with Hydrocarbon Interests; all presently existing
or future unitization, pooling agreements and declarations of pooled units and
the units created thereby (including all units created under orders, regulations
and rules of any Governmental Authority having jurisdiction) which may affect
all or any portion of the Hydrocarbon Interests; all operating agreements,
contracts and other agreements which relate to any of the Hydrocarbon Interests
or the production, sale, purchase, exchange or processing of Hydrocarbons from
or attributable to such Hydrocarbon Interests; all Hydrocarbons in and under and
which may be produced and saved or attributable to the Hydrocarbon Interests,
the lands covered thereby and all oil in tanks and all rents, issues, profits,
proceeds, products, revenues and other incomes from or attributable to the
Hydrocarbon Interests; all tenements, hereditaments, appurtenances and
properties in anywise appertaining, belonging, affixed or incidental to the
Hydrocarbon Interests, properties, rights, titles, interests and estates
described or referred to above, including any and all Property, real or
personal, now owned or hereafter acquired and situated upon, used, held for use
or useful in connection with the operating, working or development of any of
such Hydrocarbon Interests or Property (excluding drilling rigs, automotive
equipment or other personal property which may be on such premises for the
purpose of drilling a well or for other similar temporary uses) and including
any and all oil wells, gas wells, injection wells or other wells, buildings,
structures, fuel separators, liquid extraction plants, plant compressors, pumps,
pumping units, field gathering systems, tanks and tank batteries, fixtures,
valves, fittings, machinery and parts, engines, boilers, meters, apparatus,
equipment, appliances, tools, implements, cables, wires, towers, casing, tubing
and rods, surface leases, rights-of-way, easements and servitudes together with
all additions, substitutions, replacements, accessions and attachments to any
and all of the foregoing. Unless otherwise qualified, all references to an Oil
and Gas Property or to Oil and Gas Properties in this Agreement shall refer to
an Oil and Gas Property or Oil and Gas Properties of Borrower or its
Subsidiaries.

 

“Organizational Documents” means (a) with respect to any corporation, its
certificate or articles of incorporation, organization or formation, as amended,
and its by-laws, as amended, (b) with respect to any limited partnership, its
certificate of limited partnership or formation, as amended, and its partnership
agreement, as amended, (c) with respect to any general partnership, its
partnership agreement, as amended, and (d) with respect to any limited liability
company, its certificate of formation or articles of organization, as amended,
and its limited liability company agreement or operating agreement, as amended.

 

“Other Connection Taxes” means, with respect to any Recipient, Taxes imposed as
a result of a present or former connection between such Recipient and the
jurisdiction imposing such Tax (other than connections arising from such
Recipient having executed, delivered, become a party to, performed its
obligations under, received payments under, received or perfected a security
interest under, engaged in any other transaction pursuant to or enforced any
Loan Document, or sold or assigned an interest in any Loan or Loan Document).

 

 Page 16 

 

 

“Other Taxes” means all present or future stamp, court or documentary,
intangible, recording, filing or similar Taxes that arise from any payment made
under, from the execution, delivery, performance, enforcement or registration
of, from the receipt or perfection of a security interest under, or otherwise
with respect to, any Loan Document, except any such Taxes that are Other
Connection Taxes imposed with respect to an assignment (other than an assignment
made pursuant to Section 2.14).

 

“Participant” has the meaning assigned to such term in Section 10.04(a).

 

“Participant Register” has the meaning assigned to such term in Section 10.04.

 

“Payment Currency” has the meaning assigned to such term in Section 7.07.

 

“PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in
ERISA and any successor entity performing similar functions.

 

“Permitted Encumbrances” means:

 

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

 

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

 

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

 

 Page 17 

 

 

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

 

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

 

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

 

(g)judgment liens in respect of judgments that do not constitute an Event of
Default under clause (k) of Article VIII;

 

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

 

(i)royalties, overriding royalties, reversionary interests and similar burdens
granted by the Borrower or any Subsidiary with respect to the Oil and Gas
Property owned by the Borrower or such Subsidiary, as the case may be, if the
net cumulative effect of such burdens does not operate to deprive the Borrower
or any Subsidiary of any material right in respect of its assets or properties
(except for rights customarily granted with respect to such interests) and the
net cumulative effect is deducted in the calculation of PV9;

 

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

 

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

 

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

 

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

 

“Permitted Existing Liens” means Liens securing the Existing First Lien
Obligations.

 

“Permitted Prior Liens” means Liens described in Section 6.03(a), (b), (d), (e),
(f) and (g) that, by operation of law, have priority over the Liens securing the
Obligations.

 

 Page 18 

 

 

“Permitted RBL Credit Agreement” means a conforming, reserve based revolving
credit facility in an aggregate principal amount not to exceed $50,000,000
(which shall be provided by one or more reserve-based lending financial
institutions who regularly provide such facilities (e.g., commercial banks,
investment banks and their affiliates but not hedge funds or other alternative
capital providers) and shall contain a borrowing base based on customary advance
rates for oil and gas reserves consistent with customary reserve based lending
practices); provided that such $50,000,000 cap shall only apply prior to the
occurrence of the Lender Conversions and, for the avoidance of doubt, shall not
be reduced by the amount of any secured hedge and cash management obligations
that are permitted under both the “Permitted RBL Credit Agreement” and this
Agreement; provided further, that the Borrower shall only be permitted to incur
any Indebtedness under the Permitted RBL Credit Agreement after or substantially
contemporaneously with the indefeasible payment in full of the Existing First
Lien Obligations and termination of the Existing First Lien Credit Agreement.

 

“Permitted RBL Liens” means Liens securing the Revolving Debt Obligations.

 

“Permitted Senior Liens” means the Permitted RBL Liens and the Permitted
Existing Liens.

 

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

 

“Petroleum Industry Standards” means Definitions for Oil and Gas Reserves
promulgated by the Society of Petroleum Engineers (or any generally recognized
successor) as in effect at the time in question.

 

“Plan” means any employee pension benefit plan (other than a Multiemployer Plan)
subject to the provisions of Title IV of ERISA or Section 412 or 430 of the Code
or Section 302 of ERISA, and in respect of which any Credit Party or any ERISA
Affiliate is (or, if such plan were terminated, would under Section 4069 of
ERISA be deemed to be) an “employer” as determined under ERISA.

 

“Pre-Approved Acquisition” has the meaning assigned to such term in the
Pre-Approved Acquisition Letter.

 

“Pre-Approved Acquisition Letter” means that certain letter agreement, dated as
of April 26, 2017, from Borrower and acknowledged by the Administrative Agent
and the Lead Lender.

 

“Preferred Stock” means the preferred stock of the Borrower, par value $0.001
per share.

 

“Primary Exchange” means, at any time, the primary U.S. national or regional
securities exchange or market on which the Common Stock is listed or admitted
for trading at such time.

 

“Production Payment” means the grant or transfer by the Borrower or any of its
Subsidiaries to any Person of a royalty, overriding royalty, net profits
interest, production payment, partnership or other interest in Oil and Gas
Property, reserves or the right to receive all or a portion of the production or
the proceeds from the sale of production attributable to such properties, in
which the holder of such interests is entitled to receive a specified volume or
value of production and in which the holder of such interest has recourse solely
to such production or proceeds of production, subject to the obligation of the
grantor or transferor to operate and maintain, or cause the subject interests to
be operated and maintained, in a reasonably prudent manner or other customary
standard or subject to the obligation of the grantor or transferor to indemnify
for environmental, title or other matters customary in the oil and gas business.

 

 Page 19 

 

 

“Projected Oil and Gas Production” means (a) the projected production of oil or
natural gas (measured by volume unit or BTU equivalent, not sales price) from
Oil and Gas Properties owned by the Borrower and the Guarantors which have
attributable to them Proved Developed Producing Reserves, as such production is
projected in the most recent Reserve Report delivered pursuant to this
Agreement, after deducting projected production from any Oil and Gas Properties
or Hydrocarbon Interests sold or under contract for sale that had been included
in such report and after adding projected production from any Oil and Gas
Properties or Hydrocarbon Interests that had not been reflected in such report
but that are reflected in a separate or supplemental report meeting the
requirements of Section 5.01(g) and otherwise are satisfactory to the Lead
Lender plus (b) the projected production of oil or natural gas (measured by
volume unit or BTU equivalent, not sales price) from Oil and Gas Properties
owned by the Borrower and the Guarantors which are projected to have Proved
Developed Producing Reserves attributed to them within the following 12 month
period based on the planned capital expenditures set forth in the Projections.

 

“Projections” means the Borrower’s forecasted (a) balance sheets, (b) profit and
loss statements and (c) cash flow statements, all prepared on a basis consistent
with the historical financial statements described in Section 3.04 and after
giving effect to the Transactions, together with appropriate supporting details
and a statement of underlying assumptions, in each case in form and substance
satisfactory to the Lenders and for the period from the Effective Date through
December 31, 2017.

 

“Property” means any right or interest in or to property of any kind whatsoever,
whether real, personal or mixed and whether tangible or intangible. Unless
otherwise qualified, all references to Property in this Agreement shall refer to
a Property or Properties of the Borrower or its Subsidiaries.

 

“Proved Developed Producing Reserves” shall mean oil and gas reserves that, in
accordance with Petroleum Industry Standards, are classified as both “Proved
Reserves” and “Developed Producing Reserves.”

 

“Proved Reserves” shall mean oil and gas reserves that, in accordance with
Petroleum Industry Standards, are classified as both “Proved Reserves” and one
of the following: (a) “Developed Producing Reserves”, (b) “Developed
Non-Producing Reserves” or (c) “Undeveloped Reserves”.

 

“Public-Sider” means a Lender or any representative of such Lender that does not
want to receive material non-public information within the meaning of the
federal and state securities laws.

 

“PV9” means (a) in respect of the Proved Reserves of any Credit Parties’ Oil and
Gas Property set forth in the most recently delivered Reserve Report, the
aggregate net present value (discounted at 9% per annum) of such Oil and Gas
Properties calculated before income taxes, but after reduction for royalties,
lease operating expenses, severance and ad valorem taxes, capital expenditures
and abandonment costs and with no escalation of capital expenditures or
abandonment costs (a) calculated in accordance with SEC guidelines but using
Strip Price for crude oil and natural gas liquids (WTI Cushing) and natural gas
(Henry Hub), and (b) calculated (i) in the case of a Reserve Report prepared as
of December 31 of any year, by an Approved Petroleum Engineer and (ii) in the
case of each other Reserve Report or as otherwise required under this Agreement,
at the Borrower’s option, by a petroleum engineer employed by the Borrower or an
Approved Petroleum Engineer, in each case, in such person’s reasonable judgment
after having reviewed the information from the most recently delivered Reserve
Report, (iii) as set forth in the Reserve Report most recently delivered under
Section 5.01(g), (iv) as adjusted to give effect to Swap Agreements permitted by
this Agreement as in effect on the date of such determination and (v) as
adjusted to give pro forma effect to all Dispositions or Acquisitions completed
since the date of the Reserve Report.

 

“Recipient” means (a) the Administrative Agent, (b) the Lead Lender and (b) any
other Lender, as applicable.

 

“Register” has the meaning assigned to such term in Section 10.04.

 

 Page 20 

 

 

“Registration Rights Agreement” means the registration rights agreement to be
entered into on the Effective Date, between the Borrower and the Lenders,
substantially in the form of Exhibit I.

 

“Rejection Notice” has the meaning assigned to such term in Section 2.07(d).

 

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

 

“Removal Effective Date” has the meaning assigned to such term in Article IX.

 

“Requirements of Law” means, as to any Person, any order, law (including common
law), treaty, rule, regulation, code, ordinance, order, determination, decree,
judgment, injunction, binding agreement or other provisions having the force or
effect of law issued, promulgated, or entered into by any Governmental
Authority, arbitrator or court, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.

 

“Requisite Shareholder Approval” has the meaning assigned to such term in
Section 5.18(b).

 

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

 

“Reserve Report Certificate” means, with respect to any Reserve Report, a
certificate from a Responsible Officer certifying that in all material respects:
(a) such Reserve Report is based on information reasonably available to the
Borrower; (b) the Borrower or its Subsidiaries owns good and defensible title to
the Oil and Gas Property evaluated in such Reserve Report (except any such Oil
and Gas Property that has been Disposed of since the date of such Reserve Report
as permitted by this Agreement) and such properties are free and clear of all
Liens except for Liens permitted by Section 6.03; (c) except as set forth on an
exhibit to the Reserve Report Certificate, on a net basis there are no gas
imbalances, take-or-pay or other prepayments with respect to its Oil and Gas
Property evaluated in such Reserve Report which would require the Borrower or
any Subsidiary to deliver Hydrocarbons either generally or produced from Oil and
Gas Property at some future time without then or thereafter receiving full
payment therefor; (d) except as set forth on an exhibit to the Reserve Report
Certificate, none of the Borrower’s or its Subsidiaries’ Oil and Gas Property
have been Disposed of since the last delivery of the corresponding Reserve
Report, which exhibit shall describe in reasonable detail such Dispositions; (e)
attached to the Reserve Report Certificate is a list of all Material Sales
Contracts and all material marketing agreements not previously disclosed to the
Lead Lender; (f) the Borrower is in compliance with Section 5.10(a); and (g)
except as set forth on an exhibit to the Reserve Report Certificate, all such
properties are owned by the Borrower or a Guarantor. 

 

“Resignation Effective Date” has the meaning assigned to such term in Article
IX.

 

“Responsible Officer” means the chief executive officer, president, vice
president, chief financial officer, principal accounting officer, treasurer or
assistant treasurer of a Credit Party. Any document delivered hereunder that is
signed by a Responsible Officer of a Credit Party shall be conclusively presumed
to have been authorized by all necessary corporate, partnership and/or other
action on the part of such Credit Party and such Responsible Officer shall be
conclusively presumed to have acted on behalf of such Credit Party.

 

 Page 21 

 

 

“Restricted Payment” means:

 

(a)any dividend or other distribution or other payment (whether in cash,
securities or other property) with respect to any Capital Stock in the Borrower
or any Subsidiary, to any Person (in each case, solely in such Person’s capacity
as holder of such Capital Stock or, in the case of any payment, to the direct or
indirect holders of the Borrower’s or any of its Subsidiaries’ Capital Stock),
including any dividend or distribution payable or payment made in connection
with any merger, amalgamation or consolidation;

 

(b)any purchase, redemption, defeasance or other acquisition or retirement for
value of any Capital Stock of the Borrower (including in connection with any
merger, amalgamation or consolidation); and

 

(c)any principal payment on, or redemption, purchase, repurchase, defeasance or
other acquisition or retirement for value, in each case, prior to any scheduled
repayment, sinking fund payment or scheduled maturity, of any Indebtedness
secured by Liens junior in priority to the Liens securing the Obligations
hereunder or unsecured Indebtedness, of the Borrower or any Subsidiary
(excluding any intercompany Indebtedness between or among Borrower and any
Guarantor), except a payment of interest or principal at the stated maturity
date thereof.

 

“Revolving Debt” has the meaning assigned to such term in Section 6.02(i).

 

“Revolving Debt Obligations” means the “Obligations” as defined under any
Permitted RBL Credit Agreement.

 

“Revolving Loan Documents” means the loan documents executed in connection with
any Permitted RBL Credit Agreement.

 

“S&P” means Standard & Poor’s.

 

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

 

“Sanctioned Country” means, at any time, a country or territory which is the
subject or target of any Sanctions (e.g., Cuba, Crimea, Iran, North Korea, Sudan
and Syria).

 

“Sanctioned Person” means, at any time, (a) any Person listed in any
Sanctions-related list of designated Persons maintained by the Office of Foreign
Assets Control of the U.S. Department of the Treasury, the U.S. Department of
State, (b) any Person operating, organized or resident in a Sanctioned Country
or (c) any Person controlled by any such Person.

 

“Sanctions” means economic or financial sanctions or trade embargoes imposed,
administered or enforced from time to time by the U.S. government, including
those administered by the Office of Foreign Assets Control of the U.S.
Department of the Treasury or the U.S. Department of State, the United Nations
Security Council and the European Union, each as amended, supplemented or
substituted from time to time.

 

“SEC” means the Securities and Exchange Commission of the United States of
America.

 

“Securities Act” means the U.S. Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.

 

“Second Offer” has the meaning assigned to such term in Section 2.07(d).

 

 Page 22 

 

 

“Secured Party” means each of the Administrative Agent and each Lender.

 

“Security Agreement” means that certain Pledge and Security Agreement executed
and delivered by each Credit Party on the Effective Date in favor of the
Administrative Agent, for the benefit of the Secured Parties, which shall be
substantially in the form of Exhibit E (with such changes thereto as may be
reasonably acceptable to the Lead Lender and the Administrative Agent).

 

“Security Documents” means collectively the Security Agreement, all Control
Agreements and all Mortgages, deeds of trust, security agreements, pledge
agreements, guaranty agreements (including Article VII of this Agreement but
otherwise excluding this Agreement), collateral assignments and all other
collateral documents, now or hereafter executed and delivered by the Borrower or
any other Person as security for the payment or performance of the Obligations,
all such documents to be in form and substance reasonably satisfactory to the
Administrative Agent and the Lead Lender.

 

“Senior Management” means the chairman of the Board of Directors, any
non-independent member of the Board of Directors, chief executive officer,
president, vice president, or chief financial officer of a Credit Party.

 

“Solvent” means, with respect to any Person as of the date of any determination,
that on such date (a) the fair value of the Property of such Person (both at
fair valuation and at present fair saleable value) is greater than the total
liabilities, including contingent liabilities, of such Person, (b) the present
fair saleable value of the assets of such Person is not less than the amount
that will be required to pay the probable liability of such Person on its debts
as they become absolute and matured, (c) such Person is able to realize upon its
assets and pay its debts and other liabilities, contingent obligations, and
other commitments as they mature in the normal course of business, (d) such
Person does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person’s ability to pay as such debts and liabilities
mature, and (e) such Person is not engaged in business or a transaction, and is
not about to engage in business or a transaction, for which such Person’s
Property would constitute unreasonably small capital after giving due
consideration to current and anticipated future capital requirements and current
and anticipated future business conduct and the prevailing practice in the
industry in which such Person is engaged.  In computing the amount of contingent
liabilities at any time, such liabilities shall be computed at the amount which,
in light of the facts and circumstances existing at such time, represents the
amount that can reasonably be expected to become an actual or matured liability.

 

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

 

“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 Capital Stock representing more than 50% of the equity
or more than 50% of the ordinary voting power or, in the case of a partnership,
more than 50% of the 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. Unless the context otherwise clearly requires,
references herein to a “Subsidiary” refer to a Subsidiary of the Borrower.

 

 Page 23 

 

 

“Swap Agreement” means any agreement with respect to any swap, forward, future
or derivative transaction or option or similar agreement 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 (other than, with respect to any Credit
Party, forward contracts for the purchase by, and physical delivery to, a Credit
Party of commodities used or consumed by such Credit Party in the ordinary
course of business).

 

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

 

“Taxes” means all present or future taxes, levies, imposts, duties, deductions,
withholdings (including backup withholding), assessments, fees or other charges
imposed by any Governmental Authority, including any interest, additions to tax
or penalties applicable thereto.

 

“Term Loan” has the meaning assigned to such term in Section 2.02(b).

 

“Term Loan Commitment Percentage” means, as to any Lender, with respect to each
Lender, the commitment, if any, of such Lender to make a Term Loan. On the
Effective Date, each Lender’s Term Loan Commitment Percentage shall be the
percentage, if any, set forth opposite such Lender’s name on Schedule 2.01 under
the column “Term Loan Commitment Percentage”.

 

“Term Loan Conversion” has the meaning set forth in Section 11.01(a).

 

“Term Loan Take Back Debt” has the meaning set forth in Section 11.01(a).

 

“Total Funded Debt” means, as of any date, the sum of any Indebtedness
outstanding consisting of Revolving Debt, Existing First Lien Debt, the
Obligations and any other Indebtedness of the Credit Parties of the type
specified in clauses (a), (b), (d) (to the extent due and owing) and (e) of the
definition of Indebtedness.

 

“Trading Day” means a day on which (i) trading in the Common Stock (or other
security for which a closing sale price must be determined) generally occurs on
the Primary Exchange and (ii) a last reported sale price for the Common Stock
(or such other security) on such Primary Exchange is available.

 

“Transactions” means (a) the execution, delivery and performance by the Credit
Parties of this Agreement and the other Loan Documents, (b) the borrowing of
Loans, and (c) the use of the proceeds thereof.

 

“Treasury Rate” means the yield to maturity at a time of computation of United
States Treasury securities with a constant maturity (as compiled and published
in the most recent Federal Reserve Statistical Release H.15 (519) which has
become publicly available at least two (2) Business Days prior to the prepayment
date (or, if such Statistical Release is no longer published, any publicly
available source of similar market data)) most nearly equal to the period from
the applicable prepayment date to the Maturity Date, provided, however, that if
the period from the applicable prepayment date to the Maturity Date is not equal
to the constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one twelfth (1/12th) of a year) from
the weekly average yields of United States Treasury securities for which such
yields are given having maturities as close as possible to the Maturity Date,
except that if the period from the applicable prepayment date to the Maturity
Date is less than one (1) year, the weekly average yield on actually traded
United States Treasury securities adjusted to a constant maturity of one (1)
year shall be used.

 

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“U.S. Government Securities” means direct obligations of, or obligations the
principal of and interest on which are unconditionally guaranteed by, the United
States of America (or by any agency or instrumentality thereof to the extent
such obligations are entitled to the full faith and credit of the United States
of America), in each case maturing within one year from the date of acquisition
thereof.

 

“U.S. Person” means a “United States person” within the meaning of Section
7701(a)(30) of the Code.

 

“U.S. Tax Compliance Certificate” has the meaning assigned to such term in
Section 2.12(f)(ii)(B)(3).

 

“Värde” means (a) Värde Partners, Inc., its affiliated investment managers and
funds or accounts managed by any of them (but excluding any portfolio companies
that are owned in whole or in part by any of the foregoing) and (b) any partner,
member, manager, principal, director or officer of any of the foregoing.

 

“Voting Securities” means Capital Stock of the Borrower entitled to vote
generally in the election of members of the Board of Directors.

 

“Withdrawal Liability” means liability to a Multiemployer Plan as a result of a
complete or partial withdrawal from such Multiemployer Plan, as such terms are
defined in Part I of Subtitle E of Title IV of ERISA.

 

“Withholding Agent” means any Credit Party and the Administrative Agent.

 

“Write-Down and Conversion Powers” means, with respect to any EEA Resolution
Authority, the write-down and conversion powers of such EEA Resolution Authority
from time to time under the Bail-In Legislation for the applicable EEA Member
Country, which write-down and conversion powers are described in the EU Bail-In
Legislation Schedule.

 

Section 1.02         Terms Generally. 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” shall
be deemed to be followed by the phrase “without limitation”. The word “will”
shall be construed to have the same meaning and effect as the word “shall”.
Unless the context requires otherwise (a) any definition of or reference to any
agreement, instrument or other document herein shall be construed as referring
to such agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference
herein to any Person shall be construed to include such Person’s successors and
assigns, (c) 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, (d) all references herein to Articles,
Sections, Exhibits and Schedules shall be construed to refer to Articles and
Sections of, and Exhibits and Schedules to, this Agreement and (e) the words
“asset” and “property” shall be construed to have the same meaning and effect
and to refer to any and all tangible and intangible assets and properties,
including cash, securities, accounts and contract rights.

 

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Article II.

The Credits

 

Section 2.01         Accounting Terms; GAAP. Except as otherwise expressly
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time; provided
that, if the Borrower notifies the Administrative Agent in writing that the
Borrower requests an amendment to any provision hereof to eliminate the effect
of any change occurring after the date hereof in GAAP or in the application
thereof on the operation of such provision (or if the Administrative Agent
notifies the Borrower that the Majority Lenders request an amendment to any
provision hereof for such purpose), regardless of whether any such notice is
given before or after such change in GAAP or in the application thereof, then
such provision shall be interpreted on the basis of GAAP as in effect and
applied immediately before such change shall have become effective until such
notice shall have been withdrawn or such provision amended in accordance
herewith. Notwithstanding any other provision contained herein, all terms of an
accounting or financial nature used herein shall be construed, and all
computations of amounts and ratios referred to herein shall be made, without
giving effect to any election under Financial Accounting Standards Board
Accounting Standards Codification 825 (or any other Financial Accounting
Standard having a similar result or effect) to value any Indebtedness or other
liabilities of the Borrower or any Subsidiary at “fair value”, as defined
therein. Without limiting the foregoing, leases shall continue to the classified
and accounted for on a basis consistent with that reflected in the Initial
Audited Financial Statements for all purposes of this Agreement, notwithstanding
any change in GAAP related thereto, unless the parties hereto shall enter into a
mutually acceptable amendment addressing such change.

 

Section 2.02         Loans and Commitments

 

(a)          On the terms and subject to the conditions set forth herein,
Lenders severally agree to make a term loan in an original principal amount
equal to $80,000,000 (the “Term Loan”) to the Borrower on the Effective Date.
Each Lender’s obligation to fund the Term Loan shall be limited to such Lender’s
Term Loan Commitment Percentage of the Term Loan, and no Lender shall have any
obligation to fund any portion of the Term Loan required to be funded by any
other Lender, but not so funded. The Borrower shall not have any right to
reborrow any portion of the Term Loan which are repaid or prepaid from time to
time.

 

(b)          On the terms and subject to the conditions set forth herein,
Lenders severally agree to make term loans to the Borrower, during the Delayed
Draw Term Loan Funding Period, in multiple draws (each a “Delayed Term Loan
Draw”) up to an aggregate principal amount of $45,000,000 (collectively, the
“Delayed Draw Term Loans”). Each Lender’s obligation to fund a Delayed Term Loan
Draw shall be limited to such Lender’s Delayed Draw Term Loan Commitment
Percentage of such Delayed Term Loan Draw requested by the Borrower hereunder.
No Lender shall have any obligation to fund any portion of the Delayed Draw Term
Loans unless the proceeds of such Delayed Draw Term Loan are used for a
Pre-Approved Acquisition. The Delayed Draw Term Loan Commitment shall terminate
at the end of the Delayed Draw Term Loan Funding Period, if not earlier pursuant
to the terms of this Agreement. The Borrower shall not have any right to
reborrow any portion of the Delayed Draw Term Loans which is repaid or prepaid
from time to time. Delayed Term Loan Draws shall be made pursuant to a Borrowing
Request to be delivered to the Administrative Agent pursuant to Section 2.03.
Each such request for a Delayed Term Loan Draw shall be in a minimum amount of
$5,000,000, and, if greater, in integral multiples of $1,000,000 thereon.

 

Section 2.03         Request for Loans.

 

(a)          To request Loans to be made on the Effective Date, the Borrower
shall deliver in writing to the Administrative Agent a duly completed Borrowing
Request, not later than 12:00 noon, New York City time, one (1) Business Day
prior to the Effective Date. Such Borrowing Request shall be irrevocable and
shall be delivered by telecopy or email to the Administrative Agent with copy to
the Lead Lender and shall be signed by the Borrower. Each such written Borrowing
Request shall specify the following information:

 

(i)          the aggregate amount of the Term Loan to be made;

 

 Page 26 

 

 

(ii)         the Effective Date, which shall be a Business Day; and

 

(iii)        the wiring information of the Borrower’s account to which funds are
to be disbursed, which shall comply with the requirements of Section 2.04.

 

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

 

(b)          To request Delayed Term Loan Draws to be made during the Delayed
Draw Term Loan Funding Period, the Borrower shall deliver in writing to the
Administrative Agent a duly completed Borrowing Request, not later than 12:00
noon, New York City time, ten (10) Business Days prior to the proposed date of
such Delayed Term Loan Draw (or such shorter period as agreed to by the Lead
Lender in its sole discretion, but in any event not later than 12:00 noon, New
York City time, one Business Day prior to the proposed date of such Delayed Term
Loan Draw). Such Borrowing Request shall be irrevocable and shall be delivered
by telecopy or email to the Administrative Agent with copy to the Lead Lender
and shall be signed by the Borrower. Each such written Borrowing Request shall
specify the following information:

 

(i)          the aggregate amount of the Delayed Draw Term Loan to be made;

 

(ii)         the proposed date of such Delayed Term Loan Draw, which shall be a
Business Day;

 

(iii)        the wiring information of the Borrower’s account to which funds are
to be disbursed, which shall comply with the requirements of Section 2.04; and

 

(iv)        whether the use of proceeds of such proposed Delayed Draw Term Loan
shall be used for a “Pre-Approved Acquisition” and evidence reasonably
satisfactory to the Lead Lender evidencing the same.

 

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

 

Section 2.04         Funding of Loans.

 

(a)          Each Lender shall make its Loan on the Effective Date or the date
of the proposed Delayed Term Loan Draw, as applicable, by wire transfer of
immediately available funds by 12:00 noon, New York City time, to the account of
the Administrative Agent designated by it for such purpose by notice to the
Lenders. The Administrative Agent will make such Loans available to the Borrower
by promptly disbursing the amounts so received, in like funds, to a deposit
account of the Borrower designated by the Borrower in the applicable Borrowing
Request.

 

(b)          Unless the Administrative Agent shall have received written notice
from a Lender prior to the proposed time its Loan is required to be made by such
Lender in accordance with paragraph (a) of this Section that such Lender will
not make available to the Administrative Agent such Lender’s Loan, the
Administrative Agent may assume that such Lender has made its Loan available on
such date in accordance with paragraph (a) of this Section and may, in reliance
upon such assumption, but shall have no obligation to do so, make available to
the Borrower a corresponding amount. In such event, if a Lender has not in fact
made its Loan available to the Administrative Agent, then such 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 reasonably 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 the Loans. If such Lender pays such amount to the Administrative Agent, then
the principal portion of such payment shall constitute such Lender’s Loan.

 

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Section 2.05         Repayment of Loans; Evidence of Debt.

 

(a)          The Borrower hereby unconditionally promises to pay to the
Administrative Agent for the account of each Lender the then unpaid principal
amount of the Loans on the Maturity Date.

 

(b)          Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Borrower to such Lender
resulting from the Loan made by such Lender, including the amounts of principal
and interest payable and paid to such Lender from time to time hereunder.

 

(c)          The Administrative Agent shall maintain accounts in which it shall
record (i) the amount of each Loan made hereunder, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) the amount of any sum received by
the Administrative Agent hereunder for the account of the Lenders and each
Lender’s Applicable Percentage thereof.

 

(d)          The entries made in the accounts maintained pursuant to
paragraph (b) or (c) of this Section shall be prima facie evidence of the
existence and amounts of the obligations recorded therein; provided that the
failure of any Lender or the Administrative Agent to maintain such accounts or
any error therein shall not in any manner affect the obligation of the Borrower
to repay the Loans in accordance with the terms of this Agreement; and provided
further that to the extent there is any conflict between the accounts maintained
pursuant to paragraph (b) or (c) of this Section and the Register maintained
pursuant to Section 10.04, the Register shall control.

 

(e)          Any Lender may request that the Loan made by it be evidenced by a
promissory note. In such event, the Borrower shall prepare, execute and deliver
to such Lender a promissory note payable to such Lender or its registered
assigns and in the form attached hereto as Exhibit F. Thereafter, the Loan
evidenced by such promissory note and interest thereon shall at all times
(including after assignment pursuant to Section 10.04) be represented by a
promissory note in such form.

 

Section 2.06         Optional Prepayment of Loans.

 

(a)          The Borrower shall have the right, (i) at any time after March 31,
2019 or (ii) on or before March 31, 2019 (A) if the closing price of the Common
Stock on the Primary Exchange has been at least 110.00% of the Conversion Price
then in effect for at least twenty (20) of the thirty (30) consecutive Trading
Days immediately preceding the date of delivery of the notice contemplated by
Section 2.06(b) or (B) in connection with a transaction constituting a “Change
of Control” pursuant to clause (a) or (b) of the definition thereof, to prepay
the Loans (together with any amounts due pursuant to Section 2.09 and Section
2.10), in whole or in part, in an aggregate minimum amount equal to (I) if being
paid in whole, the Obligations and (II) if being paid in part, $5,000,000 and
integral multiples of $1,000,000 in excess of that amount; provided, however,
that (y) no such prepayment shall be made if a Lender Conversion Notice has been
delivered to the Borrower pursuant to Section 11.05 on or before the Business
Day immediately preceding the prepayment date specified in the notice
contemplated by Section 2.06(b) and (z) any such prepayment in connection with a
Change of Control shall be for all of the Obligations.

 

(b)          The Borrower shall notify the Administrative Agent and the Lead
Lender in writing of any prepayment hereunder not later than 2:00 p.m., New York
City time, seven (7) Business Days before the date of prepayment (or such
shorter time as the Lead Lender may permit in its sole discretion but in any
event not less than three (3) Business Days unless otherwise agreed by the
Administrative Agent). Each such notice shall be irrevocable and shall specify
the prepayment date and the principal amount of the Loans to be prepaid.
Promptly following receipt of any such notice, the Administrative Agent shall
advise the Lenders of the contents thereof. Each partial prepayment shall be
applied ratably to the Loans to be prepaid.

 

 Page 28 

 

 

(c)          Each prepayment pursuant to this Section 2.06 shall be accompanied
by a cash amount equal to the accrued but unpaid interest through the date of
such prepayment, together with the Make-Whole Amount required under Section
2.09.

 

Section 2.07         Mandatory Prepayment of Loans.

 

(a)          Unless the Majority Lenders shall agree in writing that no
prepayment of the Loans is required pursuant to this Section 2.07, subject to
any Approved Intercreditor Agreement, if any Credit Party shall consummate any
Asset Sale, receive any Net Cash Proceeds from a Casualty Event or incur any
Indebtedness (other than Indebtedness expressly permitted under Section 6.02)
(each such event, a “Prepayment Event”), then, not later than two (2) Business
Days after such Prepayment Event, the Borrower shall provide written notice to
the Administrative Agent in accordance with Section 2.07(c) and, subject to
Section 2.07(d), (i) apply all or any portion of such Net Cash Proceeds to the
repayment of Loans and the payment of accrued and unpaid interest and the
Make-Whole Amount payable under Section 2.09, and/or (ii) in the case of any
Asset Sale or Casualty Event, elect (by written notice to the Administrative
Agent and the Lead Lender) to reinvest all or any portion of such Net Cash
Proceeds in Additional Assets; provided further that if all or any portion of
such Net Cash Proceeds are not so used to reinvest in Additional Assets within
180 days, the Borrower shall provide notice to the Administrative Agent in
accordance with Section 2.07(c) and, subject to Section 2.07(d), the remaining
portion of such Net Cash Proceeds shall be applied on the last date of such
period to the prepayment of Loans; provided further that notwithstanding
anything herein to the contrary, any Net Cash Proceeds received from any Asset
Sale or Casualty Event that are not reinvested pursuant to this Section 2.07(a)
shall be applied first to repay the Existing First Lien Debt and when such
Existing First Lien Debt is repaid in full, any remaining Net Cash Proceeds
shall, subject to Section 2.07(d), be applied to the repayment of Loans and the
payment of accrued and unpaid interest and the Make-Whole Amount payable under
Section 2.09. The provisions of this Section 2.07(a) do not constitute a consent
to any Disposition or the incurrence of any Indebtedness by any Credit Party.

 

(b)          Each payment of Net Cash Proceeds pursuant to this Section 2.07
shall be allocated to (i) principal prepayment and the payment of the accrued
but unpaid interest on the amount of prepaid principal through the date of such
prepayment and (ii) the Make-Whole Amount on the amount of prepaid principal
required under Section 2.09 (in the case of clauses (i) and (ii), as determined
by the Borrower and approved by the Lead Lender).

 

(c)          The Borrower shall notify the Administrative Agent of any mandatory
prepayment required pursuant to Section 2.07(a) or (b) in writing, not later
than 2:00pm, New York City time, two (2) Business Days following such Prepayment
Event. Each such notice shall be in writing, shall be irrevocable and shall
specify the date of such Prepayment Event and a reasonably detailed calculation
of the amount of the anticipated prepayment. Promptly following receipt of any
such notice, the Administrative Agent shall advise the Lenders of the contents
thereof.

 

 Page 29 

 

 

(d)          Notwithstanding anything in this Agreement to the contrary, each
Lender, in its sole discretion, may, but is not obligated to, waive the
Borrower’s requirement to make any prepayments pursuant to this Section 2.07
with respect to such Lender’s Applicable Percentage of such prepayment and such
waiver shall not require a separate waiver and/or consent to this Agreement.
Upon the dates set forth in Section 2.07 for any such prepayment, the Borrower
shall notify the Administrative Agent in writing of the amount that is available
to prepay the Loans. Promptly after the date of receipt of such notice, the
Administrative Agent shall provide written notice (the “Offer”) to the Lenders
of the amount available to prepay the Loans. Any Lender declining such
prepayment (a “Declining Lender”) shall give written notice (each, a “Rejection
Notice”) thereof to the Administrative Agent by 2:00 p.m., New York City time,
no later than five (5) Business Days after the date of such notice from the
Administrative Agent; provided, that, if a Lender fails to deliver a Rejection
Notice to the Administrative Agent within the time frame specified above, such
failure will be deemed a rejection of such Lender’s pro rata share of the Offer.
The Borrower shall prepay the Loans within one Business Day after its receipt of
notice from the Administrative Agent of the aggregate amount of such prepayment.
On such date, the Administrative Agent shall then provide written notice (the
“Second Offer”) to the Lenders other than the Declining Lenders (such Lenders,
the “Accepting Lenders”) of the additional amount available (due to such
Declining Lenders’ declining such prepayment) to prepay Loans owing to such
Accepting Lenders, with such available amount to be allocated on a pro rata
basis among the Accepting Lenders that accept the Second Offer. Any Lenders
declining prepayment pursuant to such Second Offer shall give written notice
thereof to the Administrative Agent by 2:00 p.m., New York City time, no later
than three (3) Business Days after the date of such notice of a Second Offer;
provided, that, if a Lender fails to deliver a Rejection Notice to the
Administrative Agent within the time frame specified above, such failure will be
deemed an acceptance of such Lender’s pro rata share of the Second Offer. The
Borrower shall prepay the Loans within one Business Day after its receipt of
notice from the Administrative Agent of the aggregate amount of such prepayment.
Amounts remaining after the allocation of accepted amounts with respect to the
Second Offer to Accepting Lenders shall be retained by the Borrower.

 

Section 2.08         [Reserved].

 

Section 2.09         Payment of Make-Whole Amount.

 

(a)          Whether voluntary or mandatory, and with respect to each repayment
or prepayment of Loans under Section 2.06 or 2.07 or any acceleration of the
Loans and other Obligations pursuant to Article VIII (including for the
avoidance of doubt, as a result of clauses (g), (h) or (i) of Article VIII), the
Borrower shall pay to the Administrative Agent, for the ratable benefit of the
Lenders, with respect to the amount of the Loans repaid, prepaid or accelerated,
in each case, concurrently with such repayment or prepayment, a premium equal to
the Make-Whole Amount (determined by the Borrower and approved by the Lead
Lender as if the Loans were repaid at the time of such acceleration at the
option of the Borrower pursuant to Section 2.06) shall become immediately due
and payable, and Borrower will pay such premium, as compensation to the Lenders
for the loss of their investment opportunity and not as a penalty, whether or
not a Bankruptcy Event has commenced, and (if a Bankruptcy Event has commenced)
without regard to whether such Bankruptcy Event is voluntary or involuntary, or
whether payment occurs pursuant to a motion, plan of reorganization, or
otherwise, and without regard to whether the Loans and other Obligations are
satisfied or released by foreclosure (whether or not by power of judicial
proceeding), deed in lieu of foreclosure or by any other means. Without limiting
the foregoing, any redemption, prepayment, repayment, or payment of the
Obligations in or in connection with a Bankruptcy Event shall constitute an
optional prepayment thereof under the terms of Section 2.05 and require the
immediate payment of the Make-Whole Amount.

 

(b)          Any Make-Whole Amount payable pursuant to this Section 2.09 shall
be presumed to be the liquidated damages sustained by each Lender as the result
of the early redemption and/or acceleration of its Loans and the Borrower agrees
that it is reasonable under the circumstances in view of the impracticability
and extreme difficulty of ascertaining actual damages and by mutual agreement of
the parties as to a reasonable calculation of each Lender’s lost profits as a
result thereof.

 

Section 2.10         Interest and Fees.

 

(a)          Each Loan shall bear interest for each day on which it is
outstanding at the Applicable Rate.

 

 Page 30 

 

 

(b)          Interest shall be payable in kind in arrears on each Interest
Payment Date by increasing the then outstanding principal amount of the Loan by
the entire amount of the interest payment due on the applicable Interest Payment
Date. On the Maturity Date and in the event of any repayment or prepayment of
any Loan, accrued interest on the principal amount repaid or prepaid shall be
payable in cash on the date of such repayment or prepayment, provided that
interest accruing pursuant to Section 2.10(c) shall be payable from time to time
on demand and shall be payable in kind.

 

(c)          Notwithstanding the foregoing, upon the occurrence and during the
continuance of an Event of Default, the principal amount of all Loans and, to
the extent permitted by applicable law, other Obligations outstanding shall bear
interest, after as well as before judgment, at a rate per annum equal to 2% plus
the Applicable Rate.

 

(d)          All interest hereunder shall be computed on the basis of a year of
365 or 366 days, as applicable, and shall be payable for the actual number of
days elapsed (including the first day but excluding the last day) occurring in
the period for which such interest or fees are payable.

 

(e)          The Borrower agrees to pay to the Administrative Agent, for its own
account, the fees set forth in the Fee Letter at the times and in the amounts
specified therein. The fees payable to the Administrative Agent under the Fee
Letter (i) will be in addition to reimbursement of the Administrative Agent’s
out-of-pocket expenses in accordance with Section 10.03(a) and (ii) shall be
fully earned when due and shall not be refundable for any reason whatsoever.

 

Section 2.11         Increased Costs.

 

(a)          If any Change in Law shall subject any Recipient to any Taxes
(other than (i) Indemnified Taxes, and (ii) Excluded Taxes) on its loans, loan
principal, letters of credit, commitments, or other obligations, or its
deposits, reserves, other liabilities or capital attributable thereto and the
result shall be to increase the cost to such Recipient of making, converting to,
continuing or maintaining any Loan or maintaining its obligations to make any
such Loan or to reduce the amount of any sum received or receivable by such
Recipient hereunder (whether of principal, interest or any other amount), then
the Borrower will pay to such Recipient such additional amount or amounts as
will compensate such Recipient for such additional costs incurred or reduction
suffered.

 

(b)          If any Lender determines that any Change in Law regarding capital
or liquidity requirements has or would have the effect of reducing the rate of
return on such Lender’s capital or on the capital of such Lender’s holding
company, if any, as a consequence of this Agreement or the Loans made by such
Lender to a level below that which such Lender or such Lender’s holding company
could have achieved but for such Change in Law (taking into consideration such
Lender’s policies and the policies of such Lender’s holding company with respect
to capital adequacy and liquidity), then from time to time the Borrower will pay
to such Lender, as the case may be, such additional amount or amounts as will
compensate such Lender such Lender’s holding company for any such reduction
suffered.

 

(c)          A certificate of a Recipient setting forth the amount or amounts
necessary to compensate such Recipient or its holding company, as the case may
be, as specified in paragraph (a) or (b) of this Section shall be delivered to
the Borrower (with a copy to the Administrative Agent) and shall be conclusive
absent manifest error. The Borrower shall pay such Recipient the amount shown as
due on any such certificate within ten (10) Business Days after receipt thereof.

 

(d)          Failure or delay on the part of any Recipient to demand
compensation pursuant to this Section shall not constitute a waiver of such
Recipient’s right to demand such compensation; provided that the Borrower shall
not be required to compensate a Recipient pursuant to this Section for any
increased costs or reductions incurred more than 270 days prior to the date that
such Recipient notifies the Borrower of the Change in Law giving rise to such
increased costs or reductions and of such Recipient’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 270-day period
referred to above shall be extended to include the period of retroactive effect
thereof.

 

 Page 31 

 

 

Section 2.12         Taxes.

 

(a)          Payments Free of Taxes. Any and all payments by or on account of
any obligation of any Credit Party under any Loan Document shall be made without
deduction or withholding for any Taxes, except as required by applicable law. If
any applicable law (as determined in the good faith discretion of an applicable
Withholding Agent) requires the deduction or withholding of any Tax from any
such payment by a Withholding Agent, then the applicable Withholding Agent shall
be entitled to make such deduction or withholding and shall timely pay the full
amount deducted or withheld to the relevant Governmental Authority in accordance
with applicable law and, if such Tax is an Indemnified Tax, then the sum payable
by the applicable Credit Party shall be increased as necessary so that after
such deduction or withholding has been made (including such deductions and
withholdings applicable to additional sums payable under this Section 2.12) the
applicable Recipient receives an amount equal to the sum it would have received
had no such deduction or withholding been made.

 

(b)          Payment of Other Taxes by the Borrower. Without duplication of any
other obligation contained in this Section 2.12, the Credit Parties shall timely
pay to the relevant Governmental Authority in accordance with applicable law, or
at the option of the Administrative Agent timely reimburse it for the payment
of, any Other Taxes.

 

(c)          Evidence of Payments. As soon as practicable after any payment of
Taxes by any Credit Party to a Governmental Authority pursuant to this Section
2.12, such Credit Party 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.

 

(d)          Indemnification by the Borrower. Without duplication of any other
obligation contained in this Section 2.12, the Credit Parties shall jointly and
severally indemnify each Recipient, within ten (10) Business Days after demand
therefor, for the full amount of any Indemnified Taxes (including Indemnified
Taxes imposed or asserted on or attributable to amounts payable under this
Section) payable or paid by such Recipient or required to be withheld or
deducted from a payment to such Recipient and any reasonable expenses arising
therefrom or with respect thereto, whether or not such Indemnified 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 the
Borrower by a Lender (with a copy to the Administrative Agent), or by the
Administrative Agent on its own behalf or on behalf of a Lender, shall be
conclusive absent manifest error.

 

(e)          Indemnification by the Lenders. Each Lender shall severally
indemnify the Administrative Agent, within ten (10) Business Days after demand
therefor, for (i) any Indemnified Taxes attributable to such Lender (but only to
the extent that any Credit Party has not already indemnified the Administrative
Agent for such Indemnified Taxes and without limiting the obligation of the
Credit Parties to do so), (ii) any Taxes attributable to such Lender’s failure
to comply with the provisions of Section 10.04(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 (e).

 

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(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 Borrower and the Administrative Agent, at the time or times
reasonably requested by the Borrower or the Administrative Agent, such properly
completed and executed documentation reasonably requested by the Borrower or the
Administrative 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 Borrower or the Administrative Agent, shall deliver such other
documentation prescribed by applicable law or reasonably requested by the
Borrower or the Administrative Agent as will enable the Borrower or the
Administrative 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 2.12(f)(ii)(A), (ii)(B) and (ii)(D) 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,

 

(A)         any Lender that is a U.S. Person shall deliver to the Borrower and
the Administrative 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 Borrower or the Administrative Agent), executed copies
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 Borrower and the Administrative 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 Borrower or the Administrative
Agent), whichever of the following is applicable:

 

(1)         (x) with respect to payments of interest under any Loan Document,
executed copies of IRS Form W-8BEN or IRS Form W-8BEN-E (or applicable successor
form) 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, executed copies of IRS
Form W-8BEN or IRS Form W-8BEN-E (or applicable successor form) 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 copies of IRS Form W-8ECI;

 

(3)         in the case of a Foreign Lender claiming the benefits of the
exemption for portfolio interest under Section 871(h) or 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
881(c)(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 copies of IRS Form W-8BEN or IRS Form W-8BEN-E (or applicable successor
form); or

 

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(4)         to the extent a Foreign Lender is not the beneficial owner, executed
copies of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN or
IRS Form W-8BEN-E (or applicable successor form), 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;

 

(C)         any Foreign Lender shall, to the extent it is legally entitled to do
so, deliver to the Borrower and the Administrative 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 Borrower or the Administrative
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 Borrower or the Administrative Agent
to determine the withholding or deduction required to be made; and

 

(D)         if a payment made to a Recipient under any Loan Document would be
subject to U.S. Federal withholding Tax imposed by FATCA if such Recipient were
to fail to comply with the applicable reporting requirements of FATCA (including
those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such
Recipient shall deliver to the Borrower and the Administrative Agent at the time
or times prescribed by law and at such time or times reasonably requested by the
Borrower or the Administrative 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 Borrower or the
Administrative Agent as may be necessary for the Borrower and the Administrative
Agent to comply with their obligations under FATCA and to determine that such
Recipient has complied with such Recipient’s obligations under FATCA or to
determine the amount to deduct and withhold from such payment. Solely for
purposes of this clause (D), “FATCA” shall include any amendments made to FATCA
after the date of this Agreement.

 

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 Borrower and the Administrative
Agent in writing of its legal inability to do so.

 

(g)          Status of Administrative Agent. On or before the date on which
Wilmington Trust, National Association (and any successor or replacement
Administrative Agent) becomes the Administrative Agent hereunder, it shall
deliver to the Borrower an executed copy of either (i) IRS Form W-9, or (ii) IRS
Form W-8ECI and IRS Form W-8IMY, establishing that the Borrower can make
payments to the Administrative Agent without deduction or withholding of any
Taxes imposed by the United States, including Taxes imposed under FATCA.

 

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(h)          Treatment of Certain Refunds. If any party determines, in its sole
discretion exercised in good faith, that it has received a refund of any Taxes
as to which it has been indemnified pursuant to this Section 2.12 (including by
the payment of additional amounts pursuant to this Section 2.12), it shall pay
to the indemnifying party an amount equal to such refund (but only to the extent
of indemnity payments made under this Section 2.12 with respect to the Taxes
giving rise to such refund), net of all out-of-pocket expenses (including Taxes)
of such indemnified party and without interest (other than any interest paid by
the relevant Governmental Authority with respect to such refund). Such
indemnifying party, upon the request of such indemnified party, shall repay to
such indemnified party the amount paid over pursuant to this paragraph (h) (plus
any penalties, interest or other charges imposed by the relevant Governmental
Authority) in the event that such indemnified party is required to repay such
refund to such Governmental Authority. Notwithstanding anything to the contrary
in this paragraph (h), in no event will the indemnified party be required to pay
any amount to an indemnifying party pursuant to this paragraph (h) the payment
of which would place the indemnified party in a less favorable net after-Tax
position than the indemnified party would have been in if the Tax subject to
indemnification and giving rise to such refund had not been deducted, withheld
or otherwise imposed and the indemnification payments or additional amounts with
respect to such Tax had never been paid. This paragraph shall not be construed
to require any indemnified party to make available its Tax returns (or any other
information relating to its Taxes that it deems confidential) to the
indemnifying party or any other Person.

 

(i)          FATCA. For purposes of determining withholding Taxes imposed under
FATCA, from and after the effective date of this Agreement, the Borrower and the
Administrative Agent shall treat (and the Lenders hereby authorize the
Administrative Agent to treat) each Loan as not qualifying as a “grandfathered
obligation” within the meaning of Treasury Regulation Section 1.1471-2(b)(2)(i).

 

(j)          Survival. Each party’s obligations under this Section 2.12 shall
survive the resignation or replacement of the Administrative Agent or any
assignment of rights by, or the replacement of, a Lender, the termination of the
Commitments and the repayment, satisfaction or discharge of all obligations
under any Loan Document.

 

Section 2.13         Payments Generally; Pro Rata Treatment; Sharing of
Set-offs.

 

(a)          The Borrower shall make each payment required to be made by it
hereunder (whether of principal, interest, fees, or of amounts payable under
Section 2.11 or Section 2.12, or otherwise) prior to 2:00 p.m. New York City
Time on the date when due, in immediately available funds, without set-off or
counterclaim. 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 such account as may
be specified by the Administrative Agent, except that payments pursuant to
Section 2.11, Section 2.12 and Section 10.03 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)          If at any time insufficient funds are received by and available to
the Administrative Agent to pay fully all amounts of principal, interest,
premiums and fees then due hereunder, such funds shall be applied (i) first,
towards payment of fees then due hereunder, ratably among the parties entitled
thereto in accordance with the amounts of fees then due to such parties, (ii)
second, towards payment of interest and premiums then due hereunder, ratably
among the parties entitled thereto in accordance with the amounts of interest
and premiums then due to such parties and (iii) third, towards payment of
principal then due hereunder, ratably among the parties entitled thereto in
accordance with the amounts of principal then due to such parties.

 

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(c)          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 resulting in such Lender receiving payment of a
greater proportion of the aggregate amount of its Loans 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 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; 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 paragraph 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 to any assignee or
participant, other than to the Borrower or any Subsidiary or Affiliate thereof
(as to which the provisions of this paragraph 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.

 

(d)          Unless the Administrative Agent shall have received written notice
from the Borrower prior to the date on which any payment is due to the
Administrative Agent for the account of the Lenders hereunder 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, but shall have no obligation to do so, distribute
to the Lenders the amount due. In such event, if the Borrower has not in fact
made such payment, then each of the Lenders severally agrees to repay to the
Administrative Agent forthwith on demand the amount so distributed to such
Lender 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 Federal Funds Effective Rate.

 

(e)          If any Lender shall fail to make any payment required to be made by
it pursuant to Section 2.04(b), Section 2.12(d) or Section 10.03(c), then the
Administrative Agent may, in its discretion (notwithstanding any contrary
provision hereof), (i) apply any amounts thereafter received by the
Administrative Agent for the account of such Lender for the benefit of the
Administrative Agent to satisfy such Lender’s obligations to it under such
Sections until all such unsatisfied obligations are fully paid, and/or (ii) hold
any such amounts in a segregated account as cash collateral for, and application
to, any future funding obligations of such Lender under any such Section, in the
case of each of clauses (i) and (ii) above, in any order as determined by the
Administrative Agent in its discretion.

 

Article III.

Representations and Warranties

 

The Borrower represents and warrants to the Administrative Agent and the Lenders
that:

 

Section 3.01         Organization; Powers. Each Credit Party is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization, has all requisite power and authority to carry on its business as
now conducted and, except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect, is qualified to do business in, and is in good standing in, every
jurisdiction where such qualification is required.

 

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Section 3.02         Authorization; Enforceability. The Transactions are within
each Credit Party’s corporate, limited liability company or partnership powers
and have been duly authorized by all necessary corporate, limited liability
company or partnership and, if required, actions by equity holders. This
Agreement has been duly executed and delivered by each Credit Party and
constitutes a legal, valid and binding obligation of each Credit Party,
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 3.03         Governmental 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, except (i) as have been obtained or
made and are in full force and effect or have been made or to be made in
connection with the filing of any Security Documents, financing statements, or
other registrations or filings to secure the Obligations, or (ii) as may be
required in connection with the performance by the Borrower of its obligations
under Section 5.18(b), Section 11.06 or the Registration Rights Agreement, (b)
will not violate any Requirement of Law applicable to the Borrower or any
Subsidiary, (c) will not violate or result in a default under any indenture,
agreement or other instrument evidencing Material Indebtedness or a Material
Sales Contract, or give rise to a right thereunder to require any payment to be
made by the Borrower or any Subsidiary, and (d) will not result in the creation
or imposition of any Lien on any asset of the Borrower or any Subsidiary not
otherwise permitted under Section 6.03(b).

 

Section 3.04         Financial Condition; No Material Adverse Change.

 

(a)          The Borrower has heretofore furnished to the Lead Lender the
audited consolidated balance sheet and related statements of income,
stockholders equity and cash flows of the Borrower and its Consolidated
Subsidiaries as of and for the fiscal year ended December 31, 2016, reported on
by Marcum LLP, independent public accountants (the “Initial Audited Financial
Statements”). Such financial statements, together with the notes thereto,
present fairly, in all material respects, the financial position and results of
operations and cash flows of the Borrower and its Consolidated Subsidiaries as
of such date and for such period in accordance with GAAP and, except as set
forth on Schedule 3.04, show all material indebtedness and other liabilities,
direct or contingent, of the Borrower and its Consolidated Subsidiaries as of
the date thereof required by GAAP to be reserved, reflected or otherwise
disclosed therein.

 

(b)          Since December 31, 2016, no event or circumstance which has had or
could reasonably be expected to have a Material Adverse Effect has occurred.

 

Section 3.05         Properties.

 

(a)          Except as otherwise provided in Section 3.05(c) with respect to Oil
and Gas Property the Borrower and each Subsidiary has good title to, or valid
leasehold interests in, all its real and personal property material to its
business, except for (i) minor defects in title that do not, in the aggregate,
interfere with its ability to conduct its business as currently conducted and
(ii) Permitted Encumbrances and the Permitted Senior Liens, if applicable.

 

(b)          The Borrower and each Subsidiary owns, or is licensed to use, all
trademarks, tradenames, copyrights, patents and other intellectual property
material to its business, and the use thereof by the Borrower and such
Subsidiaries, as the case may be, 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.

 

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(c)          Each Credit Party has good and defensible title to all Proved
Reserves included in the Oil and Gas Property described in the most recent
Reserve Report provided to the Administrative Agent and the Lead Lender (other
than such Proved Reserves that have been subsequently disposed of and disclosed
on the Reserve Report Certificate), free and clear of all Liens except Permitted
Encumbrances and the Permitted Senior Liens, if applicable. All such proved Oil
and Gas Property are valid, subsisting, and in full force and effect in all
material respects, and all rentals, royalties, and other amounts due and payable
in respect thereof have been duly paid except for such rentals, royalties and
other amounts that are amounts being contested in good faith by appropriate
proceedings and for which the Borrower or the applicable Subsidiary has set
aside on its books adequate reserves, or except to the extent such rentals,
royalties and other amounts due, if left unpaid, would not result in the loss or
forfeiture of Oil and Gas Property having an aggregate fair market value in
excess of $1,000,000. Without regard to any consent or non-consent provisions of
any joint operating agreement covering any Credit Party’s proved Oil and Gas
Property, such Credit Party’s share of (a) the costs for the proved Oil and Gas
Property described in the Reserve Report (other than for such proved Oil and Gas
Property that have been subsequently disposed of and disclosed on the Reserve
Report Certificate) is not materially greater than the decimal fraction set
forth in the Reserve Report, before and after payout, as the case may be, and
described therein by the respective designations “working interests,” “WI,”
“gross working interest,” “GWI,” or similar terms (except in such cases where
there is a corresponding increase in the net revenue interest), and
(b) production from, allocated to, or attributed to such proved Oil and Gas
Property is not materially less than the decimal fraction set forth in the
Reserve Report, before and after payout, as the case may be, and described
therein by the designations “net revenue interest,” “NRI,” or similar terms. The
wells drilled in respect of proved producing Oil and Gas Property described in
the Reserve Report (other than wells drilled in respect of such proved producing
Oil and Gas Property that have been subsequently disposed of and disclosed on
the Reserve Report Certificate) (1) are capable of, and are presently, either
producing Hydrocarbons in commercially profitable quantities or in the process
of being worked over or enhanced, and the Credit Party that owns such proved
producing Oil and Gas Property is currently receiving payments for its share of
production, with no funds in respect of any thereof being presently held in
suspense, other than any such funds being held in suspense pending delivery of
appropriate division orders, (2) have been drilled, bottomed, completed, and
operated in compliance with all applicable laws, and (3) are not subject to any
penalty in production by reason of such well having produced in excess of its
allowable production.

 

(d)          No Credit Party has knowledge that a default exists under any of
the terms or provisions, express or implied, of any of the leases and term
mineral interests in the Oil and Gas Properties evaluated in the most recently
delivered Reserve Report (other than any thereof Disposed of in a Disposition
permitted by this Agreement) or under any agreement to which the same are
subject that would materially and adversely affect the rights of the Credit
Parties with respect to the Oil and Gas Properties to which such lease,
interest, or agreement relates.

 

(e)          Except as otherwise permitted hereunder, there are no obligations
under any Oil and Gas Property or contract or agreement which require the
drilling of additional wells or operations to earn or to continue to hold any of
the Oil and Gas Properties in force and effect, except leases in the primary
term and those under customary continuous operations provisions that may be
found in one or more of the Borrower’s or any Subsidiaries oil and gas and/or
oil, gas and mineral leases.

 

(f)          To the extent required hereunder, all material necessary regulatory
filings have been properly made in connection with the drilling, completion and
operation of the wells on or attributable to the Oil and Gas Properties and all
other operations related thereto.

 

(g)          To the extent required hereunder, all production and sales of
Hydrocarbons produced or sold from the Oil and Gas Properties have been made
materially in accordance with any applicable allowables (plus permitted
tolerances) imposed by any Governmental Authorities.

 

(h)          No Credit Party has collected any proceeds from the sale of
Hydrocarbons produced from the Oil and Gas Properties which are subject to any
material refund obligation other than as previously disclosed in writing to the
Lead Lender at or prior to the delivery of such Reserve Report.

 

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Section 3.06         Litigation and Environmental Matters.

 

(a)          There are no actions, suits or proceedings by or before any
arbitrator or Governmental Authority pending against or, to the knowledge of the
Borrower, threatened against or affecting the Borrower or any Subsidiary, (i) as
to which there is a reasonable possibility of an adverse determination and that,
if adversely determined, could reasonably be expected, individually or in the
aggregate, to result in a Material Adverse Effect (other than the Disclosed
Matters) or (ii) that involve this Agreement or the Transactions.

 

(b)          Except as has not resulted in and would not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect,
neither the Borrower nor any Subsidiary (i) has failed to comply with any
Environmental Law or to obtain, maintain or comply with any permit, license or
other approval required under any Environmental Law, (ii) has incurred, assumed,
provided an indemnity with respect to, or otherwise become subject to any
Environmental Liability, (iii) has received any notice, report, order, directive
or other information regarding any actual or alleged violation of Environmental
Laws or any claim with respect to any Environmental Liability or (iv) knows of
any basis for any Environmental Liability.

 

(c)          Except as would not, individually or in the aggregate, reasonably
be expected to result in a Material Adverse Effect, neither the Borrower nor any
Subsidiary has ever treated, stored, released, discharged, disposed of, arranged
for or permitted the disposal of, transported, handled, manufactured,
distributed, or exposed any Person to, or owned or operated any property or
facility which is or has been contaminated by, any Hazardous Materials, so as to
give rise to any current or future Environmental Liability.

 

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

 

Section 3.07         Compliance with Laws and Agreements. The Borrower and each
Subsidiary is in compliance with (a) its Organizational Documents in all
material respects, (b) all Requirements of Law applicable to it or its property
as has not resulted in and would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect, and (c) all
indentures, agreements and other instruments binding upon it or its property in
all material respects. The Borrower and each Subsidiary is in compliance with
the Existing First Lien Loan Documents and the execution, delivery and
performance of the Loan Documents will not constitute a violation of any
Existing First Lien Loan Document. No Default has occurred and is continuing.

 

Section 3.08         Investment Company Status. Neither the Borrower nor any
Subsidiary is an “investment company” as defined in, or subject to regulation
under, the Investment Company Act of 1940.

 

Section 3.09         Taxes. The Borrower and each Subsidiary has timely filed or
caused to be filed all U.S. Federal income Tax and all other material Tax
returns and reports required to have been filed and has paid or caused to be
paid all material Taxes required to have been paid by it, except Taxes that are
being contested in good faith by appropriate proceedings and for which the
Borrower or such Subsidiary, as applicable, has set aside on its books adequate
reserves in accordance with GAAP. Without duplication of the representation and
warranty in the immediately preceding sentence, there is no proposed Tax
assessment, deficiency or other claim against the Borrower or any Subsidiary
except (i) those being contested in good faith by appropriate proceedings and
for which the Borrower or such Subsidiary, as applicable, has set aside on its
books adequate reserves in accordance with GAAP or (ii) those would not
reasonably be expected to, individually or in the aggregate, have a Material
Adverse Effect.

 

Section 3.10         ERISA. No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other such ERISA Events for
which liability is reasonably expected to occur, could reasonably be expected to
result in a Material Adverse Effect. The present value of all accumulated
benefit obligations under each Plan (based on the assumptions used for purposes
of Plan termination under Title IV of ERISA) does not exceed by more than
$1,000,000 the fair market value of the assets of such Plan.

 

 Page 39 

 

 

Section 3.11         Disclosure. The Borrower has disclosed to the
Administrative Agent and the Lenders all agreements, instruments and corporate
or other restrictions to which it or any Subsidiary is subject, and all other
matters known to it, that, individually or in the aggregate, could reasonably be
expected to result in a material liability. None of the other reports, financial
statements, certificates or other written information furnished by or on behalf
of the Borrower or any Subsidiary to the Administrative Agent or any Lender in
connection with the negotiation of this Agreement or delivered hereunder (as
modified or supplemented by other information so furnished) when taken as a
whole 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 as of the date made or deemed made;
provided that, with respect to projected financial information, prospects
information, geological or geographical data and engineering projections, the
Borrower represents only that such information was prepared in good faith based
on assumptions believed to be reasonable at the time and, if such projected
financial information was delivered prior to the Effective Date, as of the
Effective Date.

 

Section 3.12         Labor Matters. There are no strikes, lockouts or slowdowns
against the Borrower or any of its Subsidiaries pending or, to the knowledge of
the Borrower, threatened that could reasonably be expected to have a Material
Adverse Effect. The hours worked by and payments made to employees of the
Borrower and, to the knowledge of the Borrower, to employees of its Subsidiaries
have not been in violation of the Fair Labor Standards Act or any other Law
dealing with such matters to the extent that such violation could reasonably be
expected to have a Material Adverse Effect.

 

Section 3.13         Capitalization and Assets. Schedule 3.13 lists as of the
Effective Date, (a) for the Borrower and each Subsidiary, its full legal name
and its jurisdiction of organization, (b) (i) for the Borrower, the number of
shares of capital stock or other Capital Stock outstanding for each class of
Capital Stock of the Borrower, the number of outstanding options, warrants, and
equity based awards and number of such awards available for issuance under any
existing equity incentive plans, (ii) for each Subsidiary, the number of shares
of capital stock or other Capital Stock outstanding and the owner(s) of such
shares or Capital Stock.

 

Section 3.14         Margin Stock. Neither the Borrower nor any Subsidiary is
engaged principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U issued by the Board), and no part of the proceeds of
the Loans will be used to purchase or carry any margin stock or to extend credit
to others for the purpose of purchasing or carrying margin stock.

 

Section 3.15         Bank Accounts. As of the Effective Date, Schedule 3.15
lists all accounts maintained by or for the benefit of any Credit Party with any
bank or financial institution.

 

Section 3.16         Reserved. 

 

Section 3.17         Material Contracts. As of the Effective Date, except as
listed on Schedule 3.17, the Credit Parties have delivered to the Lead Lender
copies of each contract, agreement or commitment to which any Credit Party is a
party or by which it is bound, and which are currently effective, that are: (i)
non-competition agreements or other agreements or obligations that purport to
limit in any material respect the manner in which, or the localities in which,
all or any material portion of any Credit Party’s business is conducted; (ii)
agreements for the borrowing of money; (iii) leases with respect to any
property, real or personal (other than leases constituting Mortgaged
Properties); (iv) Production Payments or Advance Payment Contracts; (v)
agreements for a purchase or sale of assets, securities or a business, or
otherwise obligating any Credit Party to pay any consideration of more than
$500,000; (vi) agreements with any agent, dealer or distributor, including all
such agreements relating to the gathering and/or marketing of Hydrocarbons;
(vii) stand-by letters of credit, guarantee or performance bond; and (viii)
material contracts to which any Credit Party is a party that would terminate or
become terminable, require any Credit Party to take any action, cause any Credit
Party to lose any material benefits or give to others any rights of amendment,
acceleration, suspension, revocation or cancellation, under any such contract as
a result of the transactions contemplated in this Agreement (each of the
foregoing, a “Material Contract”); provided that anything previously disclosed
in public filings does not need to be provided or disclosed on Schedule 3.17. No
Credit Party is in default in the performance, observance or fulfillment of any
of the obligations, covenants or conditions contained in any Material Sales
Contract to which it is a party.

 

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Section 3.18         Gas Imbalances. Except as set forth in Schedule 3.18, on a
net basis there are no Gas Imbalances, take or pay or other prepayments with
respect to any Oil and Gas Properties which would require any Credit Party to
deliver Hydrocarbons produced from such Oil and Gas Properties at some future
time without then or thereafter receiving full payment therefor other than that
which do not result in any Credit Party or any Subsidiary having net aggregate
liability in excess of $1,000,000.

 

Section 3.19         Reserve Reports. To Borrower’s knowledge, (a) the factual,
non-interpretive information furnished by any Credit Party to the Petroleum
Engineers for use in the preparation of each Reserve Report was accurate in all
material respects at the time furnished or was subsequently corrected, and (b)
except (i) as set forth on Schedule 3.19, (ii) for changes (including changes in
Hydrocarbon commodity prices) generally affecting the oil and natural gas
industry and (iii) for normal depletion by production, there has been no
material decrease in the amount of the estimated Proved Reserves shown in any
Reserve Report since the date thereof.

 

Section 3.20         Sale of Production. No Oil and Gas Property is subject to
any Advance Payment Contract or any contract whereby payments are made to any
Credit Party other than by checks, drafts, wire transfer advices or other
similar writings, instruments or communications for the immediate payment of
money except as permitted under this Agreement. Except for production sales
contracts, processing agreements, transportation agreements and other agreements
relating to the marketing of production that are listed on Schedule 3.20 or
thereafter notified in writing to the Lead Lender or as included in the most
recently delivered Reserve Report, in connection with the Oil and Gas Properties
to which such contract or agreement relates: no Oil and Gas Property is subject
to any contractual or other arrangement for the sale, processing or
transportation of production (or otherwise related to the marketing of
production) which cannot be canceled on one year’s (or fewer) notice, other than
as consented to by the Majority Lenders.

 

Section 3.21         Anti-Corruption Laws and Sanctions. The Borrower has
implemented and maintains in effect policies and procedures designed to ensure
compliance by the Borrower, its Subsidiaries and their respective directors,
officers, employees and agents with Anti-Corruption Laws and applicable
Sanctions, and the Borrower, its Subsidiaries and their respective officers and
employees and to the knowledge of the Borrower its directors and agents insofar
as the same are acting on behalf of the Borrower or its Subsidiaries, (i) are in
compliance with Anti-Corruption Laws and applicable Sanctions in all material
respects and (ii) have not and will not do business, enter into transactions or
store with, purchase or receive money from, transport from, to or with, sell
goods or give money to, a Sanctioned Person. None of (a) the Borrower, any
Subsidiary or any of their respective directors, officers or employees, or (b)
to the knowledge of the Borrower, any agent of the Borrower or any Subsidiary
that will act in any capacity in connection with or benefit from the credit
facility established hereby, is a Sanctioned Person. The making of the Loans,
use of proceeds thereof or other transaction contemplated by the Credit
Agreement will not violate Anti-Corruption Laws or applicable Sanctions.

 

Section 3.22         No Foreign Operations. The Borrower and its Subsidiaries do
not operate their business outside the geographical boundaries of the United
States.

 

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Section 3.23         Solvency. Before and after giving effect to the making of
Loans and the application of the proceeds thereof, the Credit Parties, taken as
a whole, are Solvent.

 

Section 3.24         Reservation and Status of Common Stock and Preferred
Equity. The Borrower has reserved and has available out of its authorized but
unissued capital stock, for the purpose of effecting the Lender Conversions,
such number of its duly authorized shares of Common Stock and Preferred Stock,
as applicable, as shall be sufficient to effect the Lender Conversions and/or
convert any shares of Lender Preferred Stock without giving effect to any
adjustments contemplated by Schedule 11.01. Any shares of Common Stock and
Lender Preferred Stock, as applicable, that are or may be required to be issued
pursuant to the terms of this Agreement shall be duly and validly issued, fully
paid and nonassessable, and free and clear of all liens (other than any Liens
created by any Lender) or preemptive rights, will be issued in compliance with
all applicable securities laws, including, without limitation, the Securities
Act (assuming the accuracy of each Lender’s Investment Representations), and
will be entitled to the benefits of the Registration Rights Agreement (subject
to the terms thereof).

 

Article IV.

Conditions

 

Section 4.01         Effective Date. This Agreement shall become effective on
the date on which each of the following conditions is satisfied or waived in
accordance with Section 10.02 (such date, the “Effective Date”):

 

(a)          [Reserved].

 

(b)          The Administrative Agent and the Lead Lender shall have received
from each party hereto either a counterpart of this Agreement signed on behalf
of such party or written evidence satisfactory to the Administrative Agent and
the Lead Lender (which may include electronic transmission of a signed signature
page of this Agreement) that such party has signed a counterpart of this
Agreement.

 

(c)          The Administrative Agent and the Lead Lender shall have received
(i) schedules to this Agreement in form and substance satisfactory to the
Administrative Agent and the Lead Lender, and (ii) the Security Agreement,
together with such other assignments, conveyances, amendments, agreements and
other writings, including, without limitation, UCC-1 financing statements,
necessary to create Liens, subject in priority only to Permitted Prior Liens and
Permitted Existing Liens, in all of the Collateral in which a security interest
is required to be granted in favor of the Administrative Agent pursuant to the
Security Documents, including all of the Capital Stock of each Subsidiary now or
hereafter owned by Borrower or any Subsidiary.

 

(d)          The Administrative Agent and the Lead Lender shall have received
(i) a certificate of each Credit Party, dated the Effective Date and executed by
its Secretary or Assistant Secretary or a Responsible Officer of such Credit
Party, which shall (A) certify the resolutions of its board of directors,
members or other body authorizing the execution, delivery and performance of the
Loan Documents to which it is a party, (B) identify by name and title and bear
the signatures of the officers of such Credit Party authorized to sign the Loan
Documents to which it is a party, and (C) attach the certificate of formation or
articles of incorporation or organization of such Credit Party certified by the
relevant authority of the jurisdiction of organization of such Credit Party and
a true and correct copy of its by-laws or operating, management or partnership
agreement and (ii) a good standing certificate for each Credit Party from the
Secretary of State its jurisdiction of organization.

 

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(e)          The Administrative Agent and the Lead Lender shall have received,
and the Borrower shall have requested, a favorable written opinion (addressed to
the Administrative Agent and the Lenders and dated the Effective Date) of each
of Bracewell LLP, counsel for the Credit Parties and applicable local counsel,
covering such matters relating to the Credit Parties, this Agreement or the
Transactions as the Lead Lender shall reasonably request.

 

(f)          The Administrative Agent and the Lead Lender shall have received
(i) a certificate, dated the Effective Date and signed by a Responsible Officer
of the Borrower, confirming that the Credit Parties have (A) complied with the
conditions set forth in paragraphs (h), (i), and (o) of this Section 4.01 and
(B) complied with the requirements of Section 5.10 and Section 5.11, (ii) a
summary of all insurance policies owned by any Credit Party, and (iii) customary
insurance certificates issued by the insurance agent or broker of the Borrower
demonstrating compliance with Section 5.05(b).

 

(g)          The Administrative Agent and the Lead Lender shall have received
such financing statements and evidence of filing (including, without limitation,
the Mortgages and financing statements referenced in clause (s) below) as shall
be required to fully evidence and perfect all Liens contemplated by the Loan
Documents, all of which shall be filed of record by Lead Lender in such
jurisdictions as the Lead Lender shall require.

 

(h)          Each Credit Party shall have obtained all approvals required from
any Governmental Authority and all consents of other Persons, in each case that
are necessary or, in the reasonable discretion of the Lead Lender, advisable in
connection with the Transactions and each of the foregoing shall be in full
force and effect and in form and substance reasonably satisfactory to the Lead
Lender (excluding any such approvals or consents that are expressly contemplated
by the Loan Documents to be obtained after the Effective Date). All applicable
waiting periods shall have expired without any action being taken or, to the
knowledge of the Borrower, threatened by any competent authority which would
restrain, prevent or otherwise impose adverse conditions on the transactions
contemplated by the Loan Documents or the financing thereof and no action,
request for stay, petition for review or rehearing, reconsideration, or appeal
with respect to any of the foregoing shall be pending, and the time for any
applicable agency to take action to set aside its consent on its own motion
shall have expired.

 

(i)          There shall not exist any action, suit, investigation, litigation
or proceeding or other legal or regulatory developments, pending or, to the
knowledge of the Borrower, threatened in any court or before any arbitrator or
Governmental Authority that, in the reasonable opinion of the Lead Lender,
singly or in the aggregate, materially impairs the Transactions, the financing
thereof or any of the other transactions contemplated by the Loan Documents or
that could reasonably be expected to result in a Material Adverse Effect.

 

(j)          All partnership, corporate and other proceedings taken or to be
taken in connection with the Transactions and all documents incidental thereto
shall be reasonably satisfactory in form and substance to the Lead Lender and
their counsel, and the Lead Lender and such counsel shall have received all such
certified copies of such documents as the Lead Lender may reasonably request.

 

(k)          The Lead Lender shall have received the Projections, the operating
budget for fiscal year 2017 and all of the financial statements described in
Section 3.04(a).

 

(l)          The Lead Lender shall have received a true and complete copy of the
Reserve Report dated January 12, 2017 (the “Initial Reserve Report”).

 

(m)         The Administrative Agent and the Lead Lender shall have received
such other instruments and documents incidental and appropriate to the
transactions provided for herein as the Administrative Agent or the Lead Lender
or their special counsel may reasonably request prior to the Effective Date, and
all such documents shall be in form and substance satisfactory to the Lead
Lender and the Administrative Agent.

 

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(n)          The representations and warranties of each Credit Party set forth
in this Agreement and the other Loan Documents shall be true and correct in all
material respects on and as of the Effective Date (other than those
representations and warranties that are subject to a materiality qualifier, in
which case such representations and warranties shall be true and correct in all
respects), except to the extent that such representations and warranties
specifically refer to an earlier date, in which case they shall be true and
correct in all material respects as of such earlier date (other than those
representations and warranties that are subject to a materiality qualifier, in
which case such representations and warranties are true and correct in all
respects as of such earlier date).

 

(o)          No Default shall have occurred and be continuing.

 

(p)          The Administrative Agent shall have received, at least three (3)
Business Days prior to the Effective Date (or such shorter period as agreed to
by the Administrative Agent in its sole discretion), all documentation and other
information required by regulatory authorities under applicable “know your
customer” and anti-money laundering rules and regulations, including the Act,
that is requested by the Administrative Agent or any Lender in writing at least
five (5) Business Days prior to the Effective Date.

 

(q)          The Administrative Agent and the Lead Lender shall have received a
Borrowing Request acceptable to the Administrative Agent and the Lead Lender and
in accordance with Section 2.03 setting forth the amount of the Loans requested
by the Borrower on the Effective Date and the accounts to which such Loans are
to be funded.

 

(r)          The Administrative Agent and the Lead Lender shall have received a
solvency certificate dated the Effective Date and signed by a Financial Officer
of the Borrower.

 

(s)          The Administrative Agent and the Lead Lender shall have received
duly executed Mortgages in form and substance reasonably satisfactory to the
Administrative Agent and the Lead Lender necessary or appropriate to grant,
evidence and perfect Liens in favor of the Administrative Agent on at least (i)
90% of the PV9 of the Credit Parties’ Proved Reserves attributable to the Oil
and Gas Property evaluated in the Initial Reserve Report, and (ii) 90% of the
net acres of Oil and Gas Properties evaluated in the Initial Reserve Report.

 

(t)          The Administrative Agent and the Lenders shall have received all
fees and other amounts due and payable on the Effective Date under this
Agreement, and reimbursement or payment of all out-of-pocket expenses required
to be reimbursed or paid by the Borrower hereunder, including all reasonable
fees, expenses and disbursements of counsel for the Administrative Agent and
counsel for the Lead Lender to the extent invoiced on or prior to the Effective
Date, together with such additional amounts as shall constitute such counsel’s
reasonable estimate of expenses and disbursements to be incurred by such counsel
in connection with the recording and filing of Mortgages (and/or Mortgage
amendments) and financing statements; provided, that, such estimate shall not
thereafter preclude further settling of accounts between the Borrower and the
Administrative Agent. The Administrative Agent shall have received a fully
executed copy of the Fee Letter.

 

(u)          Each Lender that has requested the delivery of a promissory note
pursuant to and in accordance with Section 2.05(e) shall have received
promissory notes duly executed by the Borrower.

 

(v)         [reserved].

 

(w)         The Borrower shall have executed and delivered the Registration
Rights Agreement.

 

 Page 44 

 

 

The Lead Lender shall notify the Administrative Agent of the Effective Date and
such notice shall be conclusive and binding.  Notwithstanding the foregoing, at
the option of the Lenders, their respective obligations to make Loans hereunder
shall not become effective unless each of the foregoing conditions is satisfied
(or waived pursuant to Section 10.02) at or prior to 2:00 p.m., New York City
time, on April 26, 2017 (and, in the event such conditions are not so satisfied
or waived, the Commitments shall terminate at such time). Without limiting the
generality of the provisions of Article IX, for purposes of determining
compliance with the conditions specified in this Article IV, 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
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 Effective Date specifying its objection
thereto.

 

Section 4.02         Conditions to each Delayed Term Loan Draw. The obligation
of Lenders to make a Delayed Term Loan Draw to the Borrower is subject to the
satisfaction of the following additional conditions:

 

(a)          the Administrative Agent shall have received a Borrowing Request as
required pursuant to Section 2.03 identifying the information contemplated by
such Borrowing Request and demonstrating that the conditions set forth in this
Section 4.02 shall be satisfied;

 

(b)          no Default or Event of Default shall have occurred and is
continuing or would occur as a result of such Delayed Term Loan Draw;

 

(c)          each representation and warranty of the Credit Parties contained in
the Loan Documents shall be true and correct in all material respects on and as
of the date of such Delayed Term Loan Draw (other than those representations and
warranties that are subject to a materiality qualifier, in which case such
representations and warranties shall be true and correct in all respects),
except to the extent that such representations and warranties specifically refer
to an earlier date, in which case they shall be true and correct in all material
respects as of such earlier date (other than those representations and
warranties that are subject to a materiality qualifier, in which case such
representations and warranties are true and correct in all respects as of such
earlier date);

 

(d)          after giving pro forma effect thereto, the Asset Coverage Ratio is
not greater than 1:00 to 1:00; and

 

(e)          (i) the Borrower shall deliver to the Lead Lender title information
in form and substance reasonably acceptable to the Lead Lender with respect to
any Oil and Gas Properties to be acquired with the proceeds of such Delayed Draw
Term Loan and the Lenders providing such Delayed Draw Term Loan shall be
satisfied with results thereof and (ii) upon consummation of such Acquisition,
the Borrower shall have good title to, or valid leasehold interests in, all such
Oil and Gas Properties to be acquired, except for minor defects in title that do
not, in the aggregate, interfere with its ability to conduct its business as
currently conducted.

 

Article V.

Affirmative Covenants

 

Until the Obligations (other than contingent indemnification obligations for
which no claim has been asserted) shall have been paid in full, the Borrower
covenants and agrees with the Administrative Agent and the Lenders that:

 

Section 5.01         Financial Statements; Other Information. The Borrower will
furnish to the Administrative Agent for distribution to each Lender:

 

 Page 45 

 

 

(a)          within ninety (90) days after the end of each fiscal year of the
Borrower, the audited consolidated balance sheet and related statements of
operations, stockholders’ equity and cash flows of the Borrower and its
Consolidated Subsidiaries 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 BDO USA, LLP or other independent public accountants reasonably
acceptable to the Lead Lender (without a “going concern” or like qualification
or exception and without any qualification or exception as to the scope of such
audit) to the effect that such consolidated financial statements present fairly
in all material respects the financial condition and results of operations of
the Borrower and its Consolidated Subsidiaries on a consolidated basis in
accordance with GAAP consistently applied;

 

(b)          within forty five (45) days after the end of each fiscal quarter of
the Borrower, the consolidated balance sheet and related statements of
operations, stockholders’ equity and cash flows of the Borrower and its
Consolidated Subsidiaries 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 Borrower and
its Consolidated Subsidiaries on a consolidated basis in accordance with GAAP
consistently applied, subject to normal year-end audit adjustments and the
absence of footnotes;

 

(c)          concurrently with any delivery of financial statements under
clause (a) or (b) above, a certificate in a form reasonably acceptable to Lead
Lender signed by a Financial Officer of the Borrower (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 6.01 (when applicable), (iii) certifying that, other
than as disclosed therein, since the date of delivery of the last certificate,
no Credit Party has (A) acquired any Oil and Gas Properties, (B) made any other
Acquisition or Disposition, or (C) formed or dissolved any Subsidiaries of the
Borrower;

 

(d)          concurrently with the delivery of financial statements under
clause (a) or (b) above, notice of the date and time of a conference call with
Lenders to discuss financial information, which conference calls the Borrower
shall host not later than five (5) Business Days after such distribution;
provided that any conference call hosted by the Borrower which is generally
available to holders of its debt and/or equity securities shall satisfy this
condition;

 

(e)          within sixty (60) days after the conclusion of each fiscal year,
the Borrower’s annual operating and capital expenditure budgets, and financial
forecasts, including cash flow projections covering proposed fundings,
repayments, additional advances, investments and other cash receipts and
disbursements, each for the following fiscal year in a format reasonably
consistent with projections, budgets and forecasts theretofore provided to the
Administrative Agent and the Lenders;

 

(f)          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 Subsidiary with the Securities and Exchange Commission, or any
Governmental Authority succeeding to any or all of the functions of said
Commission, or with any national securities exchange, or distributed by the
Borrower to its shareholders generally, as the case may be;

 

(g)          (i) promptly following the delivery of any reserve report to the
agent under the Permitted RBL Credit Agreement, a copy of such reserve report
and a Reserve Report Certificate and (ii) promptly, but in any event within two
(2) Business Days upon delivery or receipt, copies of all notices of any
increase or decrease of the borrowing base under the Permitted RBL Credit
Agreement or any Borrowing Base Deficiency under the Permitted RBL Credit
Agreement;

 

 Page 46 

 

 

(h)          within forty five (45) days following June 30th of each year and
within ninety (90) days following December 31st of each year, the Borrower shall
furnish or make available to the Administrative Agent and each Lender (i) a
Reserve Report in form and substance satisfactory to the Lead Lender in their
reasonable discretion and prepared as of the immediately preceding June 30th or
December 31st, as applicable, which Reserve Report, in the case of each December
31 report shall be prepared or audited by an Approved Petroleum Engineer and in
the case of each other Reserve Report shall be prepared by one or more petroleum
engineers employed by the Borrower or, at the Borrower’s election, by an
Approved Petroleum Engineer; said Reserve Report to utilize economic and pricing
parameters consistent with those set forth in the definition of Reserve Report,
together with a Reserve Report Certificate;

 

(i)          together with each Reserve Report required to be delivered under
Section 5.01(g), a report, in reasonable detail, setting forth (i) the Swap
Agreements then in effect, the notional volumes of and prices for, on a monthly
basis and in the aggregate, the Hydrocarbons for each such Swap Agreement and
the term of each such Swap Agreement, and (ii) the notional volumes of
Hydrocarbons for each such Swap Agreement;

 

(j)          together with each Reserve Report delivered under Section 5.01(g)
for the period ending June 30th and December 31st of each year, (i) any updated
production history of the Proved Reserves of the Credit Parties as of such date,
(ii) the lease operating expenses attributable to the Oil and Gas Properties of
the Credit Parties for the prior 12-month period ending on the effective date of
the applicable Reserve Report, (iii) a certificate setting forth reasonably
detailed calculations demonstrating compliance with Section 6.01, and (iv) a
semi-annual operating and capital expenditures budget in a format reasonably
consistent with the budgets and forecasts theretofore provided to the Lenders;
and

 

(k)          promptly following any request therefor, such other information
regarding the operations, business affairs and financial condition of the
Borrower or any Subsidiary, or compliance with the terms of this Agreement, as
the Administrative Agent or any Lender may reasonably request.

 

Documents required to be delivered pursuant to this Section 5.01 (to the extent
any such documents are included in materials otherwise filed with the SEC) may
be delivered electronically and if so delivered, shall be deemed to have been
delivered on the date (1) on which the Borrower posts such documents, or
provides a link thereto, on the Borrower’s website on the Internet at
www.lilisenergy.com, or (2) on which such documents are posted on the Borrower’s
behalf on an Internet or intranet website, if any, to which each Lender and the
Administrative Agent have access (whether a commercial, third-party website or
whether sponsored by the Administrative Agent).

 

Section 5.02         Notices of Material Events. The Borrower will furnish to
the Administrative Agent and each Lender prompt written notice of the following:

 

(a)          as soon as possible, but in any event within five (5) Business Days
of obtaining knowledge thereof, (i) the occurrence of any Default, or (ii) the
occurrence of any “default” or “event of default” under any Material
Indebtedness;

 

(b)          as soon as possible, but in any event within five (5) Business Days
after obtaining knowledge of the filing or commencement of any action, suit or
proceeding by or before any arbitrator or Governmental Authority against or
affecting any Credit Party or any Affiliate thereof that, if adversely
determined, could reasonably be expected to result in a Material Adverse Effect;

 

(c)          as soon as possible, but in any event within five (5) Business Days
after the occurrence of any ERISA Event that, alone or together with any other
ERISA Event that has occurred, could reasonably be expected to result in
liability of the Borrower and the Subsidiaries in an aggregate amount exceeding
$1,000,000;

 

 Page 47 

 

 

(d)          as soon as possible, but in any event within five (5) Business Days
after obtaining knowledge of any release by any Credit Party, Subsidiary or any
other Person of any Hazardous Material into the environment, which could
reasonably be expected to have a Material Adverse Effect;

 

(e)          as soon as possible, but in any event within five (5) Business Days
after (i) the receipt of any notice alleging any violation of any Environmental
Law by any Credit Party or any other actual or alleged Environmental Liability,
(ii) obtaining knowledge of the existence of any condition that could reasonably
be expected to result in violations of any Environmental Law or in Environmental
Liability, or (iii) the filing of any Lien to secure any Environmental
Liabilities of any Credit Party; in each case of (i), (ii) or (iii) that could
reasonably be expected to have a Material Adverse Effect;

 

(f)          as soon as possible, but in any event within five (5) Business Days
after the occurrence of any breach or default under, or repudiation or
termination of, any Material Sales Contract, which could reasonably be expected
to have a Material Adverse Effect;

 

(g)          promptly following the execution and delivery thereof, copies of
any amendment, modification, waiver or other change to the Permitted RBL Credit
Agreement, together with a certificate of a Responsible Officer certifying that
such copies are true, correct and complete as of the date of delivery;

 

(h)          promptly following the furnishing or receipt thereof, copies of any
default notices under the Permitted RBL Credit Agreement not otherwise required
to be furnished to the Lenders pursuant to any other provisions of this
Agreement; and

 

(i)          as soon as possible, but in any event within five (5) Business Days
after becoming aware of any other development that results in, or could
reasonably be expected to result in, a Material Adverse Effect; and

 

(h)          as soon as possible, but in any event within five (5) Business Days
after receipt of any notice of any investigation by a Governmental Authority or
any litigation, indictment or proceeding commenced or threatened in writing
against any Credit Party or any Senior Management of any Credit Party that (i)
seeks damages in excess of $400,000, (ii) seeks injunctive relief, (iii) is
asserted or instituted against any Plan, its fiduciaries or its assets, (iv)
alleges criminal misconduct by any Credit Party or any Senior Management of any
Credit Party, (v) involves an SEC or other regulatory enforcement action again
any Credit Party or any Senior Management, or (vi) asserts liability on the part
of any Credit Party or any Subsidiary in excess of $400,000 in respect of any
tax, fee, assessment, or other governmental charge (collectively, “Litigation
Events”).

 

To the extent applicable, each notice delivered under this Section shall be
accompanied by a statement of a Responsible Officer of the Borrower setting
forth reasonable detail of the event or development requiring such notice and
any action taken or proposed to be taken with respect thereto.

 

Section 5.03         Existence; Conduct of Business. The Borrower will, and will
cause each Subsidiary to, do or cause to be done all things necessary to
preserve, renew and keep in full force and effect its legal existence and the
rights, licenses, permits, privileges and franchises material to the conduct of
its business; provided that the foregoing shall not prohibit any merger,
consolidation, liquidation or dissolution permitted under Section 6.04 or any
Disposition permitted under Section 6.05 nor shall the Borrower or any
Subsidiary be required to preserve any right or franchise unrelated to the Oil
and Gas Property if the Borrower or such Subsidiary determines that the
preservation thereof is no longer desirable in the conduct of its business and
that the loss thereof is not adverse in any material respect to the
Administrative Agent or any Lender.

 

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Section 5.04         Payment of Obligations. The Borrower will, and will cause
each Subsidiary to, pay its obligations, including Tax liabilities, 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 and
the Borrower or such Subsidiary, as applicable, has set aside on its books
adequate reserves with respect thereto in accordance with GAAP, or (b) the
failure to make such payment pending such contest could not reasonably be
expected to result in a Material Adverse Effect or any Collateral becoming
subject to forfeiture or loss as a result of such contest.

 

Section 5.05         Maintenance of Properties; Insurance. The Borrower will,
and will cause each Subsidiary and use commercially reasonable efforts to cause
each operator of Oil and Gas Property:

 

(a)          keep and maintain all property material to the conduct of its
business in good working order and condition, ordinary wear and tear excepted,
and

 

(b)          maintain, with financially sound and reputable insurance companies,
insurance in such amounts and against such risks as are customarily maintained
by companies engaged in the same or similar businesses operating in the same or
similar locations. Upon request of the Administrative Agent (acting at the
written direction of the Lead Lender), the Borrower will furnish or cause to be
furnished to the Administrative Agent from time to time copies of the applicable
policies. The Borrower will cause any insurance policies covering any such
property to be endorsed (a) to provide that such policies may not be cancelled,
reduced or affected in any manner for any reason without thirty (30) days’ prior
notice to the Administrative Agent, (b) to include the Administrative Agent as
loss payee with respect to all property/casualty policies and additional insured
with respect to all liability policies and (c) to provide for such other matters
as the Lenders may reasonably require.

 

Section 5.06         Books and Records; Inspection Rights. The Borrower will,
and will cause each Subsidiary to, keep proper books of record and account in
which full, true and correct entries are made of all dealings and transactions
in relation to its business and activities. The Borrower will, and will cause
each Subsidiary to, permit any representatives designated by the Administrative
Agent or any Lender, upon reasonable prior notice, to visit and inspect its
properties, to examine and make extracts from its books and records, 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;
provided, that so long as no Default has occurred and is continuing, the Credit
Parties shall only be required to reimburse the costs and expenses associated
with such examination and inspection pursuant to Section 10.03 on one occasion
in any fiscal quarter of the Borrower.

 

Section 5.07         Compliance with Laws. The Borrower will, and will cause
each Subsidiary to, comply with and maintain its property (including the Core
Assets) in compliance with all Requirements of Law (including Environmental
Laws), and obtain, maintain, comply with any permits, licenses or other
approvals required pursuant thereto, including any applicable to it or its
property (including the Core Assets), except where the failure to do so,
individually or in the aggregate, would not reasonably be expected to result in
a Material Adverse Effect.

 

Section 5.08         Environmental Matters. In the event of the presence of any
Hazardous Material on any property or facility of the Borrower or its
Subsidiaries which could, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect, the Borrower shall, and shall
cause each Subsidiary to, upon discovery thereof, take all necessary or
advisable steps to initiate and expeditiously complete all response, corrective,
and other action to mitigate and eliminate any such violation or potential
liability, and keep the Administrative Agent reasonably informed on a regular
basis of their material actions and the results of such actions. If an Event of
Default is continuing or if the Administrative Agent at any time has a
reasonable basis to believe that there exists a violation of any Environmental
Law by the Borrower or any Subsidiary or that there exists any other
Environmental Liabilities, then Borrower and each relevant Subsidiary shall
cause the performance of, or allow the Administrative Agent (or its designee)
access to the real property for the purpose of conducting, an environmental
assessment, including subsurface sampling of soil and groundwater, and cause the
preparation of a report. Such assessments and reports, to the extent not
conducted by the Administrative Agent (or its designee), shall be conducted and
prepared by a reputable environmental consulting firm reasonably acceptable to
the Lead Lender and shall be in form and substance reasonably acceptable to the
Lead Lender. Borrower shall be responsible for (and reimburse the Administrative
Agent for) all costs associated with any such assessments and reports.

 

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Section 5.09         Use of Proceeds. The proceeds of the Term Loan will be used
only to (a) pay the fees, expenses and transaction costs of the Transactions,
(b) repay certain Indebtedness outstanding under the Existing First Lien Credit
Agreement, and (c) finance the working capital needs of the Borrower, including
capital expenditures, and for general corporate purposes of the Borrower and the
Guarantors, including the exploration, acquisition and development of Oil and
Gas Property. The proceeds of the Delayed Draw Term Loans will be used only for
(a) Pre-Approved Acquisitions and/or (b) other uses that are satisfactory to the
Lenders providing such Delayed Draw Term Loan, in their sole discretion.

 

No part of the proceeds of the Loans will be used, whether directly or
indirectly, to purchase or carry any margin stock (as defined in Regulation U
issued by the Board). The Borrower shall not use, and shall procure that its
Subsidiaries and its or their respective directors, officers, employees and
agents shall not use, the proceeds of the Loans (A) in furtherance of an offer,
payment, promise to pay, or authorization of the payment or giving of money, or
anything else of value, to any Person in violation of any Anti-Corruption Laws,
(B) for the purpose of funding, financing or facilitating any activities,
business or transaction of or with any Sanctioned Person, or in any Sanctioned
Country, or (C) in any manner that would result in the violation of any
Sanctions applicable to any party hereto. The Borrower will not fund all or part
of any repayment of the Obligations out of proceeds derived from transactions
which would be prohibited by Sanctions or would otherwise cause any Person to be
in breach of Sanctions.

 

Section 5.10         Collateral Matters.

 

(a)          The Borrower will, and will cause each Guarantor to, by no later
than the date that is 60 days following the end of each fiscal quarter (or such
later date as may be agreed by the Lead Lender) execute and deliver to the
Administrative Agent, for the benefit of the Secured Parties, Mortgages in form
and substance reasonably acceptable to the Administrative Agent and the Lead
Lender to ensure that the Administrative Agent has an Acceptable Security
Interest in Mortgaged Properties constituting at least (i) 90% of the PV9 of the
Credit Parties’ Proved Reserves attributable to the Oil and Gas Property
evaluated in the most recent Reserve Report provided to the Administrative Agent
pursuant to Section 5.01(h) and (ii) 90% of the net acres of Oil and Gas
Properties (other than Proved Reserves) as of the most recently ended fiscal
quarter (including the fiscal year end) for which financial statements are
available.

 

(b)          So long as no Event of Default has occurred, the Credit Parties may
continue to receive from the purchasers of production all proceeds of the sale
of production, subject, however, to the Liens created under the Security
Documents, which Liens are hereby affirmed and ratified. Upon the occurrence and
during the continuation of an Event of Default, the Administrative Agent and
Lenders may exercise all rights and remedies granted under the Loan Documents
subject to the terms thereof, including the right to obtain possession of all
proceeds of production from such Mortgaged Properties then held by such Credit
Parties or to receive directly from the purchasers of production all other
proceeds of production. In no case shall any failure, whether intentioned or
inadvertent, by the Administrative Agent or Lenders to collect directly any such
proceeds of production from the Mortgaged Properties constitute in any way a
waiver, remission or release of any of their rights under the Security
Documents, nor shall any release of any proceeds of production from any Oil and
Gas Properties by the Administrative Agent or Lenders to any Credit Parties
constitute a waiver, remission, or release of any other proceeds of production
from any Oil and Gas Properties or of any rights of the Administrative Agent or
Lenders to collect other proceeds of production from the Oil and Gas Properties
thereafter.

 

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Section 5.11         Title Data. The Borrower will, and will cause each
Subsidiary to, by the Effective Date (or a later date acceptable to the Lead
Lender in its sole discretion) and from time to time thereafter at the request
of the Lead Lender, deliver to the Lead Lender title information in form and
substance reasonably acceptable to the Lead Lender with respect to that portion
of the Oil and Gas Property set forth in the most recent Reserve Report provided
to the Administrative Agent and the Lead Lender as the Lead Lender shall deem
reasonably necessary or appropriate to verify the title of the Credit Parties to
not less than (i) 90% of the PV9 of the Oil and Gas Property set forth in such
Reserve Report that are required to be subject to a Mortgage pursuant to Section
5.10 and (ii) 90% of the net acres of Oil and Gas Properties.

 

Section 5.12         Swap Agreements. Upon the request of the Lead Lender, the
Borrower shall, within thirty (30) days of such request, provide to the
Administrative Agent and the Lead Lender copies of all agreements, documents and
instruments evidencing the Swap Agreements not previously delivered to the
Administrative Agent, certified as true and correct by a Responsible Officer of
the Borrower, and such other information regarding such Swap Agreements as the
Lead Lender may reasonably request.

 

Section 5.13         Operation of Oil and Gas Property.

 

(a)          The Borrower will, and will cause each Subsidiary to, maintain,
develop and operate its Oil and Gas Property in a good and workmanlike manner,
and observe and comply with all of the terms and provisions of all oil and gas
leases relating to such Oil and Gas Property so long as such Oil and Gas
Property are capable of producing Hydrocarbons and accompanying elements in
paying quantities, except where such failure to comply could not reasonably be
expected to have a Material Adverse Effect.

 

(b)          Borrower will, and will cause each Subsidiary to, comply in all
respects with all contracts and agreements applicable to or relating to its Oil
and Gas Property or the production and sale of Hydrocarbons and accompanying
elements therefrom, except to the extent a failure to so comply could not
reasonably be expected to have a Material Adverse Effect.

 

Section 5.14         Subsidiaries. Within twenty (20) days (or such later date
as may be agreed by the Lead Lender) of any Subsidiary of the Borrower being
created or acquired, Borrower will (a) promptly take all action necessary to
comply with Section 5.15, (b) promptly take all such action and execute and
deliver, or cause to be executed and delivered, to the Administrative Agent all
such opinions, documents, instruments, agreements, and certificates similar to
those described in Section 4.01(b) and Section 4.01(d) that the Administrative
Agent or the Lead Lender may reasonably request, and (c) promptly cause such
Subsidiary to (i) become a party to this Agreement and Guarantee the Obligations
by executing and delivering to the Administrative Agent a Counterpart Agreement
in the form of Exhibit C, (ii) to the extent required to comply with Section
5.10, execute and deliver Mortgages and other Security Documents creating Liens
in favor of the Administrative Agent, subject in priority only to Permitted
Prior Liens and Permitted Senior Liens, in such Subsidiary’s Oil and Gas
Property and substantially all of such Subsidiary’s personal property, and (iii)
to the extent required to comply with Section 5.11, all title opinions and other
information. Upon delivery of any such Counterpart Agreement to the
Administrative Agent, notice of which is hereby waived by each Credit Party,
such Subsidiary shall be a Guarantor and shall be as fully a party hereto as if
such Subsidiary were an original signatory hereto. Each Credit Party expressly
agrees that its obligations arising hereunder shall not be affected or
diminished by the addition or release of any other Credit Party hereunder. This
Agreement shall be fully effective as to any Credit Party that is or becomes a
party hereto regardless of whether any other Person becomes or fails to become
or ceases to be a Credit Party hereunder. With respect to each such Subsidiary,
the Borrower shall promptly send to the Administrative Agent written notice
setting forth with respect to such Person the date on which such Person became a
Subsidiary of the Borrower, and, within 30 (thirty) days (or such later date as
may be agreed by the Lead Lender) of creation or acquisition of such Subsidiary,
supplement the data required to be set forth in the Schedules to this Agreement
as a result of the acquisition or creation of such Subsidiary; provided that
such supplemental data must be reasonably acceptable to the Lead Lender.

 

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Section 5.15         Pledged Capital Stock. Within thirty (30) days (or such
later date as may be agreed by the Lead Lender) of any Subsidiary of the
Borrower being created or acquired, the Borrower and the Subsidiaries (as
applicable) shall execute and deliver to the Administrative Agent for the
benefit of the Secured Parties, the Security Agreement (or an amendment or
supplement to, or amendment and restatement of, the Security Agreement), in form
and substance reasonably acceptable to the Administrative Agent and the Lead
Lender, from the Borrower and/or the Subsidiaries (as applicable) covering all
Capital Stock owned by the Borrower or the Subsidiaries in such Subsidiary,
together with all certificates (or other evidence acceptable to the Lead Lender)
evidencing the issued and outstanding Capital Stock of each such Subsidiary of
every class owned by such Credit Party (as applicable) which, if certificated,
shall be duly endorsed or accompanied by stock powers executed in blank to the
Administrative Agent, as the Administrative Agent or the Lead Lender shall deem
necessary or appropriate to grant, evidence and perfect a security interest in
the issued and outstanding Capital Stock owned by Borrower or any Subsidiary in
each Subsidiary.

 

Section 5.16         Accounts. Subject to Section 5.18, no Credit Party shall
establish or maintain a deposit account, securities account or commodities
account, without executing and delivering to the Lead Lender and the
Administrative Agent a Control Agreement covering the applicable deposit
account, securities account or commodities account, other than with respect to
Excluded Accounts; provided, however, that in the case of any a deposit account,
securities account or commodities account (other than any Excluded Account)
acquired pursuant to an acquisition permitted under Section 6.07 (and which was
not formed in contemplation of such acquisition), so long as such acquiring
Credit Party provides the Lead Lender and the Administrative Agent with written
notice of the existence of such deposit account, securities account or
commodities account within five (5) Business Days of the date of such
acquisition (or such shorter date as the Lead Lender may agree in its sole
discretion), such Credit Party will have thirty (30) days following the
acquisition (or such later date as the Lead Lender may agree in its sole
discretion) to subject such deposit account, securities account or commodities
account to a Control Agreement. Once a Control Agreement has been so executed
and delivered, none of the Credit Parties will deposit or maintain Collateral
(including the proceeds thereof) in a deposit account, securities account or
commodities account that is not subject to a Control Agreement; provided that
notwithstanding the foregoing, the Credit Parties shall be permitted to deposit
and maintain Collateral in any Excluded Account not subject to a Control
Agreement to the extent such Excluded Account is funded and maintained in
accordance with the definition of “Excluded Account”.

 

Section 5.17         Further Assurances.

 

(a)          From time to time execute and deliver, or cause to be executed and
delivered, such additional instruments, certificates or documents, and take all
such actions, as Administrative Agent or the Lead Lender may reasonably request
for the purposes of implementing or effectuating the provisions of this
Agreement and the other Loan Documents, or of more fully perfecting or renewing
the rights of Administrative Agent and the Lenders with respect to the
Collateral (or with respect to any additions thereto or replacements or proceeds
or products thereof or with respect to any other Property hereafter acquired by
any Credit Party, which may be deemed to be part of the Collateral) pursuant
hereto or thereto.

 

(b)          Upon the exercise by the Administrative Agent or any Lender of any
power, right, privilege or remedy pursuant to this Agreement or the other Loan
Documents which requires any consent, approval, recording, qualification or
authorization of any Governmental Authority, execute and deliver, or cause the
execution and delivery of, all applications, certifications, instruments and
other documents and papers that the Administrative Agent or such Lender may be
required to obtain from Borrower or any of its Subsidiaries for such
governmental consent, approval, recording, qualification or authorization.

 

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(c)          Notwithstanding anything herein to the contrary, (i) if at any time
any Collateral pledged to secure the Existing First Lien Obligations is not also
pledged to secure the Obligations, the Borrower will, and will cause each
Subsidiary to, pledge such Collateral to secure the Obligations and (ii) if at
any time any Subsidiary guaranteeing any Existing First Lien Obligations is not
also Guaranteeing the Obligations, the Borrower will cause such Subsidiary to
Guarantee the Obligations, in each case, on the terms set forth in the Approved
Permitted First Lien Intercreditor Agreement.

 

Section 5.18         Post-Closing Matters.

 

(a)          Prior to the date that is thirty (30) days after the Effective Date
(or such later date as the Lead Lender may agree in its sole discretion), the
Administrative Agent and the Lead Lender shall have received Control Agreements
duly executed and delivered by each of the parties thereto with respect to all
of the Credit Parties’ deposit accounts, securities accounts and commodity
accounts (other than the Excluded Accounts).

 

(b)          As soon as reasonably practicable following the Effective Date, the
Borrower shall submit to its shareholders for approval, as required by
applicable law and the terms of the Borrower’s organizational documents, the
authorization of (i) the issuance of Common Stock in connection with the
Conversions at a Conversion Price below the Conversion Price Floor if required
as a result of adjustments to the Conversion Price made pursuant to Schedule
11.01 and (ii) any “change of control” that may occur under applicable stock
exchange rules as a result of the Conversions. Without limitation of the
foregoing, no later than thirty (30) days after the Effective Date, the Borrower
will file with the SEC a preliminary proxy statement with respect to the
submission of the matters described above to its shareholders. The Borrower will
be deemed to have received the necessary shareholder approvals for the matters
described above once the Borrower receives the requisite shareholder approval
that is binding and enforceable under the Borrower’s organizational documents
and under applicable law and sufficient under applicable stock exchange rules
and the Borrower has made any amendments to its organizational documents that
may be required in connection therewith (“Requisite Shareholder Approval”).

 

(c)          As soon as reasonably practicable following the Effective Date, but
in any event prior to the date that is ten (10) Business Days after the
Effective Date (i) the Borrower shall deliver a Certificate of Designations to
the Lead Lender, (ii) the Borrower shall deliver an opinion of Nevada counsel in
form and substance reasonably acceptable to the Lead Lender regarding such
Certificate of Designations, and (iii) the Board of Directors shall have
approved (A) the form of the Certificate of Designations and (B) the filing of
the Certificate of Designations if required pursuant to Section 11.06(b).

 

Article VI.

Negative Covenants

 

Until the Obligations (other than contingent indemnification obligations for
which no claim has been asserted) shall have been paid in full, the Borrower
covenants and agrees with the Administrative Agent and the Lenders that:

 

Section 6.01         Financial Covenant. Beginning with the testing period
ending on June 30, 2018, the Borrower shall not permit the Asset Coverage Ratio,
as of June 30 and December 31 of each fiscal year, to be less than 1.00 to 1.00.

 

Section 6.02         Indebtedness. The Borrower will not, nor will it permit any
of its Subsidiaries to, create, incur, assume or permit to exist any
Indebtedness, except:

 

(a)          the Obligations and Guarantees of the Obligations pursuant to this
Agreement;

 

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(b)          Indebtedness existing on the Effective Date and set forth in
Schedule 6.02 and extensions, renewals and replacements of any such Indebtedness
that do not increase the outstanding principal amount thereof (except by an
amount equal to the reasonable premium paid, capitalized interest and fees and
expenses reasonably incurred therewith);

 

(c)          intercompany Indebtedness between the Borrower and any Subsidiary
or between Subsidiaries to the extent permitted by Section 6.07(c); provided
that any such Indebtedness owed by either the Borrower or a Guarantor shall be
subordinated to the Indebtedness on terms set forth in Article VII or on such
terms as are reasonably acceptable to the Lead Lender; provided, further, that
upon the request of the Administrative Agent or the Lead Lender at any time,
such Indebtedness shall be evidenced by promissory notes having terms reasonably
satisfactory to the Lead Lender, and the sole originally executed counterparts
of which shall be pledged and delivered to the Administrative Agent, for the
benefit of the Secured Parties, as security for the Obligations;

 

(d)          Indebtedness of the Borrower and the Subsidiaries incurred to
finance the acquisition, construction or improvement of any fixed or capital
assets (including office equipment, data processing equipment and motor
vehicles), including Capital Lease Obligations and any Indebtedness assumed in
connection with the acquisition of any assets or secured by a Lien on any assets
prior to the acquisition thereof; provided that (A) with respect to the
Indebtedness incurred pursuant to this Section 6.02(d), such Indebtedness is
incurred prior to or within 180 days after such acquisition or the completion of
such construction or improvement and (B) the aggregate principal amount of
Indebtedness permitted by this Section 6.02(d) at any time outstanding shall not
exceed $2,500,000;

 

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

 

(f)          Guarantees in respect of Indebtedness otherwise permitted pursuant
to this Section 6.02;

 

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

 

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

 

(i)          (i) following the payment in full of the Existing First Lien
Obligations and termination of the Existing First Lien Credit Agreement,
Indebtedness under the Permitted RBL Credit Agreement in an aggregate principal
amount not to exceed $50,000,000 plus any secured hedge and cash management
obligations that are permitted thereunder (the “Revolving Debt”) and (ii) prior
to the payment in full of the Existing First Lien Obligations and termination of
the Existing First Lien Credit Agreement, Indebtedness under the Existing First
Lien Credit Agreement in an aggregate principal amount (excluding interest that
is paid in kind pursuant to the terms of the Existing First Lien Credit
Agreement as in effect on the date hereof) not to exceed $15,000,000 (the
“Existing First Lien Debt”); provided that such Indebtedness permitted by this
Section 6.02(i) shall be subject to an Approved Intercreditor Agreement;

 

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

 

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

 

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

 

(m)          obligations (contingent or otherwise) existing or arising under any
Swap Agreement permitted by Section 6.08;

 

(n)          other unsecured Indebtedness in an aggregate amount outstanding at
any time not to exceed $2,000,000.

 

Section 6.03         Liens. The Borrower will not, nor will it permit any of its
Subsidiaries to, create, incur, assume or permit to exist any Lien on any
Property now owned or hereafter acquired by it, except:

 

(a)          any Lien securing the Obligations created pursuant to this
Agreement or the Security Documents;

 

(b)          Permitted Encumbrances;

 

(c)          any Lien on any Property of the Borrower or any Subsidiary existing
on the Effective Date and set forth in Schedule 6.03 and any renewals,
replacements or extensions thereof; provided that (i) such Lien shall not apply
to any other Property of the Borrower or any other Subsidiary (other than
proceeds and accessions and additions to such property) and (ii) such Lien shall
secure only those obligations which it secures on the Effective Date and
extensions, renewals and replacements thereof that do not increase the
outstanding principal amount thereof;

 

(d)          any Lien existing on any Property prior to the acquisition thereof
by the Borrower or any Subsidiary or existing on any Property of any Person that
becomes a Subsidiary after the Effective Date prior to the time such Person
becomes a Subsidiary; provided that (i) such Lien secures Indebtedness permitted
by Section 6.02(d), (ii) such Lien is not created in contemplation of or in
connection with such acquisition or such Person becoming a Subsidiary, as the
case may be, (iii) such Lien shall not apply to any other Property of the
Borrower or any other Subsidiary and (iv) such Lien shall secure only those
obligations which it secures on the date of such acquisition or the date such
Person becomes a Subsidiary, as the case may be and extensions, renewals and
replacements thereof that do not increase the outstanding principal amount
thereof;

 

(e)          Liens on fixed or capital assets (including office equipment, data
processing equipment and motor vehicles) acquired, constructed or improved by
the Borrower or any Subsidiary; provided that (i) such Liens secure Indebtedness
permitted by clause (d) of Section 6.02, (ii) such Liens and the Indebtedness
secured thereby are incurred prior to or within 180 days after such acquisition
or the completion of such construction or improvement, (iii) the Indebtedness
secured thereby does not exceed the cost of acquiring, constructing or improving
such fixed or capital assets and (iv) such Liens shall not apply to any other
property or assets of the Borrower or any other Subsidiaries (other than
proceeds and accessions and additions to such property);

 

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(f)          Liens securing insurance premium financing permitted by Section
6.02(k) under customary terms and conditions, provided that no such Lien may
extend to or cover any property other than the insurance being acquired with
such financing, the proceeds thereof and any unearned or refunded insurance
premiums related thereto;

 

(g)          Liens securing (i) the Revolving Debt Obligations and any secured
hedge and cash management obligations that are permitted under the Permitted RBL
Credit Agreement and (ii) the Existing First Lien Obligations, in each case, to
the extent permitted under Section 6.02(i);

 

(h)          during any period prior to the incurrence of the Revolving Debt,
Liens on cash margin collateral, deposits or securities required by any Person
with whom any Credit Party enters into a Swap Agreement permitted by Section
6.08 and securing obligations in any amount not to exceed $2,000,000 in the
aggregate.

 

Section 6.04         Fundamental Changes. The Borrower will not, nor will it
permit any of its Subsidiaries to, merge into or consolidate with any other
Person, or permit any other Person to merge into or consolidate with it, or
Dispose of (in one transaction or in a series of transactions) all or
substantially all of its assets, or liquidate or dissolve, except that, if at
the time thereof and immediately after giving effect thereto no Default shall
have occurred and be continuing:

 

(a)          any Subsidiary may merge into the Borrower in a transaction in
which the Borrower is the surviving entity;

 

(b)          any Subsidiary may merge into any other Subsidiary in a transaction
in which the surviving entity is a Guarantor;

 

(c)          any Subsidiary may Dispose of its assets to the Borrower or to
another Guarantor;

 

(d)          Dispositions permitted by Section 6.05 may be made; and

 

(e)          any Subsidiary may liquidate or dissolve if the Borrower determines
in good faith that such liquidation or dissolution is in the best interests of
the Borrower and is not materially disadvantageous to the Lenders; provided that
prior to such liquidation or dissolution, all assets of such Subsidiary shall be
transferred to a Credit Party.

 

Section 6.05         Disposition of Assets. The Borrower will not, and will not
permit any Subsidiary to, Dispose of any property except:

 

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

 

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

 

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

 

(d)          any Credit Party may Dispose of its property to another Credit
Party;

 

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

 

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(f)          substantially contemporaneous (and in any event occurring within
thirty (30) days of each other) Dispositions of Oil and Gas Properties as to
which no Proved Reserves are attributable in exchange for other Oil and Gas
Properties and, subject to the proviso of this clause (f), a combination of Oil
and Gas Properties and cash; provided that (i) the Fair Market Value of the Oil
and Gas Properties exchanged by the Borrower or its Subsidiary (together with
any cash) is reasonably equivalent to the Fair Market Value of the Oil and Gas
Properties (together with any cash) to be received by the Borrower or its
Subsidiary, and (ii) any cash received must be applied in accordance with
Section 2.07;

 

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

 

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

 

(i)          solely to the extent constituting a Disposition, the incurrence of
Liens, the making of Investments and the making of Restricted Payments, in each
case as expressly permitted by Section 6.03, Section 6.07 and Section 6.09
respectively;

 

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

 

(k)          other dispositions and sales of Properties (including any midstream
assets or gathering systems) not otherwise permitted pursuant to this Section
6.05 having a fair market value not to exceed $15,000,000 in the aggregate for
all dispositions and sales of Properties pursuant to this Section 6.05(i) for
the term of this Agreement; provided that:

 

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

 

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

 

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

 

Section 6.06         Nature of Business. The Borrower will not, nor will it
permit any of its Subsidiaries to, engage to any material extent in any business
other than businesses of the type conducted by the Borrower and its Subsidiaries
on the date of execution of this Agreement and businesses reasonably related
thereto.

 

Section 6.07         Investments. The Borrower will not, nor will it permit any
of its Subsidiaries to, make any Investment, except:

 

(a)          Investments in Cash Equivalents;

 

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(b)          Investments (i) made by any Credit Party in or to any Credit Party
and (ii) made by any Subsidiary in or to any Credit Party;

 

(c)          Investments existing as of the Effective Date and set forth on
Schedule 6.07(c);

 

(d)          Guarantees constituting Indebtedness permitted by Section 6.02
(other than guarantees in respect of Capital Lease Obligations) and performance
guarantees, in each case, incurred in the ordinary course of business;

 

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

 

(f)          Investments consisting of Swap Agreements to the extent permitted
under Section 6.08;

 

(g)          Investments consisting of (i) loans and advances to officers and
employees for moving, entertainment, travel and other similar expenses in the
ordinary course of business and (ii) other short term loans to officers and
employees not to exceed, with respect to the foregoing clauses (i) and (ii)
together, $250,000 in the aggregate at any time outstanding;

 

(h)          demand deposits with financial institutions, prepaid expenses and
extensions of trade credit in the ordinary course of business (and any
Investments received in satisfaction or partial satisfaction thereof from
financially troubled account debtors to the extent reasonably necessary in order
to prevent or limit loss);

 

(i)          trade and customer accounts receivable which are for goods
furnished or services rendered in the ordinary course of business and are
payable in accordance with customary trade terms;

 

(j)          Investments received in connection with the bankruptcy or
reorganization of, or settlement of delinquent accounts and disputes with,
customers and suppliers, in each case in the ordinary course of business;

 

(k)          Investments in Oil and Gas Properties consisting of any deferred or
non-cash portion of the sales price received by the Borrower or any Subsidiary
in connection with any sale of assets permitted hereunder;

 

(l)          (i) Investments consisting of earnest money deposits in connection
with an Investment otherwise permitted by this Section 6.07, and (ii) lease,
utility or similar deposits in the ordinary course of business covering a lease,
utility or similar service period not to exceed twelve (12) months; and

 

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

 

Section 6.08         Swap Agreements. The Borrower will not, nor will the
Borrower permit any of its Subsidiaries to, enter into any Swap Agreement,
except Swap Agreements entered into in the ordinary course of business and not
for speculative purposes to:

 

(a)          hedge or mitigate price risks with respect to Hydrocarbons to which
the Borrower or any Subsidiary has actual exposure (whether or not treated as a
hedge for accounting purposes under GAAP); and

 

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(b)          effectively cap, collar or exchange interest rates (from fixed to
floating rates, from one floating rate to another floating rate or otherwise)
with respect to any interest-bearing liability or investment of the Borrower or
any Subsidiary.

 

Section 6.09         Restricted Payments. The Borrower will not, nor will it
permit any of its Subsidiaries to, declare or make, or agree to pay or make,
directly or indirectly, any Restricted Payment; provided that, so long as at the
time of and immediately after giving effect to such Restricted Payment no
Default or Event of Default shall have occurred and be continuing or would occur
as a consequence thereof, the Borrower or any Subsidiary may make the following
Restricted Payments:

 

(a)          the declaration and payment of dividends or distributions by the
Borrower solely in Capital Stock (other than Disqualified Stock) of the
Borrower;

 

(b)          the declaration and payment of dividends or distributions by any
Subsidiary to the Borrower or any Guarantor; and

 

(c)          the Borrower may (i) so long as no Default or Event of Default is
occurring, make payments to directors, officers, members of management,
employees or consultants of the Borrower or any Subsidiary (or their
transferees, estates or beneficiaries under their estates) upon their death,
disability, retirement, severance or termination of employment or service for
the acquisition by the Borrower from such Persons of Capital Stock in the
Borrower or any Subsidiary; provided that the aggregate cash consideration paid
for all such payments shall not exceed $250,000 in any calendar year, and (ii)
make cashless repurchases of securities that are deemed to occur upon the
exercise or vesting of options, rights or shares of stock held by directors,
officers, members of management, employees or consultants of the Borrower or any
Subsidiary to the extent such securities represent a portion of the exercise
price of or withholding taxes attributable to such options, rights or shares.

 

Section 6.10         Transactions with Affiliates.

 

(a)          The Borrower will not, and will not permit any of its Subsidiaries
to, make any payment to, or sell, lease, transfer or otherwise dispose of any of
its properties or assets to, or purchase any Property from, or enter into or
make or amend any transaction, contract, agreement, understanding, loan, advance
or guarantee with (or for the benefit of), any Affiliate of the Borrower (each,
an “Affiliate Transaction”), unless:

 

(b)          the Affiliate Transaction is on terms that are no less favorable to
the Borrower or the relevant Subsidiary than those that would have been obtained
in a comparable transaction by the Borrower or such Subsidiary with an unrelated
Person and the Borrower delivers to the Administrative Agent, if requested by
the Lead Lender, a resolution of the Board of Directors of the Borrower set
forth in an officers’ certificate certifying that such Affiliate Transaction or
series of related Affiliate Transactions complies with this covenant and that
such Affiliate Transaction or series of related Affiliate Transactions has been
approved by a majority of the disinterested members of the Board of Directors of
the Borrower.

 

(c)          Sections 6.10(a) and 6.10(b) will not apply to:

 

(i)          transactions between or among Credit Parties;

 

(ii)         Restricted Payments permitted by Section 6.09;

 

(iii)        any issuance of Capital Stock (other than Disqualified Stock) of
the Borrower to Affiliates of the Borrower and the granting of registration and
other customary rights in connection therewith; and

 

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(iv)        reasonable and customary director, officer and employee compensation
(including bonuses and severance) and other benefits (including retirement,
health, stock option and other benefit plans and indemnification arrangements
for the benefit of Borrower’s or any Subsidiary’s officers, directors and
employees in connection with their role as officer, director or employee,
entered into in the ordinary course of business and in good faith or to the
extent approved in good faith by the Board of Directors.

 

Section 6.11         Restrictive Agreements. The Borrower will not, nor will it
permit any of its Subsidiaries to, directly or indirectly, enter into, incur or
permit to exist any agreement or other arrangement that prohibits, restricts or
imposes any condition upon (a) the ability of the Borrower or any Subsidiary to
create, incur or permit to exist any Lien upon any of its Property to secure the
Obligations, or (b) the ability of any Subsidiary to pay dividends or other
distributions with respect to any of its Capital Stock or to make or repay loans
or advances to the Borrower or any Subsidiary or to Guarantee Indebtedness of
the Borrower or any Subsidiary; provided that (i) the foregoing shall not apply
to restrictions and conditions imposed by law or by any Loan Documents,
Revolving Loan Documents or Existing First Lien Loan Documents, and (ii) clause
(a) of the foregoing shall not apply to (A) restrictions or conditions imposed
by any agreement relating to secured Indebtedness permitted by this Agreement if
such restrictions or conditions apply only to the Property securing such
Indebtedness, (B) customary provisions in leases and other contracts restricting
the assignment thereof, and (C) restrictions with respect to Oil and Gas
Property that are not included in the most recent Reserve Report delivered to
the Administrative Agent.

 

Section 6.12         Disqualified Stock. The Borrower will not, nor will it
permit any of its Subsidiaries to, issue any Disqualified Stock.

 

Section 6.13         Certain Amendments to Organizational Documents. The
Borrower will not, nor will it permit any of its Subsidiaries to enter into or
permit any modification or amendment of, or waive any material right or
obligation of any Person under its Organizational Documents if the effect
thereof would be materially adverse to the Administrative Agent or any Lender.

 

Section 6.14         Lease Restrictions. The Borrower and its Subsidiaries shall
not, without the consent of the Lead Lender, allow more than ten percent (10%)
of the net acreage consisting of Core Assets of the Borrower and its
Subsidiaries, measured as of the Effective Date, to lapse, expire or otherwise
terminate in any manner; provided that such percentage shall be adjusted
following the Effective Date to take into account any disposition of Core Assets
as reasonably determined between the Borrower and the Lead Lender (it being
understood and agreed that such adjustment referred to in this proviso shall not
in and of itself result in a Default or an Event of Default).

 

Section 6.15         Anti-layering Covenant.

 

(a)          No Credit Party will incur any Lien that is junior to the Liens
securing the Revolving Debt or the Existing First Lien Debt (other than the
Liens securing the Obligations) unless such Lien is also junior to the Liens
securing the Obligations.

 

(b)          No Credit Party will incur any Indebtedness that (i) is subordinate
in right of payment (including via any “first-out” collateral proceeds waterfall
or similar structure) to the Revolving Debt or the Existing First Lien Debt
unless such Indebtedness is also subordinated in right of payment to the
Obligations, (ii) is expressed to be secured by the Collateral on a subordinated
basis to the Revolving Debt or the Existing First Lien Debt and on a senior
basis to the Obligations; (ii) is expressed to rank or ranks so that the lien
securing such Indebtedness is subordinated to any of the Revolving Debt or the
Existing First Lien Debt but is senior to the Obligations, or (iii) is
contractually subordinated in right of payment to any of the Revolving Debt or
the Existing First Lien Debt and senior in right of payment to the Obligations.

 

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Section 6.16         Sale and Leaseback Transactions and other Off-Balance Sheet
Liabilities. The Borrower will not, nor will it permit any Subsidiary to, enter
into or suffer to exist any Sale and Leaseback Transaction or any other
transaction pursuant to which it incurs or has incurred Off-Balance Sheet
Liabilities other than any Advance Payment Contract permitted under Section
6.02.

 

Section 6.17         Prohibition on Foreign Subsidiaries. The Borrower will not,
nor will it permit any Subsidiary to directly or indirectly, own, form or
acquire any Subsidiary organized outside the geographical boundaries of the
United States.

 

Section 6.18         Existing First Lien Loan Documents. The Borrower will not,
nor will it permit any of its Subsidiaries, to enter into or permit any
modification or amendment of or waive any material right or obligation of any
Person under any Existing First Lien Loan Document, Revolving Loan Document, in
each case, except in accordance with the applicable Approved Intercreditor
Agreement.

 

Article VII.

Guarantee of Obligations

 

Section 7.01         Guarantee of Payment. Each Guarantor unconditionally and
irrevocably guarantees to the Collateral Agent for the benefit of the Secured
Parties, the punctual payment of all Obligations now or which may in the future
be owing by any Credit Party (the “Guaranteed Liabilities”). This Guarantee is a
guaranty of payment and not of collection only. The Collateral Agent shall not
be required to exhaust any right or remedy or take any action against the
Borrower or any other Person or any collateral. The Guaranteed Liabilities
include interest accruing after the commencement of a proceeding under
bankruptcy, insolvency or similar laws of any jurisdiction at the rate or rates
provided in the Loan Documents. Each Guarantor agrees that, as between the
Guarantor and the Collateral Agent, the Guaranteed Liabilities may be declared
to be due and payable for the purposes of this Guarantee notwithstanding any
stay, injunction or other prohibition which may prevent, delay or vitiate any
declaration as regards the Borrower or any other Guarantor and that in the event
of a declaration or attempted declaration, the Guaranteed Liabilities shall
immediately become due and payable by each Guarantor for the purposes of this
Guarantee.

 

Section 7.02         Guarantee Absolute. Each Guarantor guarantees that the
Guaranteed Liabilities shall be paid strictly in accordance with the terms of
this Agreement. The liability of each Guarantor hereunder is absolute and
unconditional irrespective of: (a) any change in the time, manner or place of
payment of, or in any other term of, all or any of the Loan Documents or the
Guaranteed Liabilities, or any other amendment or waiver of or any consent to
departure from any of the terms of any Loan Document or Guaranteed Liability,
including any increase or decrease in the rate of interest thereon; (b) any
release or amendment or waiver of, or consent to departure from, any other
guaranty or support document, or any exchange, release or non-perfection of any
collateral, for all or any of the Loan Documents or Guaranteed Liabilities; (c)
any present or future law, regulation or order of any jurisdiction (whether of
right or in fact) or of any agency thereof purporting to reduce, amend,
restructure or otherwise affect any term of any Loan Document or Guaranteed
Liability; (d) without being limited by the foregoing, any lack of validity or
enforceability of any Loan Document or Guaranteed Liability; and (e) any other
setoff, defense or counterclaim whatsoever (in any case, whether based on
contract, tort or any other theory) with respect to the Loan Documents or the
transactions contemplated thereby which might constitute a legal or equitable
defense available to, or discharge of, the Borrower or a Guarantor (other than
the defense of payment or performance).

 

Section 7.03         Guarantee Irrevocable. This Guarantee is a continuing
guaranty of the payment of all Guaranteed Liabilities now or hereafter existing
under this Agreement, and shall remain in full force and effect until payment in
full of all Guaranteed Liabilities and other amounts payable hereunder.

 

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Section 7.04         Reinstatement. This Guarantee shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of
any of the Guaranteed Liabilities is rescinded or must otherwise be returned by
the Collateral Agent or any Secured Party on the insolvency, bankruptcy or
reorganization of the Borrower, or any other Credit Party, or otherwise, all as
though the payment had not been made.

 

Section 7.05         Subrogation. No Guarantor shall exercise any rights which
it may acquire by way of subrogation, by any payment made under this Guarantee
or otherwise, until all the Guaranteed Liabilities have been paid in full and
this Agreement. If any amount is paid to the Guarantor on account of subrogation
rights under this Guarantee at any time when all the Guaranteed Liabilities have
not been paid in full, the amount shall be held in trust for the benefit of the
Secured Parties and shall be promptly paid to the Collateral Agent to be
credited and applied to the Guaranteed Liabilities, whether matured or unmatured
or absolute or contingent, in accordance with the terms of this Agreement. If
any Guarantor makes payment to any Secured Party of all or any part of the
Guaranteed Liabilities and all the Guaranteed Liabilities are paid in full and
this Agreement, the Collateral Agent and the Secured Parties shall, at such
Guarantor’s request, execute and deliver to such Guarantor appropriate
documents, without recourse and without representation or warranty, necessary to
evidence the transfer by subrogation to such Guarantor of an interest in the
Guaranteed Liabilities resulting from the payment.

 

Section 7.06         Subordination. Without limiting the rights of the
Collateral Agent and the Secured Parties under any other agreement, any
liabilities owed by the Borrower to any Guarantor in connection with any
extension of credit or financial accommodation by any Guarantor to or for the
account of the Borrower, including but not limited to interest accruing at the
agreed contract rate after the commencement of a bankruptcy or similar
proceeding, are hereby subordinated to the Guaranteed Liabilities, and such
liabilities of the Borrower to such Guarantor, if the Collateral Agent so
requests after the occurrence and during the continuation of a Default or Event
of Default, shall be collected, enforced and received by any Guarantor as
trustee for the Collateral Agent and shall be paid over to the Collateral Agent
on account of the Guaranteed Liabilities but without reducing or affecting in
any manner the liability of the Guarantor under the other provisions of this
Guarantee.

 

Section 7.07         Payments Generally. All payments by the Guarantors shall be
made in the manner, at the place and in the currency (the “Payment Currency”)
required by the Loan Documents; provided, however, that if the Payment Currency
is other than Dollars any Guarantor may, at its option (or, if for any reason
whatsoever any Guarantor is unable to effect payments in the foregoing manner,
such Guarantor shall be obligated to) pay to the Collateral Agent at its
principal office the equivalent amount in Dollars computed at the selling rate
of the Collateral Agent or a selling rate chosen by the Collateral Agent, most
recently in effect on or prior to the date the Guaranteed Liability becomes due,
for cable transfers of the Payment Currency to the place where the Guaranteed
Liability is payable. In any case in which any Guarantor makes or is obligated
to make payment in Dollars, the Guarantor shall hold the Collateral Agent and
the Secured Parties harmless from any loss incurred by the Collateral Agent and
any Secured Party arising from any change in the value of Dollars in relation to
the Payment Currency between the date the Guaranteed Liability becomes due and
the date the Collateral Agent or such Secured Party is actually able, following
the conversion of the Dollars paid by such Guarantor into the Payment Currency
and remittance of such Payment Currency to the place where such Guaranteed
Liability is payable, to apply such Payment Currency to such Guaranteed
Liability.

 

Section 7.08         Setoff. Each Guarantor agrees that, in addition to (and
without limitation of) any right of setoff, banker’s lien or counterclaim the
Collateral Agent or any Secured Party may otherwise have, the Collateral Agent
or such Secured Party shall be entitled, at its option, to offset balances
(general or special, time or demand, provisional or final) held by it for the
account of any Guarantor at any office of the Collateral Agent or such Secured
Party, in Dollars or in any other currency, against any amount payable by such
Guarantor under this Guarantee which is not paid when due (regardless of whether
such balances are then due to such Guarantor), in which case it shall promptly
notify such Guarantor thereof; provided that the failure of the Collateral Agent
or such Secured Party to give such notice shall not affect the validity thereof.

 

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Section 7.09         Formalities. Each Guarantor waives presentment, notice of
dishonor, protest, notice of acceptance of this Guarantee or incurrence of any
Guaranteed Liability and any other formality with respect to any of the
Guaranteed Liabilities or this Guarantee.

 

Section 7.10         Limitations on Guarantee. The provisions of the Guarantee
under this Article VII are severable, and in any action or proceeding involving
any state corporate law, or any state, federal or foreign bankruptcy,
insolvency, reorganization or other law affecting the rights of creditors
generally, if the obligations of any Guarantor under this Guarantee would
otherwise be held or determined to be avoidable, invalid or unenforceable on
account of the amount of such Guarantor’s liability under this Guarantee, then,
notwithstanding any other provision of this Guarantee to the contrary, the
amount of such liability shall, without any further action by the Guarantors,
the Collateral Agent or any Secured Party, be automatically limited and reduced
to the highest amount that is valid and enforceable as determined in such action
or proceeding (such highest amount determined hereunder being the relevant
Guarantor’s “Maximum Liability”). This Section 7.10 with respect to the Maximum
Liability of the Guarantors is intended solely to preserve the rights of the
Collateral Agent and the Secured Parties hereunder to the maximum extent not
subject to avoidance under applicable law, and no Guarantor nor any other Person
shall have any right or claim under this Section 7.10 with respect to the
Maximum Liability, except to the extent necessary so that none of the
obligations of any Guarantor hereunder shall not be rendered voidable under
applicable law.

 

Section 7.11         Survival. The agreements and other provisions in this
Article VII shall survive, and remain in full force and effect regardless of,
the resignation or removal of the Collateral Agent or the Collateral Agent or
the replacement of any Lender.

 

Article VIII.

Events of Default

 

If any of the following events (“Events of Default”) shall occur:

 

(a)          the Borrower shall fail to pay any principal of, or premium on, any
Loan when and as the same shall become due and payable, whether at the due date
thereof or at a date fixed for prepayment thereof 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 clause (a) of this
Article) payable under this Agreement or the Fee Letter, when and as the same
shall become due and payable, and such failure shall continue unremedied for a
period of three (3) Business Days;

 

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

 

(d)          the Borrower or any Subsidiary shall fail to observe or perform any
covenant, condition or agreement contained in Section 5.01, Section 5.02,
Section 5.03 (with respect to the Borrower’s or any Subsidiary’s existence),
Section 5.09, Section 5.10, Section 5.11, Section 5.18, Section 10.18, Article
VI, or in Article XI;

 

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(e)          the Borrower or any Subsidiary shall fail to observe or perform any
covenant, condition or agreement contained in this Agreement (other than those
specified in clause (a), (b) or (d) of this Article) or any Loan Document, and
such failure shall continue unremedied for a period of thirty (30) days after
receipt of written notice thereof from the Administrative Agent to the Borrower
(which notice will be given at the request of any Lender);

 

(f)          the Borrower or any Subsidiary shall fail to make any payment
(whether of principal or interest and regardless of amount) in respect of any
Material Indebtedness (other than the Revolving Debt or the Existing First Lien
Debt), when and as the same shall become due and payable and such failure shall
continue beyond the applicable grace period, if any, or any event or condition
occurs that results in any Material Indebtedness becoming due prior to its
scheduled maturity or that enables or permits (with or without the giving of
notice, the lapse of time or both) the holder or holders of any Material
Indebtedness or any trustee or agent on its or their behalf to cause any
Material Indebtedness to become due, or to require the prepayment, repurchase,
redemption or defeasance thereof, prior to its scheduled maturity; provided that
this clause (g) shall not apply to (i) secured Indebtedness that becomes due as
a result of the voluntary sale or transfer of the Property securing such
Indebtedness and (ii) Indebtedness that becomes due as a result of a change in
law, tax regulation or accounting treatment so long as such Indebtedness is paid
when due;

 

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

 

(h)          the Borrower or any Subsidiary shall (i) voluntarily commence any
proceeding or file any petition seeking liquidation, reorganization or other
relief under any Federal, state or foreign bankruptcy, insolvency, receivership
or similar law now or hereafter in effect, (ii) consent to the institution of,
or fail to contest in a timely and appropriate manner, any proceeding or
petition described in clause (h) of this Article, (iii) apply for or consent to
the appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for the Borrower or any Subsidiary or for a substantial part of
its assets, (iv) file an answer admitting the material allegations of a petition
filed against it in any such proceeding, (v) make a general assignment for the
benefit of creditors or (vi) take any action for the purpose of effecting any of
the foregoing;

 

(i)          the Borrower or any Subsidiary shall become unable, admit in
writing its inability or fail generally to pay its debts as they become due;

 

(j)          one or more judgments for the payment of money in an aggregate
amount in excess of $1,000,000 shall be rendered against the Borrower or any
Subsidiary or any combination thereof and either the same shall remain
undischarged or unsatisfied for a period of thirty (30) consecutive days during
which execution shall not be effectively stayed, or any action shall be legally
taken by a judgment creditor to attach or levy upon any assets of the Borrower
or any Subsidiary to enforce any such judgment;

 

(k)          an ERISA Event shall have occurred that, in the opinion of the Lead
Lender, when taken together with all other ERISA Events that have occurred,
could reasonably be expected to result in a Material Adverse Effect;

 

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(l)          the delivery by any Guarantor to the Administrative Agent of
written notice that a Guarantee under Article VII has been revoked (other than
pursuant to the terms thereof);

 

(m)          any material provision of any Loan Document, at any time after its
execution and delivery and for any reason other than as expressly permitted
hereunder or thereunder or satisfaction in full of all the Obligations, ceases
to be valid and enforceable as against any Credit Party; or any Credit Party or
any other Person contests in any manner the validity or enforceability of any
provision of any Loan Document; or any Credit Party denies that it has any or
further liability or obligation under any provision of any Loan Document, or
purports to revoke, terminate or rescind any provision of any Loan Document; or

 

(n)          any Security Document after delivery thereof shall for any reason
(other than pursuant to the terms thereof) cease to create a valid and perfected
Lien subject in priority only to Liens permitted pursuant to Section 6.03) on
the Collateral purported to be covered thereby;

 

(o)          the occurrence of a Change of Control;

 

(p)          an “Event of Default” under and as defined in the Permitted RBL
Credit Agreement or the Existing First Lien Credit Agreement, as applicable,
shall have occurred (other than an “Event of Default” arising from the failure
to maintain any financial covenant set forth therein, so long as the maturity of
the Revolving Debt or the Existing First Lien Debt, as applicable, is not
accelerated while such “Event of Default” exists or is continuing); or

 

(q)          any Senior Management of any Credit Party is convicted under any
law or becomes subject to any regulatory enforcement or any Litigation Event is
resolved in a manner adverse to such Senior Management and such Senior
Management has not been replaced with a Person satisfactory to the Lead Lenders
within sixty (60) days after such conviction or enforcement action, as
applicable;

 

then, and in every such event (other than an event with respect to the Borrower
or any Subsidiary described in clause (h) or (i) of this Article), and at any
time thereafter during the continuance of such event, the Administrative Agent
may, and at the written 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 Aggregate Commitment, and thereupon the Aggregate
Commitment shall terminate immediately, and (ii) declare the Loans then
outstanding to be due and payable in whole (or in part, in which case any
principal not so declared to be due and payable may thereafter be declared to be
due and payable), and thereupon the principal of the Loans so declared to be due
and payable, together with accrued interest thereon and all fees, premiums and
other obligations of the Borrower accrued or payable hereunder, shall become due
and payable immediately, without presentment, demand, protest or other notice of
any kind, all of which are hereby waived by the Borrower; and in case of any
event with respect to the Borrower described in clause (h) or (i) of this
Article, the Aggregate Commitment shall automatically terminate and the
principal of the Loans then outstanding, together with accrued interest thereon
and all fees, premiums and other obligations of the Borrower accrued or payable
hereunder, 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. Without limiting the foregoing, upon the occurrence and during the
continuance of an Event of Default, the Administrative Agent and each Lender may
protect and enforce its rights under this Agreement and the other Loan Documents
by any appropriate proceedings, including proceedings for specific performance
of any covenant or agreement contained in this Agreement or any other Loan
Document, and the Administrative Agent and each Lender may enforce payment of
any Obligations due and payable hereunder or enforce any other legal or
equitable right and remedies which it may have under this Agreement, any other
Loan Document, or under applicable law or in equity.

 

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Without limiting the generality of the foregoing, it is understood and agreed
that if the maturity of the Loans shall be accelerated or the Loans otherwise
become due prior to the Maturity Date (under any provision of this Article VIII
or otherwise) a premium equal to the Make-Whole Amount (in each case, determined
as if the Loans were repaid at the time of such acceleration at the option of
the Borrower pursuant to Section 2.06 and as calculated by the Majority Lenders
which, absent manifest error, shall be deemed conclusive) shall also become
immediately due and payable and shall constitute part of the Obligations, in
view of the impracticability and extreme difficulty of ascertaining actual
damages and by mutual agreement of the parties as to a reasonable calculation of
each Lender’s lost profits as a result thereof. Any premium payable above shall
be presumed to be the liquidated damages sustained by each Lender as the result
of the early redemption and the Borrower agrees that it is reasonable under the
circumstances currently existing. Without limiting the foregoing, any
redemption, prepayment, repayment, or payment of the Obligations in or in
connection with a Bankruptcy Event shall constitute an optional prepayment
thereof under the terms of Section 2.06 and require the immediate payment of the
Make-Whole Amount. Any premium payable pursuant to this Article VIII shall be
presumed to be the liquidated damages sustained by each Lender as a result of
the early redemption and the Credit Parties agree that it is reasonable under
the circumstances currently existing. The premium shall also be payable in the
event the Obligations are satisfied or released by foreclosure (whether by power
of judicial proceeding), deed in lieu of foreclosure or by any other means. THE
BORROWER EXPRESSLY WAIVES (TO THE FULLEST EXTENT IT MAY LAWFULLY DO SO) THE
PROVISIONS OF ANY PRESENT OR FUTURE STATUTE OR LAW THAT PROHIBITS OR MAY
PROHIBIT THE COLLECTION OF THE FOREGOING PREMIUM IN CONNECTION WITH ANY SUCH
ACCELERATION. The Borrower expressly agrees (to the fullest extent it may
lawfully do so) that: (A) the premium is reasonable and is the product of an
arm’s length transaction between sophisticated business people, ably represented
by counsel; (B) the premium shall be payable notwithstanding the then prevailing
market rates at the time payment is made; (C) there has been a course of conduct
between the Lenders and the Borrower giving specific consideration in this
transaction for such agreement to pay the premium; and (D) the Borrower shall be
estopped hereafter from claiming differently than as agreed to in this
paragraph. The Borrower expressly acknowledges that its agreement to pay the
premium to Lenders as herein described is a material inducement to Lenders to
enter into this Agreement.

 

Notwithstanding anything to the contrary contained in this Agreement, upon the
occurrence and during the continuance of an Event of Default, the Borrower
irrevocably waives the right to direct the application of any and all payments
at any time or times thereafter received by Administrative Agent from or on
behalf of Borrower or any Guarantor of all or any part of the Obligations, and,
as between Borrower on the one hand and Administrative Agent and Lenders on the
other, Administrative Agent shall have the continuing and exclusive right to
apply and to reapply any and all payments received against the Obligations in
such manner as Administrative Agent may deem advisable notwithstanding any
previous application by Administrative Agent.

 

Following the occurrence and during the continuance of an Event of Default,
Administrative Agent shall apply any and all payments received by Administrative
Agent in respect of the Obligations, and any and all proceeds of Collateral
received by Administrative Agent, in the following order: first, to all fees,
costs, indemnities, liabilities, obligations and expenses incurred by or owing
to Administrative Agent (whether or not acting in its capacity as Administrative
Agent or as Collateral Agent) with respect to this Agreement, the other Loan
Documents or the Collateral, second, to all fees, costs, indemnities and
expenses incurred by or owing to any Lender with respect to this Agreement, the
other Loan Documents or the Collateral, third, to accrued and unpaid interest on
the Obligations, fourth, to the principal amount of the Obligations outstanding,
and fifth, to any other indebtedness or obligations of Borrower owing to
Administrative Agent (whether or not acting in its capacity as Administrative
Agent or as Collateral Agent) or any Lender under the Loan Documents. Any
balance remaining after giving effect to the applications set forth above shall
be delivered to the Borrower or to whoever may be lawfully entitled to receive
such balance or as a court of competent jurisdiction may direct. In carrying out
any of the applications set forth herein, amounts received shall be applied in
the numerical order provided until exhausted prior to the application to the
next succeeding category.

 

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Article IX.

The Administrative Agent

 

Section 9.01         Appointment and Authority.

 

(a)          Each of the Lenders hereby irrevocably appoints Wilmington Trust,
National Association, to act on its behalf as the Administrative Agent hereunder
and under the other Loan Documents 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, together with such actions and
powers as are reasonably incidental thereto.

 

(b)          The Administrative Agent shall also act as the “Collateral Agent”
or “collateral agent” under the Loan Documents, and each of the Lenders hereby
irrevocably appoints and authorizes the Administrative Agent to act as the agent
of such Lender for purposes of acquiring, holding and enforcing any and all
Liens on Collateral granted by any of the Credit Parties to secure any of the
Obligations, together with such powers and discretion as are reasonably
incidental thereto. All protections, exculpations, indemnifications, expense
reimbursements, rights, powers and privileges provided to the Administrative
Agent under this Agreement and the other Loan Documents shall also apply to the
Administrative Agent acting in its capacity as “Collateral Agent” (or
“collateral agent” as applicable) under the Loan Documents. In this connection,
the Administrative Agent acting in its capacity as “Collateral Agent” (or
“collateral agent” as applicable) and any co-agents, sub-agents and
attorneys-in-fact appointed by the Administrative Agent (in it capacity as
“Collateral Agent” or “collateral agent”) pursuant to this Article IX for
purposes of holding or enforcing any Lien on the Collateral (or any portion
thereof) granted under the Loan Documents, or for exercising any rights and
remedies thereunder, shall be entitled to the benefits of all provisions of this
Article IX and Article X (including, without limitation, Section 10.03 as though
such co-agents, sub-agents and attorneys-in-fact were the “collateral agent” or
“Collateral Agent” under the Loan Documents) as if set forth in full herein with
respect thereto.

 

Section 9.02         Rights as a Lender. The Person serving as the
Administrative Agent hereunder shall have the same rights and powers in its
capacity, if applicable, as a Lender as any other Lender and may exercise the
same as though it were not the Administrative Agent, and such Person and its
Affiliates may accept deposits from, lend money to and generally engage in any
kind of business with any Credit Party or other Affiliate thereof as if it were
not the Administrative Agent hereunder.

 

Section 9.03         Exculpatory Provisions. The duties of Administrative Agent
shall be mechanical and administrative in nature. The Administrative Agent shall
not have any duties or obligations except those expressly set forth herein or in
the other Loan Documents, and its duties hereunder shall be administrative in
nature. Without limiting the generality of the foregoing:

 

(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;

 

(b)          the Administrative Agent shall not have any duty to take any
discretionary action or exercise any discretionary powers, except discretionary
rights and powers expressly contemplated hereby that the Administrative Agent is
required to exercise as directed in writing by the Majority Lenders (or such
other number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 10.02); provided that Administrative Agent
shall not be required to take any action that, in its judgment or the judgment
of its counsel, may expose Administrative Agent to liability or that is contrary
to any Loan Document or applicable Requirements of Law;

 

(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 any Credit Party or any of their
Affiliates that is communicated to or obtained by the Person serving as
Administrative Agent or any of its Affiliates in any capacity;

 

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

 

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

 

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

 

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

 

Notwithstanding anything to the contrary set forth in this Agreement or any
other Loan Document, the Administrative Agent shall not be liable for any action
taken or not taken by it with the consent or at the request of the Majority
Lenders (or such other number or percentage of the Lenders as shall be necessary
under the circumstances as provided in Section 10.02) or in the absence of its
own gross negligence or willful misconduct as determined by a final
non-appealable judgment of a court of competent jurisdiction.

 

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

 

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Without limiting the generality of the foregoing, the use of the term “agent” in
this Agreement with reference to the Administrative Agent is not intended to
connote any fiduciary or other implied (or express) obligations arising under
agency doctrine of any applicable law. Instead, such term us used merely as a
matter of market custom and is intended to create or reflect only an
administrative relationship between independent contracting parties.
Notwithstanding any provision to the contrary elsewhere in this Agreement or any
other Loan Document, neither the Administrative Agent nor the Collateral Agent
shall have any duties or responsibilities except those expressly set forth
herein and in the other Loan Documents, or any fiduciary relationship with any
of the Credit Parties or the Lenders, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the
Administrative Agent or the Collateral Agent. Each party to this Agreement
acknowledges and agrees that the Administrative Agent and the Lead Lender or the
Majority Lenders may use an outside service provider for the tracking of all UCC
financing statements or similar statements under the laws of any other
jurisdiction required to be filed pursuant to the Loan Documents and
notification to the Administrative Agent, the Lead Lender or the Majority
Lenders, as the case may be, of, among other things, the upcoming lapse or
expiration thereof.

 

Section 9.04         Reliance by Administrative Agent. The Administrative Agent
shall be entitled to rely upon, and shall not incur any liability for relying
upon, any notice, request, certificate, consent, statement, instrument, document
or other writing believed by it to be genuine and to have been signed or sent by
the proper Person. The Administrative Agent also may rely upon any statement
made to it orally or by telephone and believed by it to be made by the proper
Person, and shall not incur any liability for relying thereon. The
Administrative Agent may consult with legal counsel (who may be counsel for the
Borrower), independent accountants and other experts selected by it, and shall
not be liable for any action taken or not taken by it in accordance with the
advice of any such counsel, accountants or experts. In determining compliance
with any condition hereunder to the making of a Loan that by its terms must be
fulfilled to the satisfaction of a Lender, the Administrative Agent may presume
that such condition is satisfactory to such Lender unless the Administrative
Agent shall have received written notice to the contrary from such Lender prior
to the making of such Loan.

 

The Administrative Agent may at any time request instructions from Lenders with
respect to any actions or approvals which by the terms of this Agreement or of
any of the Loan Documents the Administrative Agent is permitted or desires to
take or to grant, and if such instructions are promptly requested, the
Administrative Agent shall be absolutely entitled to refrain from taking any
action or to withhold any approval and shall not be under any liability
whatsoever to any Person for refraining from any action or withholding any
approval under any of the Loan Documents until it shall have received such
instructions from Majority Lenders or all or such other portion of Lenders as
shall be prescribed by this Agreement. Without limiting the foregoing, no Lender
shall have any right of action whatsoever against the Administrative Agent as a
result of Administrative Agent acting or refraining from acting under this
Agreement or any of the other Loan Documents in accordance with the instructions
of the Majority Lenders (or all or such other portion of Lenders as shall be
prescribed by this Agreement) and, notwithstanding the instructions of the
Majority Lenders (or such other applicable portion of Lenders), the
Administrative Agent shall have no obligation to take any action if it believes,
in good faith, that such action would violate applicable law or exposes the
Administrative Agent to any liability for which it has not received satisfactory
indemnification in accordance with the provisions of Section 10.03 of this
Agreement.

 

Section 9.05         Delegation of Duties. 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 paragraphs, including those indemnification and
expense reimbursement provisions in Section 10.03 of this Agreement, 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. Administrative Agent shall not incur any
liability for any action or inaction taken by a sub-agent except to the extent
that a court of competent jurisdiction determines in a final and non-appealable
judgment that the Administrative Agent acted with gross negligence or willful
misconduct in the selection of such sub-agents.

 

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Section 9.06         Collateral and Guaranty Matters. Each Lender hereby
authorizes the Administrative Agent to release (or instruct the Collateral Agent
to release) any Collateral that it is permitted to be sold or released pursuant
to the terms of the Loan Documents (it being understood and agreed that the
Administrative Agent may conclusively rely without further inquiry on a
certificate of a Responsible Officer as to the sale or other disposition of
property being made in full compliance with the provisions of the Loan
Documents). Each Lender hereby authorizes the Administrative Agent to execute
and deliver (or instruct the Collateral Agent to execute and deliver) to the
Borrower, at the Borrower’s sole cost and expense, any and all releases of
Liens, termination statements, assignments or other documents reasonably
requested by the Borrower in connection with any Disposition of Collateral to
the extent such Disposition is permitted by the terms of this Agreement or is
otherwise authorized by the terms of the Loan Documents. Upon request by the
Administrative Agent at any time, the Lenders will confirm the Administrative
Agent’s authority to release and/or subordinate particular types or items of
Collateral pursuant to this Article IX.

 

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

 

The Administrative Agent and each Lender hereby appoint each other as agent for
the purpose of perfecting the Administrative Agent’s security interest in assets
which, in accordance with the Uniform Commercial Code in any applicable
jurisdiction, can be perfected by possession or control. Should any Lender
(other than the Administrative Agent) obtain possession or control of any such
assets, such Lender shall notify the Administrative Agent thereof, and, promptly
upon the Administrative Agent’s request therefor, shall deliver such assets to
the Administrative Agent or in accordance with the Administrative Agent’s
instructions or transfer control to the Administrative Agent in accordance with
the Administrative Agent’s instructions. Each Lender agrees that it will not
have any right individually to enforce or seek to enforce any Security Document
or to realize upon any Collateral for the Loans unless instructed to do so by
the Administrative Agent in writing (or consented to by Administrative Agent, as
provided in Section 7.08), it being understood and agreed that such rights and
remedies may be exercised only by Administrative Agent.

 

Section 9.07         Resignation and Removal of Administrative Agent. The
Administrative Agent may resign at any time by notifying the Lenders and the
Borrower. Upon any such resignation, the Majority Lenders shall have the right,
with the consent of the Borrower (which consent shall not be unreasonably
withheld or delayed), to appoint a successor; provided that no consent of the
Borrower shall be required if any Event of Default has occurred and is
continuing. If no successor shall have been so appointed by the Majority Lenders
and shall have accepted such appointment within thirty (30) days after the
retiring Administrative Agent gives notice of its resignation (or such earlier
date as shall be agreed by the Majority Lenders) (the “Resignation Effective
Date”), then the retiring Administrative Agent may, on behalf of the Lenders,
appoint a successor Administrative Agent which shall be a bank with an office in
Chicago, Illinois or New York, New York, or an Affiliate of any such bank that
is a financial institution. Upon the acceptance of its appointment as
Administrative Agent hereunder by a successor which shall include execution by
such successor Administrative Agent of a joinder supplement, such successor
shall succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Administrative Agent. If no successor administrative
agent has accepted appointment as Administrative Agent by the date which is
thirty (30) days following a retiring Administrative Agents notice of
resignation, the retiring Administrative Agent’s resignation shall nevertheless
thereupon become effective. For the avoidance of doubt, any resignation of the
Administrative Agent shall also constitute a resignation of the Administrative
Agent in its capacity as “Collateral Agent” or “collateral agent” under the Loan
Documents.

 

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(b)          The Majority Lenders may by notice to the Borrower remove the
Administrative Agent and, in consultation with the Borrower, appoint a
successor. If no successor administrative agent shall have been appointed by the
Majority Lenders and shall have accepted such appointment within twenty (20)
days (or such earlier date as shall be agreed by the Majority Lenders (the
“Removal Effective Date”)) which acceptance shall include execution by such
successor Administrative Agent of a joinder supplement, then such removal shall
nonetheless become effective in accordance with such notice on the Removal
Effective Date. For the avoidance of doubt, any removal of the Administrative
Agent shall also constitute a removal of the Administrative Agent in its
capacity as “Collateral Agent” or “collateral agent” under the Loan Documents.

 

(c)          With the effect of the Resignation Effective Date or the Removal
Effective Date, the Administrative Agent shall be discharged from its duties and
obligations hereunder and under the other Loan Documents, all payments,
communications and determinations provided to be made by, to or through the
Administrative Agent shall instead be made by or to each Lender directly and the
Majority Lenders shall perform all of the duties of the Administrative Agent
hereunder until such time, if any, as the Majority Lenders appoint a successor
as provided for above. After the Administrative Agent’s resignation or removal
hereunder, the provisions of this Article and Section 10.03 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 9.08         Non-Reliance on Administrative Agent and Other Lenders.
Each Lender acknowledges and agrees that the extensions of credit made hereunder
are commercial loans and not investments in a business enterprise or securities.
Each Lender further represents that it is engaged in making, acquiring or
holding commercial loans in the ordinary course of its business and has,
independently and without reliance upon the Administrative Agent or any other
Lender and based on such documents and information as it has deemed appropriate,
made its own credit analysis and decision to enter into this Agreement as a
Lender, and to make, acquire or hold Loans hereunder. Each Lender shall,
independently and without reliance upon the Administrative Agent or any other
Lender and based on such documents and information (which may contain material,
non-public information within the meaning of the United States securities laws
concerning the Borrower and its Affiliates) as it shall from time to time deem
appropriate, continue to make its own decisions in taking or not taking action
under or based upon this Agreement, any related agreement or any document
furnished hereunder or thereunder and in deciding whether or to the extent to
which it will continue as a lender or assign or otherwise transfer its rights,
interests and obligations hereunder.

 

Section 9.09         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 Subsidiary, 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:

 

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(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 10.03 of this Agreement 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 their agents and counsel, and any other amounts due the
Administrative Agent under ‎Section 10.03.

 

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.

 

Anything contained in any of the Loan Documents to the contrary notwithstanding,
Borrower, Administrative Agent and each Secured Party hereby agree that in the
event of a foreclosure or similar enforcement action by Administrative Agent on
any of the Collateral pursuant to a public or private sale or other disposition
(including, without limitation, pursuant to Section 363(k), Section
1129(b)(2)(a)(ii) or otherwise of the Bankruptcy Code), Administrative Agent (or
any Lender, except with respect to a “credit bid” pursuant to Section 363(k),
Section 1129(b)(2)(a)(ii) or otherwise of the Bankruptcy Code,) may be the
purchaser or licensor of any or all of such Collateral at any such sale or other
disposition and Administrative Agent, as agent for and representative of Secured
Parties (but not any Lender or Lenders in its or their respective individual
capacities) shall be entitled, upon instructions from Majority Lenders, for the
purpose of bidding and making settlement or payment of the purchase price for
all or any portion of the Collateral sold at any such sale or disposition, to
use and apply any of the Obligations as a credit on account of the purchase
price for any collateral payable by Administrative Agent at such sale or other
disposition. The Secured Parties hereby irrevocably authorize the Administrative
Agent, at the direction of the Majority Lenders, to credit bid all or any
portion of the Obligations (including accepting some or all of the Collateral in
satisfaction of some or all of the Obligations pursuant to a deed in lieu of
foreclosure or otherwise) and in such manner purchase (either directly or
through one or more acquisition vehicles) all or any portion of the Collateral
(a) at any sale thereof conducted under the provisions of the Bankruptcy Code,
including under Sections 363, 1123 or 1129 thereof, or any similar laws in any
other jurisdictions to which a Credit Party is subject, (b) at any other sale or
foreclosure or acceptance of collateral in lieu of debt conducted by (or with
the consent or at the direction of) the Administrative Agent (whether by
judicial action or otherwise) in accordance with any applicable law.  In
connection with any such credit bid and purchase, the Obligations owed to the
Secured Parties shall be entitled to be, and shall be, credit bid by the
Administrative Agent at the direction of the Majority Lenders on a ratable basis
(with Obligations with respect to contingent or unliquidated claims receiving
contingent interests in the acquired assets on a ratable basis that would vest
upon the liquidation of such claims in an amount proportional to the liquidated
portion of the contingent claim amount used in allocating the contingent
interests) in the asset or assets so purchased (or in the Capital Stock or debt
instruments of the acquisition vehicle or vehicles that are used to consummate
such purchase).  In connection with any such bid (i) the Administrative Agent
shall be authorized to form one or more acquisition vehicles to make a bid, (ii)
to adopt documents providing for the governance of the acquisition vehicle or
vehicles (provided that any actions by the Administrative Agent with respect to
such acquisition vehicle or vehicles, including any disposition of the assets or
Capital Stock thereof shall be governed, directly or indirectly, by the vote of
the Majority Lenders, irrespective of the termination of this Agreement and
without giving effect to the limitations on actions by the Majority Lenders
contained in Section 10.02), (iii) the Administrative Agent shall be authorized
to assign the relevant Obligations to any such acquisition vehicle pro rata by
the Lenders, as a result of which each of the Lenders shall be deemed to have
received a pro rata portion of any Capital Stock and/or debt instruments issued
by such an acquisition vehicle on account of the assignment of the Obligations
to be credit bid, all without the need for any Secured Party or acquisition
vehicle to take any further action, and (iv) to the extent that Obligations that
are assigned to an acquisition vehicle are not used to acquire Collateral for
any reason (as a result of another bid being higher or better, because the
amount of Obligations assigned to the acquisition vehicle exceeds the amount of
debt credit bid by the acquisition vehicle or otherwise), such Obligations shall
automatically be reassigned to the Lenders pro rata and the Capital Stock and/or
debt instruments issued by any acquisition vehicle on account of the Obligations
that had been assigned to the acquisition vehicle shall automatically be
cancelled, without the need for any Secured Party or any acquisition vehicle to
take any further action.

 

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Section 9.10         Authorization to Execute other Loan Documents. Each Lender
(and each Secured Party by accepting the benefits of the Collateral and the Loan
Documents) authorizes the Administrative Agent to enter into each of the Loan
Documents (including, without limitation, any Approved Intercreditor Agreements
or subordination agreement contemplated by the terms hereof) (other than this
Agreement) and to act on its behalf and to take all actions contemplated by such
Loan Documents and agrees that it shall be bound by such Loan Documents as if a
signatory thereto. Neither Administrative Agent, nor its Related Parties, shall
have any liability or responsibility for the actions or omissions of any Secured
Party, or for any other Secured Party’s compliance with (or failure to comply
with) the terms, covenants and agreements set forth in this Agreement and each
of the Loan Documents.

 

Article X.

Miscellaneous

 

Section 10.01         Notices.

 

(a)          Except in the case of notices and other communications expressly
permitted to be given by telephone (and subject to paragraph (b) below), 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 or email, as follows:

 

(i)          if to the Borrower, to:

 

Lilis Energy, Inc.

300 E. Sonterra Blvd.

Suite 1220

San Antonio, TX 78258

Attention: Joseph Daches

Facsimile: 210-999-5401

Email: JDaches@lilisenergy.com

 

(ii)         if to the Administrative Agent, to:

 

Wilmington Trust, National Association

50 South Sixth Street, Suite 1290

Minneapolis, MN 55402

 

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Attention: Josh James

Facsimile: 612-217-5637

Email: jjames@wilmingtontrust.com

 

with a copy to:

 

Lindquist & Vennum LLP

2000 IDS Center, 80 South 8th St.

Minneapolis, MN 55402

Attention: Mark Dietzen

Facsimile: (612) 371-3207

Email: mdietzen@lindquist.com

 

(iii)        if to the Lead Lender, to:

 

Värde Partners, Inc.

901 Marquette Ave S. Suite 3300

Minneapolis, MN 55402

Attention: Legal Department

Email: legalnotices@varde.com and mspecks@varde.com

 

with a copy to

 

Kirkland & Ellis LLP

Attn: Lucas E. Spivey, P.C.

600 Travis Street, Suite 3300

Houston, TX 77002

Tel: 713 835 3640

Email: lucas.spivey@kirkland.com; and

 

(iv)        if to any other Lender, to 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 unless otherwise agreed by the
Administrative Agent and the applicable Lender. The Administrative Agent or the
Borrower may, in their 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 or email
address for notices and other communications hereunder by written 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 if received during the recipient’s normal
business hours.

 

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(d)          Borrower hereby acknowledges that (i) the Administrative Agent may
make available to the Lenders materials and/or information provided by or on
behalf of Borrower hereunder (collectively, the “Borrower Materials”) by posting
the Borrower Materials on SyndTrak, Intralinks or another similar electronic
system (the “Platform”), (ii) the Administrative Agent 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, and
(iii) certain of the Lenders may be “public-side” Lenders (i.e., Lenders, or
representatives thereof, that do not wish to receive material nonpublic
information with respect to Borrower or its securities) (each, a “Public
Lender”). Borrower hereby agrees that (w) all Borrower Materials that are to be
made available to Public Lenders shall be clearly and conspicuously marked
“PUBLIC” which, at a minimum, shall mean that the word “PUBLIC” shall appear
prominently on the first page thereof; (x) by marking Borrower Materials
“PUBLIC”, Borrower shall be deemed to have authorized the Administrative Agent
and the Lenders to treat such Borrower Materials as not containing any material
non-public information with respect to Borrower or its securities for purposes
of United States Federal and state securities laws (provided, however, that to
the extent such Borrower Materials constitute Information, they shall be treated
as set forth in Section 10.12); (y) all Borrower Materials marked “PUBLIC” are
permitted to be made available through a portion of the Platform designated as
“Public Investor”; and (z) the Administrative Agent shall be entitled to treat
any Borrower Materials that are not marked “PUBLIC” as being suitable only for
posting on a portion of the Platform not marked as “Public Investor”.
Notwithstanding the foregoing, the following Borrower Materials shall be marked
“PUBLIC”, unless Borrower notifies the Administrative Agent in writing promptly
(after being given a reasonable opportunity to review such Borrower Materials)
that any such document contains material non-public information: (1) the Loan
Documents and (2) notification of changes in the terms of the Loan Documents.

 

(e)          THE PLATFORM IS PROVIDED “AS IS” AND “AS AVAILABLE”. NEITHER THE
ADMINISTRATIVE AGENT NOR ANY OF ITS RELATED PARTIES WARRANTS THE ACCURACY OR
COMPLETENESS OF THE COMMUNICATIONS OR THE ADEQUACY OF THE PLATFORM AND EACH
EXPRESSLY DISCLAIMS LIABILITY FOR ERRORS OR OMISSIONS IN THE COMMUNICATIONS. NO
WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD
PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS IS MADE BY THE
ADMINISTRATIVE AGENT OR ANY OF ITS RELATED PARTIES IN CONNECTION WITH THE
COMMUNICATIONS OR THE PLATFORM. IN NO EVENT SHALL THE ADMINISTRATIVE AGENT OR
ANY OF ITS RELATED PARTIES HAVE ANY LIABILITY TO ANY CREDIT PARTY, ANY LENDER OR
ANY OTHER PERSON FOR DAMAGES OF ANY KIND, WHETHER OR NOT BASED ON STRICT
LIABILITY AND INCLUDING DIRECT OR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL
DAMAGES, LOSSES OR EXPENSES (WHETHER IN TORT, CONTRACT OR OTHERWISE) ARISING OUT
OF ANY CREDIT PARTY’S OR THE ADMINISTRATIVE AGENT’S TRANSMISSION OF
COMMUNICATIONS THROUGH THE INTERNET, EXCEPT TO THE EXTENT THE LIABILITY OF ANY
SUCH PERSON IS FOUND IN A FINAL AND NON-APPEALABLE RULING BY A COURT OF
COMPETENT JURISDICTION TO HAVE RESULTED FROM SUCH PERSON’S GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT.

 

Section 10.02         Waivers; Amendments.

 

(a)          No failure or delay by the Administrative Agent or any Lender in
exercising any right or power hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Administrative Agent and the
Lenders hereunder 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
consent to any departure by the Borrower therefrom shall in any event be
effective unless the same shall be permitted by paragraph (b) of this Section,
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 the Loans shall not be construed as a waiver of any
Default, regardless of whether the Administrative Agent or any Lender may have
had notice or knowledge of such Default at the time.

 

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(b)          None of this Agreement, any other Loan Document or any provision
hereof or thereof may be waived, amended or modified, and no consent to any
departure by the Borrower or any other Credit Party therefrom shall be
effective, except pursuant to an agreement or agreements in writing entered into
by the Credit Parties and the Majority Lenders, and acknowledged by the
Administrative Agent or Collateral Agent (as applicable), or by the Credit
Parties and the Administrative Agent or Collateral Agent (as applicable) in each
case with the consent of the Majority Lenders; provided that no such agreement
shall:

 

(i)          increase the Commitment of any Lender without the written consent
of such Lender;

 

(ii)         reduce the principal amount of any Loan or reduce the rate of
interest thereon, or reduce any fees or premium payable hereunder, without the
written consent of each Lender affected thereby;

 

(iii)        postpone the scheduled date of payment of the principal amount of
any Loan, or any interest thereon, or any fees or premium payable hereunder, or
reduce the amount of, waive or excuse any such payment, or postpone the
scheduled date of expiration of any of the Aggregate Commitment, without the
written consent of each Lender affected thereby (it being understood that any
waiver of a mandatory prepayment of the Loans shall not constitute a
postponement or waiver of a scheduled payment or date of expiration);

 

(iv)        change Section 2.13(b) or Section 2.13(c) in a manner that would
alter the pro rata sharing of payments required thereby, without the written
consent of each Lender;

 

(v)         except in connection with any Dispositions permitted in Section
6.05, release of all or substantially all of the Guarantors from their
obligations under Article VII or release all or substantially all of the
Collateral without the written consent of each Lender; or

 

(vi)        change any of the provisions of this Section or the definition of
“Majority Lenders” or any other provision hereof specifying the number or
percentage of Lenders required to waive, amend or modify any rights hereunder or
make any determination or grant any consent hereunder, without the written
consent of each Lender;

 

provided further that (i) no such agreement shall amend, modify or otherwise
affect the rights or duties of the Administrative Agent (whether or not acting
as Administrative Agent or Collateral Agent) hereunder without the prior written
consent of the Administrative Agent and (ii) the Fee Letter may only be amended,
or rights or privileges thereunder waived, in a writing executed only by the
parties thereto.

 

(c)          Notwithstanding anything to the contrary contained in this Section
10.02, the Administrative Agent may, with the consent of the Borrower only,
amend, modify or supplement this Agreement or any of the other Loan Documents to
correct any clerical errors or cure any ambiguity, omission, mistake, defect or
inconsistency.

 

Section 10.03         Expenses; Indemnity; Damage Waiver.

 

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

 

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(b)          THE CREDIT PARTIES SHALL INDEMNIFY THE ADMINISTRATIVE AGENT, THE
LEAD LENDER AND EACH OTHER LENDER, AND EACH RELATED PARTY OF ANY OF THE
FOREGOING PERSONS (EACH SUCH PERSON BEING CALLED AN “INDEMNITEE”) AGAINST, AND
HOLD EACH INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES,
LIABILITIES AND RELATED EXPENSES, INCLUDING THE FEES, CHARGES AND DISBURSEMENTS
OF ANY COUNSEL FOR ANY INDEMNITEE, INCURRED BY OR ASSERTED AGAINST ANY
INDEMNITEE ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF (I) THE
EXECUTION OR DELIVERY OF THIS AGREEMENT OR ANY AGREEMENT OR INSTRUMENT
CONTEMPLATED HEREBY, THE PERFORMANCE BY THE PARTIES HERETO OF THEIR RESPECTIVE
OBLIGATIONS HEREUNDER OR THE CONSUMMATION OF THE TRANSACTIONS OR ANY OTHER
TRANSACTIONS CONTEMPLATED HEREBY, (II) ANY LOAN OR THE USE OF THE PROCEEDS
THEREFROM, (III) ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS
MATERIALS ON OR FROM ANY PROPERTY OWNED OR OPERATED BY THE BORROWER OR ANY
SUBSIDIARY, OR ANY OTHER ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO THE
BORROWER OR ANY SUBSIDIARY, OR (IV) ANY ACTUAL OR PROSPECTIVE CLAIM, LITIGATION,
INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE FOREGOING, WHETHER OR NOT
SUCH CLAIM, LITIGATION, INVESTIGATION OR PROCEEDING IS BROUGHT BY A CREDIT
PARTY, ANY EQUITY HOLDERS OF A CREDIT PARTY, ANY AFFILIATES OF A CREDIT PARTY,
ANY CREDITORS OF A CREDIT PARTY OR ANY OTHER THIRD PERSON AND WHETHER BASED ON
CONTRACT, TORT OR ANY OTHER THEORY AND REGARDLESS OF WHETHER ANY INDEMNITEE IS A
PARTY THERETO; PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO ANY INDEMNITEE, BE
AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS, DAMAGES, LIABILITIES OR
RELATED EXPENSES ARE DETERMINED BY A COURT OF COMPETENT JURISDICTION BY FINAL
AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF SUCH INDEMNITEE. FOR THE AVOIDANCE OF DOUBT, WITH RESPECT TO THE
FOREGOING PROVISO “ANY INDEMNITEE” MEANS ONLY THE INDEMNITEE OR INDEMNITEES, AS
THE CASE MAY BE, THAT ARE DETERMINED BY SUCH COURT IN SUCH JUDGMENT TO HAVE BEEN
GROSSLY NEGLIGENT OR TO HAVE ENGAGED IN WILLFUL MISCONDUCT AND NOT ANY OTHER
INDEMNITEE. THIS SECTION 10.03(b) SHALL NOT APPLY WITH RESPECT TO TAXES (WHICH
ARE SUBJECT TO SECTION 2.12 HEREOF) OTHER THAN ANY TAXES THAT REPRESENT LOSSES,
CLAIMS OR DAMAGES ARISING FROM ANY NON-TAX CLAIM.

 

(c)          To the extent that any Credit Party fails to pay any amount
required to be paid by it to the Administrative Agent (or any sub-agent thereof)
or any Related Party thereof under paragraph (a) or (b) of this Section
(including any such unpaid amount arising from or in connection with Section 5.6
of that certain Mortgage, Security Agreement, Assignment of Production, Fixture
Filing and Financing Statement (New Mexico Oil and Gas Properties), dated as of
April 26, 2017, from Brushy Resources, Inc., as mortgagor in favor of the
Collateral Agent as beneficiary, or for which any Credit Party is not liable
pursuant to the exceptions set forth in clause (b) of the proviso in the first
sentence of Section 5.6), each Lender severally agrees to pay to the
Administrative Agent (or any such sub-agent thereof) or such Related Party of
the Administrative Agent, 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 (or if such unreimbursed amount or indemnity
payment is sought after the date on which the Loans have been paid in full, in
accordance with such Lender’s Applicable Percentage immediately prior to the
date on which the Loans are paid in full)) of such unpaid amount. No action
taken by Administrative Agent with the direction of the Majority Lenders (or
such other number or percentage of the Lenders as shall be required by the Loan
Documents) shall be deemed to constitute gross negligence or willful misconduct
for purposes of this Section 10.03(c). If any indemnity furnished to
Administrative Agent for any purpose shall, in the opinion of the Administrative
Agent, be insufficient or become impaired, the Administrative Agent may call for
additional indemnity and cease, or not commence, to do the acts indemnified
against even if so directed by Majority Lenders, until such additional indemnity
is furnished. 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
source against any amount due to the Administrative Agent under this
paragraph (c).

 

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(d)          To the extent permitted by applicable law, no party hereto shall
assert, and each such party hereby waives, any claim against any other party
hereto 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 or any agreement or
instrument contemplated hereby, the Transactions, the Loans or the use of the
proceeds thereof; provided that, nothing in this clause (d) shall relieve the
Borrower of any obligation it may have to indemnify an Indemnitee against
special, indirect, consequential or punitive damages asserted against such
Indemnitee by a third party.

 

(e)          The Lenders acknowledge and agree that all indemnification
obligations of the “Administrative Agent” to the “Collateral Agent” or any
sub-agent thereof or any Related Party of the “Collateral Agent” shall (i) be
obligations of the Lenders (and not the Administrative Agent) to the “Collateral
Agent” and such other Persons (payable by the Lenders in accordance with their
respective Applicable Percentages (determined as of the time that the indemnity
payment is sought (or if such indemnity payment is sought after the date on
which the Loans have been paid in full, in accordance with each Lender’s
Applicable Percentage immediately prior to the date on which the Loans are paid
in full)) and (ii) the Administrative Agent and the “Collateral Agent” may
directly enforce such indemnification obligations against the Lenders (and each
Lender hereby authorizes the Administrative Agent and the “Collateral 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 or the
“Collateral Agent” to the Lender from any source against any amount due to the
“Collateral Agent” under this paragraph (e).

 

(f)          All amounts due under this Section shall be payable not later than
ten (10) days after written demand therefor.

 

(g)          The agreements in this Section 10.03 shall survive the resignation
or removal of the Administrative Agent, the replacement of any Lender, the
termination of this Agreement and the repayment, satisfaction or discharge of
the Obligations.

 

Section 10.04         Successors and Assigns.

 

(a)          The provisions of this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns
permitted hereby, except that (i) no Credit Party may assign or otherwise
transfer any of its rights or obligations hereunder without the prior written
consent of each Lender and the Administrative Agent (and any attempted
assignment or transfer by such Credit Party 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. Nothing in this
Agreement, expressed or implied, shall be construed to confer upon any Person
(other than the parties hereto, their respective successors and assigns
permitted hereby, Participants (to the extent provided in paragraph (c) of this
Section) and, to the extent expressly contemplated hereby, the Related Parties
of each of the Administrative Agent and the Lenders) any legal or equitable
right, remedy or claim under or by reason of this Agreement.

 

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(b)

 

(i)          Subject to the conditions set forth in paragraph (b)(ii) below, any
Lender may assign to one or more Persons (other than an Ineligible Institution)
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, the Borrower shall be deemed to have
consented to an assignment unless it shall have objected thereto by written
notice to the Administrative Agent within five (5) Business Days after having
received notice thereof, provided that no consent of the Borrower shall be
required for an assignment to a Lender, an Affiliate of a Lender, a Federal
Reserve Bank, an Approved Fund or, if an Event of Default has occurred and is
continuing, any other assignee; and

 

(B)         the Administrative Agent.

 

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

 

(A)         except in the case of an assignment to a Lender, an Affiliate of a
Lender, an Approved Fund 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 in
respect of such Lender’s Commitment and such Lender’s Loans 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 be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire and any tax forms required
under Section 2.12; and

 

(E)         such assignment shall only be made to a Person if such Person is
able to make the Investment Representations and does make the Investment
Representations for the benefit of the Borrower in connection with such
assignment.

 

(F)         For the purposes of this Section 10.04(b), the term “Approved Fund”
and “Ineligible Institution” have the following meanings:

 

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“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.

 

“Ineligible Institution” means a (a) natural person, (b) company, investment
vehicle or trust for, or owned and operated for the primary benefit of, a
natural person or relative(s) thereof or (c) or the Borrower or any of its
Affiliates.

 

(i)          Subject to acceptance and recording thereof pursuant to
paragraph (b)(iv) of this Section, 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 2.11, Section 2.12 and Section 10.03). Any assignment or
transfer by a Lender of rights or obligations under this Agreement that does not
comply with this Section 10.04 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 paragraph (c) of this Section except that any attempted
assignment or transfer by any Lender that does not comply with clause (C) of
Section 10.04(b)(ii) shall be null and void.

 

(ii)         The Administrative Agent, acting for this purpose as a
non-fiduciary 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 Commitment and
the Applicable Percentage of, and principal amount (and stated interest) of the
Loans owing to, each Lender pursuant to the terms hereof from time to time (the
“Register”). The entries in the Register shall be conclusive, and the Credit
Parties, the Administrative Agent 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 Credit Parties
and any Lender, at any reasonable time and from time to time upon reasonable
prior notice.

 

(iii)        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 any applicable tax forms (unless the assignee
shall already be a Lender hereunder), the processing and recordation fee
referred to in paragraph (b) of this Section, and any written consent to such
assignment required by paragraph (b) of this Section, the Administrative Agent
shall accept such Assignment and Assumption and record the information contained
therein in the Register; provided that if either the assigning Lender or the
assignee shall have failed to make any payment required to be made by it
pursuant to Section 2.04, Section 2.13(d) or Section 10.03(c), the
Administrative Agent shall have no obligation to accept such Assignment and
Assumption and record the information therein in the Register unless and until
such payment shall have been made in full, together with all accrued interest
thereon. No assignment shall be effective for purposes of this Agreement unless
it has been recorded in the Register as provided in this paragraph.

 

(c)

 

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(i)          Any Lender may, without the consent of the Borrower or the
Administrative Agent, sell participations to one or more banks or other entities
(a “Participant”), other than an Ineligible Institution, 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,
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 first proviso to
Section 10.02(b) that affects such Participant. The Borrower agrees that each
Participant shall be entitled to the benefits of Section 2.11 and Section 2.12
(subject to the requirements and limitations therein, including the requirements
under Section 2.12(f) (it being understood, however, that the documentation
required under Section 2.12(f) shall be delivered to the participating Lender))
to the same extent as if it were a Lender and had acquired its interest by
assignment pursuant to paragraph (b) of this Section; provided that such
Participant shall not be entitled to receive any greater payment under Section
2.11 or Section 2.12, with respect to any participation, than its participating
Lender would have been entitled to receive, except to the extent such
entitlement to receive a greater payment results from a Change in Law that
occurs after the Participant acquired the applicable participation. To the
extent permitted by law, each Participant also shall be entitled to the benefits
of Section 10.08 as though it were a Lender, provided that such Participant
agrees to be subject to Section 2.13(c) as though it were a Lender. Each Lender
that sells a participation shall, acting solely for this purpose as a
non-fiduciary agent of the Borrower, maintain a register complying with the
requirements of Sections 163(f), 871(h) and 881(c)(2) of the Code and the
Treasury regulations issued thereunder relating to the exemption from
withholding for portfolio interest 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 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 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.

 

(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 or other central banking authority, and
this Section 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)          The Administrative Agent shall not be responsible or have any
liability for, or have any duty to ascertain, inquire into, monitor or enforce,
compliance with the provisions hereof relating to Ineligible Institutions.
Without limiting the generality of the foregoing, the Administrative Agent shall
not (x) be obligated to ascertain, monitor or inquire as to whether any Lender
or Participant or prospective Lender or Participant is an Ineligible Institution
or (y) have any liability with respect to or arising out of any assignment or
participation of Loans, or disclosure of confidential information, to any
Ineligible Institution.

 

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Section 10.05         Survival. All covenants, agreements, representations and
warranties made by the Credit Parties herein and in the certificates or other
instruments delivered in connection with or pursuant to this Agreement 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, regardless of any investigation made by any such other party or on its
behalf and notwithstanding that the Administrative Agent 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, premium or any other amount payable under this Agreement is outstanding
and so long as the Aggregate Commitment has not expired or terminated. The
provisions of Section 2.11, Section 2.12, Section 10.03, Article VII and Article
IX 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 Aggregate Commitment or the
termination of this Agreement or any provision hereof.

 

Section 10.06         Counterparts; Integration; Effectiveness; Electronic
Execution.

 

(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. This Agreement 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 supersede any and all previous
agreements and understandings, oral or written, relating to the subject matter
hereof. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. This Agreement shall become
effective when it shall have been executed by the Administrative Agent and when
the Administrative Agent shall have received counterparts hereof which, when
taken together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. Delivery of an executed counterpart
of a signature page of this Agreement by telecopy shall be effective as delivery
of a manually executed counterpart of this Agreement.

 

(b)          Delivery of an executed counterpart of a signature page of this
Agreement by telecopy, emailed pdf. or any other electronic means that
reproduces an image of the actual executed signature page shall be effective as
delivery of a manually executed counterpart of this Agreement. The words
“execution,” “signed,” “signature,” “delivery,” and words of like import in or
relating to any document to be signed in connection with this Agreement and the
transactions contemplated hereby shall be deemed to include Electronic
Signatures, deliveries or the keeping of records in electronic form, each of
which shall be of the same legal effect, validity or enforceability as a
manually executed signature, physical delivery thereof or the use of a
paper-based recordkeeping system, as the case may be, to the extent and as
provided for in any applicable law, including the Federal Electronic Signatures
in Global and National Commerce Act, the New York State Electronic Signatures
and Records Act, or any other similar state laws based on the Uniform Electronic
Transactions Act.

 

Section 10.07         Severability. Any provision of this Agreement 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; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.

 

Section 10.08         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 at any time
owing by such Lender or Affiliate to or for the credit or the account of the
Borrower against any of and all the obligations of any Credit Party now or
hereafter existing under this Agreement held by such Lender, irrespective of
whether or not such Lender shall have made any demand under this Agreement and
although such obligations may be unmatured. The rights of each Lender under this
Section and Section 7.08 are in addition to other rights and remedies (including
other rights of setoff) which such Lender may have.

 

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Section 10.09         GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF
PROCESS.

 

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

 

(b)          EACH CREDIT PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS,
FOR ITSELF AND ITS PROPERTY, TO THE EXCLUSIVE JURISDICTION OF the Supreme Court
of the State of New York sitting in New York County, Borough of Manhattan, and
of the United States District Court for the Southern District of New York, and
any appellate court from any thereof, IN ANY ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY
JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD
AND DETERMINED IN SUCH NEW YORK STATE OR, TO THE EXTENT PERMITTED BY LAW, IN
SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN
ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
NOTHING IN THIS AGREEMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT
OR ANY LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO
THIS AGREEMENT AGAINST ANY CREDIT PARTY OR ITS PROPERTIES IN THE COURTS OF ANY
JURISDICTION.

 

(c)          EACH CREDIT PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO
THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT IN ANY COURT REFERRED TO
IN PARAGRAPH (B) OF THIS SECTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

 

(d)          EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO SERVICE OF
PROCESS IN THE MANNER PROVIDED FOR NOTICES IN Section 10.01. NOTHING IN THIS
AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS
IN ANY OTHER MANNER PERMITTED BY LAW.

 

Section 10.10         WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

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Section 10.11         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 10.12         Confidentiality. Each of the Administrative Agent and the
Lenders agrees to maintain the confidentiality of the Information (as defined
below), except that Information may be disclosed (a) to its and its Affiliates’
directors, officers, employees and agents, including accountants, legal counsel
and other advisors (it being understood that the Persons to whom such disclosure
is made will be informed of the confidential nature of such Information and
instructed to keep such Information confidential), (b) to the extent requested
by any regulatory authority (including any self-regulatory authority, such as
the National Association of Insurance Commissioners), (c) to the extent required
by Requirements of Law or by any subpoena or similar legal process, (d) to any
other party to this Agreement, (e) in connection with the exercise of any
remedies hereunder or any suit, action or proceeding relating to this Agreement
or the enforcement of rights hereunder, (f) subject to an agreement containing
provisions substantially the same as those of this Section, 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 or derivative transaction relating to
the Credit Parties and their 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 or (ii) becomes available to the
Administrative Agent or any Lender on a nonconfidential basis from a source
other than a Credit Party. For the purposes of this Section, “Information” means
all information received from any Credit Party relating to any Credit Party or
its business, other than any such information that is available to the
Administrative Agent or any Lender on a nonconfidential basis prior to
disclosure by any Credit Party; provided that, in the case of information
received from any Credit 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 shall
be considered to have complied with its obligation to do so if such Person has
exercised the same degree of care to maintain the confidentiality of such
Information as such Person would accord to its own confidential information.

 

Section 10.13         Material Non-Public Information.

 

(a)          EACH LENDER ACKNOWLEDGES THAT INFORMATION AS DEFINED IN SECTION
10.12 FURNISHED TO IT PURSUANT TO THIS AGREEMENT MAY INCLUDE MATERIAL NON-PUBLIC
INFORMATION CONCERNING THE BORROWER AND ITS RELATED PARTIES OR THEIR RESPECTIVE
SECURITIES, AND CONFIRMS THAT IT HAS DEVELOPED COMPLIANCE PROCEDURES REGARDING
THE USE OF MATERIAL NON-PUBLIC INFORMATION AND THAT IT WILL HANDLE SUCH MATERIAL
NON-PUBLIC INFORMATION IN ACCORDANCE WITH THOSE PROCEDURES AND APPLICABLE LAW,
INCLUDING FEDERAL AND STATE SECURITIES LAWS.

 

(b)          ALL INFORMATION, INCLUDING REQUESTS FOR WAIVERS AND AMENDMENTS,
FURNISHED BY THE BORROWER OR THE ADMINISTRATIVE AGENT PURSUANT TO, OR IN THE
COURSE OF ADMINISTERING, THIS AGREEMENT WILL BE SYNDICATE-LEVEL INFORMATION,
WHICH MAY CONTAIN MATERIAL NON-PUBLIC INFORMATION ABOUT THE BORROWER, THE CREDIT
PARTIES AND THEIR RELATED PARTIES OR THEIR RESPECTIVE SECURITIES. ACCORDINGLY,
EACH LENDER REPRESENTS TO THE BORROWER AND THE ADMINISTRATIVE AGENT THAT IT HAS
IDENTIFIED IN ITS ADMINISTRATIVE QUESTIONNAIRE A CREDIT CONTACT WHO MAY RECEIVE
INFORMATION THAT MAY CONTAIN MATERIAL NON-PUBLIC INFORMATION IN ACCORDANCE WITH
ITS COMPLIANCE PROCEDURES AND APPLICABLE LAW.

 

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Section 10.14         [Reserved].

 

Section 10.15         Interest Rate Limitation. Notwithstanding anything herein
to the contrary, if at any time the interest rate applicable to any Loan,
together with all fees, charges and other amounts which are treated as interest
on such Loan under applicable law (collectively the “Charges”), shall exceed the
maximum lawful rate (the “Maximum Rate”) which may be contracted for, charged,
taken, received or reserved by the Lender holding such Loan in accordance with
applicable law, the rate of interest payable in respect of such Loan hereunder,
together with all Charges payable in respect thereof, shall be limited to the
Maximum Rate and, to the extent lawful, the interest and Charges that would have
been payable in respect of such Loan but were not payable as a result of the
operation of this Section shall be cumulated and the interest and Charges
payable to such Lender in respect of other Loans or periods shall be increased
(but not above the Maximum Rate therefor) until such cumulated amount, together
with interest thereon at the Federal Funds Effective Rate to the date of
repayment, shall have been received by such Lender. In the event that,
notwithstanding Section 10.09, applicable law is the law of the State of Texas
and such applicable law provides for an interest ceiling under Chapter 303 of
the Texas Finance Code (the “Texas Finance Code”) as amended, for each day, the
ceiling shall be the “weekly ceiling” as defined in the Texas Finance Code and
shall be used in this Note and the other Loan Documents for calculating the
Maximum Rate and for all other purposes. Chapter 346 of the Texas Finance Code
(which regulates certain revolving credit accounts (formerly Tex. Rev. Civ.
Stat. Ann. Art. 5069, Ch. 15)) shall not apply to this Agreement or to any Loan,
nor shall this Agreement or any Loan be governed by or be subject to the
provisions of such Chapter 346 in any manner whatsoever.

 

Section 10.16         USA PATRIOT Act. Each Lender that is subject to the
requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into
law October 26, 2001)) (the “Act”) and the Administrative Agent hereby notifies
each Credit Party that pursuant to the requirements of the Act, it is required
to obtain, verify and record information that identifies each Credit Party,
which information includes the name and address of each Credit Party and other
information that will allow such Lender or the Administrative Agent to identify
each Credit Party in accordance with the Act.

 

Section 10.17         Release of Guarantees and Liens.

 

(a)          At such time as the Loans and the other obligations under the Loan
Documents (other than contingent indemnification obligations) shall have been
paid in full and the Aggregate Commitment has been terminated, the Collateral
shall be released from the Liens created by the Security Documents, and the
Security Documents and all obligations (other than those expressly stated to
survive such termination) of each Credit Party under the Security Documents
shall terminate, all without delivery of any instrument or performance of any
act by any Person; and

 

(b)          If any of the Collateral shall be sold, transferred or otherwise
disposed of by the Borrower or any Subsidiary in a transaction permitted by this
Agreement, then the Administrative Agent, at the request and sole expense of the
Borrower or any Subsidiary, shall execute and deliver to the Borrower or any
Subsidiary all releases or other documents reasonably necessary or desirable for
the release of the Liens created by the Security Documents on such Collateral.
At the request and sole expense of the Borrower, a Guarantor shall be released
from its obligations hereunder and under the other Security Documents in the
event that all the Capital Stock of such Guarantor shall be Disposed of in a
transaction permitted by this Agreement; provided that, in the case of this
sentence and the immediately prior sentence, the Borrower shall have delivered
to the Administrative Agent, at least five (5) Business Days prior to the date
of the proposed release (or such shorter time as the Lead Lender may agree but
in any event not less than three (3) Business Days unless otherwise agreed by
the Administrative Agent), a written request for release identifying the
relevant Guarantor, summarizing the transaction and stating that such
transaction is in compliance with this Agreement and the other Loan Documents
(and the Lenders hereby authorize and direct the Administrative Agent to
conclusively rely on such certifications in performing its obligations under
this Section 10.17).

 

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Section 10.18         Board Observer Right and Board Seats Upon Conversion. On
the Effective Date and until the Term Loan Conversion, the Lead Lender will have
the right to appoint one non-voting observer (who shall be reasonably acceptable
to the Borrower) to the Board of Directors (the “Board Observer”),who shall be
entitled, in the Board Observer’s capacity as such, to attend meetings of the
Board of Directors and to receive all materials distributed to all members of
the Board of Directors; provided, however, that (i) the Board Observer shall be
allowed to observe only meetings of the full Board of Directors and of the Board
of Director’s executive committee or other committee serving a similar function,
if any, and not any meetings of any other committee of the Board of Directors,
(ii) the Board Observer shall in no circumstances have any right to participate
in any vote, consent or other action of the Board of Directors or any committee
thereof; and (iii) the Board Observer may be excluded from any meeting of the
Board of Directors (or any such executive or similar committee) or portion
thereof and may be prohibited from receiving any related materials (A) if the
Board of Directors determines in good faith that such exclusion is necessary to
preserve attorney-client, work product or similar privilege, or to comply with
applicable law, or (B) if the Board of Directors determines in good faith that
there exists, with respect to the subject matter of any such meeting or the
related materials, an actual or potential conflict of interest between the Board
Observer or any Affiliate of the Board Observer and the Borrower.

 

Immediately after the Term Loan Conversion, and for so long as the Lenders
continue to hold in the aggregate at least the percentage of the outstanding
Common Stock as set forth in the chart below, the Lenders shall have the right
to appoint the corresponding number of members to the Board of Directors (who
shall be reasonably acceptable to the Borrower) and the number of directors
constituting the entire Board of Directors shall be increased commensurately to
account for such additional director(s). Notwithstanding the foregoing, the
number of directors the Lenders shall have the right to appoint shall be reduced
if necessary so that the number of directors which may be appointed by the
Lenders (rounding down to the nearest whole number of directors) does not exceed
the percentage of the total number of members of the Board of Directors
corresponding to the percentage of the voting power of the outstanding Voting
Securities held by the Lenders.

 

Common Stock Percentage   Number of Directors ≥ 20.00%   Two (2) < 20.00% and ≥
12.50%   One (1) < 12.50%   Zero (0)

 

Section 10.19         Acknowledgement and Consent to Bail-In of EEA Financial
Institutions.

 

Notwithstanding anything to the contrary in any Loan Document or in any other
agreement, arrangement or understanding among any such parties, each party
hereto acknowledges that any liability of any EEA Financial Institution arising
under any Loan Document, to the extent such liability is unsecured, may be
subject to the write-down and conversion powers of an EEA Resolution Authority
and agrees and consents to, and acknowledges and agrees to be bound by

 

(a)          the application of any Write-Down and Conversion Powers by an EEA
Resolution Authority to any such liabilities arising hereunder which may be
payable to it by any party hereto that is an EEA Financial Institution; and

 

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(b)          the effects of any Bail-in Action on any such liability, including,
if applicable:

 

(i)          a reduction in full or in part or cancellation of any such
liability;

 

(ii)         a conversion of all, or a portion of, such liability into shares or
other instruments of ownership in such EEA Financial Institution, its parent
entity, or a bridge institution that may be issued to it or otherwise conferred
on it, and that such shares or other instruments of ownership will be accepted
by it in lieu of any rights with respect to any such liability under this
Agreement or any other Loan Document; or

 

(iii)        the variation of the terms of such liability in connection with the
exercise of the write-down and conversion powers of any EEA Resolution
Authority.

 

Section 10.20         Intercreditor.

 

Each Lender hereunder (a) consents to the subordination of Liens provided for in
any Approved Intercreditor Agreement, (b) agrees that it will be bound by and
will take no actions contrary to the provisions of any Approved Intercreditor
Agreement as if it was a signatory thereto and (d) authorizes and instructs the
Administrative Agent and the Collateral Agent to enter into any Approved
Intercreditor Agreement (including any and all amendments, amendments and
restatements, modifications, supplements and acknowledgements thereto permitted
hereby from time to time) as Administrative Agent or Collateral Agent, as
applicable, and on behalf of such Lender, and by its acceptance of the benefits
of the Security Documents, hereby acknowledges and agrees to be bound by such
provisions. Notwithstanding anything herein to the contrary, each Lender, the
Administrative Agent and the Collateral Agent acknowledges that the Lien and
security interest granted to the Collateral Agent pursuant to the Security
Documents and the exercise of any right or remedy by the Administrative Agent
and/or the Collateral Agent thereunder, are subject to the provisions of any
Approved Intercreditor Agreement. In the event of a conflict or any
inconsistency between the terms of any Approved Intercreditor Agreement and the
Security Documents, the terms of such Approved Intercreditor Agreement shall
prevail. The foregoing provisions are intended as an inducement to the lenders
under any Revolving Debt and Existing First Lien Debt to permit the incurrence
of Obligations under this Agreement and to extend credit to the Borrower and
such lenders are intended third party beneficiaries of such provisions.

 

Article XI.

CONVERSIONS

 

Section 11.01         Term Loan Conversion. At the sole election of the Lead
Lender, the Term Loan shall be convertible in full, but not in part, at any time
as set forth below:

 

(a)          Common Stock Conversion. 70.0% of the outstanding principal amount
of the Term Loan, together with accrued and unpaid interest thereon and the
Make-Whole Amount, shall convert into a number of shares of Common Stock
determined by dividing (i) the sum of (A) the aggregate principal amount of the
Term Loan converted plus (B) (I) accrued and unpaid interest on such principal
amount and (II) the Make-Whole Amount by (ii) the Conversion Price; and

 

(b)          Term Loan Take Back Debt. 30.0% of the outstanding principal amount
of the Term Loan, together with accrued and unpaid interest thereon and the
Make-Whole Amount, shall convert into a newly issued second lien term loan (the
“Term Loan Take Back Debt”) on a dollar-for-dollar basis based on such
outstanding principal amount of the Term Loan and accrued and unpaid interest on
such principal amount and the Make-Whole Amount, with (i) an interest rate of
LIBOR + 9.00% (subject to a 1.00% LIBOR floor) payable in cash quarterly in
arrears, (ii) a maturity date consistent with the Term Loan Facility, (iii) no
conversion feature, and (iv) covenants, events of default and other terms
otherwise consistent with this Agreement (the provisions of clauses (a) and (b),
the “Term Loan Conversion”);

 

 Page 87 

 

 

provided, however, to the extent that a Requisite Shareholder Approval would be
required to effectuate the Term Loan Conversion under the listing rules of the
Primary Exchange and such Requisite Shareholder Approval has not been obtained,
then (i) the number of shares of Common Stock issued to any Lender pursuant to
the Term Loan Conversion shall be limited such that it would not result in such
Lender, together with its Affiliates and the other members of any “group” (as
such term is used in sections 13(d) and 14(d) of the Exchange Act) including
such Lender, owning in excess of 19.999% of (A) the outstanding Common Stock or
(B) the voting power of the outstanding Voting Securities on the date of the
Term Loan Conversion after giving effect to the Term Loan Conversion and any
contemporaneous Delayed Draw Term-Loan Conversion and (ii) if any shares of
Common Stock otherwise issuable to any Lender pursuant to the Term Loan
Conversion are not so issued because of the limitation in the foregoing clause
(i), the Borrower shall issue to such Lender shares of Lender Preferred Stock
convertible into the number of shares of Common Stock not so issued to such
Lender.

 

Notwithstanding anything herein to the contrary, the Lenders shall agree not to
sell or assign the Term Loan Take Back Debt until the earlier to occur of (i)
the Borrower providing consent to such sale or assignment, (ii) two (2) years
after the date of the Term Loan Conversion, and (iii) the Term Loan Maturity
Date.

 

Section 11.02         Delayed Draw Term Loan Conversion. At the sole election of
the Lead Lender, the Delayed Draw Term Loans shall be convertible in full, but
not in part, at any time as set forth below:

 

(a)          Common Stock Conversion. 70.0% of the outstanding principal amount
of the Delayed Draw Term Loans, together with accrued and unpaid interest
thereon and the Make-Whole Amount, shall convert into a number of shares of
Common Stock determined by dividing (i) the sum of (A) the aggregate principal
amount of the Delayed Draw Term Loans converted plus (B) (I) accrued and unpaid
interest on such principal amount and (II) the Make-Whole Amount by (ii) the
Conversion Price ; and

 

(b)          Delayed Draw Take Back Debt. 30.0% of the outstanding principal
amount of the Delayed Draw Term Loans, together with accrued and unpaid interest
thereon and the Make-Whole Amount, shall convert into a newly issued second lien
term loan (the “Delayed Draw Take Back Debt”) on a dollar-for-dollar basis based
on such outstanding principal amount of the Delayed Draw Term Loans and accrued
and unpaid interest on such principal amount, with (i) an interest rate equal to
LIBOR + 9.00% (subject to a 1.00% LIBOR floor) payable in cash quarterly in
arrears, (ii) a maturity date consistent with the Term Loan Facility, (iii) no
conversion feature, and (iv) covenants, events of default and other terms
otherwise consistent with the Term Loan Facility and the Documentation
Considerations (the “Delayed Draw Term Loan Conversion”);

 

provided, however, to the extent that a Requisite Shareholder Approval would be
required to effectuate the Delayed Draw Term Loans Conversion under the listing
rules of the Primary Exchange and such Requisite Shareholder Approval has not
been obtained, then (i) the number of shares of Common Stock issued to any
Lender pursuant to the Delayed Draw Term Loans Conversion shall be limited such
that it would not result in such Lender, together with its Affiliates and the
other members of any “group” (as such term is used in sections 13(d) and 14(d)
of the Exchange Act) including such Lender, owning in excess of 19.999% of (A)
the outstanding Common Stock or (B) the voting power of the outstanding Voting
Securities on the date of the Delayed Draw Term Loan Conversion after giving
effect to the Delayed Draw Term-Loan Conversion and any contemporaneous Term
Loan Conversion and (ii) if any shares of Common Stock otherwise issuable to any
Lender pursuant to the Delayed Draw Term Loans Conversion are not so issued
because of the limitation in the foregoing clause (A), the Borrower shall issue
to such Lender shares of Lender Preferred Stock convertible into the number of
shares of Common Stock not so issued to such Lender.

 

 Page 88 

 

 

Notwithstanding anything herein to the contrary, the Lenders shall agree not to
sell or assign the Delayed Draw Take Back Debt until the earlier to occur of (i)
the Borrower providing consent to such sale or assignment, (ii) two (2) years
after the date of the Delayed Draw Term Loans Conversion, and (iii) the Delayed
Draw Term Loan Maturity Date.

 

Section 11.03         Fractional Shares. No fractional shares of Common Stock
and/or Lender Preferred Stock shall be issued upon any Conversion. In lieu of
any fractional shares to which the holder would otherwise be entitled, the
Borrower shall pay cash equal to such fraction multiplied by the fair market
value of a share of Common Stock and/or Lender Preferred Stock, as applicable,
as determined in good faith by the Borrower. Whether or not fractional shares
would be issuable to any Lender upon such Conversion shall be determined on the
basis of the total number of shares of Common Stock and or Lender Preferred
Stock, as applicable, issuable to such Lender.

 

Section 11.04         Conversion at the Option of the Borrower. At any time and
from time to time, so long as no Default or Event of Default has occurred and is
continuing, the Borrower will have the right (the “Borrower Conversion Right”)
to cause the conversion of all or any part of the Term Loan and the Delayed Draw
Term Loans into a number of shares of Common Stock determined by dividing (i)
the sum of (A) the aggregate principal amount of the Term Loan or Delayed Draw
Term Loans converted plus (B) accrued and unpaid interest on such principal
amount by (ii) the Conversion Price, so long as the closing price of the Common
Stock on the Primary Exchange has been at least 150.00% of the Conversion Price
then in effect for at least twenty (20) of the thirty (30) consecutive Trading
Days immediately preceding the date of exercise of such Borrower Conversion
Right. If the Borrower exercises the Borrower Conversion Right with respect to
less the entire principal amount of the Term Loan or the Delayed Draw Term
Loans, such Conversion shall apply to each Lender’s Loans pro rata in accordance
with its Applicable Percentage.

 

Section 11.05         Method of Conversion. To effect a Conversion of any Loan
pursuant to Section 11.01 or 11.02, the Lead Lender shall deliver to the
Borrower and the Administrative Agent a duly executed Lender Conversion Notice.
To exercise the Borrow Conversion Right, the Borrower shall deliver to the
Administrative Agent and the Lead Lender a duly executed Borrower Conversion
Notice. At its expense, the Borrower will, as soon as practicable after any
Conversion Date, issue and deliver to each Lender, at such principal office, a
certificate or certificates for the number of shares of Common Stock and, if
applicable, Lender Preferred Stock to which such Lender is entitled upon such
Conversion, together with any other securities and property to which such Lender
is entitled upon such Conversion under the terms of this Agreement, including a
check payable to such Lender for any cash payable in lieu of any fractional
share. Each such Lender shall be treated as the holder of record of such shares
of Common Stock and/or Lender Preferred Stock as of the close of business on the
Conversion Date. In connection with any Lender Conversion, the parties, as
promptly as reasonably practicable after the Conversion Date, will execute and
deliver a credit agreement having the terms for the Term Loan Take Back Debt or
the Delayed Draw Take Back Debt, as applicable, specified in Section 11.01(b) or
11.02(b), as applicable. Upon any Conversion, the Borrower and the other Credit
Parties will be forever released from all of their obligations and liabilities
under the Loans with regard to that portion of the principal amount, and accrued
and unpaid interest thereon, being converted, including without limitation the
obligation to pay such portion of the principal amount and accrued and unpaid
interest thereon; provided that, for the avoidance of doubt, upon such release,
the Credit Parties shall not be released from any contingent indemnification
obligations and those other obligations expressly stated to survive termination
of this Agreement.

 

 Page 89 

 

 

Section 11.06         Certain Covenants.

 

(a)          The Borrower shall at all times reserve and keep available out of
its authorized but unissued capital stock, for the purpose of effecting the
Conversions, such number of its duly authorized shares of Common Stock and
Preferred Stock, as applicable, as shall from time to time be sufficient to
effect the Conversions; and if at any time the number of authorized but unissued
shares of Common Stock and Preferred Stock, as applicable, shall not be
sufficient to effect the Conversions, the Borrower shall take such corporate
action as may be necessary to increase its authorized but unissued shares of
Common Stock and/or Preferred Stock, as applicable, to such number of shares as
shall be sufficient for such purposes, including, without limitation, engaging
in commercially reasonable best efforts to obtain any required shareholder
approval of any necessary amendment to the Borrower’s charter.

 

(b)          The Borrower shall file the Certificate of Designations with the
Secretary of State of the State of Nevada promptly upon (i) the failure of the
Requisite Shareholder Approval to be obtained when the matters set forth in
Section 5.18 are first submitted to a vote of the Borrower’s shareholders or
(ii) the receipt by the Borrower, prior to the date such matters are first
submitted to a vote of the Borrower’s shareholders, of a Lender Conversion
Notice for a Conversion pursuant to which shares of Lender Preferred Stock are
required to be issued. The Borrower shall not be obligated to file the
Certificate of Designations if it has not previously been filed at the time the
Requisite Shareholder Approval is obtained. The Borrower shall promptly notify
the Lead Lender of (1) the receipt of the Requisite Shareholder Approval, or (2)
any failure or projected failure to obtain the Requisite Shareholder Approval.

 

(c)          The Borrower covenants that all shares of Common Stock and Lender
Preferred Stock, as applicable, issued upon any Conversion will be fully paid
and non-assessable by the Borrower and free from all taxes, liens (other than
any Lien created by any Lender) and charges with respect to the issue thereof
and will be issued in compliance with all applicable securities laws, including
the Securities Act (assuming the accuracy of each Lender’s Investment
Representations), and entitled to the benefits of the Registration Rights
Agreement (subject to the terms thereof).

 

(d)          The Borrower covenants that, if any shares of Common Stock or
Preferred Equity to be provided for the purpose of the Conversions hereunder
require registration with or approval of any governmental authority under any
federal or state law before such shares of Common Stock or Preferred Equity may
be validly issued upon conversion, the Borrower will use commercially reasonable
efforts to secure such registration or approval, as the case may be.

 

(e)          The Borrower further covenants that if at any time the Common Stock
shall be listed on any national securities exchange or automated quotation
system the Borrower will list and keep listed, so long as the Common Stock shall
be so listed on such exchange or automated quotation system, any Common Stock
issuable upon any Conversion or upon conversion of any Lender Preferred Stock.
In connection with the initial listing of the Common Stock on any national
securities exchange that, upon such listing, will be the Primary Exchange, the
Borrower will use commercially reasonable efforts to ensure that it maintains
compliance with the listing rules of such new Primary Exchange in connection
with the performance by it of the terms of this Agreement.

 

 Page 90 

 

 

(f)          If, in connection with any Conversion, the Borrower or any Lender
determines, after consultation with counsel, that any filings are required to be
made pursuant to the HSR Act or any other Antitrust Laws in connection with the
acquisition of Common Stock by such Lender pursuant to such Conversion, the
Borrower and such Lender shall, and shall cause their respective Affiliates to,
undertake commercially reasonable efforts to make or cause to be made promptly
the filings required of such party or its Affiliates pursuant to the HSR Act or
any other Antitrust Laws; provided, however, that all fees payable to any
Governmental Authorities relating to filings required to be made pursuant to the
HSR Act or other Antitrust Laws shall be paid and borne by such Lender. In
furtherance and not in limitation of the foregoing, the Borrower and such Lender
shall, to the extent permissible by law, (i) cooperate with the other party and
furnish to the other party all information in such party’s possession that is
reasonably necessary in connection with such other party’s filings; (ii)
promptly inform the other party of, and supply to such other party copies of,
any material communication (or other correspondence or memoranda) from or to,
and any proposed understanding or agreement with, any Governmental Authority in
respect of such filings; (iii) consult and cooperate with the other party and
provide each other with a reasonable opportunity to provide comments in
connection with any analyses, appearances, presentations, memoranda, briefs,
arguments, and opinions made or submitted by or on behalf of any party in
connection with all meetings, actions and proceedings with any Governmental
Authority relating to such filings; and (iv) comply, as promptly as is
reasonably practicable, with any requests received by such party or any of its
Affiliates under the HSR Act or any other Antitrust Law for additional
information, documents, or other materials. If either party intends to
participate in any material communication or meeting with any Governmental
Authority with respect to such filings, it shall give the other party reasonable
notice thereof and, to the extent permitted by the Governmental Authority, an
opportunity to participate in any such meeting or communication. Notwithstanding
anything in this Section 11.06(f) to the contrary, in no event shall the
Borrower or any of its Affiliates or such Lender or any of its Affiliates be
required, under the HSR Act or otherwise, to (i) propose, negotiate, agree to or
effect, by consent decree, hold separate order or otherwise, the sale,
divestiture or disposition of any assets or businesses of such Person, (ii)
accept any condition, undertake any obligation, or take or refrain from taking
any action that would limit such Person’s freedom of action with respect to, or
its ability to own or operate, any of its businesses or assets; (iii) contest,
resist or seek to have vacated, lifted, reversed or overturned any governmental
order or judicial order that is in effect that prohibits, prevents or restricts
the consummation of the transactions contemplated by this Agreement; or (iv)
litigate or defend against any administrative or judicial action or proceeding
(including any proceeding seeking a temporary restraining order or preliminary
injunction) challenging any of the transactions contemplated by this Agreement.

 

Section 11.07         Lender Investment Representations. Each Lender, severally
and not jointly, represents and warrants to the Borrower as follows (such
representations and warranties, the “Investment Representations”): (i) such
Lender is an “accredited investor,” as such term is defined in Rule 501 of
Regulation D promulgated under the Securities Act, (ii) the Loans made by such
Lender hereunder and any acquisition of Common Stock or Lender Preferred Stock
by such Lender in accordance with the terms hereof are and will be made for its
own account and not with a view to a sale, distribution or other disposition
thereof in violation of the Securities Act or any applicable state or foreign
securities laws, and (iii) such Lender acknowledges and understands that the
Loans and the shares of Common Stock and Lender Preferred Stock issuable
hereunder have not been registered under the Securities Act in reliance on an
exemption therefrom and may not be sold, transferred, offered for sale, pledged,
hypothecated, or otherwise disposed of, except pursuant to an effective
registration statement under the Securities Act or pursuant to an exemption from
the registration requirements of the Securities Act, and in compliance with
applicable state and foreign securities Laws.

 

[Signature Page Follows]

 

 Page 91 

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.

 

  BORROWER:       LILIS ENERGY, INC.

 

  By: /s/ Abraham Mirman   Name: Abraham Mirman   Title: Chief Executive Officer

 

 

 

 

  GUARANTORS:       BRUSHY RESOURCES, INC.

 

  By: /s/ Abraham Mirman   Name: Abraham Mirman   Title: Chief Executive Officer
and President

 

  LILIS OPERATING COMPANY, LLC

 

  By: /s/ Abraham Mirman   Name: Abraham Mirman   Title: Member of the Board of
Managers

 

  IMPETRO OPERATING, LLC

 

  By: /s/ Abraham Mirman   Name: Abraham Mirman   Title: Chief Executive Officer
and President

 

  IMPETRO RESOURCES, LLC

 

  By: /s/ Abraham Mirman   Name: Abraham Mirman   Title: Chief Executive Officer
and President

 

 

 

 

 

  WILMINGTON TRUST, NATIONAL ASSOCIATION,   as Administrative Agent

 

  By: /s/ Joshua G. James   Name: Joshua G. James   Title: Vice President

 

 

 

 

  Severally and not jointly for each entity listed
below:

 

  By: /s/ Markus Specks   Name: Markus Specks   Title: Managing Director

 

  THE VÄRDE FUND VI-A, L.P., as a Lender  
By: Värde Investment Partners G.P., LLC, Its General Partner   
By: Värde Partners, L.P., Its Managing Member  
By: Värde Partners, Inc., Its General Partner      
VÄRDE INVESTMENT PARTNERS, L.P., as a Lender  
By: Värde Investment Partners G.P., LLC, Its General Partner   
By: Värde Partners, L.P., Its Managing Member  
By: Värde Partners, Inc., Its General Partner      
THE VÄRDE FUND XI (MASTER), L.P., as a Lender  
By: Värde Fund XI G.P., LLC, Its General Partner   
By: Värde Partners, L.P., Its Managing Member   
By: Värde Partners, Inc., Its General Partner      
VÄRDE INVESTMENT PARTNERS (OFFSHORE)   MASTER, L.P., as a Lender  
By: Värde Investment Partners G.P., LLC, Its General Partner   
By: Värde Partners, L.P., Its Managing Member  
By: Värde Partners, Inc., Its General Partner      
THE VÄRDE SKYWAY MASTER FUND, L.P., as a Lender  
By: The Värde Skyway Fund G.P., LLC, Its General Partner   
By: Värde Partners, L.P., Its Managing Member  
By: Värde Partners, Inc., Its General Partner      
THE VÄRDE FUND XII (MASTER), L.P., as a Lender  
By: The Värde Fund XII G.P., L.P., Its General Partner   
By: The Värde Fund XII UGP, LLC, Its General Partner   
By: Värde Partners, L.P., Its Managing Member  
By: Värde Partners, Inc., Its General Partner

 

Signature Page to Credit Agreement

 

 

EXHIBIT A

 

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,
restated, amended and restated, supplemented or otherwise modified from time to
time, 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 Credit Agreement (including any
guarantees included in the Credit Agreement) 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]]

 

3.Borrower:Lilis Energy, Inc., a Nevada corporation

 

4.Administrative Agent: Wilmington Trust, National Association, as the
administrative agent under the Credit Agreement

 

5.Credit Agreement:Credit Agreement, dated as of April 26, 2017 among Lilis
Energy, Inc., as Borrower, certain Subsidiaries of Borrower, as Guarantors, the
Lenders party thereto, and Wilmington Trust, National Association, as
Administrative Agent

 

6.Assigned Interest:

 

Aggregate Commitment/Loans for
all Lenders   Amount of Commitment/Loans
Assigned   Applicable Percentage of
Commitment/Loans  $    $      % $    $      % $    $      %

 

EXHIBIT A – PAGE 1

 

 

Effective Date: _____________ ___, 20___

 

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:

 

EXHIBIT A – PAGE 2

 

 

[Consented to and] Accepted:

 

WILMINGTON TRUST, NATIONAL ASSOCIATION,
as Administrative Agent

 

By:       Title:

 

[Consented to:]

 

LILIS ENERGY, INC.

 

By:       Title:

 

EXHIBIT A – PAGE 3

 

 

ANNEX 1

 

Credit Agreement dated as of April 26, 2017 among Lilis Energy, Inc., as
Borrower, certain Subsidiaries of Borrower, as Guarantors, the Lenders party
thereto and Wilmington Trust, National Association, as Administrative Agent.

 

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 Subsidiary or Affiliates or any other Person obligated in
respect of any Loan Document or (iv) the performance or observance by the
Borrower, any Subsidiary 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
is not an Ineligible Institution and satisfies all other 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 5.01 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. Further, the Assignee makes the Investment
Representations, and agrees that such Investment Representations are made for
the benefit of the Borrower.

 

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 respective Assignees.

 

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.
Acceptance and adoption of the terms of this Assignment and Assumption by the
Assignee and the Assignor by Electronic Signature or delivery of an executed
counterpart of a signature page of this Assignment and Assumption by any
Electronic System 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.

 

ANNEX 1 OF EXHIBIT A – PAGE 1

 

 

EXHIBIT B

 

FORM OF BORROWING REQUEST

 

Wilmington Trust, National Association, as Administrative Agent

ADDRESS

Fax No.:

Email address:

 

[Date]

 

Ladies and Gentlemen:

 

The undersigned, LILIS ENERGY, INC., a Nevada corporation (the “Borrower”),
refers to that certain Credit Agreement, dated as of April 26, 2017 (as may be
amended, restated, amended and restated, replaced, refinanced, supplemented or
otherwise modified from time to time, the “Credit Agreement”), among the
Borrower, the Guarantors from time to time party thereto, the Lenders from time
to time party thereto, and Wilmington Trust, National Association, as
administrative agent for the Lenders (in such capacity, including any successor
thereto, the “Administrative Agent”). Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to such terms in the
Credit Agreement.

 

The Borrower hereby gives you notice pursuant to Section 2.03 of the Credit
Agreement that it requests a borrowing of Loans under the Credit Agreement, and
in connection therewith sets forth below the terms on which such borrowing is
requested to be made:

 

(A)Date of Borrowing

(which is a Business Day)                         ______________________

 

(B)Aggregate Amount of Loan        ______________________

 

(C)Funds are requested to be disbursed to the following account of Borrower:

 

                 

 

[Remainder of page intentionally left blank]

 

EXHIBIT B – PAGE 1

 

 

  LILIS ENERGY, INC.

 

  By:       Name:     Title:

 

EXHIBIT B – PAGE 2

 

 

EXHIBIT C

 

COUNTERPART AGREEMENT

 

This COUNTERPART AGREEMENT, dated [_____________] (this “Counterpart Agreement”)
is delivered pursuant to that certain Credit Agreement, dated as of April 26,
2017 (as it may be amended, supplemented, restated or otherwise modified from
time to time, the “Credit Agreement”; the terms defined therein and not
otherwise defined herein being used herein as therein defined), by and among
Lilis Energy, Inc., as Borrower, certain Subsidiaries of Borrower, as
Guarantors, the Lenders party thereto, and Wilmington Trust, National
Association, as Administrative Agent (the “Administrative Agent”).

 

Section 1. Pursuant to Section 5.14 of the Credit Agreement, the undersigned
hereby:

 

(a)        agrees that this Counterpart Agreement may be attached to the Credit
Agreement and that by the execution and delivery hereof, the undersigned becomes
a Guarantor under the Credit Agreement and agrees to be bound by all of the
terms thereof;

 

(b)         represents and warrants that each of the representations and
warranties set forth in the Credit Agreement and each other Loan Document and
applicable to the undersigned is true and correct in all material respects both
before and after giving effect to this Counterpart Agreement (other than those
representations and warranties that are subject to a materiality qualifier, in
which case such representations and warranties shall be true and correct in all
respects), except to the extent that any such representation and warranty
relates solely to any earlier date, in which case such representation and
warranty is true and correct in all material respect as of such earlier date
(other than those representations and warranties that are subject to a
materiality qualifier, in which case such representations and warranties shall
be true and correct in all respects as of such earlier date), if applicable to
the undersigned;

 

(c)         certifies that no Default has occurred or is continuing as of the
date hereof, or will result from the transactions contemplated hereby on the
date hereof;

 

(d)         agrees to irrevocably and unconditionally guaranty the due and
punctual payment in full of all Obligations when the same shall become due,
whether at stated maturity, by required prepayment, declaration, acceleration,
demand or otherwise (including amounts that would become due but for the
operation of the automatic stay under Section 362(a) of the Bankruptcy Code,
11 U.S.C. § 362(a)) and in accordance with Article VII of the Credit Agreement;
and

 

(e)         (i) agrees that this counterpart may also be attached to the
Security Agreement, (ii) agrees that the undersigned will comply with all the
terms and conditions of the Security Agreement as if it were an original
signatory thereto, (iii) grants to the Administrative Agent a security interest
in all of the undersigned’s right, title and interest in and to all “Collateral”
(as such term is defined in the Security Agreement) of the undersigned, in each
case whether now or hereafter existing or in which the undersigned now has or
hereafter acquires an interest and wherever the same may be located and (iv)
delivers to the Administrative Agent supplements to all schedules attached to
the Security Agreement. All such Collateral shall be deemed to be part of the
“Collateral” and hereafter subject to each of the terms and conditions of the
Security Agreement.

 

Section 2. The undersigned agrees from time to time, upon request of the
Administrative Agent, to take such additional actions and to execute and deliver
such additional documents and instruments as the Administrative Agent may
reasonably request to effect the transactions contemplated by, and to carry out
the intent of, this Counterpart Agreement. Neither this Counterpart Agreement
nor any term hereof may be changed, waived, discharged or terminated, except by
an instrument in writing signed by the party (including, if applicable, any
party required to evidence its consent to or acceptance of this Counterpart
Agreement) against whom enforcement of such change, waiver, discharge or
termination is sought. Any notice or other communication herein required or
permitted to be given shall be given pursuant to Section 11.01 of the Credit
Agreement, and for all purposes thereof, the notice address of the undersigned
shall be the address as set forth on the signature page hereof. In case any
provision in or obligation under this Agreement shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions or obligations, or of such provision or obligation in
any other jurisdiction, shall not in any way be affected or impaired thereby.

 

EXHIBIT C – PAGE 1

 

 

THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
CONFLICT OF LAWS PRINCIPLES THEREOF.

 

EXHIBIT C – PAGE 2

 

 

IN WITNESS WHEREOF, the undersigned has caused this Counterpart Agreement to be
duly executed and delivered by its duly authorized officer as of the date above
first written.

 

  [NAME OF SUBSIDIARY]

 

  By:       Name:     Title:

 

Address for Notices:

 

______________

______________

______________

Attention:

Telecopier:

 

with a copy to:

 

______________

______________

______________

Attention:

Telecopier:

 

ACKNOWLEDGED AND ACCEPTED,

as of the date above first written:

 

Wilmington Trust, National Association,

as Administrative Agent

 

By:       Name:     Title:  

 

EXHIBIT C – PAGE 3

 

 

EXHIBIT D

 

FORM OF MORTGAGE

 

MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF PRODUCTION,
FIXTURE FILING AND FINANCING STATEMENT
(New Mexico Oil and Gas Properties)

 

FROM

 

BRUSHY RESOURCES, INC., Mortgagor
(Charter/File/Organizational No. 4991392)

TO

Deans Knight Capital Management Ltd.,
in its capacity as collateral agent, as Mortgagee

Dated as of [_____________]

 

A CARBON, PHOTOGRAPHIC, OR OTHER REPRODUCTION OF THIS INSTRUMENT IS SUFFICIENT
AS A FINANCING STATEMENT.

 

THIS INSTRUMENT IS A MORTGAGE OF BOTH REAL AND PERSONAL PROPERTY AND IS, AMONG
OTHER THINGS, A MORTGAGE OF CHATTELS, A SECURITY AGREEMENT, A FIXTURE FILING AND
A FINANCING STATEMENT.

 

THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS.

 

THIS INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES.

 

THIS INSTRUMENT COVERS PROCEEDS OF MORTGAGED PROPERTY.

 

THIS INSTRUMENT COVERS MINERALS, AS-EXTRACTED COLLATERAL AND OTHER SUBSTANCES OF
VALUE THAT MAY BE EXTRACTED FROM THE EARTH (INCLUDING WITHOUT LIMITATION OIL AND
GAS) AND THE ACCOUNTS RELATED THERETO, WHICH WILL BE FINANCED AT THE WELLHEADS
OF THE WELL OR WELLS LOCATED ON THE PROPERTIES DESCRIBED IN EXHIBIT A HERETO.
THIS FINANCING STATEMENT IS TO BE FILED OR FILED FOR RECORD, AMONG OTHER PLACES,
IN THE REAL ESTATE RECORDS OR SIMILAR RECORDS OF THE RECORDERS OF THE COUNTIES
LISTED ON THE EXHIBITS HERETO. THE MORTGAGOR HAS AN INTEREST OF RECORD IN THE
REAL ESTATE AND IMMOVABLE PROPERTY CONCERNED, WHICH INTEREST IS DESCRIBED IN THE
EXHIBITS ATTACHED HERETO.

 

EXHIBIT D – PAGE 1

 

 

PORTIONS OF THE MORTGAGED PROPERTY ARE GOODS THAT ARE OR ARE TO BECOME AFFIXED
TO OR FIXTURES ON THE LAND DESCRIBED IN OR REFERRED TO IN THE EXHIBITS HERETO.
THIS FINANCING STATEMENT IS TO BE FILED FOR RECORD OR RECORDED, AMONG OTHER
PLACES, IN THE REAL ESTATE RECORDS OR SIMILAR RECORDS OF EACH COUNTY IN WHICH
SAID LAND OR ANY PORTION THEREOF IS LOCATED. THE MORTGAGOR IS THE OWNER OF
RECORD INTEREST IN THE REAL ESTATE CONCERNED. THIS INSTRUMENT IS ALSO TO BE
INDEXED IN THE INDEX OF FINANCING STATEMENTS OR THE UCC RECORDS.

 

THIS INSTRUMENT WAS PREPARED BY, AND RECORDED COUNTERPARTS SHOULD BE RETURNED
TO:

 

Bracewell LLP
711 Louisiana Street, Suite 2300
Houston, Texas 77002
Attention: Anna K. Miller, Esq.

 

EXHIBIT D – PAGE 2

 

 

MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF PRODUCTION, FIXTURE FILING AND
FINANCING STATEMENT

 

THIS MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF PRODUCTION, FIXTURE FILING AND
FINANCING STATEMENT (the “Mortgage”) is from Brushy Resources, Inc., a Delaware
corporation, formerly known as Starboard Resources, Inc., as Mortgagor (the
“Mortgagor”), to Deans Knight Capital Management Ltd., as collateral agent for
the Lenders (in such capacity, the “Mortgagee”). The addresses of the Mortgagor
and the Mortgagee are set forth in Section 10.14.

 

RECITALS

 

A. On September 29, 2016, Lilis Energy, Inc., as borrower (the “Borrower”), the
banks, financial institutions and other lending institutions or entities from
time to time party thereto (the “Lenders”), the Mortgagee, as Administrative
Agent from time to time party thereto, executed a Credit and Guaranty Agreement
(such agreement, as amended, restated, supplemented or otherwise modified from
time to time, the “Credit Agreement”) pursuant to which, upon the terms and
conditions stated therein, the Lenders agreed to make loans and other extensions
of credit to the Borrower, and pursuant to which, upon terms and conditions
stated therein, the Mortgagor has agreed to guarantee the Loan Obligations under
the Loan Documents and to grant security interests in its assets.

 

B. The Mortgagee and the other Secured Parties have conditioned their
obligations under the Loan Documents upon the execution and delivery by the
Mortgagor of this Mortgage, and the Mortgagor has agreed to enter into this
Mortgage to secure all obligations owing to the Mortgagee and the other Secured
Parties under the Loan Documents.

 

C. Therefore, in order to comply with the terms and conditions of the Loan
Documents and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Mortgagor hereby agrees as
follows:

 

DEFINITIONS

 

For all purposes of this Mortgage, unless the context otherwise requires:

 

“Accounts and Contract Rights” means all accounts (including accounts in the
form of joint interest billings), contract rights and general intangibles of the
Mortgagor now or hereafter existing, or hereafter acquired by, or on behalf of,
the Mortgagor or the Mortgagor’s successors in interest, relating to the sale,
purchase, exchange, extraction, transportation or processing of Hydrocarbons
produced or to be produced from the Mortgaged Property, together with all
accounts and proceeds accruing to the Mortgagor attributable to the sale of
Hydrocarbons produced from the Mortgaged Property.

 

“As-Extracted Collateral” means Hydrocarbons which may be extracted from the
Mortgaged Property, and the accounts relating thereto, which will be financed at
the wellheads of the wells located on the Mortgaged Property and accounts
arising out of the sale thereof.

 

EXHIBIT D – PAGE 3

 

 

“Borrower” means Lilis Energy, Inc., a Nevada corporation, and its successors
and permitted assigns under the Credit Agreement.

 

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

 

“Code” means the Uniform Commercial Code as in effect in each of the
jurisdictions wherein the Mortgaged Property is situated.

 

“Credit Agreement” means the Credit and Guaranty Agreement, dated September 29,
2016, among the Borrower, as borrower; the Mortgagor, ImPetro Resources, LLC,
and ImPetro Operating LLC and Lilis Operating Company, LLC, as guarantors
(together with any other guarantors from time to time thereunder, the
“Guarantors”); the lenders signatory thereto (together with any other lenders
party thereto from time to time, the “Lenders”); and the Mortgagee, as
collateral agent for the Lenders, as the Credit Agreement may be amended from
time to time.

 

“Credit Parties” means the Mortgagee and the Lenders, and “Credit Party” means
any of them.

 

“Debtor” has the meaning given such term in Section 10.13.

 

“Event of Default” has the meaning stated in Article VII of this Mortgage.

 

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

 

“Hydrocarbons” means all oil, gas, casinghead gas, drip gasoline, natural
gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and
all products refined or separated therefrom and all other minerals that may be
produced and saved from or attributable to the Oil and Gas Properties, including
all oil in tanks, and all rents, issues, profits, proceeds, products, revenues
and other incomes from or attributable to the Oil and Gas Leases or other
properties constituting Oil and Gas Properties.

 

“Lands” means the lands described in Exhibit A and includes any lands, the
description of which is contained in Exhibit A or incorporated in or referred to
in Exhibit A by reference to another instrument or document, including, without
limitation, all lands described in the Oil and Gas Leases, and also includes any
lands now or hereafter unitized, pooled, spaced, or otherwise combined, whether
by statute, order, agreement, declaration or otherwise, with lands the
description of which is contained in Exhibit A or is incorporated in Exhibit A
by reference.

 

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

 

EXHIBIT D – PAGE 4

 

 

“Loan Obligations” means the “Obligations,” as such term is defined in the
Credit Agreement.

 

“Mortgaged Property” has the meaning stated in Article II of this Mortgage.

 

“Mortgagee” has the meaning set forth in the introductory paragraph of this
Mortgage.

 

“Mortgagor” has the meaning set forth in the introductory paragraph of this
Mortgage.

 

“Net Revenue Interest” or “N.R.I.” means the Mortgagor’s share of the total
production of oil, gas and other Hydrocarbons produced from the Lands, after
deducting the Mortgagor’s share of all Royalty Interests, Overriding Royalty
Interests, production payments and other payments out of, or measured by,
production, except severance, production and other similar taxes.

 

“Oil and Gas Leases” means, collectively, all rights, titles, interests and
estates now owned or hereafter acquired by the Mortgagor in and to the oil and
gas leases, oil, gas and mineral leases, wellbore interests, and/or other liquid
or gaseous hydrocarbon leases, mineral fee interests, and other interests and
estates and the lands and premises covered or affected thereby, including any
reserved or residual interests of whatever nature, subleases and assignments of
operating rights pertaining to any of the foregoing, and all other interests
pertaining to any of the foregoing, including, without limitation, all royalty
and overriding royalty interests, production payments and net profit interests,
mineral fee interests, and all contingent reversionary and carried interests
relating to any of the foregoing and all other rights therein, which are
described and/or to which reference may be made on Exhibit A and/or in any
document or instrument referred to in Exhibit A and/or which cover or relate to
any of the Lands.

 

“Oil and Gas Properties” means (a) the Oil and Gas Leases; (b) Lands; (c) the
properties now or hereafter pooled or unitized with the Oil and Gas Leases; (d)
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 or other official acts of any Governmental Authority and units created
solely among working interest owners pursuant to operating agreements or
otherwise) that may affect all or any portion of the Oil and Gas Leases; (e) all
operating agreements, contracts and other agreements, including, without
limitation, production sharing contracts and agreements, production sales
contracts, farmout agreements, farm-in agreements, area of mutual interest
agreements, and equipment leases, described or referred to in this Mortgage or
that relate to any of the Oil and Gas Leases or interests in the Oil and Gas
Leases or the production, sale, purchase, exchange, processing, handling,
storage, transporting or marketing of the Hydrocarbons from or attributable to
such Oil and Gas Leases; (f) all Hydrocarbons in and under and that may be
produced and saved or attributable to the Oil and Gas Leases, the lands pooled
or unitized therewith and the Mortgagor’s interests therein, including all oil
in tanks, and all rents, issues, profits, proceeds, products, revenues and other
incomes from or attributable to the Oil and Gas Leases, the lands pooled or
unitized therewith and the Mortgagor’s interests therein; and (g) all tenements,
hereditaments, appurtenances and properties in any manner appertaining,
belonging, affixed or incidental to the Oil and Gas Leases, the rights, titles,
interests and estates described or referred to above, that are now owned or that
are hereafter acquired by the Mortgagor, including, without limitation, any and
all property, real or personal, immoveable or moveable, 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 Oil and Gas Leases or property
(excluding drilling rigs, automotive equipment, rental equipment or other
personal property that may be on such premises for the purpose of drilling a
well or for other similar temporary uses) or the lands pooled or unitized
therewith, including any and all oil wells, gas wells, injection wells or other
wells, 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, servitudes,
licenses and other surface and subsurface rights, together with all additions,
substitutions, replacements, accessions and attachments to any and all of the
foregoing.

 

EXHIBIT D – PAGE 5

 

 

“Operating Equipment” means all personal property and fixtures pertaining,
affixed or incidental to, situated upon or used or useful in connection with all
or any part of the Mortgaged Property, including, without limitation, all
surface or subsurface machinery, equipment, facilities, or other personal
property of whatsoever kind or nature (excluding drilling rigs, trucks,
automotive equipment or other personal property taken to the premises to drill a
well or for other similar temporary uses) now or hereafter located on any of the
Lands which are useful for the production, treatment, storage, transportation or
sale of oil or gas, including, but not by way of limitation, all oil wells, gas
wells, water wells, injection wells, casing, tubing, rods, pumping units and
engines, Christmas trees, derricks, separators, gun barrels, flow lines, tanks,
gas systems, (for gathering, treating and compression), water systems (for
treating, disposal and injection), power plants, poles, lines, transformers,
starters and controllers, machine shops, tools, storage yards and equipment
stored therein, buildings and camps, telegraph, telephone and other
communication systems, roads, loading racks and shipping facilities.

 

“Overriding Royalty Interest” means a Royalty Interest carved out of the Working
Interest.

 

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

 

“Proceeds” has the meaning given such term in Section 5.1.

 

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

 

“Release Date” means the date upon which (a) the Loans and the other obligations
under the Loan Documents (other than contingent indemnification obligations)
have been paid in full and (b) the Aggregate Commitment has been terminated.

 

EXHIBIT D – PAGE 6

 

 

“Royalty Interest” means an interest in production which is free of any
obligation for the expense of exploration, development, and production, bearing
only its pro rata share of severance, production, and other similar taxes and,
in instances where the document creating the Royalty Interest so provides, costs
associated with compression, dehydration, other treating or processing or
transportation of production of oil, gas, or other minerals relating to the
marketing of such production.

 

“Section” and “Article” mean and refer to a section or article of this Mortgage,
unless specifically indicated otherwise.

 

“Secured Indebtedness” means all the indebtedness, obligations, and liabilities
described or referred to in Section 3.1.

 

“Secured Party” has the meaning given such term in Section 10.13.1.

 

“Subject Interests” has the meaning stated in Article II.

 

“Well Data” means all logs, drilling reports, division orders, transfer orders,
operating agreements, abstracts, title opinions, files, records, memoranda and
other written or electronic information in the possession or control of the
Mortgagor relating to any wells located on any of the Lands described in Exhibit
A.

 

“Working Interest” or “Gross Working Interest” and “W.I.” or “G.W.I.” means an
interest owned in an Oil and Gas Lease that determines the cost-bearing
percentage of the owner of such interest.

 

Other Defined Terms. The capitalized terms used herein have the meanings
assigned to them in the Credit Agreement, unless they are otherwise defined
herein or the context otherwise requires. Any capitalized term not defined in
either this Mortgage or the Credit Agreement shall have the meaning ascribed to
such term in the Code.

 

GRANTING CLAUSE - MORTGAGED PROPERTY

 

The Mortgagor, for and in consideration of the premises and of the Secured
Indebtedness hereinafter defined, has GRANTED, BARGAINED, SOLD, WARRANTED,
MORTGAGED, PLEDGED, ASSIGNED, TRANSFERRED and CONVEYED, and by these presents
does GRANT, BARGAIN, SELL, WARRANT, MORTGAGE, PLEDGE, ASSIGN, TRANSFER and
CONVEY, unto the Mortgagee (with such grant, bargain, sale, warrant, mortgage,
pledge, assignment, transfer and conveyance to be with power of sale if
permissible under the Laws of the jurisdiction in which the affected Mortgage
Property is situated) with mortgage covenants, all the Mortgagor’s right, title
and interest, whether now owned or hereafter acquired, in all of the hereinafter
described properties, rights and interests; and, insofar as such properties,
rights and interests consist of equipment, general intangibles, accounts,
contract rights, inventory, fixtures, as-extracted collateral, proceeds and
products of collateral or any other personal property of a kind or character
defined in or subject to the applicable provisions of the Code, the Mortgagor
hereby grants to the Mortgagee a security interest therein, whether now owned or
hereafter acquired, namely:

 

EXHIBIT D – PAGE 7

 

 

all rights, titles, interests and estates now owned or hereafter acquired by the
Mortgagor in and to those certain Oil and Gas Leases, Lands, minerals,
interests, and other properties (all such Oil and Gas Leases, Lands, interests
and other properties being herein called the “Subject Interests,” as hereinafter
further defined) which are described on Exhibit A and/or to which reference may
be made on Exhibit A and/or which cover any of the Lands described on Exhibit A
and/or which are located in or under any of the Lands described on Exhibit A
and/or which are covered by any of the leases, assignments, or other documents
described on or referred to in any document or instrument referred to in
Exhibit A, which Exhibit A is made a part of this Mortgage for all purposes, and
is incorporated herein by reference as fully as if copied at length in the body
of this Mortgage at this point;

 

all rights, titles, interests, and estates now owned or hereafter acquired by
the Mortgagor in and to (i) any and all properties now or hereafter pooled or
unitized with any of the Subject Interests and (ii) all presently existing or
future unitization, communitization, and pooling agreements and the units
created thereby which include all or any part of the Subject Interests,
including, without limitation, all units formed under or pursuant to any Laws
(the rights, titles, interests, and estates described in this Section 2.1.2 also
being included within the term “Subject Interests,” as hereinafter further
defined);

 

all of the rights, titles and interests of every nature whatsoever now owned or
hereafter acquired by the Mortgagor in and to the Oil and Gas Properties
described in Exhibit A and all other rights, titles, interests and estates and
every part and parcel thereof, including, without limitation, any rights,
titles, interests and estates as the same may be enlarged by the discharge of
any payments out of production or by the removal of any charges or Permitted
Encumbrances to which any of such Oil and Gas Properties or other rights,
titles, interests or estates are subject or otherwise; all rights of the
Mortgagor to Liens securing payment of proceeds from the sale of production from
any of such Oil and Gas Properties, together with any and all renewals and
extensions of any of such related rights, titles, interests or estates; all
contracts and agreements supplemental to or amendatory of or in substitution for
the contracts and agreements described or mentioned above; and any and all
additional interests of any kind hereafter acquired by the Mortgagor in and to
the such related rights, titles, interests or estates (the rights, titles,
interests, and estates described in this Section 2.1.3 also being included
within the term “Subject Interests”);

 

all presently existing and future agreements hereafter entered into between the
Mortgagor and any third party that provide for acquisition by the Mortgagor of
any interest in any of the properties or interests specifically described in
Exhibit A or which relate to any of the properties and interests specifically
described in Exhibit A;

 

all rights, titles, interests and estates now or hereafter acquired by the
Mortgagor in and to all Hydrocarbons (including inventory) which are in, under,
upon, produced or to be produced from or attributable to the Lands and/or the
Subject Interests;

 

the Accounts and Contract Rights;

 

the As-Extracted Collateral;

 

EXHIBIT D – PAGE 8

 

 

the Operating Equipment;

 

the Well Data;

 

the rights and security interests of the Mortgagor held by the Mortgagor to
secure the obligation of the first purchaser to pay the purchase price of the
Hydrocarbons;

 

all surface leases, rights-of-way, franchises, easements, servitudes, licenses,
privileges, tenements, hereditaments and appurtenances now existing or in the
future obtained in connection with any of the aforesaid, and all other things of
value and incident thereto which the Mortgagor may at any time have or be
entitled to;

 

all and any different and additional rights of any nature, of value or
convenience in the enjoyment, development, operation or production, in any wise,
of any Property or interest included in any of the foregoing clauses, and in all
revenues, income, rents, issues, profits and other benefits arising therefrom or
from any contract now in existence or hereafter entered into pertaining thereto,
and in all rights and claims accrued or to accrue for the removal by anyone of
oil and gas from, or other act causing damage to, any of such properties or
interests;

 

all rights, titles, interests and estates now owned or hereafter acquired by the
Mortgagor in and to all geological, geophysical, engineering, accounting, title
and other technical or business data concerning the Oil and Gas Properties or
the Hydrocarbons, and all books, files, records, magnetic media, computer
records and other forms of recording or obtaining access to such data;

 

any property that may from time to time hereafter, by delivery or by writing of
any kind, be subjected to the Liens hereof by the Mortgagor or by anyone on the
Mortgagor’s behalf; and the Mortgagee is hereby authorized to receive the same
at any time as additional security hereunder; and

 

all of the Mortgagor’s rights, titles and interests in and to all surface fees
and fee estates described in Exhibit A, if any, compressor sites, settling
ponds, equipment or pipe yards, office sites and all property and fixtures
located thereon, whether such surface fees, fee estates, compressor sites,
settling ponds, equipment or pipe yards, office sites, and office buildings are
fee simple estates, leasehold estates or otherwise, together with all present
and future rights, titles, easements and estates now owned or hereafter acquired
by the Mortgagor under or in connection with such interest;

 

all Fixtures on the Mortgaged Property described or to which reference is made
herein or on Exhibit A; and

 

to the extent not otherwise included, all proceeds and products of any and all
of the foregoing and all collateral security and guarantees given with respect
to any of the foregoing;

 

all the aforesaid properties, rights and interests, together with any additions
thereto which may be subjected to the lien of this Mortgage by means of
supplements hereto, being hereinafter called the “Mortgaged Property”.

 

EXHIBIT D – PAGE 9

 

 

TO HAVE AND TO HOLD the Mortgaged Property unto the Mortgagee, its successors
and assigns, forever, to secure the payment of the Secured Indebtedness and to
secure the performance of the obligations of the Mortgagor contained herein.

 

It is the intention of the Mortgagor and the Mortgagee herein to cover and
affect hereby all interests that the Mortgagor may now own or may hereafter
acquire in and to the interests and Property described on Exhibit A, even though
the Mortgagor’s interests or the property be incorrectly described on Exhibit A
or a description of a part or all of the interests or property described on
Exhibit A or the Mortgagor’s interests therein be omitted, and notwithstanding
that the interests as specified on Exhibit A may be limited to particular lands,
specified depths or particular types of property interests.

 

Any fractions or percentages specified on Exhibit A in referring to the
Mortgagor’s interests are solely for purposes of the warranties made by the
Mortgagor pursuant to Section 4.2 and Section 4.12 and shall in no manner limit
the quantum of interest affected by this Section 2.1 with respect to any Oil and
Gas Property or with respect to any unit or well identified on Exhibit A.

 

Fixture Filing, Etc. Without in any manner limiting the generality of any of the
other provisions of this Mortgage: (i) some portions of the goods described or
to which reference is made herein are or are to become Fixtures on the land
described or to which reference is made herein or on Exhibit A; (ii) the
security interests created hereby under applicable provisions of the Code will
attach to all As-Extracted Collateral and all other Hydrocarbons; (iii) this
Mortgage is to be filed of record in the real estate records or other
appropriate records as a financing statement; and (iv) the Mortgagor is the
record owner of the real estate or interests in the real estate or immoveable
property comprised of the Mortgaged Property.

 

Excluded Collateral. Notwithstanding any provision in this Mortgage to the
contrary, in no event shall the Mortgaged Property include any “Excluded
Collateral” as such term is defined in the Security Agreement.

 

Notwithstanding the foregoing or anything to the contrary contained herein, the
Mortgaged Property shall include (and therefore the following shall not be
excluded from the Mortgaged Property or the grant of any Lien therein
hereunder):  (1) the Oil and Gas Properties, (2) all Operating Equipment other
than any Operating Equipment that is subject to a lien set forth in clauses
(iii) or (vii) of the definition of "Permitted Liens" in the Credit Agreement,
(3) all Accounts and Contract Rights, except to the extent prohibited by
applicable law or regulation or an existing and enforceable negative pledge or
anti-assignment provision and otherwise constituting Excluded Collateral, (4)
all Hydrocarbons and As-Extracted Collateral, (5) all rights of the Mortgagor
under any contract, licensing agreement or other agreement between the Mortgagor
and any Affiliate thereof with respect to the Mortgaged Property and (6) all
proceeds and supporting obligations given with respect to any of the foregoing,
and for  the avoidance of doubt, all real property of whatever kind or nature
referred to as Mortgaged Properties under this Mortgage.

 

EXHIBIT D – PAGE 10

 

 

INDEBTEDNESS SECURED

 

Loans and Secured Indebtedness. This Mortgage is given to secure the following
indebtedness, obligations and liabilities:

 

the Loan Obligations, including, without limitation, all advances to, and debts,
liabilities, obligations, covenants and duties of, the Mortgagor or any
Guarantor arising under any Loan Document or otherwise arising with respect to
any Loan whether direct or indirect (including those acquired by assumption),
absolute or contingent, due or to become due, now existing or hereafter arising
and including interest and fees that accrue after the commencement by or against
the Mortgagor, any Guarantor or any Affiliate thereof of any proceeding under
any bankruptcy or insolvency law naming such Person as the debtor in such
proceeding, regardless of whether such interest and fees are allowed claims in
such proceeding. Without limiting the generality of the foregoing, the
obligations of the Mortgagor or any Guarantor under the Loan Documents (and any
of their Subsidiaries to the extent they have obligations under the Loan
Documents) include the obligation to pay principal, interest, charges, expenses,
fees, attorney costs, indemnities and other amounts (including reimbursement
obligations for amounts drawn under letters of credit) payable by any of the
Mortgagor or any Guarantor (under any Loan Document);

 

any sums advanced as expenses or costs incurred by, or on behalf of, the
Mortgagee (or any receiver appointed hereunder) which are made or incurred
pursuant to, or permitted by, the terms of this Mortgage or the other Loan
Documents, plus interest thereon at the rate herein specified or otherwise
agreed upon, from the date of advance or expenditure until reimbursed; and

 

all other and additional debts, obligations and liabilities of every kind and
character of the Mortgagor now or hereafter owed to the Credit Parties,
regardless of whether such debts, obligations and liabilities are specifically
listed and described above or are direct or indirect, primary or secondary,
joint, several, or joint and several, fixed or contingent, and whether incurred
by the Mortgagor as a maker, endorser, guarantor, surety or otherwise, and
regardless of whether such present or future debts, obligations and liabilities
may, prior to their acquisition by one or more Credit Parties, be or have been
payable to, or be or have been in favor of, some other Person or have been
acquired by one or more of the Credit Parties in a transaction with one other
than the Mortgagor, together with any and all renewals and extensions of such
debts, obligations and liabilities, or any part thereof (the parties
contemplating that the Lenders may in the future lend additional sums of money
to the Borrower, from time to time, but shall not be obligated to do so, and
that all such additional sums and loans shall be part of the Secured
Indebtedness).

 

MAXIMUM AMOUNT SECURED. THE MAXIMUM AMOUNT SECURED BY THE LIEN OF THIS MORTGAGE
IS TWICE THE ORIGINAL PRINCIPAL AMOUNT OF THE LOANS; PROVIDED, HOWEVER, THAT THE
STATEMENT OF THE MAXIMUM AMOUNT SECURED BY THIS LIEN OF THIS MORTGAGE IS MADE TO
COMPLY WITH §48-7-9 NMSA 1978 AND DOES NOT OBLIGATE LENDER TO MAKE FUTURE
ADVANCES EXCEPT AS PROVIDED IN THIS MORTGAGE AND THE CREDIT AGREEMENT.

 

EXHIBIT D – PAGE 11

 

 

COVENANTS, REPRESENTATIONS, WARRANTIES AND
AGREEMENTS OF THE MORTGAGOR

 

The Mortgagor covenants, represents, warrants, and agrees that:

 

Payment of Indebtedness. The Mortgagor will duly and punctually pay or cause to
be paid all of the Secured Indebtedness.

 

Warranties. (a) The Oil and Gas Leases are valid, subsisting leases, superior
and paramount to all other oil and gas leases respecting the properties to which
they pertain; (b) the Mortgagor owns an interest in the oil and gas leases and
properties described in Exhibit A and, to the extent of the interest specified
in the most recently delivered Reserve Report to Mortgagee, has valid and
defensible title to each property right or interest constituting the Mortgaged
Property (other than such property right or interest that has been subsequently
disposed of in accordance with the express terms of the Credit Agreement) and
has a good and legal right to make the grant and conveyance made in this
Mortgage, it being understood that the Mortgagor’s interest in each Oil and Gas
Lease or Operating Equipment shall exceed Mortgagor’s Net Revenue Interest in
production from such Oil and Gas Lease to the extent of the Mortgagor’s
proportionate share of all Royalty Interests, Overriding Royalty Interests and
other such payments out of production burdening the Mortgagor’s interest in each
such Oil and Gas Lease; (c) the Mortgagor’s present Net Revenue Interest in the
Mortgaged Property is not less than that specified in the most recently
delivered Reserve Report to Mortgagee (other than such property right or
interest that has been subsequently disposed of in accordance with the express
terms of the Credit Agreement); (d) the Mortgaged Property is free from all
encumbrances or liens whatsoever, except as may be specifically set forth in
Exhibit A or as permitted by the provisions of Section 4.5.6; and (e) the
Mortgagor is not obligated, by virtue of any deficiency presently existing under
any contract providing for the sale by the Mortgagor of Hydrocarbons which
contains a “take or pay” clause or under any similar arrangement, to deliver
Hydrocarbons at some future time without then or thereafter receiving full
payment therefor, except as permitted under the Credit Agreement and has been
disclosed to the Mortgagee in accordance with the Credit Agreement. This
Mortgage is, and always will be kept, a Lien upon the Mortgaged Property;
subject to any Permitted Encumbrances. The Mortgagor will not create or suffer
to be created or permit to exist any Lien, security interest or charge prior to
or junior to or on a parity with the Lien of this Mortgage upon the Mortgaged
Property or any part thereof other than such Permitted Encumbrances. The
Mortgagor will warrant and forever defend the title to the Mortgaged Property
unto the Mortgagee, its successors and assigns against the claims and demands of
all other Persons whomsoever and will maintain and preserve the Lien created
hereby (and its priority) so long as any of the Secured Indebtedness remains
unpaid. If (i) an adverse claim be made against or a cloud develop upon the
title to any part of the Mortgaged Property other than a Permitted Encumbrance
or (ii) any Person shall challenge the priority or validity of the Liens created
by this Mortgage, then the Mortgagor agrees to immediately defend against such
adverse claim or take appropriate action to remove such cloud, in each case, at
the Mortgagor’s sole cost and expense. The Mortgagor further agrees that the
Mortgagee may take such other action as they deem advisable to protect and
preserve its interests in the Mortgaged Property, and in such event the
Mortgagor will indemnify the Mortgagee against any and all cost, attorneys’ fees
and other expenses that it may incur in defending against any such adverse claim
or taking action to remove any such cloud, to the extent required by the Credit
Agreement.

 

EXHIBIT D – PAGE 12

 

 

Further Assurances. The Mortgagor will execute and deliver such other and
further instruments and will do such other and further acts as in the opinion of
the Mortgagee may be necessary or desirable to carry out more effectively the
purposes of this Mortgage.

 

Taxes. Subject to the Mortgagor’s right to contest the same in good faith and by
appropriate proceedings, the Mortgagor will promptly pay all material Taxes,
assessments and governmental charges legally imposed upon this Mortgage or upon
the Mortgaged Property or upon the interest of the Mortgagee therein, or upon
the income, profits, proceeds and other revenues thereof.

 

Operation of the Mortgaged Property. So long as the Secured Indebtedness or any
part thereof remains unpaid, and whether or not the Mortgagor is the operator of
the Mortgaged Property, the Mortgagor shall, at the Mortgagor’s own expense and
subject to the terms of the Loan Documents:

 

maintain, develop and operate the Subject Interests in a good and workmanlike
manner and will observe and comply with all of the terms and provisions, express
or implied, of the Oil and Gas Leases in order to keep the Oil and Gas Leases in
full force and effect so long as the Oil and Gas Leases are capable of producing
Hydrocarbons and accompanying elements in paying quantities, except where such
failure to comply could not reasonably be expected to have a Material Adverse
Effect;

 

comply in all material respects with all contracts and agreements applicable to
or relating to the Mortgaged Property or the production and sale of Hydrocarbons
therefrom and all applicable proration and conservation Law of the jurisdictions
in which the Mortgaged Property is located, and all applicable Law, rules and
regulations of every agency and authority from time to time constituted to
regulate the development and operation of the Mortgaged Property and the
production and sale of Hydrocarbons therefrom, except to the extent a failure to
so comply could not reasonably be expected to have a Material Adverse Effect;

 

commence such development as may be reasonably necessary to the prudent and
economical operation of the Mortgaged Property, including such work as may be
appropriate to protect the Mortgaged Property from diminution in the production
capacity thereof and against drainage of Hydrocarbons thereunder by reason of
production on other Properties;

 

at all times, maintain, preserve and keep all Operating Equipment in proper
repair, working order and condition, ordinary wear and tear excepted, and make
all necessary or appropriate repairs, renewals, replacements, additions and
improvements thereto, so that the efficiency of such Operating Equipment shall
at all times be properly preserved and maintained, provided that no item of
Operating Equipment need be so repaired, renewed, replaced, added to or
improved, if the Mortgagor shall in good faith determine that such action is not
necessary or desirable for the continued efficient and profitable operation of
the business of the Mortgagor, and that the failure to take such action will not
prejudice the interests of the Mortgagee;

 

EXHIBIT D – PAGE 13

 

 

not abandon or cease developing, maintaining, operating and producing
Hydrocarbons from, or cause or permit its agent to abandon or cease developing,
maintaining, operating, and producing Hydrocarbons from, any producing Mortgaged
Property without first having undertaken and completed all reasonably prudent
measures under the circumstances to restore such producing Mortgaged Property to
economic production, and then only if the aggregate projected future ad valorem
and severance taxes and operating expenses with respect to said Mortgaged
Property exceed the projected future gross revenues attributable thereto;

 

cause the Mortgaged Property to be kept free and clear of all liens, security
interests, charges and encumbrances of every character, other than (i) any
Permitted Encumbrances and (ii) those hereafter consented to in writing by the
Mortgagee; provided that no intention to subordinate the priority of the liens,
security interests, and encumbrances granted in favor of the Mortgagee is hereby
implied or expressed or is to be inferred by the permitted existence of the
liens, security interests and encumbrances referred to in this Section 4.5.6 or
elsewhere herein;

 

maintain or cause to be maintained insurance with such insurers, in such amounts
and covering such risks as is required by the Credit Agreement; and

 

not sell, convey, trade, exchange, pool or unitize any portion of the Mortgaged
Property or any of the Mortgagor’s rights, titles, or interests therein or
thereto, except as specifically provided otherwise herein or as expressly
permitted under the Credit Agreement;

 

provided, however, that with respect to Mortgaged Property which is operated by
operators other than the Mortgagor or any Affiliate thereof, the Mortgagor shall
not be obligated itself to perform any undertakings contemplated by the
covenants and agreements contained herein which are performable only by such
operators and are beyond the control of the Mortgagor; and provided further,
that the Mortgagor agrees to promptly take all actions available to the
Mortgagor under any operating agreement or otherwise to bring about the
performance of any such undertaking required to be performed by such operators.

 

Recording. The Mortgagor will promptly and at the Mortgagor’s expense, record,
register, deposit and file this Mortgage and every other instrument in addition
or supplemental hereto in such offices and places and at such times and as often
as may be necessary to preserve, protect and renew the lien and security
interest hereof as a second lien and security interest on real or personal
property, as the case may be, and the rights and remedies of the Mortgagee, and
otherwise will do and perform all matters or things necessary or expedient to be
done or observed by reason of any Law of any state or of the United States or of
any other competent authority, for the purpose of effectively creating,
maintaining and preserving the lien and security interest hereof on the
Mortgaged Property. In this connection and at the option of the Mortgagee but at
the Mortgagor’s expense, the Mortgagee may record, register, deposit and file
this Mortgage and supplements hereto.

 

EXHIBIT D – PAGE 14

 

 

Records, Statements and Reports. The Mortgagor will 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 Mortgagor will
permit any representatives designated by the Mortgagee, 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; provided, that so long as no Event of Default has
occurred and is continuing, the Mortgagor shall only be required to reimburse
the costs and expenses associated with such examination and inspection on one
occasion in any fiscal quarter of the Mortgagor.

 

No Governmental Approvals. The Mortgagor warrants that no approval or consent of
any regulatory or administrative commission or authority, or of any other
governmental body, is necessary to authorize the execution and delivery of this
instrument, or any of the other Loan Documents, or to authorize the observance
or performance by the Mortgagor of the covenants herein or therein contained.

 

Right of Entry. The Mortgagor will permit the Mortgagee, or its agents or
designated representatives, to enter upon the Mortgaged Property, and all parts
thereof, for the purpose of investigating and inspecting the condition and
operation thereof, on the terms set forth in Section 7.3 of the Credit
Agreement.

 

Statutory Mortgage Condition. The grants in Article II of this Mortgage are made
with mortgage covenants and upon the statutory mortgage condition for breach of
which this Mortgage is subject to foreclosure as provided by law; provided,
however, that in the event of a conflict between the provisions of this Mortgage
and the statutory mortgage conditions, the provisions of this Mortgage shall
prevail.

 

Flood Insurance Regulation. Notwithstanding any provision in this Mortgage to
the contrary, in no event is any Building (as defined in the applicable Flood
Insurance Regulation) or Manufactured (Mobile) Home (as defined in the
applicable Flood Insurance Regulation) located on the Mortgaged Property within
an area having special flood hazards and in which flood insurance is available
under the National Flood Insurance Act of 1968 included in the definition of
“Mortgaged Property” and no Building or Manufactured (Mobile) Home is hereby
encumbered by this Mortgage. As used herein, “Flood Insurance Regulations” means
the National Flood Insurance Act of 1968 and the Flood Disaster Protection Act
of 1973, the National Flood Insurance Reform Act of 1994, the Biggert-Waters
Flood Insurance Reform Act of 2012 and the regulations issued in connection
therewith by the Office of the Controller of the Currency, the Federal Reserve
Board and other Governmental Authorities, each as it may be amended, reformed or
otherwise modified from time to time.

 

Not a Foreign Person. The Mortgagor is not a “foreign person” within the meaning
of the Internal Revenue Code of 1986, as amended from time to time (the
“Internal Revenue Code”), Sections 1445 and 7701 (i.e., the Mortgagor is not a
non-resident alien, foreign corporation, foreign partnership, foreign trust or
foreign estate as those terms are defined in the Internal Revenue Code and any
regulations promulgated thereunder).

 

EXHIBIT D – PAGE 15

 

 

Revenue and Cost Bearing Interest. The Mortgagor’s ownership of the Oil and Gas
Leases and the undivided interests therein as specified on the most recently
delivered Reserve Report will, after giving full effect to all Permitted
Encumbrances, afford the Mortgagor not less than those net interests (expressed
as a fraction, percentage or decimal) in the production from or that is
allocated to such Oil and Gas Lease specified as Net Revenue Interest (as
specified on the most recently delivered Reserve Report) and will cause the
Mortgagor to bear not more than that portion (expressed as a fraction,
percentage or decimal), specified as Working Interest on the most recently
delivered Reserve Report, of the costs of drilling, developing and operating the
wells identified on most recently delivered Reserve Report except to the extent
of any proportionate corresponding increase in the Net Revenue Interest.

 

ASSIGNMENT OF PRODUCTION

 

Assignment. As further security for the payment of the Secured Indebtedness and
performance of the obligations contained herein, the Mortgagor hereby transfers,
assigns, warrants and conveys to the Mortgagee all Hydrocarbons, and the
proceeds and products obtained or processed from (such proceeds and products
being in this Article V called “Proceeds”), produced and to be produced from, or
which accrue by pooling, unitization or otherwise, to the Mortgaged Property, in
order to provide a source of future payment of the Loan Obligations and the
other Secured Indebtedness. All parties producing, purchasing or receiving any
such Hydrocarbons, or having such, or Proceeds therefrom, in their possession
for which they or others are accountable to the Mortgagee by virtue of the
provisions of this Article V, are authorized and directed to treat and regard
the Mortgagee as the assignee and transferee of the Mortgagor and entitled in
the Mortgagor’s place and stead to receive such Hydrocarbons and all Proceeds
therefrom; and such parties and each of them shall be fully protected in so
treating and regarding the Mortgagee, and shall be under no obligation to see to
the application by the Mortgagee of any such proceeds or payments received by
the Mortgagee.

 

Payments. This Article V constitutes a present assignment effective as of the
date hereof, but in the event that the Mortgagee should elect not to exercise
immediately its right to receive Hydrocarbons or Proceeds, then the purchasers
or other persons obligated to make such payment may continue to make payment to
Mortgagor until such time as written demand has been made upon them by the
Mortgagee that payment be made directly to the Mortgagee. Such failure to notify
shall not in any way waive the right of the Mortgagee to receive any payments
not theretofore paid out to the Mortgagor before the giving of written notice.
In the event payments are made directly to the Mortgagee, and then, at the
request of the Mortgagee, payments are for a period or periods of time paid to
the Mortgagor, the Mortgagee shall nevertheless have the continuing right,
effective upon written notice, to require that future payments be again made to
the Mortgagee. The Mortgagor and the Mortgagee agree, and it is the intention of
the Mortgagor and the Mortgagee, that in no event will any reduction in the Loan
Obligations or the other Secured Indebtedness be measured by the fair market
value of the Hydrocarbons, other minerals, proceeds, or other rents, profits, or
income assigned to the Mortgagee under this instrument.

 

No Restriction on the Rights. Nothing herein contained shall detract from or
limit the absolute obligation of the Mortgagor to make payment of the Secured
Indebtedness regardless of whether the Hydrocarbons and Proceeds assigned by
this Article V are sufficient to pay the same, and the rights under this
Article V shall be in addition to all other security now or hereafter existing
to secure the payment of the Secured Indebtedness.

 

EXHIBIT D – PAGE 16

 

 

Use of Proceeds. The Mortgagee or any receiver appointed in judicial proceedings
for the enforcement of this Mortgage shall have the right to receive all of the
Hydrocarbons herein assigned and the Proceeds therefrom and may, in the sole
discretion of the Mortgagee (but subject to the terms of any mandatory
requirements of Law), apply all of such Proceeds as follows:

 

First: to the payment and satisfaction of all costs and expenses incurred in
connection with the collection of such Proceeds; and

 

Second: as set forth in the order and manner contemplated by the Credit
Agreement.

 

Upon any sale of the Mortgaged Property or any part thereof pursuant to
Article VIII, the Hydrocarbons thereafter produced from the Mortgaged Property
so sold, and the Proceeds therefrom, shall be included in such sale and shall
pass to the purchaser free and clear of the assignment contained in this
Article V.

 

Mortgagee as Agent and Attorney-in-Fact. The Mortgagor hereby irrevocably
designates and appoints the Mortgagee as the Mortgagor’s true and lawful agent
and attorney-in-fact (with full power of substitution, either generally or for
such limited periods or purposes as the Mortgagee may from time to time
prescribe), with full power and authority, for and on behalf and in the name of
the Mortgagor, to execute, acknowledge and deliver all such division orders,
transfer orders, certificates and other documents of every nature, with such
covenants, warranties, indemnities and other provisions as may from time to
time, in the opinion of the Mortgagee, be necessary or proper to effectuate the
intent and purpose of the assignment contained in Section 5.1. The Mortgagor
shall be bound thereby as fully and effectively as if the Mortgagor had
personally executed, acknowledged and delivered any such division order,
transfer order, certificate and other documents. The powers and authorities
herein conferred on the Mortgagee may be exercised by the Mortgagee through any
Person who, at the time of the execution of a particular instrument, is an
officer of the Mortgagee. The power of attorney conferred by this Section 5.5 is
granted for a valuable consideration and hence is coupled with an interest and
is irrevocable so long as the Secured Indebtedness, or any part thereof, shall
remain unpaid. All Persons dealing with the Mortgagee, or any officer thereof
above designated, or any substitute, shall be fully protected in treating the
powers and authorities conferred by this Section 5.5 as continuing in full force
and effect until advised in writing by the Mortgagee that all the Secured
Indebtedness is fully and finally paid.

 

EXHIBIT D – PAGE 17

 

 

Release From Liability; Indemnity. The Mortgagor agrees to release and indemnify
the Mortgagee against, and hold the Mortgagee harmless from, any and all losses,
claims, damages liabilities and related expenses, including the fees, charges
and disbursements of any counsel for the Mortgagee, incurred by or asserted
against any of them arising out of, in connection with, or as a result of the
execution or delivery of this Mortgage or any agreement or instrument
contemplated hereby, the performance by the parties hereto of their respective
obligations hereunder or the consummation of the transactions contemplated
hereby, any actual or prospective claim, litigation, investigation or proceeding
relating to any of the foregoing, whether or not such claim, litigation,
investigation or proceeding is brought Mortgagor, any equity holders of
Mortgagor, any Affiliates of Mortgagor, any creditors of Mortgagor or any other
third person and whether based on contract, tort or any other theory and
regardless of whether the Mortgagee is a party thereto; provided that such
indemnity shall not be available (a) to the extent that such losses, claims,
damages liabilities or related expenses are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the gross
negligence or willful misconduct of the Mortgagee; or (b) to the extent such
indemnity is prohibited by §56-7-1 NMSA 1978 or §56-7-2 NMSA 1978. All court
costs, attorneys' fees and other expenses of every character expended by the
Mortgagee pursuant to the provisions of this section shall be a demand
obligation (which obligation Mortgagor hereby expressly promises to pay) owing
by Mortgagor to Mortgagee and shall bear interest, from the date expended until
paid, at the rate described in Section 10.1 hereof.

 

Proceeds. Notwithstanding that, by the terms of this Article V, the Mortgagor is
and will be assigning to Mortgagee all of the Proceeds pursuant to the terms and
conditions set forth above, so long as no Event of Default has occurred
Mortgagor may continue to receive from the purchasers of production all such
Proceeds, subject, however, to the Liens created herein, which Liens are hereby
affirmed and ratified. Upon the occurrence of an Event of Default, Mortgagee may
exercise all rights and remedies granted hereunder subject to the terms hereof,
including the right to obtain possession of all Proceeds then held by Mortgagor
or to receive directly from the purchasers of production all other Proceeds.  In
no case shall any failure, whether intentioned or inadvertent, by Mortgagee to
collect directly any such Proceeds constitute in any way a waiver, remission or
release of any of its rights hereunder, nor shall any release of any Proceeds by
Mortgagee to Mortgagor constitute a waiver, remission, or release of any other
Proceeds or of any rights of Mortgagee to collect other Proceeds thereafter.

 

ADDITIONS TO MORTGAGED PROPERTY; SUBROGATION

 

Additions to Mortgaged Property. It is understood and agreed that the Mortgagor
may periodically subject additional properties to the lien and security interest
of this Mortgage. In the event that additional properties are to be subjected to
the lien and security interest hereof, the parties hereto agree to execute a
supplemental mortgage, satisfactory in form and substance to the Mortgagee,
together with any security agreement, financing statement or other security
instrument required by the Mortgagee, all in form and substance satisfactory to
the Mortgagee and in a sufficient number of executed (and, where necessary or
appropriate, acknowledged) counterparts for recording purposes. Upon execution
of such supplemental mortgage, all additional properties thereby subjected to
the lien and security interest of this Mortgage shall become part of the
Mortgaged Property for all purposes.

 

Subrogation. To the extent that the proceeds of any Secured Indebtedness were or
are used to pay any indebtedness or obligations secured by any lien, security
interest, charge or prior encumbrance against the Mortgaged Properties and such
proceeds have been or will be advanced by a Lender or any other Credit Party to
the Mortgagor or to any other Person or taxing authority, then the Credit
Parties shall be subrogated to any and all of such liens, security interests,
charges or prior encumbrances, irrespective of whether such liens, security
interests, charges or prior encumbrances are released (unless such release is
executed by the Mortgagee).

 

EXHIBIT D – PAGE 18

 

 

EVENTS OF DEFAULT

 

Events of Default. Any occurrence of any “Event of Default” under, and as
defined in, the Credit Agreement shall constitute an Event of Default hereunder.

 

ENFORCEMENT OF THE SECURITY

 

General Remedies. Upon the occurrence and during the continuance of an Event of
Default, the Mortgagee may, at its sole option and discretion, subject to any
mandatory requirements or limitations of Law then in force and applicable
thereto, do any of the following:

 

exercise all of the rights, remedies, powers and privileges of the Mortgagor
with respect to the Mortgaged Property or any part thereof, give or withhold all
consents required which the Mortgagor would otherwise be entitled to give or
withhold, and perform or attempt to perform any covenants in this Mortgage which
the Mortgagor is obligated to perform; provided that, no payment or performance
by the Mortgagee shall constitute a waiver of any Event of Default, and the
Mortgagee shall be subrogated to all rights and liens securing the payment of
any debt, claim, tax, or assessment for the payment of which the Mortgagee may
make an advance or pay;

 

appoint as a matter of right, or seek the appointment of, a receiver or
receivers to serve without bond for all or any part of the Mortgaged Property,
whether such receivership be incident to a proposed sale thereof or otherwise,
and the Mortgagor does hereby consent to the appointment of such receiver or
receivers to serve without bond and does hereby agree not to oppose any
application therefor by the Mortgagee and does hereby agree that there shall be
no necessity of showing fraud, insolvency or mismanagement by the Mortgagor for
the appointment of a receiver or receivers of the Mortgaged Properties;

 

execute and deliver to such Person or Persons as may be designated by the
Mortgagee appropriate powers of attorney to act for and on behalf of the
Mortgagor in all transactions with any federal, state or local agency relating
to any of the Mortgaged Property; and

 

exercise any and all other rights or remedies granted to the Mortgagee pursuant
to the provisions of any of the Loan Documents or by Law;

 

provided, that the Mortgagee shall have no obligation to do or refrain from
doing any of the acts, or to make or refrain from making any payment, referred
to in this Section 8.1. Any receiver or receivers of the Mortgaged Property, or
any portion thereof, shall serve without bond.

 

[Reserved]

 

EXHIBIT D – PAGE 19

 

 

Judicial Proceedings; Receiver. This Mortgage shall be effective as a mortgage
and may be foreclosed as to any of the Property covered hereby in any manner
permitted by the Law of any state in which the affected Mortgaged Property is
situated, and any foreclosure suit may be brought, to the extent permitted by
Law, by the Mortgagee. Upon occurrence of an Event of Default which has not been
cured or waived by the Mortgagee, the Mortgagee may proceed, where permitted by
Law, by a suit or suits in equity or at Law, whether for a foreclosure
hereunder, or for the sale of the Mortgaged Property, or for the specific
performance of any covenant or agreement herein contained or in aid of the
execution of any power herein granted, or without any showing of fraud,
insolvency or mismanagement by the Mortgagor, for the appointment of a receiver
or receivers of the Mortgaged Property and of the income, rents issues,
products, profits and proceeds thereof (any such receiver or receivers to serve
without bond) pending any foreclosure hereunder or the sale of the Mortgaged
Property, or for the enforcement of any other appropriate legal or equitable
remedy. The appointment of a receiver shall in no manner affect the rights of
the Mortgagee under Article V hereof. If the Mortgagee should institute a suit
for the collection of the Secured Indebtedness, and/or for a foreclosure of the
liens hereof, it may at any time before the entry of a final judgment in said
suit dismiss the same, and, where permitted by Law sell the Mortgaged Property,
or any part thereof, in accordance with the provisions of this Mortgage.

 

Certain Aspects of a Sale. Upon the occurrence and during the continuance of an
Event of Default, the Mortgagee shall have the right to become the purchaser at
any sale of the Mortgaged Property to the extent not prohibited by Law, and the
Mortgagee shall have the right to credit upon the amount of the bid made
therefor the amount payable out of the net proceeds of such sale to it. Recitals
contained in any conveyance made to any purchaser at any sale made hereunder
shall conclusively establish the truth and accuracy of the matters therein
stated, including, without limiting the generality of the foregoing, nonpayment
of the unpaid principal sum of, interest accrued on, and fees payable in respect
of the Secured Indebtedness after the same have become due and payable, and
advertisement and conduct of such sale in the manner provided herein.

 

Receipt to Purchaser. Upon any sale the receipt of the Mortgagee, or of the
officer making such sale under judicial proceedings, shall be sufficient
discharge to the purchaser or purchasers at any sale for its or their purchase
money, and such purchaser or purchasers, or its or their assigns or personal
representatives, shall not, after paying such purchase money and receiving such
receipt of the Mortgagee or of such officer therefor, be obligated to see to the
application of such purchase money, or be in anywise answerable for any loss,
misapplication or nonapplication thereof.

 

Effect of Sale. Any sale or sales of the Mortgaged Property, where permitted by
Law, shall operate to divest all right, title, interest, claim and demand
whatsoever either at Law or in equity, of the Mortgagor of, in, and to the
premises and the Property sold, and shall be a perpetual bar, both at Law and in
equity, against the Mortgagor, and the Mortgagor’s successors or assigns, and
against any and all persons claiming or who shall thereafter claim all or any of
the Property sold from, through, or under the Mortgagor, or the Mortgagor’s
successors or assigns. Nevertheless, the Mortgagor, if requested by the
Mortgagee to do so, shall join in the execution and delivery of all proper
conveyances, assignments and transfers of the properties so sold.

 

EXHIBIT D – PAGE 20

 

 

Application of Proceeds. The proceeds of any sale of the Mortgaged Property, or
any part thereof, shall be applied as follows (as appropriately modified to
comply with any mandatory provisions of Law):

 

First: to the payment of all expenses incurred by the Mortgagee in the
performance of its duties, including, without limiting the generality of the
foregoing, all expenses of any entry, or taking of possession, of any sale, of
advertisement thereof, and of conveyances, and, as well, court costs,
compensation of agents and employees and legal fees; and

 

Second: as set forth in the order and manner contemplated by the Credit
Agreement.

 

Mortgagor’s Waiver of Appraisement, Marshaling, Etc. The Mortgagor agrees, to
the full extent that the Mortgagor may lawfully so agree, that the Mortgagor
will not at any time insist upon or plead or in any manner whatever claim the
benefit of any appraisement, valuation, stay, extension or redemption Law now or
hereafter in force, in order to prevent or hinder the enforcement or foreclosure
of this Mortgage or the absolute sale of the Mortgaged Property or the
possession thereof by any purchaser at any sale made pursuant to any provision
hereof, or pursuant to the decree of any court of competent jurisdiction; but
the Mortgagor, for the Mortgagor and all who may claim through or under the
Mortgagor, so far as the Mortgagor or those claiming through or under the
Mortgagor now or hereafter lawfully may, hereby waives the benefit of all such
Laws. The Mortgagor, for the Mortgagor and all who may claim through or under
the Mortgagor, waives, to the extent that the Mortgagor may lawfully do so, any
and all right to have the Mortgaged Property marshaled upon any foreclosure of
the lien hereof, or sold in inverse order of alienation, and agrees that the
Mortgagee or any court having jurisdiction to foreclose such lien may sell the
Mortgaged Property as an entirety. If any Law in this Section 8.8 referred to
and now in force, of which the Mortgagor or the Mortgagor’s successor or
successors might take advantage despite the provisions hereof, shall hereafter
be repealed or cease to be in force, such Law shall not thereafter be deemed to
constitute any part of the contract herein contained or to preclude the
operation or application of the provisions of this Section 8.8.

 

Waiver of Deficiency Statute.

 

In the event an interest in any of the Mortgaged Property is foreclosed upon
pursuant to a judicial foreclosure sale, the Mortgagor agrees as follows: to the
extent permitted by Law, the Mortgagor agrees that the Mortgagee shall be
entitled to seek a deficiency judgment from the Mortgagor and any/or other party
obligated on the Secured Indebtedness equal to the difference between the amount
owing on the Secured Indebtedness and the amount for which the Mortgaged
Property was sold pursuant to judicial foreclosure sale. The Mortgagor
recognizes and agrees that this waiver creates an irrebuttable presumption that
the foreclosure sale price is equal to the fair market value of the Mortgaged
Property for purposes of calculating deficiencies owed by the Mortgagor and/or
others against whom recovery of a deficiency is sought.

 

EXHIBIT D – PAGE 21

 

 

Alternatively, in the event the waiver provided for in Section 8.9(a) is
determined by a court of competent jurisdiction to be unenforceable, the
following shall be the basis for the finder of fact’s determination of the fair
market value of the Mortgaged Property as of the date of the foreclosure sale:
(i) the Mortgaged Property shall be valued in an “as is” condition as of the
date of the foreclosure sale, without any assumption or expectation that the
Mortgaged Property will be repaired or improved in any manner (including,
without limitation, the re-working of existing wells or the drilling of any new
wells) before a resale of the Mortgaged Property after foreclosure; (ii) the
valuation shall be based upon an assumption that the foreclosure purchaser
desires a resale of the Mortgaged Property for cash promptly (but not later than
12 months) following the foreclosure sale; (iii) all reasonable closing costs
customarily borne by the seller in oil and gas transactions should be deducted
from the gross fair market value of the Mortgaged Property, including, without
limitation, brokerage commissions, title opinions, engineering evaluations of
the Mortgaged Property, tax prorations, attorneys’ fees, and marketing costs;
(iv) the gross fair market value of the Mortgaged Property shall be further
discounted to account for any estimated holding costs associated with
maintaining the Mortgaged Property pending sale, including, without limitation,
utilities expenses, management fees, taxes and assessments (to the extent not
accounted for in (iii) above), and other maintenance, operational and ownership
expenses; and (v) any expert opinion testimony given or considered in connection
with a determination of the fair market value of the Mortgaged Property must be
given by persons having at least five (5) years experience in appraising
property similar to the Mortgaged Property and who have conducted and prepared a
complete written engineering appraisal of the Mortgaged Property taking into
consideration the factors set forth above.

 

Special Provisions Applicable in New Mexico. If this Mortgage is foreclosed, the
redemption period after judicial sale shall be one (1) month in lieu of nine (9)
months.

 

Power of Attorney to the Mortgagee. The Mortgagor does hereby designate the
Mortgagee as the agent of the Mortgagor to act in the name, place, and stead of
the Mortgagor in the exercise of each and every remedy set forth herein and in
conducting any and all operations and taking any and all action reasonably
necessary to exercise any such remedy, recognizing such agency in favor of the
Mortgagee to be coupled with the interests of the Mortgagee under this Mortgage
and, thus, irrevocable so long as this Mortgage is in force and effect. No power
of attorney granted in this Mortgage shall be interpreted or deemed to grant to
Mortgagee the authority to waive service of process, confess judgment, “release
errors,” release the right of appeal or consent to the issuance of extension on
any judgment on the Loan Obligations.

 

Costs and Expenses. All costs, expenses (including attorneys’ fees), and
payments incurred or made by the Mortgagee in protecting and enforcing its
rights hereunder shall constitute a demand obligation owing by the Mortgagor to
the party incurring such or making costs, expenses, or payments and shall bear
interest at a rate per annum equal to the maximum rate of interest permitted by
applicable Law, all of which shall constitute a portion of the Secured
Indebtedness, in each case in accordance with the terms set forth in the Credit
Agreement.

 

EXHIBIT D – PAGE 22

 

 

Operation of the Mortgaged Property by the Mortgagee. Upon the occurrence of an
Event of Default which has not been cured or waived by the Mortgagee, and in
addition to all other rights herein conferred on the Mortgagee, the Mortgagee
(or any Person designated by the Mortgagee) shall have the right and power, but
shall not be obligated, to enter upon and take possession of any of the
Mortgaged Property without the necessity of posting bond, and to exclude the
Mortgagor, and the Mortgagor’s agents or servants, wholly therefrom, and to
hold, use, administer, manage and operate the same to the extent that the
Mortgagor shall be at the time entitled to do any of such things and in the
Mortgagor’s place and stead. The Mortgagee (or any Person designated by the
Mortgagee) may, but shall not be obligated to, operate the same without any
liability or duty to the Mortgagor in connection with such operations, except to
use ordinary care in the operation of such Mortgaged Property, and the Mortgagee
or any Person designated by the Mortgagee, shall have the right to collect and
receive all Hydrocarbons produced and sold from the Mortgaged Property, to make
repairs, purchase machinery and equipment, conduct work-over operations, drill
additional wells and to exercise every power, right and privilege of the
Mortgagor with respect to the Mortgaged Property. When and if the expenses of
such operation and development (including costs of unsuccessful work-over
operations or additional wells) have been paid and the Secured Indebtedness
paid, such Mortgaged Property shall, if there has been no sale or foreclosure
thereof, be returned to the Mortgagor.

 

No Additional Duties Created; Interpretation of Actions. Notwithstanding any
provision of this Article VIII or any other provision of this Mortgage, with
respect to that portion of the Mortgaged Property located in any jurisdiction,
the Mortgagee shall be entitled to enforce the rights and remedies described
herein with respect to such portion of the Mortgaged Property in such
jurisdiction in accordance with the Law in effect in such jurisdiction at the
time such enforcement action is taken, and the Mortgagor hereby waives its right
to require the Mortgagee to comply with any contrary terms and provisions of
this Mortgage in such circumstance, it being the intention of the Mortgagor and
Mortgagee that the waivers of Mortgagor herein and the powers granted to the
Mortgagee herein are for the sole benefit of the Mortgagee and are neither
intended to limit the rights and powers of the Mortgagee as are permissible
under applicable Law to enforce the Liens granted herein nor intended to
establish a standard or duty of performance by the Mortgagee in excess of or in
addition to that required by the Laws of such jurisdiction as in effect at the
time the particular right or remedy is sought to be enforced. In furtherance
thereof, with respect to that portion of the Mortgaged Property located in any
jurisdiction, any actions by the Mortgagee to enforce the Liens granted herein
which are not prohibited by the Law of such jurisdiction wherein the affected
Mortgaged Property is located, shall be deemed to be in compliance with, and not
prohibited by or in violation of, the terms of this Mortgage.

 

Foreclosure for Installments. Upon the occurrence of and during the continuance
of an Event of Default, the Mortgagee shall also have the option to proceed with
foreclosure in satisfaction of any installments of the Loan Obligations that
have not been paid when due either through the courts or by proceeding with
foreclosure in satisfaction of the matured but unpaid portion of the Loan
Obligations as if under a full foreclosure, conducting the sale as herein
provided and without declaring the entire principal balance and accrued interest
and other Loan Obligations then due; such sale may be made subject to the
unmatured portion of the Loan Obligations, and any such sale shall not in any
manner affect the unmatured portion of the Loan Obligations, but as to such
unmatured portion of the Loan Obligations this Mortgage shall remain in full
force and effect just as though no sale had been made hereunder. It is further
agreed that upon the occurrence of and during the continuance of an Event of
Default, several sales may be made hereunder without exhausting the right of
sale for any unmatured part of the Loan Obligations, it being the purpose hereof
to provide for a foreclosure and sale of the security for any matured portion of
the Loan Obligations without exhausting the power to foreclose and sell the
Mortgaged Property for any subsequently maturing portion of the Loan
Obligations.

 

EXHIBIT D – PAGE 23

 

 

Separate Sales. Upon the occurrence of and during the continuance of an Event of
Default, the Mortgaged Property may be sold in one or more parcels and to the
extent permitted by applicable Requirement of Law in such manner and order as
the Mortgagee, in its sole discretion, may elect, it being expressly understood
and agreed that the right of sale arising out of any Event of Default shall not
be exhausted by any one or more sales.

 

Limitation of LIABILITY

 

THE MORTGAGEE SHALL NOT BE LIABLE FOR ANY ERROR OF JUDGMENT OR ACT DONE BY
MORTGAGEE IN GOOD FAITH, OR BE OTHERWISE RESPONSIBLE OR ACCOUNTABLE UNDER ANY
CIRCUMSTANCES WHATSOEVER (INCLUDING, WITHOUT LIMITATION, THE MORTGAGEE’S
NEGLIGENCE OR BY OPERATION OF STRICT LIABILITY), EXCEPT FOR MORTGAGEE’S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT (AS DETERMINED BY A FINAL, NON APPEALABLE
JUDGMENT OF A COURT OF COMPETENT JURISDICTION). The Mortgagee shall have the
right to rely on any instrument, document or signature authorizing or supporting
any action taken or proposed to be taken by the Mortgagee hereunder, believed by
the Mortgagee in good faith to be genuine. All moneys received by Mortgagee
shall, until used or applied as herein provided, be held in trust for the
purposes for which they were received, but need not be segregated in any manner
from any other moneys (except to the extent required by law), and Mortgagee
shall be under no liability for interest on any moneys received by either of
them hereunder. Mortgagor hereby ratifies and confirms any and all acts which
the herein named Mortgagee, or their respective successors, assigns, or
substitutes, shall do lawfully by virtue hereof. Mortgagor will reimburse
Mortgagee for, and indemnify and save Mortgagee harmless against, any and all
liability and expenses (including attorney’s fees) which may be incurred by
Mortgagee in the performance of their respective duties, to the extent required
under Section 5.6 or Section 10.22 herein or as otherwise required under the
Credit Agreement. The foregoing indemnities shall not terminate upon the
release, foreclosure or other termination of this Mortgage but will survive such
release, termination and/or foreclosure of this Mortgage, or conveyance in lieu
of foreclosure, and the repayment of the secured indebtedness and the discharge
and release of this Mortgage and the other documents evidencing and/or securing
the secured indebtedness. Any amount to be paid hereunder by Mortgagor to
Mortgagee shall be a demand obligation owing by Mortgagor to Mortgagee and shall
be subject to and covered by the provisions of Section 10.1 hereof.

 

EXHIBIT D – PAGE 24

 

 

MISCELLANEOUS

 

Advances by the Mortgagee. Each and every covenant herein contained shall be
performed and kept by the Mortgagor solely at the Mortgagor’s expense. If the
Mortgagor shall fail to perform or keep any of the covenants of whatsoever kind
or nature contained in this Mortgage, the Mortgagee or any receiver appointed
hereunder, may, during the occurrence and continuance of an Event of Default,
but shall not be obligated to, make advances to perform the same in the
Mortgagor’s behalf, and the Mortgagor hereby agrees to repay such sums upon
demand plus interest at a rate per annum equal to the maximum rate of interest
permitted by applicable Law. No such advance shall be deemed to relieve the
Mortgagor from any Event of Default hereunder.

 

Defense of Claims. The Mortgagor will notify the Mortgagee, in writing, promptly
of the commencement of any legal proceedings affecting or which could adversely
affect the lien and security interest hereof or the status of or title to the
Mortgaged Property, or any part thereof, and will take such action, employing
attorneys agreeable to the Mortgagee, as may be necessary to preserve the
Mortgagor’s and the Mortgagee’s rights affected thereby; and should the
Mortgagor fail or refuse to take any such action, the Mortgagee may, but shall
not be obligated to, take such action on behalf and in the name of the Mortgagor
and at the Mortgagor’s expense. Moreover, the Mortgagee may, but shall not be
obligated to, take such independent action in connection therewith as it may in
its discretion deem proper without any liability or duty to the Mortgagor except
to use ordinary care, the Mortgagor hereby agreeing that all sums advanced or
all expenses incurred in such actions plus interest at the maximum rate of
interest permitted by applicable Law, will, on demand, be reimbursed to the
Mortgagee or any receiver appointed hereunder.

 

Defeasance. If the Secured Indebtedness shall be paid and discharged in full, no
Credit Party has any further obligation to advance amounts to or for the benefit
of the Mortgagor, and the Mortgagee has no commitment to permit or intention to
allow the creation of additional Secured Indebtedness, then the Mortgagee will
execute and deliver to the Mortgagor all releases and other instruments
reasonably requested by the Mortgagor for the purpose of releasing and
discharging the lien and security interest created hereunder. Otherwise this
Mortgage shall remain and continue in full force and effect.

 

Other Security. The Mortgagee may take or may hold other security from Persons
other than the Mortgagor for the Secured Indebtedness and may release or modify
the same without notice to or consent of the Mortgagor. The Mortgagee may resort
first to such other security or any part thereof or first to the security herein
given or any part thereof, or from time to time to either or both, even to the
partial or complete abandonment of either security, and such action shall not be
a waiver of any rights conferred by this Mortgage, which shall continue as a
first lien and security interest upon the Mortgaged Property not expressly
released until all Secured Indebtedness secured hereby is fully paid and no
Credit Party has any commitment to advance amounts or extend credit to or for
the benefit of the Mortgagor or any other payor of Secured Indebtedness.

 

EXHIBIT D – PAGE 25

 

 

Instrument an Assignment, Etc. This Mortgage shall be deemed to be and may be
enforced from time to time as an assignment, chattel mortgage, contract,
financing statement, real estate mortgage, pledge, or security agreement, and
from time to time as any one or more thereof.

 

Limitation on Interest. No provision of this Mortgage or of the other Loan
Documents shall require the payment or permit the collection of interest, or be
construed to create a contract regarding the same, in excess of the maximum rate
permitted by Law or which is otherwise contrary to Law (the “Highest Lawful
Rate”). If any excess of interest in such respect is herein or in the other Loan
Documents provided for, or shall be adjudicated to be so provided for herein or
in the other Loan Documents, such amount which would be deemed excessive
interest shall be deemed a partial prepayment of the principal of the Secured
Indebtedness and treated hereunder as such; and, if the entire principal amount
of the Secured Indebtedness owed is paid in full, any remaining excess shall be
repaid to the payors on the applicable Secured Indebtedness. In determining
whether the interest paid or payable, under any specific contingency, exceeds
the Highest Lawful Rate in effect from day to day, the Mortgagor and the holders
of the Secured Indebtedness shall, to the maximum extent permitted under
applicable Law, (a) characterize any nonprincipal payment as an expense, fee, or
premium rather than as interest, (b) exclude voluntary prepayments and the
effects thereof, and (c) amortize, prorate, allocate, and spread the total
amount of interest throughout the entire contemplated term of the Secured
Indebtedness so that the interest rate is uniform throughout the entire term of
the Secured Indebtedness; provided that, if the interest received by the holders
of the Secured Indebtedness for the actual period of existence thereof exceeds
the Highest Lawful Rate in effect from day to day, the holders of the Secured
Indebtedness shall apply or refund to the payors on the applicable Secured
Indebtedness the amount of such excess as provided in this Section, and, in such
event, the holders of the Secured Indebtedness shall not be subject to any
penalties provided by any Laws for contracting for, charging, taking, reserving,
or receiving interest in excess of the Highest Lawful Rate in effect from day to
day.

 

Unenforceable or Inapplicable Provisions. The parties hereto have negotiated the
terms of this Mortgage for its use or possible future use in more than one
jurisdiction. Thus, if any provision of this Mortgage is invalid or
unenforceable in any jurisdiction, the other provisions hereof shall remain in
full force and effect in such jurisdiction, and the remaining provisions hereof
shall be liberally construed in favor of the Mortgagee in order to effectuate
the provisions hereof, and the invalidity of the provisions hereof in any
jurisdiction shall not affect the validity or enforceability of any such
provision in any other jurisdiction. With respect to any jurisdiction wherein a
portion of the Mortgaged Property is situated, any reference herein to a statute
or the Law of another jurisdiction shall be deemed inapplicable to, and not used
in, the interpretation of the duties, powers or authority of the Mortgagee under
this Mortgage.

 

Rights Cumulative. Each and every right, power and remedy herein given to the
Mortgagee shall be cumulative and not exclusive; and each and every right, power
and remedy whether specifically herein given or otherwise existing may be
exercised from time to time and so often and in such order as may be deemed
expedient by the Mortgagee and the exercise, or the beginning of the exercise,
of any such right, power or remedy shall not be deemed a waiver of the right to
exercise, at the same time or thereafter, any other right, power or remedy. No
delay or omission by the Mortgagee in the exercise of any right, power or remedy
shall impair any rights, power or remedy or operate as a waiver thereof or of
any other right, power or remedy then or thereafter existing.

 

EXHIBIT D – PAGE 26

 

 

Waiver of Covenants by Mortgagee. Any and all covenants in this Mortgage may
from time to time by instrument in writing signed by the Mortgagee be cured or
waived to such extent and in such manner as the Mortgagee may desire, but no
such waiver shall ever affect or impair the Mortgagee’s rights and remedies or
liens and security interests hereunder, except to the extent specifically stated
in such written instrument.

 

Successors and Assigns.

 

This instrument is binding upon the Mortgagor, and the Mortgagor’s heirs,
successors and assigns, and shall inure to the benefit of the Mortgagee, and its
successors and assigns, and the provisions hereof shall likewise be covenants
running with the Lands.

 

The parties hereto agree that the Loans may be transferred without the necessity
for a notarial act of transfer thereof, and that any such transfer shall carry
with it into the hands of any future Lender or Lenders of the Loans full and
entire subrogation of title in and to the Loans and to any and all rights and
privileges under this instrument herein granted to the Mortgagee, as holder of
the Loans. This Mortgage is for the benefit of the Mortgagee and for such other
Person or Persons as may from time to time become or be the holders of any of
the Secured Indebtedness, and this Mortgage shall be transferable and
negotiable, with the same force and effect and to the same extent as the Secured
Indebtedness may be transferable.

 

Article and Section Headings. The article and section headings in this
instrument are inserted for convenience and shall not be considered a part of
this Mortgage or used in its interpretation.

 

Counterparts. This Mortgage may be executed in any number of counterparts, each
of which shall for all purposes be deemed to be an original, and all of which
are identical except that, to facilitate recordation in any particular county or
parish, counterpart portions of Exhibit A which describe properties situated in
parishes or counties other than the county or parish in which such counterpart
is to be recorded may be omitted. Exhibit A might not be paginated and any
pagination might not be consecutive. Exhibit A may also contain language
indicating that it is attached to a document other than this Mortgage or that a
particular page is the end of Exhibit A, when neither is applicable. Such
language shall be ignored for the purposes of interpreting this Mortgage.

 

EXHIBIT D – PAGE 27

 

 

Special Filing as Financing Statement.

 

This Mortgage shall likewise be a Security Agreement and a Financing Statement,
and the Mortgagor, as debtor (the “Debtor”), hereby grants to the Mortgagee, its
successors and assigns, as secured party (the “Secured Party”), a security
interest in all personal property, Fixtures, As-Extracted Collateral (including
oil and gas an all other substances of value that may be extracted from the
ground), accounts (including accounts financed at the wellhead or minehead of
wells or mines located on the properties subject to the Code), equipment,
inventory, contract rights and general intangibles described or referred to in
Article II hereof and all proceeds and products from the sale, lease or other
disposition of the Mortgaged Property or any part thereof). The addresses shown
in this Article are the addresses of the Debtor and Secured Party and
information concerning the security interest may be obtained from the Secured
Party at its address. Without in any manner limiting the generality of any of
the foregoing provisions hereof, (a) some portion of the goods described or to
which reference is made herein are or are to become Fixtures on the Lands
described or to which reference is made herein or on Exhibit A; (b) the minerals
and the like (including oil and gas) included in the Mortgaged Property and the
accounts resulting from the sale thereof will be financed at the wellheads or
mineheads of the wells or mines located on the Lands described or to which
reference is made herein; (c) the security interests created hereby under
applicable provisions of the Code will attach to all As-Extracted Collateral and
all other Hydrocarbons, (d) the Mortgagor is the record owner of the real estate
or interests in the real estate or immoveable property comprised of the
Mortgaged Property and (e) this Mortgage is to be filed of record, among other
places, in the real estate records of each county in which the Lands, or any
part thereof, are situated, as a financing statement, but the failure to do so
will not otherwise affect the validity or enforceability of this instrument.

 

The charter/file number of the Mortgagor is as set forth on the cover page
hereof.

 

Pursuant to the Code, the Mortgagor authorizes the Mortgagee, its counsel or its
representative, at any time and from time to time, to file or record financing
statements, continuation statements, amendments thereto and other filing or
recording documents or instruments with respect to the Mortgaged Property
without the signature of the Mortgagee in such form and in such offices as the
Mortgagee reasonably determines appropriate to perfect the security interests of
the Mortgagee under this Mortgage. The Mortgagor also authorizes the Mortgagee,
its counsel or its representative, at any time and from time to time, to file or
record such financing statements that describe the collateral covered thereby as
“all assets of the Mortgagor”, “all personal property of the Mortgagor” or words
of similar effect. The Mortgagor shall pay all costs associated with the filing
of such instruments.

 

Notices. Except as otherwise required by Law, whenever this Mortgage requires or
permits any consent, approval, notice, request, or demand from one party to
another, the consent, approval, notice, or demand must be in writing to be
effective and shall be personally delivered or sent to the party to be notified
at the address or facsimile number stated below (or such other address as may
have been designated by written notice by the party pursuant to this Section):

 

MORTGAGOR-DEBTOR   MORTGAGEE-SECURED PARTY      

c/o Lilis Energy, Inc.

300 East Sonterra, Blvd. Suite 1220

San Antonio, TX 78258

Telephone: (210) 999-5400

Attention: Ariella Fuchs

 

Deans Knight Capital Management Ltd.,

as Collateral Agent

1500 – 999 West Hastings Street

Vancouver, BC, V6C 2W2

Telephone: 604-669-0212

Attention: Dillon Cameron

 

EXHIBIT D – PAGE 28

 

 

Each such notice, request or other communication shall be effective (a) if given
by facsimile transmission, when transmitted to the facsimile number specified in
this Section and confirmation of receipt is received (the receipt thereof shall
be deemed to have been acknowledged upon the sending Person’s receipt of its
facsimile machine’s confirmation of successful transmission; provided that if
the day on which such facsimile is received is not a Business Day or is after
4:00 p.m. on a Business Day, then the receipt of such facsimile shall be deemed
to have been acknowledged on the next following Business Day), (b) if given by
mail, three Business Days after such communication is deposited in the mail with
first class postage prepaid, addressed as aforesaid, or (c) if given by any
other means, when delivered (or, in the case of electronic transmission,
received) at the address specified in this Section.

 

No Waiver by Mortgagee. No course of dealing on the part of the Mortgagee, its
officers or employees, nor any failure or delay by the Mortgagee with respect to
exercising any of its rights or remedies hereunder shall operate as a waiver
thereof nor shall the exercise or partial exercise of any such right or remedy
preclude the subsequent exercise thereof or the exercise of any other right or
remedy.

 

Governing Agreement. This Mortgage is made pursuant and subject to the terms and
provisions of the Credit Agreement. In the event of a direct conflict between
the terms and provisions of this Mortgage and those of the Credit Agreement, the
terms and provisions of the Credit Agreement shall govern and control, except
that if the two documents contain different formal definitions for the same term
or terms, the formal definition of such term or terms herein shall be applicable
in construing this Mortgage. The inclusion in this Mortgage of provisions not
addressed in the Credit Agreement shall not be deemed a conflict, and all such
additional provisions contained herein shall be given full force and effect. The
indemnification and releases contained herein are in addition to any
indemnification or releases contained in the Credit Agreement.

 

Drafting of Mortgage. The Mortgagor declares that it has contributed to the
drafting of this Mortgage or has had the opportunity to have it reviewed by its
counsel before signing it and agrees that it has been purposefully drawn and
correctly reflects its understanding of the transaction that it contemplates.

 

Execution by Mortgagee Corrections. The Mortgagee may at any time without
obtaining the consent of the Mortgagor execute this Mortgage (and have such
execution witnessed or acknowledged) for any purposes it deems necessary or
appropriate and, if deemed appropriate, subsequently file this Mortgage of
record. Additionally, in the event it is determined that Exhibit A contains any
errors or inaccurate or incomplete descriptions of the Oil and Gas Leases and
Lands intended to be covered hereby, the Mortgagee may, without obtaining the
consent of the Mortgagor, attempt to correct any such errors or omissions and
make accurate and complete any such inaccuracies, omissions or misdescriptions
and, if deemed appropriate, subsequently file or re-file this Mortgage of
record.

 

Governing Law. This Mortgage is intended to be performed in the State of Texas
and the substantive Law of such State and or the United States of America shall
govern the validity, construction, enforcement and interpretation of this
Mortgage, unless otherwise specified herein, except that the Laws of the State
of New Mexico shall govern with respect to procedural and substantive matters
relating to the creation, perfection and enforcement of the Liens and other
rights and remedies of the Mortgagee granted herein.

 

EXHIBIT D – PAGE 29

 

 

Application of Payments to Certain Obligations. If any part of the Loan
Obligations cannot be lawfully secured by this Mortgage or if any part of the
Mortgaged Property cannot be lawfully subject to the Lien hereof to the full
extent of the Loan Obligations, then all payments made shall be applied on said
Loan Obligations first in discharge of that portion thereof that is not secured
by this Mortgage.

 

Nature of Covenants. The covenants and agreements herein contained shall
constitute covenants running with the land and interests covered or affected
hereby and shall be binding upon the heirs, legal representatives, successors
and assigns of the parties hereto.

 

Expenses. The Mortgagor agrees to pay any and all reasonable and documented out
of pocket expenses (including all reasonable fees and disbursements of counsel)
that may be paid or incurred by the Mortgagee in enforcing, or obtaining advice
of counsel in respect of, any rights with respect to, or collecting, any or all
of the Loan Obligations and/or enforcing any rights with respect to, or
collecting against, the Mortgagor under this Mortgage to the extent the
Mortgagor would be required to do so pursuant to Section 9.4 of the Credit
Agreement.

 

Release. Upon the Release Date, the Mortgagee shall forthwith cause satisfaction
and discharge of this Mortgage to be entered upon the record at the expense of
the Mortgagor and shall execute and deliver or cause to be executed and
delivered such instruments of satisfaction and reassignment as may be reasonably
necessary or desirable for the release of the Liens created hereby on the
Mortgaged Property.

 

NOTICE: THIS DOCUMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES WITH
RESPECT TO THE SUBJECT MATTER HEREOF 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.

 

Intercreditor Agreement. Each Secured Party, by accepting the benefits of the
security provided hereby, (i) agrees (or is deemed to agree) that it will be
bound by, and will take no actions contrary to, the provisions of the
Intercreditor Agreement, (ii) authorizes (or deemed to authorize) the Agent on
behalf of such Secured Party to enter into, and perform under, the Intercreditor
Agreement and (iii) acknowledges (or is deemed to acknowledge) that a copy of
the Intercreditor Agreement was delivered, or made available, to such Secured
Party. Notwithstanding any other provision contained herein, this Deed of Trust,
the Liens created hereby and the rights, remedies, duties and obligations
provided for herein are subject in all respects to the provisions of the
Intercreditor Agreement and, to the extent provided therein, the applicable
Security Documents (as defined in the Intercreditor Agreement). In the event of
any conflict or inconsistency between the provisions of this Deed of Trust and
the Intercreditor Agreement, the provisions of the Intercreditor Agreement shall
control.

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

EXHIBIT D – PAGE 30

 

 

IN WITNESS WHEREOF, the undersigned has executed or caused to be executed this
Mortgage as of the date first set forth above.

 

  MORTGAGOR:

 

  BRUSHY RESOURCES, INC., a Delaware
corporation

 

  By:     Name:

Joseph C. Daches

  Title: Chief Financial Officer

 

ACKNOWLEDGMENT

 

STATE OF TEXAS §   § COUNTY OF ____________ §

 

This instrument was acknowledged before me on _____________________, 2017, by
Joseph C. Daches, Chief Financial Officer of Brushy Resources, Inc., a Delaware
corporation, on behalf of said corporation.

 

      Notary Public in and for the State of Texas

 

My commission expires:    

 

[seal]

 

 

 

 

EXHIBIT A

TO MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF PRODUCTION< FIXTURE FILING AND
FINANCING STATEMENT

 

This Exhibit A sets forth the description of certain property interests covered
by the Mortgage. All of the terms defined in the Mortgage are used in this
Exhibit A with the same meanings given therein. For purposes of this Exhibit A
the capitalized terms not defined in the Mortgage are as follows:

 

1.“Before Payout” or “BPO” means the Working Interest and/or Net Revenue
Interest of a party before the point in time when the Well has recovered from
production all costs as specified in underlying farmout, assignments or other
documents in the chain of title, usually including costs of drilling, completing
and equipping a well or wells plus costs of operating the well or wells during
the recoupment period.

 

2.“After Payout” or “APO” means the Working Interest and/or Net Revenue Interest
of a party after the point in time when the Well has recovered from production
all costs as specified in the underlying farmout, assignments or other documents
in the chain of title, usually including costs of drilling, completing and
equipping a well or wells plus costs of operating the well or wells during the
recoupment period.

 

3.“Well” means any existing well identified in Exhibit A, including any
replacement well drilled in lieu thereof from which crude oil, natural gas or
other Hydrocarbons are now or hereafter produced.

 

All references contained in this Exhibit A to the Oil and Gas Properties are
intended to include references to (i) the volume or book and page, file, entry
or instrument number of the appropriate records of the particular county in the
state where each such lease or other instrument is recorded and (ii) all valid
and existing amendments to such lease or other instrument of record in such
county records regardless of whether such amendments are expressly described
herein. A special reference is here made to each such lease or other instrument
and the record thereof for a more particular description of the property and
interests sought to be affected by the Mortgage and for all other purposes.

 

For recording purposes, in regards to each county portion to this Exhibit A,
this Introduction may be attached to an original executed copy of the Mortgage,
Security Agreement, Assignment of Production, Fixture Filing and Financing
Statement to be separately filed of record in each county.

 

This Exhibit A and the Mortgage cover and include the following:

 

(a)          all right, title and interest, whether now owned and existing or
hereafter acquired or arising, of the Mortgagor in and to the oil, gas and
mineral leases described herein and/or lands described in and subject to such
oil, gas and mineral leases (regardless, as to such leases and/or lands, of any
surface acreage and/or depth limitations set forth in any description of any of
such oil, gas and mineral leases), and all right, title and interest, whether
now owned and existing or hereafter acquired or arising, of the Mortgagor in and
to any of the oil, gas and minerals in, on or under the lands, if any, described
on this Exhibit A, or in any document or instrument referred to in this Exhibit
A, including, without limitation, all contractual rights, fee interests,
leasehold interests, Overriding Royalty Interests, non-participating Royalty
Interests, mineral interests, production payments, net profits interests or any
other interest measured by or payable out of production of oil, gas or other
minerals from the oil, gas and mineral leases and/or lands described herein; and

 

 

 

 

(b)          all of the foregoing interests of the Mortgagor as such interests
may be enlarged by the discharge of any payments out of production or by the
removal of any charges or encumbrances, together with all interests, whether now
owned and existing or hereafter acquired or arising, of the Mortgagor in, to and
under or derived from all renewals and extensions of any oil, gas and mineral
leases described herein, it being specifically intended hereby that any new oil
and gas lease (i) in which an interest is acquired by the Mortgagor after the
termination or expiration of any oil and gas lease, the interests of the
Mortgagor in, to and under or derived from which are subject to the lien and
security interest hereof, and (ii) that covers all or any part of the property
described in and covered by such terminated or expired leases, shall, to the
extent, and only to the extent such new oil and gas lease may cover such
property, be considered a renewal or extension of such terminated or expired
lease; and

 

(c)          all right, title and interest, whether now owned and existing or
hereafter acquired or arising, of the Mortgagor in, to and under or derived from
any operating, farmout and bidding agreements, assignments and subleases,
whether or not described in this Exhibit A, to the extent, and only to the
extent, that such agreements, assignments and subleases (i) cover or include any
present right, title and interest of the Mortgagor in and to the leases and/or
lands described in this Exhibit A, or (ii) cover or include any other undivided
interests now or hereafter held by the Mortgagor in, to and under the described
leases and/or lands, including, without limitation, any future operating,
farmout and bidding agreements, assignments, subleases and pooling, unitization
and communitization agreements and the units created thereby (including, without
limitation, all units formed under orders, regulations, rules or other official
acts of any governmental body or agency having jurisdiction) to the extent and
only to the extent that such agreements, assignments, subleases, or units cover
or include the described leases and/or lands; and

 

(d)          all right, title and interest, whether now owned and existing or
hereafter acquired or arising, of the Mortgagor in, to and under or derived from
all presently existing and future advance payment agreements, oil, casinghead
gas and gas sales, exchange and processing contracts and agreements, including,
without limitation, those contracts and agreements that are described on this
Exhibit A, to the extent, and only to the extent, those contracts and agreements
cover or include the described leases and/or lands; and

 

(e)          all right, title and interest, whether now owned and existing or
hereafter acquired or arising, of the Mortgagor in, to and under or derived from
all existing and future permits, licenses, easements and similar rights and
privileges that relate to or are appurtenant to any of the described leases
and/or lands.

 

 

 

 

Notwithstanding the intention of the Mortgage to cover all of the right, title
and interest of the Mortgagor in and to the described leases and/or lands,
whether now owned and existing or hereafter acquired or arising, the Mortgagor
hereby specifically warrants and represents that the interests covered by this
Exhibit A are not greater than the Working Interest nor less than the Net
Revenue Interest, Overriding Royalty Interest, net profit interest, production
payment interest, Royalty Interest or other interest payable out of or measured
by production set forth in the Certificate of Ownership Interests in connection
with each oil and gas well covered by this Exhibit. In the event the Mortgagor
owns any other or greater interest, such additional interest shall also be
covered by and included in the Mortgage.

 

Any reference herein to wells or units is for warranty of interest,
administrative convenience and identification and is not intended to limit or
restrict the right, title, interest of properties covered by the Mortgage and
all of Mortgagor’s right, title and interest in the Lands, Subject Interests and
Mortgaged Property described herein are and shall be subject to the Mortgage,
regardless of the presence of any Units or Wells not herein referenced.

 

The Oil and Gas Leases covered by the Mortgage include all leases and force
pooled interests now or thereafter owned by Mortgagor included within the
counties referred to in this Exhibit A whether or not the schedules of leases
included in this Exhibit A list all such leases.

 

No depth limitation exception contained in any description of leases and other
real property interests set forth in this Exhibit A shall exclude from the
grants of the Mortgaged Property and collateral contained in the Mortgage any
depth owned by Mortgagor within the geographic area described in this Exhibit A
for such leases and other real property interests.

 

The references to document, book or volume and page herein refer to the
recording location of each respective Mortgaged Property described herein in the
county/parish where the land covered by the Mortgaged Property is located.

 

This Mortgage covers all land, leases and properties of the Mortgagor, whether
now owned or hereafter acquired, located in any county/parish identified
elsewhere in this Exhibit A or located in any county/parish wherein this
Mortgage has been recorded.

 

This Mortgage is intended to include each page hereinafter labeled Exhibit A or
similar label and such pages might not be numbered and, if numbered, might not
be consecutively numbered. Such exhibit pages may have been copied from leases,
purchase agreements, memoranda, assignments, division orders, legal opinions,
landman reports, prior mortgages or other documents (each a “Source”) and might
contain language indicating that such pages are attached to such Source rather
than this Mortgage and all such language is to be ignored for the purposes of
interpreting this Mortgage. Similarly, any other language in such exhibit pages
from a Source which is contrary to the other provisions of this Mortgage shall
likewise be ignored.

 

[Exhibit A continues on following pages]

 

 

 

 

EXHIBIT A

 

Leases – Lea County, New Mexico

 

Grantor   Grantee   Lease Date   County   Book   Page United States of America  
Zoneta Dorland   10/1/1963   Lea   227   250

 

Wells – Lea County, New Mexico

 

WELL NAME   OPERATOR   WELL API
NUMBER   FIELD   COUNTY   WI   NRI   RESERVE CLASS
& CATEGORY MEXICO P FEDERAL NO 1   IMPETRO OPERATING LLC   3002522405  
CRITTENDON   LEA   0.9572587   0.7562344   Proved Producing

 

 

 

 

EXHIBIT E

 

FORM OF SECURITY AGREEMENT

 

This PLEDGE AND SECURITY AGREEMENT is entered into as of [_____________], by and
among EACH OF THE UNDERSIGNED, whether as an original signatory hereto or as an
Additional Grantor (as defined below) (individually, a “Grantor” and,
collectively, the “Grantors”) and Wilmington Trust, National Association, as
administrative agent (in such capacity, “Agent”) for the Secured Parties (as
defined below).

 

PRELIMINARY STATEMENTS

 

WHEREAS, Lilis Energy, Inc., a Nevada corporation, as Borrower (the “Borrower”),
certain of the Borrower’s Subsidiaries, as Guarantors, the lenders from time to
time party thereto (the “Lenders”) and Agent are parties to that certain Credit
and Guaranty Agreement dated as of September 29, 2016 (as the same may hereafter
be amended, restated, amended and restated, supplemented or otherwise modified
from time to time, the “Credit Agreement”), pursuant to which the Lenders have
agreed to make loans to the Borrower in a manner and upon the terms and
conditions set forth therein; and

 

WHEREAS, in order to secure the obligations under the Credit Agreement, each
Grantor has agreed, among other things, to grant liens on and security interests
in the Collateral (as defined below) to Agent for the benefit of the Secured
Parties and, in furtherance of the foregoing, has agreed to execute and deliver
this Agreement to Agent.

 

NOW, THEREFORE, in consideration of the premises and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
each Grantor and Agent, on behalf of the Secured Parties, hereby agree as
follows:

 

ARTICLE I.

DEFINITIONS

 

Section 1.1.          Terms Defined in Credit Agreement. All capitalized terms
used herein and not otherwise defined shall have the meanings assigned to such
terms in the Credit Agreement.

 

Section 1.2.          Terms Defined in New York Uniform Commercial Code. Terms
defined in the New York UCC which are not otherwise defined in this Agreement
are used herein as defined in the New York UCC.

 

Section 1.3.          Definitions of Certain Terms Used Herein. As used in this
Agreement, the following terms shall have the following meanings:

 

“Account Debtor” shall mean each Person who is obligated on a Receivable or any
Supporting Obligation related thereto.

 

“Accounts” shall mean all “accounts” as defined in Article 9 of the New York
UCC.

 

“Additional Grantors” shall have the meaning set forth in Section 4.6.

 

“Agent” shall have the meaning set forth in the preamble to this Agreement.

 

Exhibit E – Page 1

 

 

“Agreement” means this Pledge and Security Agreement, dated as of April 26,
2017, made by each of the Grantors in favor of Agent for the benefit of the
Secured Parties, as the same may be amended, restated, supplemented or otherwise
modified from time to time.

 

“Article” means a numbered article of this Agreement, unless another document is
specifically referenced.

 

“Borrower” shall have the meaning set forth in the preliminary statements to
this Agreement.

 

“Certificated Equipment” means any equipment the ownership of which is evidenced
by, or under applicable law, is required to be evidenced by, a certificate of
title.

 

“Chattel Paper” shall mean all “chattel paper” as defined in Article 9 of the
New York UCC, including “electronic chattel paper” or “tangible chattel paper”,
as each term is defined in Article 9 of the New York UCC.

 

“Collateral” shall have the meaning assigned in Section 2.1 and shall not
include the Excluded Collateral, other than to the extent such Excluded
Collateral becomes Collateral as provided in Section 2.2.

 

“Collateral Records” shall mean books, records, ledger cards, files,
correspondence, customer lists, blueprints, technical specifications, manuals,
computer software, computer printouts, tapes, disks and related data processing
software and similar items that at any time evidence or contain information
relating to any of the Collateral or are otherwise necessary or helpful in the
collection thereof or realization thereupon.

 

“Collateral Support” shall mean all property (real or personal) assigned,
hypothecated or otherwise securing any Collateral and shall include any security
agreement or other agreement granting a lien or security interest in such real
or personal property.

 

“Commercial Tort Claims” shall mean all “commercial tort claims” as defined in
Article 9 of the New York UCC, including all commercial tort claims listed on
Schedule II (as such schedule may be amended or supplemented from time to time).

 

“Commodities Accounts” shall mean all “commodity accounts” as defined in Article
9 of the New York UCC.

 

“Control” shall have the meaning set forth in Article 8 or, if applicable, in
Section 9-104, 9-105, 9-106 or 9-107 of Article 9 of the New York UCC.

 

“Copyright Licenses” shall mean any and all agreements providing for the
granting of any right in or to Copyrights (whether such Grantor is licensee or
licensor thereunder).

 

“Copyrights” shall mean all United States and foreign copyrights, all mask works
fixed in semi-conductor chip products (as defined under 17 U.S.C. 901 of the
U.S. Copyright Act), whether registered or unregistered, now or hereafter in
force throughout the world, all registrations and applications therefor, all
rights corresponding thereto throughout the world, all extensions and renewals
of any thereof, the right to sue for past, present and future infringements of
any of the foregoing, and all proceeds of the foregoing, including licenses,
royalties, income, payments, claims, damages, and proceeds of suit.

 

“Credit Agreement” shall have the meaning set forth in the preliminary
statements to this Agreement.

 

Exhibit E – Page 2

 

 

“Deposit Accounts” shall mean all “deposit accounts” as defined in Article 9 of
the New York UCC.

 

“Documents” shall mean all “documents” as defined in Article 9 of the New York
UCC.

 

“Equipment” shall mean: (i) all “equipment” as defined in Article 9 of the New
York UCC, (ii) all machinery, manufacturing equipment, data processing
equipment, computers, office equipment, furnishings, furniture, appliances,
fixtures and tools (in each case, regardless of whether characterized as
equipment under the New York UCC) and (iii) all accessions or additions thereto,
all parts thereof, whether or not at any time of determination incorporated or
installed therein or attached thereto, and all replacements therefor, wherever
located, now or hereafter existing, including any fixtures.

 

“Event of Default” means an event described in Section 5.1.

 

“Excluded Account” shall have the meaning assigned to such term in the Credit
Agreement.

 

“Excluded Collateral” shall have the meaning set forth in Section 2.2 but shall
not include any such rights, properties or assets that become Collateral as
provided in Section 2.2.

 

“Exhibit” refers to a specific exhibit to this Agreement, unless another
document is specifically referenced.

 

“General Intangibles” shall have the meaning set forth in Article 9 of the New
York UCC.

 

“Goods” (i) shall mean all “goods” as defined in Article 9 of the New York UCC
and (ii) shall include, without limitation, all Inventory and Equipment (in each
case, regardless of whether characterized as goods under the New York UCC).

 

“Governmental Approvals” means (i) any authorization, consent, approval,
license, waiver or exemption, by or with (ii) any required notice to; (iii) any
declaration of or with; or (iv) any required registration by or with, or any
other action or deemed action by or on behalf of, any Governmental Authority.

 

“Grantor” and “Grantors” shall have the meaning set forth in the preamble to
this Agreement.

 

“Instruments” shall mean all “instruments” as defined in Article 9 of the New
York UCC.

 

“Insurance” shall mean all insurance policies covering any or all of the
Collateral (regardless of whether Agent is the loss payee thereof).

 

“Intellectual Property” shall mean, collectively, the Copyrights, the Copyright
Licenses, the Patents, the Patent Licenses, the Trademarks, the Trademark
Licenses, the Trade Secrets, and the Trade Secret Licenses.

 

“Inventory” shall mean: (i) all “inventory” as defined in Article 9 of the New
York UCC and (ii) all goods held for sale or lease or to be furnished under
contracts of service or so leased or furnished, all raw materials, work in
process, finished goods, and materials used or consumed in the manufacture,
packing, shipping, advertising, selling, leasing, furnishing or production of
such inventory or otherwise used or consumed in any Grantor’s business; all
goods in which any Grantor has an interest in mass or a joint or other interest
or right of any kind; and all goods which are returned to or repossessed by any
Grantor, all computer programs embedded in any goods and all accessions thereto
and products thereof (in each case, regardless of whether characterized as
inventory under the New York UCC).

 

Exhibit E – Page 3

 

 

“Investment Accounts” shall mean the Securities Accounts, Commodities Accounts
and Deposit Accounts.

 

“Investment Property” shall have the meaning set forth in Article 9 of the New
York UCC.

 

“Investment Related Property” shall mean: (i) all Investment Property and (ii)
all of the following (regardless of whether classified as Investment Property
under the New York UCC): all Pledged Securities, the Investment Accounts, and
certificates of deposit.

 

“Issuer” means any issuer of a Pledged Note.

 

“Lenders” shall have the meaning set forth in the preliminary statements to this
Agreement.

 

“Letters of Credit” shall mean all “letters of credit” as defined in Article 9
of the New York UCC.

 

“Letter of Credit Right” shall mean “letter-of-credit right” as defined in
Article 9 of the New York UCC.

 

“Money” shall mean “money” as defined in the New York UCC.

 

“New York UCC” means the Uniform Commercial Code as in effect in the State of
New York, as the same may be amended, modified or supplemented.

 

“Ownership Interests” means all interests in any limited liability company,
general partnership, limited partnership, limited liability partnership or other
partnership.

 

“Patent Licenses” shall mean all agreements providing for the granting of any
right in or to Patents (whether such Grantor is licensee or licensor
thereunder).

 

“Patents” shall mean all United States and foreign patents and applications for
letters patent throughout the world, all reissues, divisions, continuations,
continuations-in-part, extensions, renewals, and reexaminations of any of the
foregoing, all rights corresponding thereto throughout the world, and all
proceeds of the foregoing, including licenses, royalties, income, payments,
claims, damages, and proceeds of suit and the right to sue for past, present and
future infringements of any of the foregoing.

 

“Payment Intangibles” shall have the meaning set forth in Article 9 of the New
York UCC.

 

“Pledged Notes” means all promissory notes listed on Schedule I (as such
schedule may be amended or supplemented from time to time) and all other
promissory notes or other instruments issued to or held by any Grantor (other
than promissory notes issued in connection with extensions of trade credit by
any Grantor in the ordinary course of business).

 

“Pledged Securities” means all Securities and Ownership Interests of any
Grantor, including as described on Schedule I attached hereto (as such schedule
may be amended or supplemented from time to time), and all Securities and
Ownership Interests described in any Pledge Amendment hereafter executed and
delivered by any Grantor pursuant to Section 4.5 of this Agreement.

 

“Proceeds” shall mean: (i) all “proceeds” as defined in Article 9 of the New
York UCC, (ii) payments or distributions made with respect to any Investment
Related Property and (iii) whatever is receivable or received when Collateral or
proceeds are sold, exchanged, collected or otherwise disposed of, whether such
disposition is voluntary or involuntary.

 

Exhibit E – Page 4

 

 

“Receivables” shall mean all rights to payment, whether or not earned by
performance, for goods or other property sold, leased, licensed, assigned or
otherwise disposed of, or services rendered or to be rendered, including all
such rights constituting or evidenced by any Account, Chattel Paper, Instrument,
General Intangible or Investment Related Property, together with all of
Grantor’s rights, if any, in any goods or other property giving rise to such
right to payment and all Collateral Support and Supporting Obligations related
thereto and all Receivables Records.

 

“Receivables Records” shall mean (i) all original copies of all documents,
instruments or other writings or electronic records or other Records evidencing
the Receivables, (ii) all books, correspondence, credit or other files, Records,
ledger sheets or cards, invoices, and other papers relating to Receivables,
including all tapes, cards, computer tapes, computer discs, computer runs,
record keeping systems and other papers and documents relating to the
Receivables, whether in the possession or under the control of Grantor or any
computer bureau or agent from time to time acting for Grantor or otherwise,
(iii) all evidences of the filing of financing statements and the registration
of other instruments in connection therewith, and amendments, supplements or
other modifications thereto, notices to other creditors or Secured Parties, and
certificates, acknowledgments, or other writings, including lien search reports,
from filing or other registration officers, (iv) all credit information, reports
and memoranda relating thereto and (v) all other written or nonwritten forms of
information related in any way to the foregoing or any Receivable.

 

“Record” shall have the meaning specified in Article 9 of the New York UCC.

 

“Release Date” means the date upon which (a) the Loans and the other obligations
under the Loan Documents (other than contingent indemnification obligations)
have been paid in full and (b) the Aggregate Commitment has been terminated.

 

“Section” means a numbered section of this Agreement, unless another document is
specifically referenced.

 

“Secured Party” has the meaning provided in the Credit Agreement, and “Secured
Parties” means all of them.

 

“Securities Accounts” shall mean all “securities accounts” as defined in Article
8 of the New York UCC.

 

“Security Entitlements” shall mean all “security entitlements” as defined in
Article 9 of the New York UCC.

 

“Security” has the meaning set forth in Article 8 of the New York UCC.

 

“Stock Rights” means any securities, dividends or other distributions and any
other right or property which any Grantor shall receive or shall become entitled
to receive for any reason whatsoever with respect to, in substitution for or in
exchange for any securities or other ownership interests in a corporation,
limited partnership, general partnership, joint venture or limited liability
company constituting Collateral and any securities, any right to receive
securities and any right to receive earnings, in which any Grantor now has or
hereafter acquires any right, issued by an issuer of such securities.

 

“Supporting Obligation” shall mean all “supporting obligations” as defined in
Article 9 of the New York UCC.

 

Exhibit E – Page 5

 

 

“Trade Secret Licenses” shall mean any and all agreements providing for the
granting of any right in or to Trade Secrets (whether such Grantor is licensee
or licensor thereunder).

 

“Trade Secrets” shall mean all trade secrets and all other confidential or
proprietary information and know-how now or hereafter owned or used in, or
contemplated at any time for use in, the business of such Grantor (all of the
foregoing being collectively called a “Trade Secret”), whether or not such Trade
Secret has been reduced to a writing or other tangible form, including all
documents and things embodying, incorporating, or referring in any way to such
Trade Secret, the right to sue for past, present and future infringement of any
Trade Secret, and all proceeds of the foregoing, including licenses, royalties,
income, payments, claims, damages, and proceeds of suit.

 

“Trademark Licenses” shall mean any and all agreements providing for the
granting of any right in or to Trademarks (whether such Grantor is licensee or
licensor thereunder).

 

“Trademarks” shall mean all United States, state and foreign trademarks, trade
names, corporate names, company names, business names, fictitious business
names, internet domain names, trade styles, service marks, certification marks,
collective marks, logos, other source or business identifiers, designs and
general intangibles of a like nature, all registrations and applications for any
of the foregoing, all extensions or renewals of any of the foregoing, all of the
goodwill of the business connected with the use of and symbolized by the
foregoing, the right to sue for past, present and future infringement or
dilution of any of the foregoing or for any injury to goodwill, and all proceeds
of the foregoing, including licenses, royalties, income, payments, claims,
damages, and proceeds of suit.

 

“United States” shall mean the United States of America.

 

The foregoing definitions shall be equally applicable to both the singular and
plural forms of the defined terms.

 

ARTICLE II.

GRANT OF SECURITY
INTEREST

 

Section 2.1.          Grant of Security. Subject to Section 2.2, each Grantor
hereby grants to Agent for the benefit of the Secured Parties a security
interest and continuing lien on all of such Grantor’s right, title and interest
in, to and under all personal property of such Grantor including, but not
limited to the following, in each case whether now owned or existing or
hereafter acquired or arising and wherever located (all of which being
hereinafter collectively referred to as the “Collateral”):

 

(a)all Accounts;

(b)all cash and Cash Equivalents;

(c)all Chattel Paper;

(d)all Commercial Tort Claims;

(e)all Commodity Accounts;

(f)all Deposit Accounts;

(g)all Documents;

(h)all Equipment;

 

Exhibit E – Page 6

 

 

(i)all Fixtures;

(j)all General Intangibles;

(k)all Goods;

(l)all Governmental Approvals;

(m)all Instruments;

(n)all Insurance;

(o)all Intellectual Property;

(p)all Inventory;

(q)all Investment Related Property;

(r)all Letters of Credit and Letter of Credit Rights;

(s)all Money;

(t)all Permitted Investments;

(u)all Receivables and Receivable Records; (v)all Securities Accounts and
Securities Entitlements;

(w)all books and records pertaining to the Collateral;

(x)          to the extent not otherwise included above, all Collateral Records,
Collateral Support and Supporting Obligations relating to any of the foregoing;
and

(y)          to the extent not otherwise included above, all Proceeds, products,
accessions, profits, rents, replacements, substations of or in respect of any of
the foregoing.

 

Section 2.2.          Certain Limited Exclusions. Notwithstanding anything
herein to the contrary, in no event shall the security interest granted under
Section 2.1 hereof attach to any (a) any U.S. intent-to-use trademark
application for which a statement of use has not been filed with and duly
accepted by the United States Patent and Trademark Office (but only until such
statement is accepted by the United States Patent and Trademark Office), (b)
motor vehicles and other assets subject to certificates of title (other than to
the extent a security interest thereon can be perfected by the filing of a
financing statement under the UCC), (c) property subject to a lien permitted by
Section 6.03 of the Credit Agreement securing purchase money obligations or
capital leases solely to the extent that a grant or perfection of a lien in
favor of the Agent on any such property is prohibited by, or results in a breach
or termination of, or constitutes a default under, the documentation governing
such lien or the obligations secured by such lien and such restriction is
enforceable under applicable law, (d) clauses (a) and (b) of the definition of
“Excluded Accounts” in the Credit Agreement and (e) without duplication of
clauses (a) through (d) above, lease, license, contract, property rights or
agreement to which any Grantor is a party or any of its rights or interests
thereunder if and only for so long as the grant of such security interest shall
constitute or result in (i) the abandonment, invalidation or unenforceability of
any right, title or interest of any Grantor therein or (ii) a breach or
termination pursuant to the terms of, or a default under, any such lease,
license, contract, property rights or agreement (other than to the extent that
any such term would be rendered ineffective pursuant to Sections 9-406, 9-407,
9-408 or 9-409 of the New York UCC (or any successor provision or provisions) of
any relevant jurisdiction or any other applicable law (including the Bankruptcy
Code) or principles of equity) (collectively, the “Excluded Collateral”);
provided however that such security interest shall attach immediately at such
time as the condition causing such abandonment, invalidation or unenforceability
shall be remedied and to the extent severable, shall attach immediately to any
portion of such lease, license, contract, property rights or agreement that does
not result in any of the consequences specified in (i) or (ii) above (and all of
Grantors’ rights, title and interest in such lease, license, contract, property
rights or agreements, or portion thereof, shall automatically be included in and
considered as “Collateral”).

 

Exhibit E – Page 7

 

 

Section 2.3.          Security for Obligations. This Agreement secures, and the
Collateral is collateral security for, the prompt and complete payment or
performance in full when due, whether at stated maturity, by required
prepayment, declaration, acceleration, demand or otherwise (including the
payment of amounts that would become due but for the operation of the automatic
stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. §362(a) (and any
successor provision thereof)), of all Obligations.

 

Section 2.4.          Continuing Liability Under Collateral. Notwithstanding
anything herein to the contrary, (i) each Grantor shall remain liable for all
obligations under the Collateral and nothing contained herein is intended to be
or shall be a delegation of duties to Agent or any Secured Party, (ii) each
Grantor shall remain liable under each of the agreements included in the
Collateral to perform all of the obligations undertaken by it thereunder all in
accordance with and pursuant to the terms and provisions thereof and neither
Agent nor any Secured Party shall have any obligation or liability under any of
such agreements by reason of or arising out of this Agreement or any other
document related thereto nor shall Agent nor any Secured Party have any
obligation to make any inquiry as to the nature or sufficiency of any payment
received by it or have any obligation to take any action to collect or enforce
any rights under any agreement included in the Collateral and (iii) the exercise
by Agent of any of its rights hereunder shall not release any Grantor from any
of its duties or obligations under the contracts and agreements included in the
Collateral.

 

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

Each Grantor represents and warrants to Agent and the Secured Parties that:

 

Section 3.1.          Title, Authorization, Validity and Enforceability. Such
Grantor has good and valid rights in or the power to transfer the Collateral and
title to the Collateral with respect to which it has purported to grant a
security interest hereunder, free and clear of all Liens (other than Permitted
Encumbrances and the Permitted Senior Liens) and has full power and authority to
grant to Agent the security interest in such Collateral pursuant hereto. The
execution and delivery by such Grantor of this Agreement has been duly
authorized, executed and delivered by proper corporate, partnership or limited
liability proceedings, and this Agreement constitutes a legal, valid and binding
obligation of such Grantor and creates a security interest which is enforceable
against such Grantor in all now owned and hereafter acquired Collateral, 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 3.2.          Type and Jurisdiction of Organization. Such Grantor is a
corporation, limited partnership or limited liability company duly and properly
incorporated or organized, as the case may be, validly existing and (to the
extent such concept applies to such entity) in good standing under the laws of
its jurisdiction of incorporation or organization and has all requisite
authority to conduct its business in each jurisdiction wherein failure to have
such authorization may result in a Material Adverse Effect. Such Grantor is not
now nor has it during the five years prior to the date hereof been incorporated
or organized as any other type of entity or under the laws of any other
jurisdiction.

 

Exhibit E – Page 8

 

 

Section 3.3.          Principal Location. On the date hereof, such Grantor’s
mailing address and the location of its place of business (if it has only one)
or its chief executive office (if it has more than one place of business), is
disclosed in Exhibit “A”. Excluding locations where a Grantor is a lessee with
respect to any oil and gas lease, such Grantor has no other places of business
except those set forth in Exhibit “A” as of the date hereof.

 

Section 3.4.          No Other Names. As of the date hereof, during the
preceding five-year period, such Grantor has not conducted business under any
name except those set forth in Exhibit “B”. On the date hereof, each Grantor’s
name, as set forth on Exhibit “B”, is the exact name as it appears in such
Grantor’s Organizational Documents, as amended, as filed with such Grantor’s
jurisdiction of organization.

 

Section 3.5.          No Financing Statements. No financing statement describing
all or any portion of the Collateral (other than financing statements filed in
order to perfect any Lien permitted pursuant to clauses (b), (e) and (g) of
Section 6.03 of the Credit Agreement) which has not lapsed or been terminated
naming such Grantor as debtor has been filed in any jurisdiction except for the
financing statements naming Agent on behalf of the Secured Parties as the
secured party.

 

Section 3.6.          Federal Taxpayer Identification Number. Such Grantor’s
Federal taxpayer identification number as of the date hereof is set forth on
Exhibit “C”.

 

Section 3.7.          Grantor’s Location. The jurisdiction in which such Grantor
is located for purposes of Sections 9-301 and 9-307 of the New York UCC as of
the date hereof is set forth on Exhibit “D”.

 

Section 3.8.          Pledged Securities, Pledged Notes and Other Investment
Property. Schedule I sets forth a complete and accurate list of the Pledged
Securities, Pledged Notes and other Investment Property delivered to Agent, for
the benefit of the Secured Parties, or, at any time the Revolving Debt or the
Existing First Lien Debt is outstanding, subject to an Approved Intercreditor
Agreement, to the agent under the Permitted RBL Credit Agreement for the benefit
of the lenders and the other secured parties under the Permitted RBL Credit
Agreement or to the agent under the Existing Agent for the benefit of the
Existing Lenders and the other secured parties under the Existing First Lien
Credit Agreement, as applicable. Such Grantor is the direct and beneficial owner
of each Pledged Security, Pledged Note and other type of Investment Property
listed on Schedule I, free and clear of any Liens, except for the security
interest granted to Agent for the benefit of the Secured Parties hereunder and,
(a) at any time the Revolving Debt is outstanding and subject to an Approved
Intercreditor Agreement, the security interest granted to the agent under the
Permitted RBL Credit Agreement for the benefit of the lenders and the other
secured parties under the Permitted RBL Credit Agreement and (b) at any time the
Existing First Lien Debt is outstanding and subject to an Approved Intercreditor
Agreement, the security interest granted to the Existing Agent for the benefit
of the Existing Lenders and the other secured parties thereunder. Each Grantor
further represents and warrants that (i) all such Pledged Securities or other
types of Investment Property which are shares of stock in a corporation or
ownership interests in a limited partnership or limited liability company have
been (to the extent such concepts are relevant with respect to such Pledged
Security or other type of Investment Property) duly and validly issued, are
fully paid and non-assessable, (ii) with respect to any certificates delivered
to Agent, the agent under the Permitted RBL Credit Agreement or the Existing
Agent, as applicable, representing an ownership interest in a limited
partnership or limited liability company, either such certificates are
Securities as defined in Article 8 of the Uniform Commercial Code of the
applicable jurisdiction as a result of actions by the issuer or otherwise, or,
if such certificates are not Securities, such Grantor has so informed Agent in
accordance with Section 4.2.2 so that Agent may take steps to perfect its
security interest therein as a General Intangible, and (iii) all Pledged Notes
have been duly authorized, authenticated or issued, and, subject to an Approved
Intercreditor Agreement, delivered and are the legal, valid and binding
obligation of the Issuer thereof and enforceable against such Issuer in
accordance with its terms.

 

Exhibit E – Page 9

 

 

Section 3.9.          Due Authorization of Pledged Securities. All of the
Pledged Securities have been duly authorized and validly issued and are fully
paid and non-assessable. The Collateral includes, without limitation, all of the
issued and outstanding Capital Stock of each of the Subsidiaries owned by each
Grantor and there are no outstanding warrants, options or other rights to
purchase, or other agreements (other than the Loan Documents and the Revolving
Loan Documents) outstanding with respect to, or property that is now or
hereafter convertible into, or that requires the issuance or sale of, any
Pledged Securities except as otherwise disclosed in the Borrower’s Form 10-K
filed with the U.S. Securities and Exchange Commission for the fiscal year ended
December 31, 2016.

 

Section 3.10.         Filing of Financing Statements. Upon the filing of all UCC
financing statements naming each Grantor as “debtor” and Agent as “secured
party” and describing the Collateral in the filing offices set forth opposite
such Grantor’s name on Exhibit D hereof (as such exhibit may be amended or
supplemented from time to time) and other filings delivered by each Grantor, the
security interests granted to Agent hereunder constitute valid and perfected
second priority Liens (subject in the case of priority only to Permitted
Encumbrances and Liens expressly permitted by Section 6.03(g)) on all of the
Collateral, subject to Liens which may only be perfected by possession or by
other means under applicable state law.

 

Section 3.11.         Actions; Consents. All actions and consents, including all
filings, notices, registrations and recordings necessary for the exercise by
Agent of the voting or other rights provided for in this Agreement or the
exercise of remedies in respect of the Collateral have been made or obtained.

 

Section 3.12.         Authorization; Approvals. No authorization, approval or
other action by, and no notice to or filing with, any Governmental Authority or
regulatory body is required for either (i) the pledge or grant by any Grantor of
the Liens purported to be created in favor of Agent hereunder or (ii) the
exercise by Agent of any rights or remedies in respect of any Collateral
(whether specifically granted or created hereunder or created or provided for by
applicable law), except (A) for the filings contemplated by Section 3.10 above
and (B) as may be required, in connection with the disposition of any Investment
Related Property, by laws generally affecting the offering and sale of Ownership
Interests;

 

Exhibit E – Page 10

 

 

Section 3.13.       Receivables.

 

No amount in excess of $250,000 payable to such Grantor under or in connection
with any Receivable is evidenced by, or constitutes, an Instrument or Chattel
Paper which has not been delivered to, or otherwise subjected to the Control of,
Agent or, at any time the Revolving Debt or the Existing First Lien Debt is
outstanding, subject to an Approved Intercreditor Agreement, to the agent under
the Permitted RBL Credit Agreement for the benefit of the lenders and the other
secured parties under the Permitted RBL Credit Agreement or to the Existing
Agent for the benefit of the Existing Lenders and the other secured parties
under the Existing First Lien Credit Agreement, as applicable.

 

Section 3.14.       Account Debtors. None of the Account Debtors in respect of
any Receivable is the government of the United States, any agency or
instrumentality thereof, any state or municipality or any foreign sovereign.

 

Section 3.15.       Possession of Inventory; Control. Each Grantor has exclusive
possession and control, subject to Permitted Encumbrances and Liens expressly
permitted by Sections 6.03(e) and 6.03(g), of its Equipment and Inventory,
except as otherwise required, necessary or customary in the ordinary course of
its business. No Grantor has consented to, and is otherwise unaware of, any
Person (other than, if applicable, Agent or, at any time the Revolving Debt or
the Existing First Lien Debt is outstanding and subject to an Approved
Intercreditor Agreement, the agent under the Permitted RBL Credit Agreement or
the Existing Agent, as applicable) having Control over any Collateral.

 

Section 3.16.       Commercial Tort Claims. Schedule II (as such schedule may be
amended or supplemented from time to time) sets forth all Commercial Tort Claims
of each Grantor in excess of $500,000 with respect to any one claim or in excess
of $1,000,000 for all such claims.

 

ARTICLE IV.

COVENANTS

 

From the date of this Agreement, and thereafter until this Agreement is
terminated:

 

Section 4.1.        General.

 

4.1.1           Inspection. Each Grantor will permit Agent or any Lender, by its
representatives and agents (i) to inspect the Collateral, (ii) to examine and
make copies of the records of such Grantor relating to the Collateral and (iii)
to discuss the Collateral and the related records of such Grantor with, and to
be advised as to the same by, such Grantor’s officers and employees, all at such
reasonable times and intervals as Agent or such Lender may determine, and all at
the Grantors’ expense; provided, that so long as no Event of Default has
occurred and is continuing, the Grantors shall only be required to reimburse the
costs and expenses associated with such examination and inspection on one
occasion in any fiscal quarter of the Grantors.

 

Exhibit E – Page 11

 

 

4.1.2           Taxes. Each Grantor will pay when due all Taxes, assessments and
governmental charges and levies upon the Collateral, except where (a) the
validity or amount thereof is being contested in good faith by appropriate
proceedings, (b) such Grantor 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.

 

4.1.3           Records and Reports; Notification of Default. Each Grantor will
maintain complete and accurate books and records with respect to the Collateral,
and furnish Agent, with sufficient copies for each of the Secured Parties, such
reports relating to the Collateral as Agent shall from time to time reasonably
request.

 

4.1.4           Financing Statements and Other Actions; Defense of Title.
Subject to any Approved Intercreditor Agreement, if applicable, each Grantor
hereby authorizes Agent or its designee to file all financing statements and
other documents and take such other actions as may from time to time be
requested by Agent or is designee in order to maintain a second priority
perfected security interest in and, if applicable, Control of, the Collateral.
Each Grantor hereby authorizes Agent or its designee to file financing
statements describing as the collateral covered thereby “all of the debtor’s
personal property or assets” or words to that effect, notwithstanding that such
wording may be broader in scope than the Collateral described in this Agreement.
Each Grantor will take any and all actions necessary to defend title to the
Collateral against all persons and to defend the security interest of Agent in
the Collateral and the priority thereof against any Lien not expressly permitted
hereunder.

 

4.1.5           Disposition of Collateral. Except as otherwise permitted under
the Credit Agreement, none of the Grantors will sell, lease or otherwise dispose
of the Collateral.

 

4.1.6           Liens. None of the Grantors will create, incur, or suffer to
exist any Lien on the Collateral except the security interest created by this
Agreement and the Liens expressly permitted by Section 6.03 of the Credit
Agreement.

 

4.1.7           Change in Corporate Existence, Type or Jurisdiction of
Organization, Location, Name. Except as otherwise permitted under the Credit
Agreement, each Grantor will:

 

(a)preserve its existence as a corporation, limited partnership or limited
liability company and not, in one transaction or a series of related
transactions, merge into or consolidate with any other entity, or sell all or
substantially all of its assets;

 

(b)not change its name or its state of organization; and

 

(c)not maintain its place of business (if it has only one) or its chief
executive office (if it has more than one place of business) at a location other
than a location specified on Exhibit “A”;

 

Exhibit E – Page 12

 

 

unless such Grantor shall have given Agent not less than five (5) Business Days’
prior written notice of such event or occurrence and Agent, at the direction of
the Majority Lenders, shall have either (x) determined that such event or
occurrence will not adversely affect the validity, perfection or priority of
Agent’s security interest in the Collateral, or (y) taken such steps (with the
cooperation of such Grantor to the extent necessary or advisable) as are
reasonably necessary or advisable to properly maintain the validity, perfection
and priority of Agent’s security interest in the Collateral.

 

4.1.8           Other Financing Statements. None of the Grantors will authorize
the filing of any financing statement naming it as debtor covering all or any
portion of the Collateral, except as permitted by Section 4.1.4 and in respect
of Liens expressly permitted by Section 6.03 of the Credit Agreement.

 

Section 4.2.        Securities, Pledged Notes and Documents; Certificated
Securities.

 

4.2.1           Subject to any Approved Intercreditor Agreement, if applicable,
each Grantor will (i) deliver to Agent immediately upon execution of this
Agreement the originals of all certificated Pledged Securities constituting
Collateral (if any then exist) and all Pledged Notes, in each case, to the
extent not previously delivered to Agent, (ii) hold in trust for Agent upon
receipt and immediately thereafter deliver to Agent any Pledged Securities
constituting Collateral and any Pledged Notes, and (iii) upon Agent’s request,
after the occurrence and during the continuance of an Event of Default, deliver
to Agent (and thereafter hold in trust for Agent upon receipt and immediately
deliver to Agent) (x) any Document evidencing or constituting Collateral, (y)
any dividends or distributions declared or paid, in cash or property, upon any
of the Pledged Securities, and (z) any payments received, in cash or property,
with respect to any Pledged Note or any other Collateral.

 

4.2.2           No Grantor shall cause or agree to any Pledged Securities not
represented by certificates to be certificated or to become "securities" within
the meaning of Article 8 of the Uniform Commercial Code until (a) it has given
not less than 30 days’ prior written notice to the Agent of its intention so to
do, clearly describing such actions and providing such other information in
connection therewith as the Agent may reasonably request, and (b) subject to any
Approved Intercreditor Agreement, it shall have taken all action, satisfactory
to the Agent , to maintain the security interest of the Agent in the Pledged
Securities intended to be granted hereby at all times fully perfected and in
full force and effect.

 

Section 4.3.          Uncertificated Securities and Certain Other Investment
Property. Each Grantor will permit Agent from time to time to cause the
appropriate issuers (and, if held with a securities intermediary, such
securities intermediary) of uncertificated securities or other types of
Investment Property not represented by certificates which are Pledged Securities
to mark their books and records with the numbers and face amounts of all such
uncertificated securities or other types of Investment Property not represented
by certificates and all rollovers and replacements therefor to reflect the Liens
of Agent granted pursuant to this Agreement. Subject to any Approved
Intercreditor Agreement, if applicable, each Grantor will take any actions
requested by Agent necessary to cause (i) the issuers of uncertificated
securities which are Collateral and which are Securities or other Investment
Property and (ii) any financial intermediary which is the holder of any
Securities or other Investment Property, to cause Agent to have and retain
Control over such Securities or other Investment Property. Without limiting the
foregoing, subject to an Approved Intercreditor Agreement, if requested by the
Lead Lender, each Grantor will, with respect to uncertificated Securities and
other Investment Property held with a financial intermediary, cause such
financial intermediary to enter into a control agreement with Agent in form and
substance satisfactory to Agent and the Lead Lender.

 

Exhibit E – Page 13

 

 

Section 4.4.        Stock and Other Ownership Interests.

 

4.4.1           Changes in Capital Structure of Issuers. Except as otherwise
permitted under the Credit Agreement, none of the Grantors will vote any of the
Securities, Ownership Interests or other Investment Property in favor of, or
take any other action to permit or suffer, any issuer of privately held
corporate securities or other ownership interests in a corporation, limited
partnership, general partnership, joint venture or limited liability company
constituting Collateral to dissolve, liquidate, retire any of its capital stock,
Ownership Interests or other Securities evidencing ownership, reduce its capital
or merge or consolidate with any other entity.

 

4.4.2           Registration of Pledged Securities and other Investment
Property. Subject to any Approved Intercreditor Agreement, if applicable, each
Grantor will permit any registerable Pledged Securities or any Ownership
Interest which become a Security to be registered in the name of Agent or its
nominee at any time an Event of Default has occurred and is continuing at the
option of the Majority Lenders.

 

4.4.3           Exercise of Rights in Pledged Securities and other Investment
Property. Subject to any Approved Intercreditor Agreement, if applicable, each
Grantor will permit Agent or its nominee at any time after the occurrence and
during the continuance of an Event of Default, without notice, to exercise all
voting and corporate rights relating to the Pledged Securities, including,
without limitation, exchange, subscription or any other rights, privileges, or
options pertaining to any Pledged Securities and the Stock Rights as if it were
the absolute owner thereof.

 

Section 4.5.          Additional Collateral. Each Grantor further agrees that it
will, upon obtaining any additional promissory notes, shares of stock, limited
partnership interests, general partnership interests, membership interests or
other securities or instruments or Commercial Tort Claims in excess of the
thresholds set forth in Section 3.16 above required to be pledged hereunder as
provided in Section 4.2 or as provided in the Credit Agreement, promptly (and in
any event within five (5) Business Days) deliver to Agent a Pledge Amendment,
duly executed by such Grantor, in substantially the form of Schedule III annexed
hereto (a “Pledge Amendment”), in respect of the additional certificates,
instruments or Commercial Tort Claims to be pledged pursuant to this Agreement.
Each Grantor hereby authorizes Agent or its designee to attach each Pledge
Amendment to this Agreement and agrees that all certificates, instruments or
Commercial Tort Claims listed on any Pledge Amendment delivered to Agent or, at
any time the Revolving Debt or the Existing First Lien Debt is outstanding,
subject to an Approved Intercreditor Agreement, to the agent under the Permitted
RBL Credit Agreement or the Existing Agent, as applicable, shall for all
purposes hereunder be considered Collateral; provided that the failure of such
Grantor to execute a Pledge Amendment with respect to any additional
certificates, instruments or Commercial Tort Claims pledged pursuant to this
Agreement shall not impair the security interest of Agent therein or otherwise
adversely affect the rights and remedies of Agent hereunder with respect
thereto.

 

Exhibit E – Page 14

 

 

Section 4.6.        Additional Grantors. From time to time subsequent to the
date hereof, additional Persons may become parties hereto as additional Grantors
(each, an “Additional Grantor”), by executing a Counterpart Agreement. Upon
delivery of any such Counterpart Agreement to Agent, notice of which is hereby
waived by each Grantor, each Additional Grantor shall be a Grantor and shall be
as fully a party hereto as if such Additional Grantor were an original signatory
hereto. Each Grantor expressly agrees that its obligations arising hereunder
shall not be affected or diminished by the addition or release of any other
Grantor hereunder, nor by any election of Agent not to cause any Subsidiary of
Borrower or any other Grantor to become an Additional Grantor hereunder. This
Agreement shall be fully effective as to any Grantor that is or becomes a party
hereto regardless of whether any other Person becomes or fails to become or
ceases to be a Grantor hereunder.

 

ARTICLE V.

EVENT OF DEFAULT

 

Section 5.1.        Event of Default. Any occurrence of any “Event of Default”
under, and as defined in, the Credit Agreement shall constitute an Event of
Default hereunder.

 

Section 5.2.        Acceleration and Remedies. Subject to the any Approved
Intercreditor Agreement, if applicable, upon the occurrence and continuance of
an Event of Default, Agent may exercise any or all of the following rights and
remedies:

 

5.2.1           Those rights and remedies provided in this Agreement, the Credit
Agreement, or any other Loan Document, provided that this Section 5.2.1 shall
not be understood to limit any rights or remedies available to Agent and the
Secured Parties prior to an Event of Default.

 

5.2.2           Those rights and remedies available to Agent under the New York
UCC (whether or not the New York UCC applies to the affected Collateral) or
under any other applicable law (including, without limitation, any law governing
the exercise of a bank’s right of setoff or bankers’ lien).

 

5.2.3           Without notice except as specifically provided in Section 9.1 or
elsewhere herein, collect, receive, appropriate and realize upon the Collateral,
or any part thereof, and/or sell, lease, assign, grant an option or options to
purchase or otherwise dispose of the Collateral or any part thereof in one or
more parcels at public or private sale, for cash, on credit or for future
delivery, and upon such other terms as Agent may deem commercially reasonable.

 

Agent, on behalf of the Secured Parties, may comply with any applicable state or
federal law requirements in connection with a disposition of the Collateral and
compliance will not be considered to adversely affect the commercial
reasonableness of any sale of the Collateral.

 

Exhibit E – Page 15

 

 

Section 5.3.        Each Grantor’s Obligations Upon Event of Default. Subject to
any Approved Intercreditor Agreement, if applicable, upon the request of Agent
after the occurrence of an Event of Default, each Grantor will:

 

5.3.1           Assembly of Collateral. Assemble and make available to Agent the
Collateral and all records relating thereto at any place or places specified by
Agent.

 

5.3.2           Agent Access. Permit Agent, by Agent’s representatives and
agents, to enter any premises where all or any part of the Collateral, or the
books and records relating thereto, or both, are located, to take possession of
all or any part of the Collateral and to remove all or any part of the
Collateral.

 

ARTICLE VI.

WAIVERS, AMENDMENTS AND REMEDIES

 

No delay or omission of Agent or any Lender to exercise any right or remedy
granted under this Agreement shall impair such right or remedy or be construed
to be a waiver of any Event of Default or an acquiescence therein, and any
single or partial exercise of any such right or remedy shall not preclude any
other or further exercise thereof or the exercise of any other right or remedy.
Except for any Pledge Amendment executed and delivered to Agent by any Grantor
in accordance with the terms of Section 4.5, no waiver, amendment or other
variation of the terms, conditions or provisions of this Agreement whatsoever
shall be valid unless in writing signed by Agent with the concurrence or at the
direction of the Majority Lenders and then only to the extent in such writing
specifically set forth. All rights and remedies contained in this Agreement or
by law afforded shall be cumulative and all shall be available to Agent and the
Secured Parties until the Obligations have been paid in full.

 

ARTICLE VII.

PROCEEDS

 

Section 7.1.        Application of Proceeds. Subject to any Approved
Intercreditor Agreement, if applicable, the proceeds of the Collateral shall be
applied by Agent to payment of the Obligations in the order and manner
contemplated by the Credit Agreement.

 

ARTICLE VIII.

NOTICES

 

Section 8.1.        Sending Notices.  Any notice required or permitted to be
given under this Agreement shall be sent (and deemed received) in the manner and
to the addresses set forth in Section 10.01 of the Credit Agreement.

 

Exhibit E – Page 16

 

 

Section 8.2.        Change in Address for Notices. Agent, Lender or any Grantor
may change the address for service of notice upon it by a notice in writing to
the other parties.

 

ARTICLE IX.

GENERAL PROVISIONS

 

Section 9.1.        Notice of Disposition of Collateral; Condition of
Collateral. Each Grantor hereby waives notice of the time and place of any
public sale or the time after which any private sale or other disposition of all
or any part of the Collateral may be made. To the extent such notice may not be
waived under applicable law, any notice made shall be deemed reasonable if sent
to a Grantor, addressed as set forth in Article VIII, at least ten (10) days
prior to (i) the date of any such public sale or (ii) the time after which any
such private sale or other disposition may be made. Agent shall have no
obligation to prepare the Collateral for sale.

 

Section 9.2.        Agent Performance of Debtor Obligations. Without having any
obligation to do so, subject to any Approved Intercreditor Agreement, if
applicable, Agent may perform or pay any obligation which a Grantor has agreed
to perform or pay in this Agreement, after the occurrence and during the
continuance of an Event of Default, and such Grantor shall reimburse Agent for
any amounts paid by Agent pursuant to this Section 9.2. The Grantors’
obligations to reimburse Agent pursuant to the preceding sentence shall be an
Obligation payable on demand.

 

Section 9.3.        Authorization for Agent to Take Certain Action. Subject to
any Approved Intercreditor Agreement, if applicable, each Grantor irrevocably
authorizes Agent or its designee at any time and from time to time in the sole
discretion of Agent and appoints Agent as its attorney in fact (i) to file
financing statements, amendments and continuations necessary or desirable in
Agent’s sole discretion to perfect and to maintain the perfection and priority
of Agent’s security interest in the Collateral, (ii) after the occurrence and
during the continuance of an Event of Default, to indorse and collect any cash
proceeds of the Collateral, (iii) to file a carbon, photographic or other
reproduction of this Agreement or any financing statement with respect to the
Collateral as a financing statement and to file any other financing statement or
amendment of a financing statement (which does not add new collateral or add a
debtor) in such offices as Agent in its sole discretion deems necessary or
desirable to perfect and to maintain the perfection and priority of Agent’s
security interest in the Collateral, (iv) after the occurrence and during the
continuance of an Event of Default, to contact and enter into one or more
agreements with the issuers of uncertificated securities which are Collateral
and which are Securities or other Investment Property or with financial
intermediaries holding Securities or other Investment Property as may be
necessary or advisable to give Agent Control over such Securities or other
Investment Property, (v) after the occurrence and during the continuance of an
Event of Default, to apply the proceeds of any Collateral received by Agent to
the Obligations as provided in Article VII, (vi) after the occurrence and during
the continuance of an Event of Default, to discharge past due taxes,
assessments, charges, fees or Liens on the Collateral (except for such Liens as
are specifically permitted under the Credit Agreement), (vii) after the
occurrence and during the continuance of an Event of Default, to take possession
of and indorse and collect any checks, drafts, notes, acceptances or other
instruments for the payment of moneys due with respect to any Collateral and
file any claim or take any other action or proceeding in any court of law or
equity or otherwise deemed appropriate by Agent for the purpose of collecting
any and all such moneys due with respect to any Collateral, and (viii) after the
occurrence and during the continuance of an Event of Default, to direct any
party liable for any payment under any of the Collateral to make payment of any
and all moneys due or to become due thereunder directly to Agent or as Agent
shall direct. Grantor agrees to reimburse Agent on demand for any payment made
or any expense incurred by Agent in connection with any actions taken by Agent
pursuant to clauses (i) through (viii) above, provided that this authorization
shall not relieve any Grantor of any of its obligations under this Agreement or
under the Credit Agreement. The power of attorney granted hereby is coupled with
an interest and shall be irrevocable until payment in full in cash of the
Obligations.

 

Exhibit E – Page 17

 

 

Section 9.4.        Specific Performance of Certain Covenants. Each Grantor
acknowledges and agrees that a breach of any of the covenants contained in
Sections 4.1.5, 4.1.6, 4.2, 5.3, or 9.5 or in Article VII or Article XI will
cause irreparable injury to Agent and the Secured Parties, that Agent and
Secured Parties have no adequate remedy at law in respect of such breaches and
therefore agrees, without limiting the right of Agent or the Secured Parties to
seek and obtain specific performance of other obligations of Grantor contained
in this Agreement, that the covenants of such Grantor contained in the Sections
referred to in this Section 9.4 shall be specifically enforceable against such
Grantor.

 

Section 9.5.        Dispositions Not Authorized. Except as otherwise permitted
under the Credit Agreement, none of the Grantors is authorized to sell or
otherwise dispose of the Collateral.

 

Section 9.6.        Benefit of Agreement. The terms and provisions of this
Agreement shall be binding upon and inure to the benefit of each Grantor, Agent
and the Secured Parties and their respective successors and assigns (including
all persons who become bound as a debtor to this Agreement), except that none of
the Grantors shall have the right to assign its rights or delegate its
obligations under this Agreement or any interest herein, without the prior
written consent of Agent.

 

Section 9.7.        Survival of Representations. All representations and
warranties of each Grantor contained in this Agreement shall survive the
execution and delivery of this Agreement.

 

Section 9.8.        Taxes and Expenses. Each Grantor agrees to pay, indemnify
and to save Agent and the other Secured Parties harmless from, any and all
liabilities with respect to, or resulting from any delay in paying, any and all
Other Taxes which may be payable or determined to be payable with respect to any
of the Collateral or in connection with any of the transactions contemplated by
this Agreement, to the extent such Grantor would be required to do so pursuant
to Section 10.03 of the Credit Agreement. Grantors shall reimburse Agent for any
and all reasonable and documented out-of-pocket expenses and charges (including
reasonable attorneys’, auditors’ and accountants’ fees) paid or incurred by
Agent and the Lead Lender in connection with the preparation, execution,
delivery, administration, collection and enforcement of this Agreement and in
the audit, analysis, administration, collection, preservation or sale of the
Collateral (including the expenses and charges associated with any periodic or
special audit of the Collateral), to the extent Grantors would be required to do
so pursuant to Section 10.03 of the Credit Agreement. Any and all costs and
expenses incurred by Grantors in the performance of actions required pursuant to
the terms hereof shall be borne solely by Grantors, subject to Section 10.03 of
the Credit Agreement.

 

Exhibit E – Page 18

 

 

Section 9.9.        Headings. The title of and section headings in this
Agreement are for convenience of reference only, and shall not govern the
interpretation of any of the terms and provisions of this Agreement.

 

Section 9.10.       Releases.

 

9.10.1         Upon the Release Date, the Collateral shall be released from the
Liens created hereby, and this Agreement and all obligations (other than those
expressly stated to survive such termination) of Agent and each Grantor
hereunder shall terminate, all without delivery of any instrument or performance
of any act by any party, and all rights to the Collateral shall revert to the
Grantors. At the written request and sole expense of the Borrower following any
such termination, and subject to the provisions in Article X of the Credit
Agreement, Agent shall deliver to such Grantor any Collateral held by Agent
hereunder, and execute and deliver to such Grantor such documents as such
Grantor shall reasonably request to evidence such termination.

 

9.10.2         If any of the Collateral shall be sold, transferred or otherwise
disposed of by any Grantor in a transaction permitted by the Credit Agreement,
then Agent, at the written request and sole expense of the Borrower or any
Subsidiary, but subject to the provisions in Article X of the Credit Agreement,
shall execute and deliver to such Grantor all releases or other documents
reasonably necessary for the release of the Liens created by hereby on such
Collateral. At the written request and sole expense of the Borrower, a Grantor
shall be released from its obligations hereunder and the other Loan Documents in
the event that all the capital stock of such Grantor shall be Disposed of in a
transaction permitted by the Credit Agreement; provided that, in the case of
this Section 9.10, the Borrower shall have delivered to Agent, at least five (5)
Business Days prior to the date of the proposed release (or such shorter time as
the Lead Lender may agree but in any event not less than three (3) Business
Days, unless otherwise agreed by the Agent), a written request for release
identifying the relevant Grantor, summarizing the transaction and stating that
such transaction is expressly permitted by the Credit Agreement and the other
Loan Documents (and the Secured Parties hereby authorize and direct the Agent to
conclusively rely on such certifications in performing its obligations under
this Section 9.10.2).

 

Section 9.11.       ENTIRE AGREEMENT. THIS AGREEMENT, THE CREDIT AGREEMENT AND
THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES HERETO.

 

Section 9.12.       CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS)
OF THE STATE OF NEW YORK.

 

Exhibit E – Page 19

 

 

Section 9.13.       WAIVER OF JURY TRIAL. EACH GRANTOR AND, BY ACCEPTANCE OF THE
BENEFITS HEREOF, AGENT AND EACH LENDER HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.

 

Section 9.14.       Expenses; Indemnity; Damage Waiver. Section 10.03 of the
Credit Agreement is hereby incorporated by reference mutatis mutandis, as if
stated verbatim herein as agreements and obligations of each Grantor.

 

Section 9.15.       Counterparts. Counterparts; Fax. This Agreement may be
separately executed in any number of counterparts, all of which when so executed
shall be deemed to constitute one and the same Agreement. This Agreement may be
validly executed and delivered by facsimile or other electronic transmission.

 

Section 9.16.       Consent of Pledge of Pledged Securities. Each Grantor
consents to the grant by each other Grantor of a security interest in all
Pledged Securities to Agent, and without limiting the foregoing, subject to an
Approved Intercreditor Agreement, consents to the transfer of such Pledged
Securities to Agent or its nominee following an Event of Default and to the
substitution of Agent or its nominee as a partner in any partnership or as a
member in any limited liability company with all the rights and powers related
thereto.

 

Section 9.17.       Intercreditor Agreement. Each Secured Party (i) consents to
the subordination of Liens provided for in any Approved Intercreditor Agreement,
if applicable, (ii) agrees that it will be bound by, and will take no actions
contrary to, the provisions of such Approved Intercreditor Agreement and (iii)
authorizes and instructs Agent on behalf of each Secured Party to enter into
such Approved Intercreditor Agreement (including any and all amendments,
amendments and restatements, modifications, supplements and acknowledgements
thereto permitted hereby from time to time) as Agent on behalf of such Secured
Party. The foregoing provisions are intended as an inducement to the lenders
under the Permitted RBL Credit Agreement to the Revolving Debt and to the
Existing Lenders to the Borrower and such lenders are intended third party
beneficiaries of such provisions and the provisions of such Approved
Intercreditor Agreement. Notwithstanding anything herein to the contrary, the
Liens and security interest granted to Agent, for the benefit of the Secured
Parties, pursuant to this Agreement and the exercise of any right or remedy by
Agent and the other Secured Parties hereunder are subject to the provisions of
any Approved Intercreditor Agreement, if applicable. In the event of any
conflict or inconsistency between the terms of such Approved Intercreditor
Agreement and this Agreement, the terms of such Approved Intercreditor Agreement
shall control.

 

Section 9.18.        Concerning Agent.

 

(a)          The actions of the Agent hereunder are subject to the provisions,
and entitled to the benefits and protections, set forth in the Credit Agreement.
The Agent shall have the right hereunder to make demands, to give notices, to
exercise or refrain from exercising any rights, and to take or refrain from
taking action (including the release or substitution of the Collateral), in
accordance with this Agreement and the Credit Agreement.

 

Exhibit E – Page 20

 

 

(b)          The Agent shall be entitled to rely upon any written notice,
statement, certificate, order or other document or any telephone message
believed by it to be genuine and, with respect to all matters pertaining to this
Agreement and its duties hereunder.

 

(c)          The Agent shall not be responsible for the existence, genuineness
or value of any Collateral or for the validity, perfection, priority or
enforceability of any security interest or Lien granted under this Agreement,
any other Loan Document or any agreement or instrument contemplated hereby or
thereby.

 

(d)          Neither the Agent nor any of its officers, partners, directors,
employees or agents shall be liable to any other Secured Party or any Grantor
for any action taken or omitted by the Agent under or in connection with any of
the Security Documents except to the extent caused by the Agent’s gross
negligence or willful misconduct, as determined by a final, non-appealable
judgment of a court of competent jurisdiction.

 

[Signature Pages Follow]

 

Exhibit E – Page 21

 

 

IN WITNESS WHEREOF, Grantors and Agent have executed this Agreement as of the
date first above written.

 

  GRANTORS:       LILIS ENERGY, INC.      

By:

    Name:   Title:       BRUSHY RESOURCES, INC.      

By:

    Name:   Title:       IMPETRO OPERATING LLC      

By:

    Name:   Title:       IMPETRO RESOURCES, LLC      

By:

    Name:   Title:       LILIS OPERATING COMPANY, LLC      

By:

    Name:   Title:

 

 

 

 

  AGENT:       WILMINGTON TRUST, NATIONAL
ASSOCIATION

 

  By:     Name:     Title:  

 

Signature Page to Pledge and Security Agreement

 

 

EXHIBIT “A”
PLACE OF BUSINESS OR CHIEF EXECUTIVE OFFICE

 

Place of Business (if it has only one) or Chief Executive Office (if more than
one place of business) and Mailing Address:

 

Grantor   Place of Business/Chief
Executive Office   Mailing Address Lilis Energy, Inc.   San Antonio, TX  

300 E. Sonterra Blvd. Ste. 1220

San Antonio, TX 78258

Lilis Operating Company, LLC   San Antonio, TX  

300 E. Sonterra Blvd. Ste. 1220

San Antonio, TX 78258

Brushy Resources, Inc.   San Antonio, TX  

300 E. Sonterra Blvd. Ste. 1220

San Antonio, TX 78258

ImPetro Resources, LLC   San Antonio, TX  

300 E. Sonterra Blvd. Ste. 1220

San Antonio, TX 78258

ImPetro Operating LLC   San Antonio, TX  

300 E. Sonterra Blvd. Ste. 1220

San Antonio, TX 78258

 

 

 

 

EXHIBIT “B”
OTHER NAMES

 

Grantor   Other Names Lilis Energy, Inc.   Recovery Energy, Inc. Lilis Operating
Company, LLC   None. Brushy Resources, Inc.  

Starboard Resources LLC

Starboard Resources, Inc.

ImPetro Resources, LLC   None. ImPetro Operating LLC  

ImPetro Operating, LLC

Lilis Operating Company, LLC

 

 

 

 

EXHIBIT “C”
FEDERAL TAXPAYER IDENTIFICATION NUMBER

 

Grantor   Federal Employer Identification Number Lilis Energy, Inc.   74-3231613
Lilis Operating Company, LLC   82-1163908 Brushy Resources, Inc.   45-5634053
ImPetro Resources, LLC   27-1769608 ImPetro Operating LLC   27-1769730

 

 

 

 

EXHIBIT “D”
LOCATION FOR PURPOSES OF UCC

 

Grantor   Jurisdiction Lilis Energy, Inc.   Nevada Lilis Operating Company, LLC
  Texas Brushy Resources, Inc.   Delaware ImPetro Resources, LLC   Delaware
ImPetro Operating LLC   Delaware

 

 

 

 

SCHEDULE I
List of Pledged Securities and Pledged Notes

 

A. STOCKS:

 

Grantor   Issuer   Certificate
Number   Number of
Shares   Ownership
Interest Lilis Energy, Inc.   Brushy Resources, Inc.   1   100   100%

 

B. OTHER SECURITIES, INVESTMENT PROPERTY AND OWNERSHIP INTERESTS (CERTIFICATED
AND UNCERTIFICATED):

 

Grantor   Issuer   Certificate
Number   Type of Equity
Interest   Ownership
Interest Brushy Resources, Inc.   ImPetro Resources, LLC   N/A   Limited
liability company interests   100% ImPetro Resources, LLC   ImPetro Operating
LLC   N/A   Limited liability company interests   100% Lilis Energy, Inc.  
Lilis Operating Company, LLC   N/A   Limited liability company interests   100%

 

C. PLEDGED NOTES

 

Grantor   Issuer   Payee   Maturity Date   Principal Amount None   None   None  
None   None

 

 

 

 

SCHEDULE II
Commercial Tort Claims

 

None.

 

 

 

 

SCHEDULE III
PLEDGE AMENDMENT

 

This Pledge Amendment, dated [________] is delivered pursuant to Section 4.5 of
the Agreement referred to below. The undersigned hereby agrees that this Pledge
Amendment may be attached to the Pledge and Security Agreement dated as of April
26, 2017, by and among the Grantors party thereto and Wilmington Trust, National
Association (“Agent”), as administrative agent for the Secured Parties (as
amended, restated, supplemented or otherwise modified from time to time, the
“Agreement”; capitalized terms defined therein being used herein as defined
therein) and that the Pledged Securities, Pledged Notes, and Commercial Tort
Claims listed on this Pledge Amendment shall be deemed to be part of the Pledged
Securities, Pledged Notes, and Commercial Tort Claims and shall become part of
the Collateral and shall secure all Obligations.

 

  [   ]

 

  By:     Name:     Title:  

 

 

 

 

List of Additional Pledged Securities, Additional Pledged Notes and Commercial
Tort Claims

 

A. STOCKS:

 

Grantor   Issuer  

Certificate

Number

 

Number

of Shares

 

Ownership

Interest

                 

 

B. OTHER SECURITIES, INVESTMENT PROPERTY AND OWNERSHIP INTERESTS (CERTIFICATED
AND UNCERTIFICATED):

 

Grantor   Issuer  

Certificate

Number

 

Type of

Equity

Interest

 

Ownership

Interest

                 

 

C. PLEDGED NOTES

 

Grantor   Issuer   Payee  

Maturity

Date

 

Principal

Amount

                 

 

D. COMMERCIAL TORT CLAIMS

 

 

 

 

EXHIBIT F

 

NOTE

 

FOR U.S. FEDERAL INCOME TAX PURPOSES, THE LOANS UNDER THIS AGREEMENT WERE ISSUED
WITH ORIGINAL ISSUE DISCOUNT UNDER SECTIONS 1272, 1273, AND 1275 OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED, AND THIS LEGEND IS REQUIRED BY SECTION 1275(c)
OF THE CODE. YOU MAY CONTACT [Officer], [Title], [Address], [Telephone Number],
WHO WILL PROVIDE YOU WITH FOLLOWING INFORMATION: (1) THE ISSUE PRICE AND DATE OF
THE LOANS, (2) THE AMOUNT OF ORIGINAL ISSUE DISCOUNT ON THE LOANS AND (3) THE
YIELD TO MATURITY OF THE LOANS.

 

New York, New York ___________, ____

 

FOR VALUE RECEIVED, the undersigned LILIS ENERGY, INC., a Delaware corporation
(“Borrower”) hereby unconditionally promises to pay to _____________________
(the “Lender”) or its registered assigns the principal sum equal to its
Commitment as set forth in the Credit Agreement (as hereinafter defined), or, if
greater or less, the aggregate unpaid principal amount of the Loans advanced by
Lender to Borrower pursuant to the terms of the Credit Agreement, together with
interest on the unpaid principal balance thereof as set forth in the Credit
Agreement, both principal and interest payable as therein provided in lawful
money of the United States of America at the offices of Administrative Agent
provided in Section 11.01 of the Credit Agreement, or at such other place, as
from time to time may be designated by Administrative Agent in accordance with
the Credit Agreement.

 

The principal and all accrued interest on this Note shall be due and payable in
accordance with the terms and provisions of the Credit Agreement. This Note is
executed pursuant to that certain Credit Agreement dated as of April 26, 2017,
among Borrower, certain Subsidiaries of Borrower, as Guarantors, the
Administrative Agent and the Lenders party thereto (as amended, modified,
supplemented or restated from time to time, the “Credit Agreement”; the terms
defined therein and not otherwise defined herein being used herein as therein
defined), is one of the promissory notes referred to in Section 2.05(e) therein
and is secured by the Security Documents. Reference is made to the Credit
Agreement and the Loan Documents for a statement of prepayment rights and
obligations of Borrower, for a statement of the terms and conditions under which
the due date of this Note may be accelerated and for statements regarding other
matters affecting this Note (including without limitation principal and interest
payment due dates, voluntary and mandatory prepayments, exercise of rights and
remedies, payment of attorneys’ fees, court costs and other costs of collection
and certain waivers by Borrower and others now or hereafter obligated for
payment of any sums due hereunder). Upon the occurrence of an Event of Default,
the Administrative Agent may declare forthwith to be entirely and immediately
due and payable the principal balance hereof and the interest accrued hereon,
and the Lender shall have all rights and remedies of the Lender under the Credit
Agreement and the other Loan Documents. This Note may be prepaid in accordance
with the terms and provisions of the Credit Agreement.

 

Regardless of any provision contained in this Note, the holder hereof shall
never be entitled to receive, collect or apply, as interest on this Note, any
amount in excess of the Maximum Rate, and, if the holder hereof ever receives,
collects, or applies as interest, any such amount which would be excessive
interest, it shall be deemed a partial prepayment of principal and treated
hereunder as such; and, if the indebtedness evidenced hereby is paid in full,
any remaining excess shall forthwith be paid to Borrower. In determining whether
or not the interest paid or payable, under any specific contingency, exceeds the
Maximum Rate, Borrower and the holder hereof shall, to the maximum extent
permitted under applicable law (i) characterize any non-principal payment as an
expense, fee or premium rather than as interest, (ii) exclude voluntary
prepayments and the effects thereof, and (iii) spread the total amount of
interest throughout the entire contemplated term of the obligations evidenced by
this Note and/or referred to in the Credit Agreement so that the interest rate
is uniform throughout the entire term of this Note; provided that, if this Note
is paid and performed in full prior to the end of the full contemplated term
thereof; and if the interest received for the actual period of existence thereof
exceeds the Maximum Rate, the holder hereof shall refund to Borrower the amount
of such excess or credit the amount of such excess against the indebtedness
evidenced hereby, and, in such event, the holder hereof shall not be subject to
any penalties provided by any laws for contracting for, charging, taking,
reserving or receiving interest in excess of the Maximum Rate.

 

EXHIBIT F – PAGE 1

 

 

If any payment of principal or interest on this Note shall become due on a day
other than a Business Day, such payment shall be made on the next succeeding
Business Day and such extension of time shall in such case be included in
computing interest in connection with such payment.

 

If this Note is placed in the hands of an attorney for collection, or if it is
collected through any legal proceeding at law or in equity or in bankruptcy,
receivership or other court proceedings, Borrower agrees to pay all costs of
collection, including, but not limited to, court costs and reasonable attorneys’
fees.

 

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

 

This Note shall be governed by and construed in accordance with the applicable
laws of the United States of America and the laws of the State of New York.

 

THIS NOTE, THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENTS AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

 

EXHIBIT F – PAGE 2

 

 

EXECUTED as of the date and year first above written.

 

  BORROWER:       LILIS ENERGY, INC.

 

  By:     Name:   Title:

 

EXHIBIT F – PAGE 3

 

 

EXHIBIT G-1

 

U.S. TAX COMPLIANCE CERTIFICATE

 

(For Foreign Lenders That Are Not Partnerships For U.S. Federal Income Tax
Purposes)

 

Reference is made to the Credit Agreement, dated as of April 26, 2017 (as it may
be amended, supplemented, restated or otherwise modified from time to time, the
“Credit Agreement”), by and among Lilis Energy, Inc., as Borrower, certain
Subsidiaries of Borrower, as Guarantors, the Lenders party thereto, and
Wilmington Trust, National Association, as Administrative Agent.

 

Pursuant to the provisions of Section 2.12 of the Credit Agreement, the
undersigned hereby certifies that (i) it is the sole record and beneficial owner
of the Loan(s) (as well as any promissory note(s) evidencing such Loan(s)) in
respect of which it is providing this certificate, (ii) it is not a bank within
the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent
shareholder of the Borrower within the meaning of Section 881(c)(3)(B) of the
Code and (iv) it is not a controlled foreign corporation related to the Borrower
as described in Section 881(c)(3)(C) of the Code.

 

The undersigned has furnished the Administrative Agent and the Borrower with a
certificate of its non-U.S. Person status on IRS Form W-8BEN or IRS Form
W-8BEN-E (or applicable successor form). By executing this certificate, the
undersigned agrees that (1) if the information provided on this certificate
changes, the undersigned shall promptly so inform the Borrower and the
Administrative Agent, and (2) the undersigned shall have at all times furnished
the Borrower and the Administrative Agent with a properly completed and
currently effective certificate in either the calendar year in which each
payment is to be made to the undersigned, or in either of the two calendar years
preceding such payments.

 

Unless otherwise defined herein, terms defined in the Credit Agreement and used
herein shall have the meanings given to them in the Credit Agreement

 

[NAME OF LENDER]

 

By:     Name: Title:

 

Date: ________ __, 20[ ]

 

EXHIBIT G-1 – PAGE 1

 

 

EXHIBIT G-2

 

U.S. TAX COMPLIANCE CERTIFICATE

 

(For Foreign Participants That Are Not Partnerships For U.S. Federal Income Tax
Purposes)

 

Reference is made to the Credit Agreement, dated as of April 26, 2017 (as it may
be amended, supplemented, restated or otherwise modified from time to time, the
“Credit Agreement”), by and among Lilis Energy, Inc., as Borrower, certain
Subsidiaries of Borrower, as Guarantors, the Lenders party thereto, and
Wilmington Trust, National Association, as Administrative Agent.

 

Pursuant to the provisions of Section 2.12 of the Credit Agreement, the
undersigned hereby certifies that (i) it is the sole record and beneficial owner
of the participation in respect of which it is providing this certificate, (ii)
it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii)
it is not a ten percent shareholder of the Borrower within the meaning of
Section 881(c)(3)(B) of the Code, and (iv) it is not a controlled foreign
corporation related to the Borrower as described in Section 881(c)(3)(C) of the
Code.

 

The undersigned has furnished its participating Lender with a certificate of its
non-U.S. Person status on IRS Form W-8BEN or IRS Form W-8BEN-E (or applicable
successor form). By executing this certificate, the undersigned agrees that (1)
if the information provided on this certificate changes, the undersigned shall
promptly so inform such Lender in writing, and (2) the undersigned shall have at
all times furnished such Lender with a properly completed and currently
effective certificate in either the calendar year in which each payment is to be
made to the undersigned, or in either of the two calendar years preceding such
payments.

 

Unless otherwise defined herein, terms defined in the Credit Agreement and used
herein shall have the meanings given to them in the Credit Agreement.

 

[NAME OF PARTICIPANT]

 

By:     Name:   Title:  

 

Date: ________ __, 20[ ]

 

EXHIBIT G-2 – PAGE 1

 

 

EXHIBIT G-3

 

U.S. TAX COMPLIANCE CERTIFICATE

 

(For Foreign Participants That Are Partnerships For U.S. Federal Income Tax
Purposes)

 

Reference is made to the Credit Agreement, dated as of April 26, 2017 (as it may
be amended, supplemented, restated or otherwise modified from time to time, the
“Credit Agreement”), by and among Lilis Energy, Inc., as Borrower, certain
Subsidiaries of Borrower, as Guarantors, the Lenders party thereto, and
Wilmington Trust, National Association, as Administrative Agent.

 

Pursuant to the provisions of Section 2.12 of the Credit Agreement, the
undersigned hereby certifies that (i) it is the sole record owner of the
participation in respect of which it is providing this certificate, (ii) its
direct or indirect partners/members are the sole beneficial owners of such
participation, (iii) with respect such participation, neither the undersigned
nor any of its direct or indirect partners/members is a bank extending credit
pursuant to a loan agreement entered into in the ordinary course of its trade or
business within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of
its direct or indirect partners/members is a ten percent shareholder of the
Borrower within the meaning of Section 881(c)(3)(B) of the Code and (v) none of
its direct or indirect partners/members is a controlled foreign corporation
related to the Borrower as described in Section 881(c)(3)(C) of the Code.

 

The undersigned has furnished its participating Lender with IRS Form W-8IMY (or
applicable successor form) accompanied by one of the following forms from each
of its partners/members that is claiming the portfolio interest exemption: (i)
an IRS Form W-8BEN or IRS Form W-8BEN-E (or applicable successor form) or (ii)
an IRS Form W-8IMY (or applicable successor form) accompanied by an IRS Form
W-8BEN or IRS Form W-8BEN-E (or applicable successor form) from each of such
partner’s/member’s beneficial owners that is claiming the portfolio interest
exemption. By executing this certificate, the undersigned agrees that (1) if the
information provided on this certificate changes, the undersigned shall promptly
so inform such Lender and (2) the undersigned shall have at all times furnished
such Lender with a properly completed and currently effective certificate in
either the calendar year in which each payment is to be made to the undersigned,
or in either of the two calendar years preceding such payments. Unless otherwise
defined herein, terms defined in the Credit Agreement and used herein shall have
the meanings given to them in the Credit Agreement.

 

[NAME OF LENDER]

 

By:     Name:   Title:  

 

Date: ________ __, 20[ ]

 

EXHIBIT G-3 – PAGE 1

 

 

EXHIBIT G-4

 

U.S. TAX COMPLIANCE CERTIFICATE

 

(For Foreign Lenders That Are Partnerships For U.S. Federal Income Tax Purposes)

 

Reference is made to the Credit Agreement, dated as of April 26, 2017 (as it may
be amended, supplemented, restated or otherwise modified from time to time, the
“Credit Agreement”), by and among Lilis Energy, Inc., as Borrower, certain
Subsidiaries of Borrower, as Guarantors, the Lenders party thereto, and
Wilmington Trust, National Association, as Administrative Agent.

 

Pursuant to the provisions of Section 2.12 of the Credit Agreement, the
undersigned hereby certifies that (i) it is the sole record owner of the Loan(s)
(as well as any promissory note(s) evidencing such Loan(s)) in respect of which
it is providing this certificate, (ii) its direct or indirect partners/members
are the sole beneficial owners of such Loan(s) (as well as any promissory
note(s) evidencing such Loan(s)), (iii) with respect to the extension of credit
pursuant to this Credit Agreement or any other Loan Document, neither the
undersigned nor any of its direct or indirect partners/members is a bank
extending credit pursuant to a loan agreement entered into in the ordinary
course of its trade or business within the meaning of Section 881(c)(3)(A) of
the Code, (iv) none of its direct or indirect partners/members is a ten percent
shareholder of the Borrower within the meaning of Section 881(c)(3)(B) of the
Code and (v) none of its direct or indirect partners/members is a controlled
foreign corporation related to the Borrower as described in Section 881(c)(3)(C)
of the Code.

 

The undersigned has furnished the Administrative Agent and the Borrower with IRS
Form W-8IMY (or applicable successor form) accompanied by one of the following
forms from each of its partners/members that is claiming the portfolio interest
exemption: (i) an IRS Form W-8BEN or IRS Form W-8BEN-E (or applicable successor
form) or (ii) an IRS Form W-8IMY (or applicable successor form) accompanied by
an IRS Form W-8BEN or IRS Form W-8BEN-E (or applicable successor form) from each
of such partner’s/member’s beneficial owners that is claiming the portfolio
interest exemption. By executing this certificate, the undersigned agrees that
(1) if the information provided on this certificate changes, the undersigned
shall promptly so inform the Borrower and the Administrative Agent, and (2) the
undersigned shall have at all times furnished the Borrower and the
Administrative Agent with a properly completed and currently effective
certificate in either the calendar year in which each payment is to be made to
the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used
herein shall have the meanings given to them in the Credit Agreement.

 

[NAME OF LENDER]

 

By:     Name:   Title:  

 

Date: ________ __, 20[ ]

 

EXHIBIT G-4 – PAGE 1

 

 

EXHIBIT I

FORM OF REGISTRATION RIGHTS AGREEMENT

 

This REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is made and entered into
as of [                          ], by and among Lilis Energy, Inc., a Nevada
corporation (the “Company”), and each of the parties executing this Agreement as
a Lender (each, a “Lender” and collectively, the “Lenders”).

 

WHEREAS, this Agreement is made pursuant to the Credit Agreement, dated as of
April 26, 2017 (the “Credit Agreement”), among the Company, the Guarantors party
thereto, the Lenders and Wilmington Trust, National Association, as
Administrative Agent, pursuant to which the Lenders are making the Term Loan to
the Company on the date hereof and thereafter may make Delayed Draw Term Loans
to the Company;

 

WHEREAS, the Loans are convertible as provided in the Credit Agreement into
shares of Common Stock or shares of Lender Preferred Stock, and shares of Lender
Preferred Stock are convertible as provided in the Certificate of Designations
into shares of Common Stock; and

 

WHEREAS, the Company has agreed to provide the registration and other rights set
forth in this Agreement for the benefit of the Lenders pursuant to the Credit
Agreement.

 

NOW THEREFORE, in consideration of the mutual covenants and agreements set forth
herein and for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by each party hereto, the parties hereby agree as
follows:

 

ARTICLE I
DEFINITIONS

 

Section 1.01         Definitions.

 

Capitalized terms used herein without definition shall have the meanings given
to them in the Credit Agreement. The terms set forth below are used herein as so
defined:

 

“Agreement” has the meaning specified therefor in the introductory paragraph of
this Agreement.

 

“Commission” means the U.S. Securities and Exchange Commission, including the
staff thereof as applicable.

 

“Common Share Price” means the volume weighted average closing price of the
Common Stock (as reported by the Primary Exchange on which the Common Stock is
then traded) for the ten (10) trading days immediately preceding the date on
which the determination is made (or, if such price is not available, as
determined in good faith by the Board of Directors).

 

“Company” has the meaning specified therefor in the introductory paragraph of
this Agreement.

 

“Company Securities” has the meaning specified therefor in Section 2.04(c)(i).

 

“Credit Agreement” has the meaning specified therefor in the recitals of this
Agreement.

 

“Effectiveness Period” has the meaning specified therefor in Section 2.01(e).

 

“Expenses” has the meaning specified therefor in Section 2.10(a).

 

EXHIBIT I – PAGE 1

 

 

“Filing Date” has the meaning specified therefor in Section 2.01(a).

 

“Holder” means the record holder of any Registrable Securities; provided, that
(a) each Lender shall be deemed to be the record holder of the Registrable
Securities issuable upon conversion of the Loans made by such Lender and
issuable upon conversion of shares of Lender Preferred Stock issuable upon
conversion of such Loans and (b) each record holder of shares of Lender
Preferred Stock shall be deemed to be the record holder of the Registrable
Securities issuable upon conversion of such shares of Lender Preferred Stock, in
each case for purposes of this definition and all other references in this
Agreement to holding or owning Registrable Securities.

 

“Indemnified Party” has the meaning specified therefor in Section 2.10(c).

 

“Indemnifying Party” has the meaning specified therefor in Section 2.10(c).

 

“Lender” and “Lenders” have the meanings specified therefor in the introductory
paragraph of this Agreement.

 

“Losses” has the meaning specified therefor in Section 2.10(a).

 

“Majority Holders” means, at any time, the Holder or Holders of more than fifty
percent (50%) of the Registrable Securities at such time.

 

“Managing Underwriter” means, with respect to any Underwritten Offering, the
lead book-running manager(s) of such Underwritten Offering.

 

“Other Securities” has the meaning specified therefor in Section 2.04(c)(i).

 

“Piggybacking Holder” has the meaning specified therefor in Section 2.04(a).

 

“Piggyback Underwritten Offering” has the meaning specified therefor in Section
2.04(a).

 

“Registrable Securities” means (a) the shares of Common Stock issuable upon
conversion of the Loans pursuant to the terms of the Credit Agreement, and (b)
to the extent that any shares of Lender Preferred Stock are issued or issuable
upon conversion of the Loans pursuant to the terms of the Credit Agreement, the
shares of Common Stock issuable upon conversion of such shares of Lender
Preferred Stock pursuant to the terms of the Certificate of Designations, in
each case until such Registrable Securities cease to be Registrable Securities
pursuant to Section 1.02.

 

“Registrable Securities Amount” means the Common Share Price times the number of
applicable Registrable Securities.

 

“Registration Expenses” means all expenses, other than Selling Expenses,
incident to the Company’s performance under or compliance with this Agreement to
effect the registration of Registrable Securities on a Registration Statement
and the disposition of such Registrable Securities, including, without
limitation, all registration, filing, securities exchange listing fees, all
registration, filing, qualification and other fees and expenses of complying
with securities or blue sky laws, fees of the Financial Industry Regulatory
Authority, fees of transfer agents and registrars, all word processing,
duplicating and printing expenses and the fees and disbursements of counsel to
the Company and the independent public accountants for the Company, including
the expenses of any special audits or “comfort” letters required by or incident
to such performance and compliance, and the reasonable fees and expenses of one
counsel for all Holders.

 

EXHIBIT I – PAGE 2

 

 

“Registration Statement” means (a) the Shelf Registration Statement and (b) any
other registration statement of the Company filed or to be filed with the
Commission under the Securities Act in which Registrable Securities are or, as
the context requires, may be included in the securities registered thereby
pursuant to this Agreement.

 

“Requesting Holder” has the meaning specified therefor in Section 2.02(a).

 

“Requesting Holder and Shelf Piggybacking Holder Securities” has the meaning
specified therefor in Section 2.02(c)(i).

 

“Rule 415 Limitation” has the meaning specified therefor in Section 2.01(b).

 

“Section 2.02 Maximum Number of Shares” has the meaning specified therefor in
Section 2.02(c).

 

“Section 2.04 Maximum Number of Shares” has the meaning specified therefor in
Section 2.04(c).

 

“Selling Expenses” means all (a) underwriting fees, discounts and selling
commissions allocable to the sale of Registrable Securities, (b) transfer taxes
allocable to the sale of the Registrable Securities, (c) costs or expenses
related to any roadshows conducted in connection with the marketing of any Shelf
Underwritten Offering, and (d) fees and expenses of any counsel engaged by any
Holder that are not expressly included in Registration Fees.

 

“Selling Holder” means a Holder selling Registrable Securities pursuant to a
Registration Statement.

 

“Selling Stockholder Questionnaire” has the meaning specified therefor in
Section 2.07.

 

“Shelf Piggybacking Holder” has the meaning specified therefor in Section
2.02(b).

 

“Shelf Registration Statement” has the meaning specified therefor in Section
2.01(a), subject to Section 2.01(d).

 

“Shelf Underwritten Offering” has the meaning specified therefor in Section
2.02(a).

 

“Underwritten Offering” means an offering (including an offering pursuant to the
Shelf Registration Statement) in which shares of Common Stock are sold to an
underwriter on a firm commitment basis for reoffering to the public.

 

“Underwritten Offering Filing” means (a) with respect to a Shelf Underwritten
Offering, a preliminary prospectus supplement (or prospectus supplement if no
preliminary prospectus supplement is used) to the Shelf Registration Statement
relating to such Shelf Underwritten Offering, and (b) with respect to a
Piggyback Underwritten Offering, (i) a preliminary prospectus supplement (or
prospectus supplement if no preliminary prospectus supplement is used) to an
effective shelf Registration Statement (other than the Shelf Registration
Statement) in which Registrable Securities could be included and Holders could
be named as selling security holders without the filing of a post-effective
amendment thereto (other than a post-effective amendment that becomes effective
upon filing) or (ii) a Registration Statement (other than the Shelf Registration
Statement), in each case relating to such Piggyback Underwritten Offering.

 

EXHIBIT I – PAGE 3

 

 

Section 1.02         Registrable Securities.

 

Any Registrable Security will cease to be a Registrable Security when (a) a
Registration Statement covering such Registrable Security has become effective
under the Securities Act and such Registrable Security has been sold or disposed
of pursuant to such Registration Statement; (b) such Registrable Security has
been disposed of pursuant to any section of Rule 144 (or any similar provision
then in effect) under the Securities Act; (c) such Registrable Security is held
by the Company or one of its Subsidiaries; (d) such Registrable Security has
been sold or disposed of in a transaction in which the transferor’s rights under
this Agreement are not assigned to the transferee of such Registrable Security
pursuant to Section 2.12; or (e) such Registrable Security becomes eligible for
resale without restriction and without volume limitations or the need for
current public information pursuant to any section of Rule 144 (or any similar
provision then in effect) under the Securities Act. Any security that has ceased
to be a Registrable Security shall not thereafter become a Registrable Security,
and any security that is issued or distributed in respect of a security that has
ceased to be a Registrable Security shall not be a Registrable Security.

 

ARTICLE II
REGISTRATION RIGHTS

 

Section 2.01         Shelf Registration.

 

(a)         On or before June 12, 2017 (the “Filing Date”), the Company shall
prepare and file with the Commission, and thereafter use commercially reasonable
efforts to cause to be declared effective as soon as practicable after the
filing thereof, a Registration Statement under the Securities Act relating to
the offer and sale of the Registrable Securities by the Holders thereof (the
“Shelf Registration Statement”) from time to time in accordance with the methods
of distribution set forth in the Shelf Registration Statement and Rule 415 under
the Securities Act. Promptly following the effective date of the Shelf
Registration Statement, the Company shall notify the Holders of the
effectiveness thereof.

 

(b)         Notwithstanding anything in Section 2.01(a), if for any reason the
Commission does not permit the Company to include any or all of the Registrable
Securities in the initial Shelf Registration Statement due to limitations on the
use of Rule 415 under the Securities Act for the resale of the Registrable
Securities by the Holders (a “Rule 415 Limitation”), or the Commission informs
the Company that any of the Selling Holders would be deemed to be statutory
underwriters, the Company shall notify the Holders thereof and use commercially
reasonable efforts to promptly file amendments to the initial Shelf Registration
Statement as required by the Commission and/or withdraw the initial Shelf
Registration Statement and file a new registration statement on Form S-1 or such
other form available for registration of the Registrable Securities as a
secondary offering, in either case covering the maximum number of Registrable
Securities permitted to be registered by the Commission and avoid the Selling
Holders being deemed to be statutory underwriters; provided, however, that prior
to such amendment or subsequent Shelf Registration Statement, the Company shall
be obligated to use commercially reasonable efforts to advocate with the
Commission for the registration of all of the Registrable Securities and against
the Selling Holders’ being deemed statutory underwriters in accordance with
Commission guidance, including without limitation, the Compliance and Disclosure
Interpretation “Securities Act Rules” No. 612.09, and the Securities Act. In the
event the Company amends the initial Shelf Registration Statement or files a
subsequent Shelf Registration Statement, as the case may be, the Company will
use commercially reasonable efforts to file with the Commission, as promptly as
allowed by the Commission, Commission guidance or the Securities Act, one or
more additional Shelf Registration Statements covering those Registrable
Securities not included in the initial Shelf Registration Statement as amended
or any subsequent Shelf Registration Statement previously filed. The number of
Registrable Securities that may be included in each such Shelf Registration
Statement shall be allocated among the Holders thereof in proportion (as nearly
as practicable) to the number of Registrable Securities owned by each Holder or
in such other proportion as is necessary to avoid the Selling Holders being
deemed to be statutory underwriters. If the Commission requires the Company to
name any Holder as a statutory underwriter and such Holder does not consent
thereto, then such Holder’s Registrable Securities shall not be included on the
Shelf Registration Statement and the Company shall have no further obligations
under this Section 2.01 or Section 2.02 with respect to the Registrable
Securities held by such Holder.

 

EXHIBIT I – PAGE 4

 

 

(c)         The Shelf Registration Statement shall be on Form S-1 (or any
equivalent or successor form) under the Securities Act (or to the extent the
Company is eligible to use Form S-3 or any equivalent or successor form or
forms, on Form S-3 or any comparable or successor form); provided, however, that
if the Company has filed the Shelf Registration Statement on Form S-1 and
subsequently becomes eligible to use Form S-3 or any equivalent or successor
form or forms, the Company shall (i) file a post-effective amendment to the
Shelf Registration Statement converting such Registration Statement on Form S-1
to a Registration Statement on Form S-3 or any equivalent or successor form or
forms or (ii) withdraw the Shelf Registration Statement on Form S-1 and file a
subsequent Shelf Registration Statement on Form S-3 or any equivalent or
successor form or forms.

 

(d)         Unless otherwise specifically stated herein, the term “Shelf
Registration Statement” shall refer individually to the initial Shelf
Registration Statement and to each subsequent Shelf Registration Statement, if
any, filed pursuant to Section 2.01(b) or Section 2.01(c).

 

(e)         The Company shall use commercially reasonable efforts to cause the
Shelf Registration Statement to remain effective, and to be supplemented and
amended to the extent necessary to ensure that the Shelf Registration Statement
is available for the resale of all the Registrable Securities by the Holders
until all of the Registrable Securities have ceased to be Registrable Securities
(the “Effectiveness Period”).

 

(f)         When effective, the Shelf Registration Statement (including the
documents incorporated therein by reference) will comply as to form in all
material respects with all applicable requirements of the Securities Act and the
Exchange Act and will not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading (in the case of any prospectus contained in
the Shelf Registration Statement, in the light of the circumstances under which
such statements are made).

 

EXHIBIT I – PAGE 5

 

 

Section 2.02         Underwritten Shelf Offering Requests.

 

(a)         In the event that any Holder or group of Holders elects to dispose
of Registrable Securities under the Shelf Registration Statement pursuant to an
Underwritten Offering and reasonably expects gross proceeds of at least
$20,000,000 from such Underwritten Offering (including proceeds attributable to
any Registrable Securities included in such Underwritten Offering by any Shelf
Piggybacking Holders), the Company shall, at the request (a “Shelf Underwritten
Offering Request”) of such Holder or Holders (in such capacity, a “Requesting
Holder”), enter into an underwriting agreement in a form as is customary in
Underwritten Offerings of securities by the Company with the underwriter or
underwriters selected pursuant to Section 2.02(d) and shall take all such other
reasonable actions as are requested by the Managing Underwriter of such
Underwritten Offering and/or the Requesting Holders in order to expedite or
facilitate the disposition of, subject to Section 2.02(c), such Registrable
Securities and the Registrable Securities requested to be included by any Shelf
Piggybacking Holder (a “Shelf Underwritten Offering”); provided, however, that
the Company shall have no obligation to facilitate or participate in more than
one Shelf Underwritten Offering in any 180-day period or more than two Shelf
Underwritten Offerings per calendar year.

 

(b)         If the Company receives a Shelf Underwritten Offering Request, it
will give written notice of such proposed Shelf Underwritten Offering to each
Holder (other than the Requesting Holder) that, together with such Holder’s
Affiliates, holds at least $5,000,000 of Registrable Securities calculated based
on the Registrable Securities Amount, which notice shall be held in strict
confidence by such Holders and shall include the anticipated filing date of the
related Underwritten Offering Filing and, if known, the number of shares of
Common Stock that are proposed to be included in such Shelf Underwritten
Offering, and of such Holders’ rights under this Section 2.02(b). Such notice
shall be given promptly (and in any event at least five Business Days before the
filing of the Underwritten Offering Filing or two Business Days before the
filing of the Underwritten Offering Filing in connection with a bought or
overnight Underwritten Offering); provided, that if the Shelf Underwritten
Offering is a bought or overnight Underwritten Offering and the Managing
Underwriter advises the Company and the Requesting Holder that the giving of
notice pursuant to this Section 2.02(b) would adversely affect the offering, no
such notice shall be required (and such Holders shall have no right to include
Registrable Securities in such bought or overnight Underwritten Offering); and
provided further, that the Company shall not so notify any such other Holder
that has notified the Company (and not revoked such notice) requesting that such
Holder not receive notice from the Company of any proposed Shelf Underwritten
Offering. Each such Holder shall then have four Business Days (or one Business
Day in the case of a bought or overnight Underwritten Offering) after the date
on which the Holders received notice pursuant to this Section 2.2(b) to request
inclusion of Registrable Securities in the Shelf Underwritten Offering (which
request shall specify the maximum number of Registrable Securities intended to
be disposed of by such Holder and include such other information as is requested
pursuant to clause (i) of Section 2.05(c)) (any such Holder making such request,
a “Shelf Piggybacking Holder”). If no request for inclusion from a Holder is
received within such period, such Holder shall have no further right to
participate in such Shelf Underwritten Offering.

 

(c)         If the Managing Underwriter of the Shelf Underwritten Offering shall
inform the Company and the Requesting Holders in writing, with a copy to be
provided upon request to any Shelf Piggybacking Holder, of its belief that the
number of Registrable Securities requested to be included in such Shelf
Underwritten Offering by the Requesting Holders and any Shelf Piggybacking
Holders (and any other shares of Common Stock requested to be included by any
other Persons having registration rights with respect to such offering) would
materially adversely affect such offering, then the Company shall include in the
applicable Underwritten Offering Filing, to the extent of the total number of
Registrable Securities that the Company is so advised can be sold in such Shelf
Underwritten Offering without so materially adversely affecting such offering
(the “Section 2.02 Maximum Number of Shares”), Registrable Securities in the
following priority:

 

EXHIBIT I – PAGE 6

 

 

(i)          First, all Registrable Securities that the Requesting Holder and
Shelf Piggybacking Holders requested to be included therein (the “Requesting
Holder and Shelf Piggybacking Holder Securities”) (pro rata among the Requesting
Holders and Shelf Piggybacking Holders based on the number of Registrable
Securities each requested to be included; and

 

(ii)         Second, to the extent that the number of Requesting Holder and
Shelf Piggybacking Holder Securities is less than the Section 2.02 Maximum
Number of Shares, the shares of Common Stock requested to be included by any
other Persons having registration rights with respect to such offering, pro rata
among such other Persons based on the number of shares of Common Stock each
requested to be included.

 

(d)         The Company shall select the Managing Underwriter and any other
underwriters in connection with such Shelf Underwritten Offering. The Requesting
Holders shall determine the pricing of the Registrable Securities offered
pursuant to any Shelf Underwritten Offering and the applicable underwriting
discounts and commissions and determine the timing of any such Shelf
Underwritten Offering, subject to Section 2.03.

 

Section 2.03         Delay and Suspension Rights.

 

Notwithstanding any other provision of this Agreement, the Company may (a) delay
filing or effectiveness of the Shelf Registration Statement (or any amendment
thereto) or effecting a Shelf Underwritten Offering or (b) suspend the Holders’
use of any prospectus that is a part of a Shelf Registration Statement upon
written notice to each Holder whose Registrable Securities are included in such
Shelf Registration Statement (provided that in no event shall such notice
contain any material non-public information regarding the Company) (in which
event such Holder shall immediately discontinue sales of Registrable Securities
pursuant to such Registration Statement but may settle any then-contracted sales
of Registrable Securities), in each case for a period of up to 60 days, if the
Company determines (i) that such delay or suspension is in the best interest of
the Company and its stockholders generally due to a pending transaction
involving the Company (including a pending securities offering by the Company,
or any proposed financing, acquisition, merger, tender offer, business
combination, corporate reorganization, consolidation or other significant
transaction involving the Company), (ii) that such registration or offering
would render the Company unable to comply with applicable securities laws or (C)
that such registration or offering would require disclosure of material
information that the Company has a bona fide business purpose for preserving as
confidential (any such period, a “Suspension Period”); provided, however, that
in no event shall any Suspension Periods collectively exceed an aggregate of 120
days in any twelve-month period.

 

EXHIBIT I – PAGE 7

 

 

Section 2.04         Piggyback Registration Rights.

 

(a)         Subject to Section 2.04(c), if the Company at any time proposes to
file an Underwritten Offering Filing for an Underwritten Offering of shares of
Common Stock for its own account or for the account of any other Persons who
have or have been granted registration rights (a “Piggyback Underwritten
Offering”), it will give written notice of such Piggyback Underwritten Offering
to each Holder that, together with such Holder’s Affiliates, holds at least the
$5,000,000 of Registrable Securities calculated based on the Registrable
Securities Amount, which notice shall be held in strict confidence by such
Holders and shall include the anticipated filing date of the Underwritten
Offering Filing and, if known, the number of shares of Common Stock that are
proposed to be included in such Piggyback Underwritten Offering, and of such
Holders’ rights under this Section 2.04(a). Such notice shall be given promptly
(and in any event at least five Business Days before the filing of the
Underwritten Offering Filing or two Business Days before the filing of the
Underwritten Offering Filing in connection with a bought or overnight
Underwritten Offering); provided, that if the Piggyback Underwritten Offering is
a bought or overnight Underwritten Offering and the Managing Underwriter advises
the Company that the giving of notice pursuant to this Section 2.04(a) would
adversely affect the offering, no such notice shall be required (and such
Holders shall have no right to include Registrable Securities in such bought or
overnight Underwritten Offering). Each such Holder shall then have four Business
Days (or one Business Day in the case of a bought or overnight Underwritten
Offering) after the date on which the Holders received notice pursuant to this
Section 2.04(a) to request inclusion of Registrable Securities in the Piggyback
Underwritten Offering (which request shall specify the maximum number of
Registrable Securities intended to be disposed of by such Holder and include
such other information as is requested pursuant to clause (i) of Section
2.05(c)) (any such Holder making such request, a “Piggybacking Holder”). If no
request for inclusion from a Holder is received within such period, such Holder
shall have no further right to participate in such Piggyback Underwritten
Offering. Subject to Section 2.04(c), the Company shall use commercially
reasonable efforts to include in the Piggyback Underwritten Offering all
Registrable Securities that the Company has been so requested to include by the
Piggybacking Holders; provided, however, that if, at any time after giving
written notice of a proposed Piggyback Underwritten Offering pursuant to this
Section 2.04(a) and prior to the execution of an underwriting agreement with
respect thereto, the Company or such other Persons who have or have been granted
registration rights, as applicable, shall determine for any reason not to
proceed with or to delay such Piggyback Underwritten Offering, the Company shall
give written notice of such determination to the Piggybacking Holders (which
such Holders will hold in strict confidence) and (i) in the case of a
determination not to proceed, shall be relieved of its obligation to include any
Registrable Securities in such Piggyback Underwritten Offering (but not from any
obligation of the Company to pay the Registration Expenses in connection
therewith), and (ii) in the case of a determination to delay, shall be permitted
to delay inclusion of any Registrable Securities for the same period as the
delay in including the shares of Common Stock to be sold for the Company’s
account or for the account of such other Persons who have or have been granted
registration rights, as applicable.

 

(b)         Each Holder shall have the right to withdraw its request for
inclusion of its Registrable Securities in any Piggyback Underwritten Offering
at any time prior to the execution of an underwriting agreement with respect
thereto by giving written notice to the Company of its request to withdraw.

 

EXHIBIT I – PAGE 8

 

 

(c)         If the Managing Underwriter of the Piggyback Underwritten Offering
shall inform the Company of its belief that the number of Registrable Securities
requested to be included in such Piggyback Underwritten Offering, when added to
the number of shares of Common Stock proposed to be offered by the Company or
such other Persons who have or have been granted registration rights (and any
other shares of Common Stock requested to be included by any other Persons
having registration rights on parity with the Piggybacking Holders with respect
to such offering), would materially adversely affect such offering, then the
Company shall include in such Piggyback Underwritten Offering, to the extent of
the total number of securities which the Company is so advised can be sold in
such offering without so materially adversely affecting such offering (the
“Section 2.04 Maximum Number of Shares”), shares of Common Stock in the
following priority:

 

(i)          First, if the Piggyback Underwritten Offering is for the account of
the Company, all shares of Common Stock that the Company proposes to include for
its own account (the “Company Securities”) or, if the Piggyback Underwritten
Offering is for the account of any other Persons who have or have been granted
registration rights, all shares of Common Stock that such Persons propose to
include (the “Other Securities”); and

 

(ii)         Second, if the Piggyback Underwritten Offering is for the account
of the Company, to the extent that the number of Company Securities is less than
the Section 2.04 Maximum Number of Shares, the shares of Common Stock requested
to be included by the Piggybacking Holders; and holders of any other shares of
Common Stock requested to be included by Persons having rights of registration
on parity with the Piggybacking Holders with respect to such offering, pro rata
among the Piggybacking Holders and such other holders based on the number of
shares of Common Stock each requested to be included and, if the Piggyback
Underwritten Offering is for the account of any other Persons who have or have
been granted registration rights, to the extent that the number of Other
Securities is less than the Section 2.04 Maximum Number of Shares, the shares of
Common Stock requested to be included by the Piggybacking Holders, pro rata
among the Piggybacking Holders.

 

(d)         The Company or the other Persons who have or have been granted
registration rights initiating such Piggyback Underwritten Offering (if so
entitled pursuant to such registration rights), as applicable, shall select the
underwriters in any Piggyback Underwritten Offering and shall determine the
pricing of the shares of Common Stock offered pursuant to any Piggyback
Underwritten Offering, the applicable underwriting discounts and commissions and
the timing of any such Piggyback Underwritten Offering.

 

Section 2.05         Participation in Underwritten Offerings.

 

(a)         In connection with any Underwritten Offering contemplated by Section
2.02 or Section 2.04, the underwriting agreement into which each Selling Holder
and the Company shall enter into shall contain such representations, covenants,
indemnities (subject to Section 2.10) and other rights and obligations as are
customary in Underwritten Offerings by the Company. No Selling Holder shall be
required to make any representations or warranties to or agreements with the
Company or the underwriters other than representations, warranties or agreements
regarding such Selling Holder’s authority to enter into such underwriting
agreement and to sell, and its ownership of, the securities being registered on
its behalf, its intended method of distribution and any other representation
required by law.

 

EXHIBIT I – PAGE 9

 

 

(b)         Any participation by Holders in a Piggyback Underwritten Offering
shall be in accordance with the plan of distribution of (i) the Company, if such
Piggyback Underwritten Offering is for the account of the Company, or (ii) any
other Persons who have or have been granted registration rights, if the
Piggyback Underwritten Offering is for the account of such other Persons.

 

(c)         In connection with any Piggyback Underwritten Offering in which any
Holder has the right to include Registrable Securities pursuant to Section 2.04,
such Holder agrees (i) to supply any information reasonably requested by the
Company in connection with the preparation of a Registration Statement and/or
any other documents relating to such registered offering (including a Selling
Stockholder Questionnaire) and (ii) to execute and deliver any agreements and
instruments being executed by all holders on substantially the same terms
reasonably requested by the Company or the Managing Underwriter, as applicable,
to effectuate such registered offering, including, without limitation,
underwriting agreements (subject to Section 2.05(a)), custody agreements,
lock-up agreements pursuant to which such Holder agrees not to sell or purchase
any securities of the Company for the same period of time following the
registered offering as is agreed to by the Company and the other participating
holders or such shorter period as the Managing Underwriter shall agree to,
powers of attorney and questionnaires.

 

(d)         If the Company or the Managing Underwriter, as applicable, requests
that the Holders take any of the actions referred to in clause (ii) of Section
2.05(c), the Holders shall take such action promptly but in any event within two
Business Days following the date of such request.

 

Section 2.06         Registration and Sale Procedures.

 

In connection with its obligations under this Article II and with respect to
each Registration Statement that includes Registrable Securities, the Company
will:

 

(a)         promptly prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus used in connection
therewith as may be necessary to keep the Registration Statement effective and
to comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities covered by the Registration Statement;

 

(b)         make available to each Selling Holder (i) as far in advance as
reasonably practicable before filing the Registration Statement, any prospectus
used in connection therewith or any supplement or amendment thereto, upon
request, copies of reasonably complete drafts of all such documents proposed to
be filed (including exhibits and each document incorporated by reference therein
to the extent then required by the rules and regulations of the Commission), and
provide each such Selling Holder the opportunity to object to any information
pertaining to such Selling Holder and its plan of distribution that is contained
therein and make the corrections reasonably requested by such Selling Holder
with respect to such information prior to filing the Registration Statement,
prospectus or supplement or amendment thereto, and (ii) such number of copies of
the Registration Statement and the prospectus included therein and any
supplements and amendments thereto as such Selling Holder may reasonably request
in order to facilitate the public sale or other disposition of the Registrable
Securities covered thereby;

 

EXHIBIT I – PAGE 10

 

 

(c)         if applicable, use commercially reasonable efforts to register or
qualify the Registrable Securities covered by the Registration Statement under
the securities or blue sky laws of such jurisdictions as the Selling Holders
shall reasonably request; provided, however, that the Company will not be
required to qualify generally to transact business in any jurisdiction where it
is not then required to so qualify, take any action that would subject the
Company to any material tax in any such jurisdiction where it is not then so
subject, or to take any action that would subject it to general service of
process in any such jurisdiction where it is not then so subject;

 

(d)         promptly notify each Selling Holder, at any time when a prospectus
relating thereto is required to be delivered by any of them under the Securities
Act, of (i) the filing of the Registration Statement or any prospectus or
prospectus supplement to be used in connection therewith, or any amendment or
supplement thereto, and, with respect to the Registration Statement or any
post-effective amendment thereto, when the same has become effective; and (ii)
the receipt of any written comments from the Commission with respect to any
filing referred to in clause (i) and any written request by the Commission for
amendments or supplements to the Registration Statement or any prospectus or
prospectus supplement thereto;

 

(e)         (i) immediately notify each Selling Holder, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of (A) the happening of any event as a result of which the prospectus or
prospectus supplement contained in the Registration Statement, as then in
effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading (in the case of any prospectus contained therein, in the
light of the circumstances under which such statements were made); (B) the
issuance or express threat of issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement, or the initiation of
any proceedings for that purpose; or (C) the receipt by the Company of any
notification with respect to the suspension of the qualification of any
Registrable Securities for sale under the applicable securities or blue sky laws
of any jurisdiction; and (ii) following the provision of such notice, as
promptly as practicable amend or supplement the prospectus or prospectus
supplement or take other appropriate action so that the prospectus or prospectus
supplement does not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing and take such other commercially reasonable action as is necessary to
remove a stop order, suspension, threat thereof or proceedings related thereto;

 

(f)         upon request and subject to appropriate confidentiality obligations,
furnish to each Selling Holder copies of any and all transmittal letters or
other correspondence with the Commission or any other governmental agency or
self-regulatory body or other body having jurisdiction (including any domestic
or foreign securities exchange) relating to the Registration Statement;

 

(g)         otherwise use commercially reasonable efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement,
which earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 promulgated thereunder;

 

EXHIBIT I – PAGE 11

 

 

(h)         cause all such Registrable Securities registered pursuant to this
Agreement to be listed on each securities exchange or nationally recognized
quotation system on which similar securities issued by the Company are then
listed;

 

(i)         use commercially reasonable efforts to cause the Registrable
Securities to be registered with or approved by such other governmental agencies
or authorities as may be necessary by virtue of the business and operations of
the Company to enable the Selling Holders to consummate the disposition of such
Registrable Securities;

 

(j)         provide a transfer agent and registrar for all Registrable
Securities covered by such registration statement not later than the effective
date of the Registration Statement;

 

(k)         if requested by a Selling Holder, (i) incorporate in a prospectus
supplement or post-effective amendment such information as such Selling Holder
reasonably requests to be included therein relating to the sale and distribution
of Registrable Securities, including information with respect to the number of
Registrable Securities being offered or sold, the purchase price being paid
therefor and any other terms of the offering of the Registrable Securities to be
sold in such offering and (ii) make all required filings of such prospectus
supplement or post-effective amendment after being notified of the matters to be
incorporated in such prospectus supplement or post-effective amendment;

 

(l)         in connection with an Underwritten Offering, use commercially
reasonable efforts to provide to each Selling Holder a copy of any auditor
“comfort” letters, customary legal opinions or reports of the independent
petroleum engineers of the Company relating to the oil and gas reserves of the
Company, in each case that have been provided to the Managing Underwriter in
connection with the Underwritten Offering; and

 

(m)         make available for inspection by any Selling Holder of Registrable
Securities, any underwriter participating in any disposition pursuant to such
Registration Statement and any attorney, accountant or other agent retained by
any such holder or underwriter (collectively, the “Inspectors”), all financial
and other records, pertinent corporate documents and properties of the Company
(collectively, the “Records”), and cause the Company’s officers, directors and
employees to supply all information reasonably requested by any such Inspector
in connection with such Registration Statement; provided, that the Company need
not disclose any non-public information to any such person unless and until such
person has entered into a confidentiality agreement with the Company.

 

Each Selling Holder, upon receipt of notice from the Company of the happening of
any event of the kind described in subsection (e) of this Section 2.06, shall
forthwith discontinue offers and sales of the Registrable Securities by means of
a prospectus or prospectus supplement until such Selling Holder’s receipt of the
copies of the supplemented or amended prospectus contemplated by subsection (e)
of this Section 2.06 or until it is advised in writing by the Company that the
use of the prospectus may be resumed and has received copies of any additional
or supplemental filings incorporated by reference in the prospectus, and, if so
directed by the Company, such Selling Holder will deliver to the Company (at the
Company’s expense) all copies in their possession or control, other than
permanent file copies then in such Selling Holder’s possession, of the
prospectus covering such Registrable Securities current at the time of receipt
of such notice.

 

EXHIBIT I – PAGE 12

 

 

Section 2.07         Cooperation by Holders.

 

The Company shall have no obligation to include Registrable Securities of a
Holder in a Registration Statement who has failed to furnish, within five
Business Days of a request by the Company, such information that the Company
determines, after consultation with its counsel, is reasonably required in order
for the Registration Statement or prospectus supplement, as applicable, to
comply with the Securities Act. The Company may require each Holder to furnish
to the Company a written statement as to the number of shares of Common Stock
beneficially owned by such Holder. Without limiting the foregoing, with respect
to the Shelf Registration Statement, each Holder agrees to furnish to the
Company a completed questionnaire in the form attached to this Agreement as
Annex A (a “Selling Stockholder Questionnaire”) on a date that is not less than
three Business Days prior to the Filing Date or three Business Days following
the date on which such Holder receives draft materials in accordance with
Section 2.06(b).

 

Section 2.08         Restrictions on Public Sales by Holders.

 

Each Holder agrees not to effect any public sale or distribution of Registrable
Securities for a period of up to 60 days following completion of an Underwritten
Offering of equity securities by the Company; provided that (i) the Company
gives written notice to such Holder of the date of the commencement and
termination of such period with respect to any such Underwritten Offering and
(ii) the duration of the foregoing restrictions shall be no longer than the
duration of the shortest restriction generally imposed by the underwriters of
such Underwritten Offering on the Company or on the officers or directors or any
other shareholder of the Company on whom a restriction is imposed and (iii) the
restrictions set forth in this Section 2.08 shall not apply to any Registrable
Securities that are included in such Underwritten Offering by such Selling
Holder; provided further, that this Section 2.08 shall not apply to any Holder
that, together with such Holder’s Affiliates, holds less than 5% of the
outstanding shares of Common Stock.

 

Section 2.09         Expenses.

 

The Company will pay all reasonable Registration Expenses as determined in good
faith. Each Selling Holder shall pay its pro rata share of all Selling Expenses
in connection with any sale of its Registrable Securities hereunder.

 

EXHIBIT I – PAGE 13

 

 

Section 2.10         Indemnification and Contribution.

 

(a)         Indemnification by the Company. The Company will indemnify and hold
harmless each Selling Holder, its directors, officers managers, employees,
investment managers, agents and Affiliates and each other Person, if any, who
controls such Selling Holder within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act from and against any losses, claims,
damages or liabilities, joint or several (collectively, “Losses”) to which such
Selling Holder or any such director, officer or controlling person may become
subject, under the Securities Act or otherwise, insofar as such Losses (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in any Registration Statement or any
preliminary prospectus, free writing prospectus or final prospectus contained
therein or related thereto, or any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading (in
the case of any prospectus, in the light of the circumstances under which such
statements were made), or (ii) any violation or alleged violation by the Company
of the Securities Act, the Exchange Act, any state securities law, or any rule
or regulations promulgated under the Securities Act, the Exchange Act or any
state securities law applicable to the Company and relating to action or
inaction required of the Company in connection with any such registration,
qualification or compliance required under this Agreement, and the Company will
reimburse such Selling Holder and each such director, officer, manager,
employee, investment manager, agent, Affiliate and controlling person for any
legal or any other expenses reasonably incurred by them in connection with
investigating or defending any such Losses, actions or proceedings
(collectively, “Expenses”); provided that the Company shall not be liable in any
such case to the extent that any such Losses or Expenses arise out of or are
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement, preliminary prospectus,
free writing prospectus, final prospectus, amendment or supplement in reliance
upon and in conformity with information furnished to the Company in writing or
electronically by or on behalf of such Selling Holder expressly for use in the
preparation thereof. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Selling Holder or
any such director, officer or controlling person and shall survive the transfer
of such securities by such Selling Holder.

 

(b)         Indemnification by Selling Holders. Each Selling Holder, severally
and not jointly, will indemnify and hold harmless the Company, each director of
the Company, its directors and officers and each other Person, if any, who
controls the Company within the meaning of the Section 15 of the Securities Act
or Section 20 of the Exchange from and against any Losses to which the Company
or any such director, officer or controlling person may become subject, under
the Securities Act or otherwise, and will reimburse them for any Expenses
reasonably incurred by any of them (in each case in the same manner and to the
same extent as set forth in Section 2.10(a)), insofar as such Losses (or actions
or proceedings, whether commenced or threatened, in respect thereof) or Expenses
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any Registration Statement or any preliminary
prospectus, free writing prospectus or final prospectus contained therein or
related thereto, or any amendment or supplement thereto, or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading (in the case of any
prospectus, in the light of the circumstances under which such statements were
made), if such statement or alleged statement or omission or alleged omission
was made in reliance upon and in conformity with information furnished to the
Company in writing or electronically by or on behalf of such Selling Holder
expressly for use in the preparation thereof (it being understood that any
Selling Stockholder Questionnaire furnished by such Selling Holder is furnished
expressly for this purpose). Such indemnity shall remain in full force and
effect, regardless of any investigation made by or on behalf of the Company or
any such director, officer or controlling person and shall survive the transfer
of such securities by such Selling Holder.

 

EXHIBIT I – PAGE 14

 

 

(c)         Notices of Claims; Indemnification Procedures. In case any
proceeding (including any governmental investigation) shall be instituted
involving any Person in respect of which indemnity may be sought pursuant to
Section 2.10(a) or Section 2.10(b), such Person (the “Indemnified Party”) shall
promptly notify the Person against whom such indemnity may be sought (the
“Indemnifying Party”) in writing (provided that the failure of the Indemnified
Party to give notice as provided herein shall not relieve the Indemnifying Party
of its obligations under this Section 2.10, except to the extent the
Indemnifying Party is actually prejudiced by such failure to give notice), and
the Indemnifying Party shall be entitled to participate in such proceeding and,
unless in the reasonable opinion of outside counsel to the Indemnified Party a
conflict of interest between the Indemnified Party and Indemnifying Party may
exist in respect of such claim, to assume the defense thereof jointly with any
other Indemnifying Party similarly notified, to the extent that it chooses, with
counsel reasonably satisfactory to such Indemnified Party, and after notice from
the Indemnifying Party to such Indemnified Party that it so chooses, the
Indemnifying Party shall not be liable to such Indemnified Party for any legal
or other Expenses subsequently incurred by such Indemnified Party in connection
with the defense thereof other than reasonable costs of investigation; provided,
however, that (i) if the Indemnifying Party fails to assume the defense or
employ counsel reasonably satisfactory to the Indemnified Party, (ii) if such
Indemnified Party who is a defendant in any action or proceeding which is also
brought against the Indemnifying Party reasonably shall have concluded that
there may be one or more legal defenses available to such Indemnified Party that
are not available to the Indemnifying Party or (iii) if representation of both
parties by the same counsel is otherwise inappropriate under applicable
standards of professional conduct then, in any such case, the Indemnified Party
shall have the right to assume or continue its own defense as set forth above
(but with no more than one firm of counsel for all Indemnified Parties (plus one
firm of local counsel for all Indemnified Parties in each relevant
jurisdiction)), and the Indemnifying Party shall be liable for any Expenses
therefor. No Indemnifying Party shall, without the written consent of the
Indemnified Party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or threatened action or claim
in respect of which indemnification or contribution may be sought hereunder
(whether or not the Indemnified Party is an actual or potential party to such
action or claim) unless such settlement, compromise or judgment (A) includes an
unconditional release of the Indemnified Party from all liability arising out of
such action or claim and (B) does not include a statement as to, or an admission
of, fault, culpability or a failure to act, by or on behalf of any Indemnified
Party.

 

(d)         Contribution.

 

(i)           If the indemnification provided for in this Section 2.10 is
unavailable to an Indemnified Party in respect of any Losses in respect of which
indemnity is to be provided hereunder, then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall to the fullest extent permitted by
law contribute to the amount paid or payable by such Indemnified Party as a
result of such Losses in such proportion as is appropriate to reflect the
relative fault of such party in connection with the statements or omissions that
resulted in such Losses, as well as any other relevant equitable considerations.
The relative fault of the Company (on the one hand) and any Selling Holder (on
the other hand) shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
such party and the parties’ relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.

 

EXHIBIT I – PAGE 15

 

 

(ii)          The Company and each Holder agree that it would not be just and
equitable if contribution pursuant to this Section 2.10(d) were determined by
pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in Section 2.10(d)(i). The
amount paid or payable by an Indemnified Party as a result of the Losses
referred to in Section 2.10(d)(i) shall be deemed to include, subject to the
limitations set forth above, any Expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any such action
or claim. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.

 

(e)         Limitation of Holders’ Liability. Notwithstanding the provisions of
this Section 2.10, no Holder shall be liable for indemnification or contribution
pursuant to this Section 2.10 for any amount in excess of the net proceeds
received by such Holder from the sale of Registrable Securities pursuant to a
Registration Statement.

 

(f)          Indemnification Payments. The indemnification and contribution
required by this Section 2.10 shall be made by periodic payments of the amount
of any such Losses or Expenses as and when bills are received or such Losses or
Expenses are incurred.

 

Section 2.11         Rule 144 Reporting.

 

With a view to making available the benefits of certain rules and regulations of
the Commission that may permit the sale of the Registrable Securities to the
public without registration, the Company agrees to use its reasonable best
efforts to:

 

(a)         make and keep public information regarding the Company available, as
those terms are understood and defined in Rule 144 under the Securities Act, at
all times from and after the date hereof;

 

(b)         file with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
at all times from and after the date hereof; and

 

(c)         so long as a Holder owns any Registrable Securities, furnish, unless
otherwise available via EDGAR, to such Holder forthwith upon request a copy of
the most recent annual or quarterly report of the Company, and such other
reports and documents so filed as such Holder may reasonably request in availing
itself of any rule or regulation of the Commission allowing such Holder to sell
any such securities without registration.

 

Section 2.12         Transfer or Assignment of Registration Rights.

 

The rights to cause the Company to register Registrable Securities granted to
the Holders by the Company under this Article II may be transferred or assigned
by the Holders to one or more transferees or assignees of Registrable
Securities; provided, however, that (a) unless the transferee or assignee is an
Affiliate of, and after such transfer or assignment continues to be an Affiliate
of, the transferee, the number of Registrable Securities transferred or assigned
to such transferee or assignee, together with any other Registrable Securities
held by such transferee or assignee, shall be at least $5,000,000 in Registrable
Securities calculated based on the Registrable Securities Amount, (b) the
Company is given written notice prior to such transfer or assignment, stating
the name and address of each such transferee or assignee and identifying the
Registrable Securities with respect to which such registration rights are being
transferred or assigned, and (c) each such transferee or assignee assumes in
writing responsibility for its portion of the obligations of the transferor
under this Agreement.

 

EXHIBIT I – PAGE 16

 

 

Section 2.13         Other Registration Rights.

 

From and after the date hereof, the Company shall not, without the prior written
consent of the Majority Holders, enter into any agreement with any current or
future holder of any securities of the Company that would allow such current or
future holder to require the Company to include securities in any registration
statement filed by the Company for such Holders on a basis other than pari passu
with, or expressly subordinate to, the piggyback rights of the Holders
hereunder; provided, that in no event shall the Company enter into any agreement
that would permit another holder of securities of the Company to participate on
a pari passu basis (in terms of priority of cut-back based on advice of
underwriters) with a Requesting Holder or a Shelf Piggybacking Holder in a Shelf
Underwritten Offering.

 

ARTICLE III
MISCELLANEOUS

 

Section 3.01         Communications.

 

All notices and other communications provided for or permitted hereunder shall
be made in writing by electronic mail, courier service or personal delivery:

 

(a)         if to a Lender, to such Lender at its address set forth in its
Administrative Questionnaire;

 

(b)         if to any Holder other than a Lender, to such Holder at the address
provided pursuant to Section 2.12; and

 

(c)         if to the Company, to it at:

 

300 E. Sonterra Blvd., Suite 1220
San Antonio, Texas 78258
Attention: General Counsel
Email: AFuchs@lilisenergy.com

 

; or, in each case, to such other address for such party as shall have been
communicated by such party by like notice.

 

All such notices and communications shall be deemed to have been received at the
time delivered by hand, if personally delivered; when receipt acknowledged, if
sent by electronic mail; and when actually received, if sent by courier service.

 

EXHIBIT I – PAGE 17

 

 

Section 3.02         Successors and Assigns.

 

This Agreement shall inure to the benefit of and be binding upon the successors
and permitted assigns of each of the parties, including subsequent Holders of
Registrable Securities to the extent permitted herein; provided, however, that
all or any portion of the rights and obligations of any Holder under this
Agreement may be transferred or assigned by such Holder only in accordance with
Section 2.12.

 

Section 3.03         Recapitalization, Exchanges, Etc. Affecting the Shares.

 

The provisions of this Agreement shall apply to the full extent set forth herein
with respect to any and all shares of the Company or any successor or assign of
the Company (whether by merger, consolidation, sale of assets or otherwise) that
may be issued in respect of, in exchange for or in substitution of, the
Registrable Securities, and shall be appropriately adjusted for combinations,
share splits, recapitalizations, pro rata distributions of shares and the like
occurring after the date of this Agreement.

 

Section 3.04         Aggregation of Registrable Securities.

 

All Registrable Securities held or acquired by Persons who are Affiliates of one
another shall be aggregated together for the purpose of determining the
availability of any rights and applicability of any obligations under this
Agreement.

 

Section 3.05         Specific Performance.

 

Damages in the event of breach of this Agreement by a party hereto may be
difficult, if not impossible, to ascertain, and it is therefore agreed that each
such Person, in addition to and without limiting any other remedy or right it
may have, will have the right to an injunction or other equitable relief in any
court of competent jurisdiction, enjoining any such breach, and enforcing
specifically the terms and provisions hereof, and each of the parties hereto
hereby waives any and all defenses it may have on the ground of lack of
jurisdiction or competence of the court to grant such an injunction or other
equitable relief. The existence of this right will not preclude any such Person
from pursuing any other rights and remedies at law or in equity that such Person
may have. The Company acknowledges that this Agreement constitutes a Loan
Document.

 

Section 3.06         Counterparts.

 

This Agreement may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which counterparts, when so
executed and delivered, shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same Agreement.

 

Section 3.07         Headings.

 

The headings in this Agreement are for convenience of reference only and shall
not limit or otherwise affect the meaning hereof.

 

EXHIBIT I – PAGE 18

 

 

Section 3.08         Governing Law.

 

THIS AGREEMENT, AND ALL CLAIMS OR CAUSES OF ACTION (WHETHER IN CONTRACT OR TORT)
THAT MAY BE BASED UPON, ARISE OUT OF OR RELATE TO THIS AGREEMENT OR THE
NEGOTIATION, EXECUTION OR PERFORMANCE OF THIS AGREEMENT (INCLUDING ANY CLAIM OR
CAUSE OF ACTION BASED UPON, ARISING OUT OF OR RELATED TO ANY REPRESENTATION OR
WARRANTY MADE IN OR IN CONNECTION WITH THIS AGREEMENT), WILL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS. ANY ACTION AGAINST ANY PARTY RELATING TO THE
FOREGOING SHALL BE BROUGHT IN ANY FEDERAL OR STATE COURT OF COMPETENT
JURISDICTION LOCATED WITHIN THE STATE OF NEW YORK, AND THE PARTIES HERETO HEREBY
IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY FEDERAL OR STATE
COURT LOCATED WITHIN THE STATE OF NEW YORK OVER ANY SUCH ACTION. THE PARTIES
HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH
DISPUTE BROUGHT IN SUCH COURT OR ANY DEFENSE OF INCONVENIENT FORUM FOR THE
MAINTENANCE OF SUCH DISPUTE. EACH OF THE PARTIES HERETO AGREES THAT A JUDGMENT
IN ANY SUCH DISPUTE MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE
JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.

 

Section 3.09         Severability of Provisions.

 

Any provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting or impairing the validity or enforceability of
such provision in any other jurisdiction.

 

Section 3.10         Entire Agreement.

 

This Agreement is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the agreement
and understanding of the parties hereto in respect of the subject matter
contained herein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein with respect to
the rights granted by the Company set forth herein. This Agreement supersedes
all prior agreements and understandings between the parties with respect to such
subject matter.

 

Section 3.11         Amendment.

 

This Agreement may be amended only by means of a written amendment signed by the
Company and the Majority Holders; provided, however, that no such amendment
shall materially and adversely affect the rights of any Holder hereunder without
the consent of such Holder.

 

EXHIBIT I – PAGE 19

 

 

Section 3.12         No Presumption.

 

If any claim is made by a party relating to any conflict, omission or ambiguity
in this Agreement, no presumption or burden of proof or persuasion shall be
implied by virtue of the fact that this Agreement was prepared by or at the
request of a particular party or its counsel.

 

Section 3.13         Obligations Limited to Parties to Agreement.

 

Each of the parties hereto covenants, agrees and acknowledges that no Person
other than the Holders and the Company shall have any obligation hereunder and
that, notwithstanding that one or more of the Holders may be a corporation,
partnership or limited liability company, no recourse under this Agreement or
under any documents or instruments delivered in connection herewith or therewith
shall be had against any former, current or future director, officer, employee,
agent, general or limited partner, manager, member, stockholder or Affiliate of
any Holder or any former, current or future director, officer, employee, agent,
general or limited partner, manager, member, stockholder or Affiliate of any of
the foregoing, whether by the enforcement of any assessment or by any legal or
equitable proceeding, or by virtue of any applicable law, it being expressly
agreed and acknowledged that no personal liability whatsoever shall attach to,
be imposed on or otherwise be incurred by any former, current or future
director, officer, employee, agent, general or limited partner, manager, member,
stockholder or Affiliate of any Holder or any former, current or future
director, officer, employee, agent, general or limited partner, manager, member,
stockholder or Affiliate of any of the foregoing, as such, for any obligations
of the Holders under this Agreement or any documents or instruments delivered in
connection herewith or therewith or for any claim based on, in respect of or by
reason of such obligation or its creation, except in each case for any
transferee or assignee of a Holder hereunder.

 

Section 3.14         Independent Nature of Holders’ Obligations.

 

The obligations of each Holder under this Agreement are several and not joint
with the obligations of any other Holder, and no Holder shall be responsible in
any way for the performance of the obligations of any other Holder under this
Agreement. Nothing contained herein, and no action taken by any Holder pursuant
thereto, shall be deemed to constitute the Holders as a partnership, an
association, a joint venture or any other kind of group or entity, or create a
presumption that the Holders are in any way acting in concert or as a group with
respect to such obligations or the transactions contemplated by this Agreement.
Each Holder shall be entitled to independently protect and enforce its rights,
including without limitation, the rights arising out of this Agreement, and it
shall not be necessary for any other Holder to be joined as an additional party
in any proceeding for such purpose.

 

Section 3.15         Interpretation.

 

Article and Section references are to this Agreement, unless otherwise
specified. All references to instruments, documents, contracts and agreements
are references to such instruments, documents, contracts and agreements as the
same may be amended, supplemented and otherwise modified from time to time,
unless otherwise specified. The word “including” shall mean “including but not
limited to.” Whenever any determination, consent or approval is to be made or
given by a Holder under this Agreement, such action shall be in such Holder’s
sole discretion unless otherwise specified.

 

EXHIBIT I – PAGE 20

 

 

[Signature pages follow]

 

EXHIBIT I – PAGE 21

 

 

IN WITNESS WHEREOF, the parties hereto execute this Agreement, effective as of
the date first above written.

 

  COMPANY:       LILIS ENERGY, INC.         By:     Name:     Title:          
LENDERS:       [●]         By:     Name:     Title:  

 

[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]

 

 

LILIS ENERGY, INC.

 

Selling Stockholder Notice and Questionnaire

 

The undersigned beneficial owner of common stock (the “Registrable Securities”)
of Lilis Energy, Inc., a Nevada corporation (the “Company”), understands that
the Company has filed or intends to file with the Securities and Exchange
Commission (the “Commission”) a registration statement (the “Registration
Statement”) for the registration and resale under the Securities Act of 1933, as
amended (the “Securities Act”), of the Registrable Securities, in accordance
with the terms of the Registration Rights Agreement (the “Registration Rights
Agreement”) to which this document is annexed. A copy of the Registration Rights
Agreement is available from the Company upon request at the address set forth
below. All capitalized terms not otherwise defined herein shall have the
meanings ascribed thereto in the Registration Rights Agreement.

 

Certain legal consequences arise from being named as a selling stockholder in
the Registration Statement and the related prospectus. Accordingly, holders and
beneficial owners of Registrable Securities are advised to consult their own
securities law counsel regarding the consequences of being named or not being
named as a selling stockholder in the Registration Statement and the related
prospectus.

 

NOTICE

 

The undersigned beneficial owner (the “Selling Stockholder”) of Registrable
Securities hereby elects to include the Registrable Securities owned by it in
the Registration Statement.

 

The undersigned hereby provides the following information to the Company and
represents and warrants that such information is accurate:

 

QUESTIONNAIRE

 

1.Name.

 

(a)Full Legal Name of Selling Stockholder

 

(b)Full Legal Name of Registered Holder (if not the same as (a) above) through
which Registrable Securities are held:

 

(c)Full Legal Name of Natural Control Person (which means a natural person who
directly or indirectly alone or with others has power to vote or dispose of the
securities covered by this Questionnaire):

 

2.Address for Notices to Selling Stockholder:

 

     

 

Telephone:   Fax:   Contact Person:  

 

 

 

 

3.Broker-Dealer Status:

 

(a)Are you a broker-dealer?

 

Yes ¨   No ¨

 

(b)If “yes” to Section 3(a), did you receive your Registrable Securities as
compensation for investment banking services to the Company?

 

Yes ¨   No ¨

 

Note:  If “no” to Section 3(b), the Commission’s staff has indicated that you
should be identified as an underwriter in the Registration Statement.

 

(c)Are you an affiliate of a broker-dealer?

 

Yes ¨   No ¨

 

(d)If you are an affiliate of a broker-dealer, do you certify that you purchased
the Registrable Securities in the ordinary course of business, and at the time
of the purchase of the Registrable Securities to be resold, you had no
agreements or understandings, directly or indirectly, with any person to
distribute the Registrable Securities?

 

Yes ¨   No ¨

 

Note: If “no” to Section 3(d), the Commission’s staff has indicated that you
should be identified as an underwriter in the Registration Statement.

 

4.Beneficial Ownership of Securities of the Company Owned by the Selling
Stockholder.

 

Except as set forth below in this Item 4, the undersigned is not the beneficial
or registered owner of any securities of the Company other than the securities
issuable pursuant to the Purchase Agreement.

 

(a)Type and Amount of other securities beneficially owned by the Selling
Stockholder:

 

       

 

5.Relationships with the Company:

 

Except as set forth below, neither the undersigned nor any of its affiliates,
officers, directors or principal equity holders (owners of 5% of more of the
equity securities of the undersigned) has held any position or office or has had
any other material relationship with the Company (or its predecessors or
affiliates) during the past two years.

 

State any exceptions here:

 

       

 

The undersigned agrees to promptly notify the Company of any material
inaccuracies or changes in the information provided herein that may occur
subsequent to the date hereof at any time while the Registration Statement
remains effective; provided, that the undersigned shall not be required to
notify the Company of any changes to the number of securities held or owned by
the undersigned or its affiliates.

 

 

 

 

By signing below, the undersigned consents to the disclosure of the information
contained herein in its answers to Items 1 through 5 and the inclusion of such
information in the Registration Statement and the related prospectus and any
amendments or supplements thereto. The undersigned understands that such
information will be relied upon by the Company in connection with the
preparation or amendment of the Registration Statement and the related
prospectus and any amendments or supplements thereto.

 

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this
Notice and Questionnaire to be executed and delivered either in person or by its
duly authorized agent.

 

Date:     Beneficial Owner:  

      By:         Name:         Title:  

 

PLEASE FAX A COPY (OR EMAIL A .PDF COPY) OF THE COMPLETED AND EXECUTED NOTICE
AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

 

Lilis Energy, Inc.

Attn: General Counsel

300 E. Sonterra Blvd., Suite 1220

San Antonio, TX 78258

Email: afuchs@lilisenergy.com

 

 

 

 

EXHIBIT J

 

FORM OF LENDER CONVERSION NOTICE

 

Pursuant to that certain Credit Agreement dated April [___], 2017 (the “Credit
Agreement”), by and among Lilis Energy, Inc., the Guarantors party thereto, the
Lenders party thereto and Wilmington Trust, National Association, as
Administrative Agent, the undersigned, being the Lead Lender, hereby makes the
following election related to the conversion of the Term Loan or the Delayed
Draw Term Loan pursuant to Section 11.01 or Section 11.02 of the Credit
Agreement. Capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Credit Agreement.

 

(Check the following box(es) as applicable.)

¨The Lead Lender hereby irrevocably elects to effect the Term Loan Conversion
pursuant to Section 11.01 of the Credit Agreement.

 

¨The Lead Lender hereby irrevocably elects to effect the Delayed Draw Term Loan
Conversion pursuant to Section 11.02 of the Credit Agreement.

 

The Lead Lender hereby certifies that on the date hereof the conversion
described above complies with the terms of the Credit Agreement.

 

  [           ], as Lead Lender         By:       Name:     Title:   Date:  

 

EXHIBIT J – PAGE 1

 

 

EXHIBIT K

 

FORM OF BORROWER CONVERSION NOTICE

 

Pursuant to that certain Credit Agreement dated April [__], 2017 (the “Credit
Agreement”), by and among the Lilis Energy, Inc., the Guarantors party thereto,
the Lenders party thereto and Wilmington Trust, National Association, as
Administrative Agent, Lilis Energy, Inc., as the Borrower, hereby elects to
convert the portion of the Loans indicated below into shares of Common Stock
pursuant to Section 11.04 of the Credit Agreement. Capitalized terms used but
not defined herein shall have the meanings ascribed to them in the Credit
Agreement.

 

Principal amount of Loans to be converted: $___________

Accrued and unpaid interest on such principal amount: $______________

Shares of Common Stock issuable upon conversion: __________________

 

The Borrower hereby certifies that on the date hereof the conversion described
above complies with the terms of the Credit Agreement and no Default or Event of
Default has occurred and is continuing.

 

  LILIS ENERGY, INC.         By:       Name:     Title:   Date:  

 

EXHIBIT K – PAGE 1

 

 

SCHEDULE 2.01

 

COMMITMENTS

 

Term Loan

 

Lender  Term Loan Commitment
Amount   Term Loan Commitment
Percentage  The Värde Fund VI-A, L.P.  $2,400,000.00    3.0% Värde INVESTMENT
PARTNERS, L.P.  $5,440,000.00    6.8% THE Värde FUND XI (MASTER), L.P. 
$33,280,000.00    41.6% Värde investment partners (offshore) master, L.p. 
$4,800,000.00    6.0% THE VÄRDE SKYWAY Master fund, L.P.  $10,400,000.00  
 13.0% THE VÄRDE FUND XII (mASTER), L.P.  $23,680,000.00    29.6% TOTAL: 
$80,000,000.00    100%

 

SCHEDULE 2.01 – PAGE 1

 

 

Lender  Delayed Draw Term Loan
Commitment Amount   Delayed Draw Term Loan
Commitment Percentage  The Värde Fund VI-A, L.P.  $1,350,000.00    3.0% Värde
INVESTMENT PARTNERS, L.P.  $3,060,000.00    6.8% THE Värde FUND XI (MASTER),
L.P.  $18,720,000.00    41.6% Värde investment partners (offshore) master, L.p. 
$2,700,000.00    6.0% THE VÄRDE SKYWAY Master fund, L.P.  $5,850,000.00    13.0%
THE VÄRDE FUND XII (mASTER), L.P.  $13,320,000.00    29.6% TOTAL: 
$45,000,000.00    100%

 

SCHEDULE 2.01 – PAGE 2

 

 

SCHEDULE 3.04

 

MATERIAL LIABILITIES

 

None.

 

SCHEDULE 3.04 – PAGE 1

 

 

SCHEDULE 3.06

 

DISCLOSED MATTERS

 

None.

 

SCHEDULE 3.06 – PAGE 1

 

 

SCHEDULE 3.13

 

CAPITALIZATION

 

Borrower: LILIS ENERGY, INC.     Jurisdiction of Organization: Nevada    
Outstanding shares of Common Stock       (par value $0.0001): 49,700,469    
Outstanding number of options, warrants, Stock Options: 6,318,500     and equity
based awards: Restricted Stock Units: 9,999       Restricted Stock: 1,116,669  
    Warrants: 12,624,832     Number of awards available for issuance 1,603,741
(2016 Omnibus Incentive Plan)     Under any existing equity incentive plans:    
      Subsidiary: BRUSHY RESOURCES, INC.     Jurisdiction of Organization:
Delaware     Outstanding shares of capital stock or 100 Shares of Common Stock
(par value $0.001) owned     other Capital Stock: 100% by Lilis Energy, Inc.

 

SCHEDULE 3.13 – PAGE 1

 

 

Subsidiary: IMPETRO RESOURCES, LLC     Jurisdiction of Organization: Delaware  
  Outstanding shares of capital stock or Brushy Resources, Inc. is Sole Member
owning 100%     other Capital Stock:           Subsidiary: IMPETRO OPERATING LLC
    Jurisdiction of Organization: Delaware     Outstanding shares of capital
stock or ImPetro Resources, LLC is Sole Member owning 100%     other Capital
Stock:           Subsidiary: LILIS OPERATING COMPANY, LLC     Jurisdiction of
Organization: Delaware     Outstanding shares of capital stock or Lilis Energy,
Inc. is Sole Member owning 100%     other Capital Stock:  

 

SCHEDULE 3.13 – PAGE 2

 

 

SCHEDULE 3.15

 

BANK ACCOUNTS

 

Bank or Financial 
Institution where 
Account is located   Account Holder   Account Number    Account Purpose        
      Wells Fargo   Lilis Energy, Inc.   7554670435   Money Market        
3932368123   Corporate         3932368149   Operating         3932368172   Land
        3832368156   Revenue         3932368164   Payroll         3932368180  
Tax               Independent Bank   Lilis Energy, Inc.   1000739977   Operating
        1000739969   Capital Expenditures         1000739951   Accounts Payable
              Independent Bank   Brushy Resources, Inc.   1000496065   Brushy  
      1000496073   ImPetro Operating         1000496081   ImPetro Revenue      
  1000496099   ImPetro 3rd Parties Revenue               Amegy Bank   Brushy
Resources, Inc.   5791354698   Starboard (Inactive)         5791354664   ImPetro
(Inactive)               Bank of America   Lilis Energy, Inc.  
0563-01-00-0015172-0002-0030684   Deposits (Inactive)               Chase  
Lilis Energy, Inc.   2989363870   Savings (Inactive)               US Bank  
Lilis Energy, Inc.   1 036 9030 3179   Corporate (Inactive)         1 036 9030
3203   Revenue (Inactive)

 

SCHEDULE 3.15 – PAGE 1

 

 

Bank or Financial 
Institution where 
Account is located   Account Holder   Account Number    Account Purpose        
              1 036 9030 3211   Tax (Inactive)         1 036 9030 3187   Payroll
(Inactive)         1 036 9030 3195   Convertible Debenture (Inactive)

 

SCHEDULE 3.15 – PAGE 2

 

 

SCHEDULE 3.17

 

MATERIAL SALES CONTRACTS

 

None.

 

SCHEDULE 3.17 – PAGE 1

 

 

SCHEDULE 3.18

 

GAS IMBALANCES

 

None.

 

SCHEDULE 3.18 – PAGE 1

 

 

SCHEDULE 3.19

 

CHANGES TO RESERVES.

 

None.

 

SCHEDULE 3.19 – PAGE 1

 

 

SCHEDULE 3.20

 

MARKETING AGREEMENTS

 

None.

 

SCHEDULE 3.20 – PAGE 1

 

 

SCHEDULE 6.02

 

EXISTING INDEBTEDNESS

 

Party  Instrument Evidencing
Indebtedness  Amount of
Obligation   Date of
Execution SOSV Investments LLC  Subordinated Promissory Note  $(1,000,000) 
6/23/2016

 

SCHEDULE 6.02 – PAGE 1

 

 

SCHEDULE 6.03

 

EXISTING LIENS

 

None.

 

SCHEDULE 6.03 – PAGE 1

 

 

SCHEDULE 6.07(c)

 

EXISTING INVESTMENTS

 

None.

 

SCHEDULE 6.07(c) – PAGE 1

 

 

SCHEDULE 11.01

 

CONVERSION PRICE ADJUSTMENT PRINCIPLES

 

(1)         Special Definitions. For purposes of this Schedule 11.01, the
following definitions shall apply:

 

“Option” shall mean rights, options or warrants to subscribe for, purchase or
otherwise acquire Common Stock or Convertible Securities, including the options
and warrants and other instruments set forth on Schedule 3.13.

 

“Convertible Securities” shall mean any evidences of indebtedness, shares or
other securities directly or indirectly convertible into or exchangeable for
Common Stock, including the outstanding Loans and any outstanding Lender
Preferred Stock but excluding Options.

 

“Additional Shares of Common Stock” shall mean all shares of Common Stock issued
(or, pursuant to Section 2 below, deemed to be issued) by the Borrower after the
Effective Date, other than (1) the following shares of Common Stock and (2)
shares of Common Stock deemed issued pursuant to the following Options and
Convertible Securities (clauses (1) and (2), collectively, “Exempted
Securities”):

 

(i)         shares of Common Stock, Options or Convertible Securities issued as
a dividend or distribution on Common Stock or Lender Preferred Stock;

 

(ii)        shares of Common Stock, Options or Convertible Securities issued by
reason of a dividend, stock split, split-up or other distribution on shares of
Common Stock;

 

(iii)       shares of Common Stock or Options issued to employees or directors
of, or consultants or advisors to, the Borrower or any of its subsidiaries
pursuant to a plan, agreement or arrangement approved by the Board of Directors;

 

(iv)       shares of Common Stock or Convertible Securities actually issued upon
the exercise of Options or shares of Common Stock actually issued upon the
conversion or exchange of Convertible Securities, in each case provided such
issuance is pursuant to the terms of such Option or Convertible Security;

 

(v)        shares of Common Stock, Options or Convertible Securities issued
pursuant by the Borrower in one or more underwritten public offerings for cash
following the Effective Date for gross proceeds of $50,000,000; or

 

(vi)       shares of Common Stock, Options or Convertible Securities issued
pursuant to the acquisition by the Borrower or any of its Subsidiaries of
another Person or any assets of any other Person, whether by merger, purchase or
otherwise which issuance is consented to by the Lead Lender.

 

(2)         Deemed Issue of Additional Shares of Common Stock.

 

(a)         If the Borrower at any time or from time to time after the Effective
Date shall issue any Options or Convertible Securities (excluding Options or
Convertible Securities which are themselves Exempted Securities), whether or not
such Options or Convertible Securities are then exercisable, or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares of Common Stock (as set forth in the instrument relating thereto,
assuming the satisfaction of any conditions to exercisability, convertibility or
exchangeability but without regard to any provision contained therein for a
subsequent adjustment of such number) issuable upon the exercise of such Options
or, in the case of Convertible Securities and Options therefor, the conversion
or exchange of such Convertible Securities, shall be deemed to be Additional
Shares of Common Stock issued as of the time of such issue or, in case such a
record date shall have been fixed, as of the close of business on such record
date.

 

SCHEDULE 11.01 – PAGE 1

 

 

(b)         If the terms of any Option or Convertible Security, the issuance of
which resulted in an adjustment to the Conversion Price pursuant to the terms of
Section 3 below, are revised as a result of an amendment to such terms or any
other adjustment pursuant to the provisions of such Option or Convertible
Security (but excluding automatic adjustments to such terms pursuant to
anti-dilution or similar provisions of such Option or Convertible Security
triggered by the event which is the subject of the adjustment) to provide for
either (1) any increase or decrease in the number (or conversion rate) of shares
of Common Stock issuable upon the exercise, conversion and/or exchange of any
such Option or Convertible Security or (2) any increase or decrease in the
consideration payable to the Borrower upon such exercise, conversion and/or
exchange, then, effective upon such increase or decrease becoming effective, the
Conversion Price computed upon the original issue of such Option or Convertible
Security (or upon the occurrence of a record date with respect thereto) shall be
readjusted to such Conversion Price as would have obtained had such revised
terms been in effect upon the original date of issuance of such Option or
Convertible Security. Notwithstanding the foregoing, no readjustment pursuant to
this clause (b) shall have the effect of increasing the Conversion Price to an
amount which exceeds the lower of (i) the Conversion Price in effect immediately
prior to the original adjustment made as a result of the issuance of such Option
or Convertible Security, or (ii) the Conversion Price that would have resulted
from any issuances of Additional Shares of Common Stock (other than deemed
issuances of Additional Shares of Common Stock as a result of the issuance of
such Option or Convertible Security) between the original adjustment date and
such readjustment date.

 

(c)          If the terms of any Option or Convertible Security (excluding
Options or Convertible Securities which are themselves Exempted Securities), the
issuance of which did not result in an adjustment to the Conversion Price
pursuant to the terms of Section 3 below (either because the consideration per
share (determined pursuant to Section 4 below) of the Additional Shares of
Common Stock subject thereto was equal to or greater than the Conversion Price
then in effect, or because such Option or Convertible Security was issued before
the Effective Date), are revised after the Effective Date as a result of an
amendment to such terms or any other adjustment pursuant to the provisions of
such Option or Convertible Security (but excluding automatic adjustments to such
terms pursuant to anti-dilution or similar provisions of such Option or
Convertible Security triggered by the event which is the subject to the
adjustment) to provide for either (1) any increase in the number of shares of
Common Stock issuable upon the exercise, conversion or exchange of any such
Option or Convertible Security or (2) any decrease in the consideration payable
to the Borrower upon such exercise, conversion or exchange, then such Option or
Convertible Security, as so amended or adjusted, and the Additional Shares of
Common Stock subject thereto (determined in the manner provided in Section 2(a)
above) shall be deemed to have been issued effective upon such increase or
decrease becoming effective.

 

(d)         Upon the expiration or termination of any unexercised Option or
unconverted or unexchanged Convertible Security (or portion thereof) which
resulted (either upon its original issuance or upon a revision of its terms) in
an adjustment to the Conversion Price pursuant to the terms of Section 3 below,
the Conversion Price shall be readjusted to such Conversion Price as would have
obtained had such Option or Convertible Security (or portion thereof) never been
issued.

 

(e)          If the number of shares of Common Stock issuable upon the exercise,
conversion and/or exchange of any Option or Convertible Security, or the
consideration payable to the Borrower upon such exercise, conversion and/or
exchange, is calculable at the time such Option or Convertible Security is
issued or amended but is subject to adjustment based upon subsequent events, any
adjustment to the Conversion Price provided for in this Section 2 shall be
effected at the time of such issuance or amendment based on such number of
shares or amount of consideration without regard to any provisions for
subsequent adjustments (and any subsequent adjustments shall be treated as
provided in clauses (b) and (c) of this Section 2). If the number of shares of
Common Stock issuable upon the exercise, conversion and/or exchange of any
Option or Convertible Security, or the consideration payable to the Borrower
upon such exercise, conversion and/or exchange, cannot be calculated at all at
the time such Option or Convertible Security is issued or amended, any
adjustment to the Conversion Price that would result under the terms of this
Section 2 at the time of such issuance or amendment shall instead be effected at
the time such number of shares and/or amount of consideration is first
calculable (even if subject to subsequent adjustments), assuming for purposes of
calculating such adjustment to the Conversion Price that such issuance or
amendment took place at the time such calculation can first be made.

 

SCHEDULE 11.01 – PAGE 2

 

 

(3)         Adjustment of Conversion Price Upon Issuance of Additional Shares of
Common Stock. In the event the Borrower shall at any time after the Effective
Date issue Additional Shares of Common Stock (including Additional Shares of
Common Stock deemed to be issued pursuant to Section 2 above), without
consideration or for a consideration per share less than the Conversion Price in
effect immediately prior to such issue, then the Conversion Price shall be
reduced, concurrently with such issue, to a price (calculated to the nearest
one-hundredth of a cent) determined in accordance with the following formula:

 

CP2 = CP1 multiplied by [(A + B) ÷ (A + C)]

 

For purposes of the foregoing formula, the following definitions shall apply:

 

“CP2” shall mean the Conversion Price in effect immediately after such issue of
Additional Shares of Common Stock

 

“CP1” shall mean the Conversion Price in effect immediately prior to such issue
of Additional Shares of Common Stock;

 

“A” shall mean the number of shares of Common Stock outstanding immediately
prior to such issue of Additional Shares of Common Stock (treating for this
purpose as outstanding all shares of Common Stock issuable upon exercise of
Options outstanding immediately prior to such issue or upon conversion or
exchange of Convertible Securities (including the Loans and any Lender Preferred
Stock) outstanding (assuming exercise of any outstanding Options therefor)
immediately prior to such issue);

 

“B” shall mean the number of shares of Common Stock that would have been issued
if such Additional Shares of Common Stock had been issued at a price per share
equal to CP1 (determined by dividing the aggregate consideration received by the
Borrower in respect of such issue by CP1); and

 

“C” shall mean the number of such Additional Shares of Common Stock issued in
such transaction.

 

Notwithstanding the foregoing, prior to receipt of the Requisite Shareholder
Approval, no adjustment to the Conversion Price pursuant to this Section 3 shall
reduce the Conversion Price to a price less than (i) with respect to the Term
Loan, (A) the closing price of the Common Stock on the Primary Exchange on the
last Trading Day preceding the Effective Date or (B) if the Effective Date is a
Trading Day and the Agreement becomes effective after the close of trading on
the Primary Exchange on the Effective Date, the closing price of the Common
Stock on the Primary Exchange on the Effective Date, and (ii) with respect to
any Delayed Draw Term Loan, (A) the closing price of the Common Stock on the
Primary Exchange on the last Trading Day preceding the date of delivery by the
Borrower of the Borrowing Request for such Delayed Draw Term Loan or (B) if such
date of delivery of such Borrowing Request is a Trading Day and such Borrowing
Request is delivered after the close of trading on the Primary Exchange on date
of delivery, the closing price of the Common Stock on the Primary Exchange on
such date of delivery (the “Conversion Price Floor”).

 

For purposes of this Section 3, the number of shares of Common Stock outstanding
at any given time shall not include shares owned or held by or for the account
of the Borrower or any of its wholly-owned Subsidiaries, and the disposition of
any such shares (other than the cancellation or retirement thereof or the
transfer of such shares among the Borrower and its wholly-owned Subsidiaries)
shall be considered an issuance of Additional Shares of Common Stock for
purposes of this Section 3 unless such shares of Common Stock are Exempted
Securities.

 

SCHEDULE 11.01 – PAGE 3

 

 

(4)         Determination of Consideration. For purposes of this Schedule 11.01
the consideration received by the Borrower for the issue of any Additional
Shares of Common Stock shall be computed as follows:

 

(a)          Cash and Property: Such consideration shall:

 

(i)         insofar as it consists of cash, be computed at the aggregate amount
of cash received by the Borrower, excluding amounts paid or payable for accrued
interest, without deducting any compensation or discount in the sale,
underwriting or purchase thereof by underwriters or dealers or others performing
similar services or for any expenses relating to the offering of such Additional
Shares of Common Stock;

 

(ii)        insofar as it consists of property other than cash, be computed at
the fair market value thereof at the time of such issue, as determined in good
faith jointly by the Board of Directors and the Lead Lender, except where such
consideration consists of marketable securities, in which case the amount of
consideration received by the Borrower shall be the market price (as reflected
on any securities exchange, quotation system or association or similar pricing
system covering such security) for such securities as of the close of business
on the date of receipt of such securities;

 

(iii)       in the event Additional Shares of Common Stock are issued together
with other shares or securities or other assets of the Borrower for
consideration which covers both, be the proportion of such consideration so
received, computed as provided in clauses (i) and (ii) above, as determined in
good faith jointly by the Board of Directors and the Lead Lender; and

 

(iv)       in the event Additional Shares of Common Stock are issued to the
owners of the non-surviving entity in connection with any merger in which the
Borrower is the surviving corporation, be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as is
attributable to such shares of Common Stock, Options or Convertible Securities,
as the case may be, issued to such owners.

 

(b)         Options and Convertible Securities. The consideration per share
received by the Borrower for Additional Shares of Common Stock deemed to have
been issued pursuant to Section 2 above, relating to Options and Convertible
Securities, shall be determined by dividing

 

(i)         the total amount, if any, received or receivable by the Borrower as
consideration for the issue of such Options or Convertible Securities, plus the
minimum aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision contained therein
for a subsequent adjustment of such consideration) payable to the Borrower upon
the exercise of such Options or the conversion or exchange of such Convertible
Securities, or in the case of Options for Convertible Securities, the exercise
of such Options for Convertible Securities and the conversion or exchange of
such Convertible Securities, without deducting any compensation or discount in
the sale, underwriting or purchase thereof by underwriters or dealers or others
performing similar services or for any expenses relating to the offering of such
Options or Convertible Securities, by

 

(ii)        the maximum number of shares of Common Stock (as set forth in the
instruments relating thereto, without regard to any provision contained therein
for a subsequent adjustment of such number) issuable upon the exercise of such
Options or the conversion or exchange of such Convertible Securities, or in the
case of Options for Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such Convertible
Securities.

 

(5)         Multiple Closing Dates. In the event the Borrower shall issue on
more than one date Additional Shares of Common Stock that are a part of one
transaction or a series of related transactions and that would result in an
adjustment to the Conversion Price pursuant to the terms of Section 3 above,
then, upon the final such issuance, the Conversion Price shall be readjusted to
give effect to all such issuances as if they occurred on the date of the first
such issuance (and without giving effect to any additional adjustments as a
result of any such subsequent issuances within such period).

 

SCHEDULE 11.01 – PAGE 4

 

 

(6)         Dividends and Distributions to Common Stock. If the Borrower shall,
at any time or from time to time after the Effective Date, pay a dividend or
make any other distribution payable in securities of the Borrower (other than a
dividend or distribution of shares of shares of Common Stock, which shall be
subject to Section 7, without duplication), cash or other property, then, and in
each such event, provision shall be made so that the Lenders shall receive upon
Conversion, in addition to the number of Common Stock receivable thereupon, the
kind and amount of securities of the Borrower, cash or other property which the
Lender would have been entitled to receive had the applicable Loans or portion
thereof been fully converted into Common Stock on the date of such event and had
the Lenders thereafter, during the period from the date of such event to and
including the Conversion Date, retained such securities, cash or other property
receivable by them as aforesaid during such period; provided, that no such
provision shall be made if the Lenders receives, simultaneously with the
distribution to the holders of its Common Stock, a dividend or other
distribution of such securities, cash or other property in an amount equal to
the amount of such securities, cash or other property as the Lenders would have
received if such Loans or portion thereof had been fully converted into Common
Stock on the date of such event.

 

(7)         Adjustment to Conversion Price and Common Stock Upon Dividend,
Subdivision or Combination of Common Stock. If the Borrower shall, at any time
or from time to time after the Effective Date, (i) pay a dividend or make any
other distribution upon the Common Stock payable in shares of Common Stock, or
(ii) subdivide (by any stock split, recapitalization or otherwise) its
outstanding shares of Common Stock into a greater number of shares of Common
Stock, the Conversion Price in effect immediately prior to any such dividend,
distribution or subdivision shall be proportionately reduced. If the Borrower at
any time combines (by combination, reverse stock split or otherwise) its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased. Any adjustment under this Section 7 shall become
effective at the close of business on the date the dividend, subdivision or
combination becomes effective.

 

(8)         Adjustment to Conversion Price and Common Stock Upon Reorganization,
Reclassification, Consolidation or Merger. In the event of any (i) capital
reorganization of the Borrower, (ii) reclassification of the stock of the
Borrower (other than a change in par value or from par value to no par value or
from no par value to par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), (iii) consolidation or merger
of the Borrower with or into another Person, (iv) sale of all or substantially
all of the Borrower’s assets to another Person or (v) other similar transaction
(other than any such transaction covered by Section 7), in each case which
entitles the holders of Common Stock to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock, the Loans, to the extent they remain outstanding
immediately after such reorganization, reclassification, consolidation, merger,
sale or similar transaction, shall thereafter be convertible for the kind and
number of shares of stock or other securities or assets of the Borrower or of
the successor Person resulting from such transaction to which the Lenders would
have been entitled upon such reorganization, reclassification, consolidation,
merger, sale or similar transaction if the Lenders had converted the Loans in
full immediately prior to the time of such reorganization, reclassification,
consolidation, merger, sale or similar transaction and acquired the applicable
number of Common Stock then issuable hereunder as a result of such conversion
(without taking into account any limitations or restrictions on the conversion
of the Loans); and, in such case, appropriate adjustment (in form and substance
satisfactory to the Holder) shall be made with respect to the Lenders’ rights
under this Agreement to insure that the provisions of this Section 8 hereof
shall thereafter be applicable, as nearly as possible, to this Agreement in
relation to any shares of stock, securities or assets thereafter acquirable upon
conversion of the Loans (including, in the case of any consolidation, merger,
sale or similar transaction in which the successor or purchasing Person is other
than the Borrower, an immediate adjustment in the Conversion Price to the value
per share for the Common Stock reflected by the terms of such consolidation,
merger, sale or similar transaction without regard to any limitations or
restrictions on conversion, if the value so reflected is less than the
Conversion Price in effect immediately prior to such consolidation, merger, sale
or similar transaction; provided that the foregoing shall not apply to any such
consolidation, merger or similar transaction that constitutes a reincorporation
of the Borrower, a holding company formation or a similar reorganization in
which, immediately after such transaction, the holders of Common Stock
immediately prior to such transaction own all of the common stock of the
successor Person in the same proportions as their ownership of Common Stock
immediately prior to such transaction). The provisions of this Section 8 shall
similarly apply to successive reorganizations, reclassifications,
consolidations, mergers, sales or similar transactions. The Borrower shall not
effect any such reorganization, reclassification, consolidation, merger, sale or
similar transaction in which the Loans will remain outstanding thereafter
unless, prior to the consummation thereof, the successor Person (if other than
the Borrower) resulting from such reorganization, reclassification,
consolidation, merger, sale or similar transaction, shall assume, by written
instrument substantially similar in form and substance to this Agreement and
satisfactory to the Lenders, the obligation to deliver to the Lenders such
shares of stock, securities or assets which, in accordance with the foregoing
provisions, such Lenders shall be entitled to receive upon conversion of the
Loans. Notwithstanding anything to the contrary contained herein (but without
modification of any other terms of this Agreement), with respect to any
corporate event or other transaction contemplated by the provisions of this
Section 8, the Lender shall have the right to elect prior to the consummation of
such event or transaction, to give effect to the conversion rights contained in
Article 11 of this Agreement instead of giving effect to the provisions
contained in this Section 8.

 

SCHEDULE 11.01 – PAGE 5

 

 

(9)         Stockholder Rights Plan. If the Borrower has a stockholder rights
plan in effect with respect to the Common Stock upon any Conversion, each share
of Common Stock issued upon such Conversion shall be accompanied by the
appropriate number of rights, if any, and the certificates representing the
Common Stock issued upon such Conversion shall bear such legends, if any, in
each case as may be provided by the terms of any such stockholder rights plan,
as the same may be amended from time to time. However, if, prior to any
Conversion, the rights have separated from the shares of Common Stock in
accordance with the provisions of the applicable stockholder rights plan, the
Conversion Price shall be adjusted pursuant to Section 7 above at the time of
separation as if the Borrower distributed such rights to all holders of the
Common Stock, subject to readjustment in the event of the expiration,
termination or redemption of such rights.

 

(10)        Certain Events. If any event of the type contemplated by the
provisions of this Schedule but not expressly provided for by such provisions
(but excluding the issuance or deemed issuance of any Exempted Securities)
occurs, then the Borrower shall make an appropriate adjustment in the Conversion
Price so as to protect the rights of the Lenders in a manner consistent with the
provisions of this Schedule; provided, that no such adjustment pursuant to this
Section 10 shall increase the Conversion Price that would otherwise be
determined pursuant to this Schedule.

 

(11)        Certificate as to Adjustment. As promptly as reasonably practicable
following any adjustment of the Conversion Price, but in any event not later
than ten (10) Business Days thereafter, the Borrower shall furnish to Lenders a
certificate of an officer setting forth, in reasonable detail, the event
requiring the adjustment, the method by which such adjustment was calculated and
describing the kind of any other securities issuable upon conversion of the
Loans and any change in the Conversion Price after giving effect to such
adjustment or change. As promptly as reasonably practicable following the
receipt by the Borrower of a written request by any Lender, but in any event not
later than ten (10) Business Days thereafter, the Borrower shall furnish to such
Lender a certificate of an officer certifying the Conversion Price then in
effect.

 

SCHEDULE 11.01 – PAGE 6