Exhibit 10.1

Execution Copy

 

 

 

AMENDED AND RESTATED CREDIT AGREEMENT

dated as of December 22, 2011

among

Dune Energy, Inc.,

as Borrower,

Bank of Montreal,

as Administrative Agent,

CIT Capital Securities LLC,

as Syndication Agent,

and

The Lenders Party Hereto

BMO Capital Markets Corp.

Sole Lead Arranger and Sole Bookrunner

 

 

 

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TABLE OF CONTENTS

 

          Page   ARTICLE I    DEFINITIONS AND ACCOUNTING MATTERS   

Section 1.01.

   Terms Defined Above      1   

Section 1.02.

   Certain Defined Terms      1   

Section 1.03.

   Types of Loans and Borrowings      22   

Section 1.04.

   Terms Generally; Rules of Construction      22   

Section 1.05.

   Accounting Terms and Determinations; GAAP      23    ARTICLE II    THE
CREDITS   

Section 2.01.

   Commitments      23   

Section 2.02.

   Loans and Borrowings      23   

Section 2.03.

   Requests for Borrowings      24   

Section 2.04.

   Interest Elections      25   

Section 2.05.

   Funding of Borrowings      26   

Section 2.06.

   Termination and Reduction of Aggregate Maximum Credit Amounts      27   

Section 2.07.

   Borrowing Base      28   

Section 2.08.

   Letters of Credit      30    ARTICLE III    PAYMENTS OF PRINCIPAL AND
INTEREST; PREPAYMENTS; FEES   

Section 3.01.

   Repayment of Loans      35   

Section 3.02.

   Interest      35   

Section 3.03.

   Alternate Rate of Interest      36   

Section 3.04.

   Prepayments      36   

Section 3.05.

   Fees      38    ARTICLE IV    Payments; Pro Rata Treatment; Sharing of
Set-offs   

Section 4.01.

   Payments Generally; Pro Rata Treatment; Sharing of Set-offs      39   

Section 4.02.

   Presumption of Payment by the Borrower      40   

Section 4.03.

   Certain Deductions by the Administrative Agent      41   

Section 4.04.

   Disposition of Proceeds      41   

Section 4.05.

   Defaulting Lenders      41   

 

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ARTICLE V    INCREASED COSTS; BREAK FUNDING PAYMENTS; TAXES; ILLEGALITY   

Section 5.01.

   Increased Costs      43   

Section 5.02.

   Break Funding Payments      45   

Section 5.03.

   Taxes      45   

Section 5.04.

   Mitigation Obligations; Replacement of Lenders      47   

Section 5.05.

   Illegality      48    ARTICLE VI    CONDITIONS PRECEDENT   

Section 6.01.

   Effective Date      48   

Section 6.02.

   Each Credit Event      51    ARTICLE VII    REPRESENTATIONS AND WARRANTIES   

Section 7.01.

   Organization; Powers      52   

Section 7.02.

   Authority; Enforceability      52   

Section 7.03.

   Approvals; No Conflicts      52   

Section 7.04.

   Financial Condition; No Material Adverse Change      53   

Section 7.05.

   Litigation      53   

Section 7.06.

   Environmental Matters      54   

Section 7.07.

   Compliance with the Laws and Agreements; No Defaults      55   

Section 7.08.

   Investment Company Act      55   

Section 7.09.

   Taxes      55   

Section 7.10.

   ERISA      56   

Section 7.11.

   Disclosure; No Material Misstatements      56   

Section 7.12.

   Insurance      57   

Section 7.13.

   Restriction on Liens      57   

Section 7.14.

   Subsidiaries; Foreign Operations      57   

Section 7.15.

   Location of Business and Offices      57   

Section 7.16.

   Properties; Titles, Etc.      58   

Section 7.17.

   Maintenance of Properties      58   

Section 7.18.

   Gas Imbalances, Prepayments      59   

Section 7.19.

   Marketing of Production      59   

Section 7.20.

   Swap Agreements      59   

Section 7.21.

   Use of Loans and Letters of Credit      60   

Section 7.22.

   Solvency      60   

 

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Section 7.23.

   Reorganization      60   

Section 7.24.

   Foreign Corrupt Practices      60   

Section 7.25.

   Money Laundering      60   

Section 7.26.

   OFAC      61    ARTICLE VIII    AFFIRMATIVE COVENANTS   

Section 8.01.

   Financial Statements; Other Information      61   

Section 8.02.

   Notices of Material Events      64   

Section 8.03.

   Existence; Conduct of Business      65   

Section 8.04.

   Payment of Obligations      65   

Section 8.05.

   Performance of Obligations under Loan Documents      65   

Section 8.06.

   Operation and Maintenance of Properties      65   

Section 8.07.

   Insurance      66   

Section 8.08.

   Books and Records; Inspection Rights      66   

Section 8.09.

   Compliance with Laws      66   

Section 8.10.

   Environmental Matters      66   

Section 8.11.

   Further Assurances      68   

Section 8.12.

   Reserve Reports      68   

Section 8.13.

   Title Information      69   

Section 8.14.

   Additional Collateral; Additional Guarantors      69   

Section 8.15.

   ERISA Compliance      70   

Section 8.16.

   Swap Agreements      71    ARTICLE IX    NEGATIVE COVENANTS   

Section 9.01.

   Financial Covenants      71   

Section 9.02.

   Debt      72   

Section 9.03.

   Liens      72   

Section 9.04.

   Dividends, Distributions and Redemptions; Repayment of Senior Notes      73
  

Section 9.05.

   Investments, Loans and Advances      74   

Section 9.06.

   Nature of Business; International Operations      75   

Section 9.07.

   Limitation on Leases      75   

Section 9.08.

   Proceeds of Loans      75   

Section 9.09.

   ERISA Compliance      76   

Section 9.10.

   Sale or Discount of Receivables      76   

Section 9.11.

   Mergers, Etc.      76   

 

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Section 9.12.

   Sale of Properties      77   

Section 9.13.

   Transactions with Affiliates      78   

Section 9.14.

   Subsidiaries      78   

Section 9.15.

   Negative Pledge Agreements; Dividend Restrictions      78   

Section 9.16.

   Gas Imbalances, Take-or-Pay or Other Prepayments      78   

Section 9.17.

   Swap Agreements      79   

Section 9.18.

   Reorganization Documents      79   

Section 9.19.

   Marketing Activities      79    ARTICLE X    EVENTS OF DEFAULT; REMEDIES   

Section 10.01.

   Events of Default      79   

Section 10.02.

   Remedies      81    ARTICLE XI    THE AGENTS   

Section 11.01.

   Appointment; Powers      83   

Section 11.02.

   Duties and Obligations of Administrative Agent      83   

Section 11.03.

   Action by Administrative Agent      84   

Section 11.04.

   Reliance by Administrative Agent      84   

Section 11.05.

   Subagents      85   

Section 11.06.

   Resignation of Administrative Agent      85   

Section 11.07.

   Agents as Lenders      85   

Section 11.08.

   No Reliance      85   

Section 11.09.

   Administrative Agent May File Proofs of Claim      86   

Section 11.10.

   Authority of Administrative Agent to Release Collateral and Liens      86   

Section 11.11.

   The Arranger and the Syndication Agent      87    ARTICLE XII   
MISCELLANEOUS   

Section 12.01.

   Notices      87   

Section 12.02.

   Waivers; Amendments      88   

Section 12.03.

   Expenses, Indemnity; Damage Waiver      89   

Section 12.04.

   Successors and Assigns      92   

Section 12.05.

   Survival; Revival; Reinstatement      95   

Section 12.06.

   Counterparts; Integration; Effectiveness      95   

Section 12.07.

   Severability      96   

Section 12.08.

   Right of Setoff      96   

 

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Section 12.09.

   GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS      96   

Section 12.10.

   Headings      97   

Section 12.11.

   Confidentiality      97   

Section 12.12.

   Interest Rate Limitation      98   

Section 12.13.

   EXCULPATION PROVISIONS      99   

Section 12.14.

   Collateral Matters; Swap Agreements      99   

Section 12.15.

   No Third Party Beneficiaries      100   

Section 12.16.

   Flood Insurance      100   

Section 12.17.

   USA Patriot Act Notice      100   

 

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ANNEXES, EXHIBITS AND SCHEDULES

 

Annex I    List of Maximum Credit Amounts Exhibit A    Form of Note Exhibit B   
Form of Borrowing Request Exhibit C    Form of Interest Election Request Exhibit
D    Form of Compliance Certificate Exhibit E-1    Form of Legal Opinion of
Andrews Kurth, LLP, special counsel to the Borrower Exhibit E-2    Form of Legal
Opinion of Local Counsel Exhibit F    Security Instruments Exhibit G    Form of
Assignment and Assumption Schedule 7.04    Material Adverse Effect Events
Schedule 7.05    Litigation Schedule 7.06    Environmental Matters Schedule 7.09
   Tax Returns and Reports Schedule 7.14    Subsidiaries and Partnerships
Schedule 7.18    Gas Imbalances Schedule 7.19    Marketing Contracts Schedule
7.20    Swap Agreements Schedule 9.02    Debt Schedule 9.03    Liens Schedule
9.05    Investments Schedule 9.13    Transactions with Affiliates

 

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THIS AMENDED AND RESTATED CREDIT AGREEMENT dated as of December 22, 2011, is
among: Dune Energy, Inc., a Delaware corporation (the “Borrower”); each of the
Lenders from time to time party hereto; Bank of Montreal (in its individual
capacity, “BMO”), as administrative agent for the Lenders (in such capacity,
together with its successors in such capacity, the “Administrative Agent”); and
CIT Capital Securities LLC, as syndication agent for the Lenders (in such
capacity, together with its successors in such capacity, the “Syndication
Agent”).

R E C I T A L S

A. The Borrower, Wells Fargo Capital Finance, Inc., as administrative agent, and
the lenders named therein are parties to an Amended and Restated Credit
Agreement dated as of December 7, 2010, pursuant to which such lenders provided
certain loans to and extensions of credit on behalf of the Borrower (as
heretofore amended, modified or supplemented, the “Existing Credit Agreement”).

B. The Borrower has requested the Lenders, and the Lenders have agreed, to
amend, restate, increase and extend the Existing Credit Agreement, subject to
the terms and conditions of this Agreement.

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

ARTICLE I

DEFINITIONS AND ACCOUNTING MATTERS

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

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

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

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

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

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

 

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“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.

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

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

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

“Alternate Base Rate” means, for any day, a rate per annum equal to the greatest
of (a) the Prime Rate in effect on such day, (b) the Federal Funds Effective
Rate in effect on such day plus  1/2 of 1% and (c) the Adjusted LIBO Rate for a
one month Interest Period on such day (or if such day is not a Business Day, the
immediately preceding Business Day) plus 1.0%, provided that, for the avoidance
of doubt, the Adjusted LIBO Rate for any day shall be based on the rate
appearing on the Reuters Screen LIBOR01 (or any successor or substitute page) at
approximately 11:00 a.m., New York time, on such day (or the immediately
preceding Business Days if such day is not a day on which banks are open for
dealings in dollar deposits in the London interbank market). Any change in the
Alternate Base Rate due to a change in the Prime Rate, the Federal Funds
Effective Rate or the Adjusted LIBO Rate shall be effective from and including
the effective date of such change in the Prime Rate, the Federal Funds Effective
Rate or the Adjusted LIBO Rate, respectively.

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

 

Borrowing Base Utilization Percentage

   £50%     >50% £75%     >75%  

Eurodollar Loans

     2.25 %      2.50 %      2.75 % 

ABR Loans

     1.25 %      1.50 %      1.75 % 

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

 

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“Applicable Percentage” means, with respect to any Lender, the percentage of the
Aggregate Maximum Credit Amounts represented by such Lender’s Maximum Credit
Amount. The initial Applicable Percentage of each Lender is set forth on Annex
I.

“Approved Counterparty” means (a) any Lender or any Affiliate of a Lender and
(b) any other Person whose long term senior unsecured debt rating at the time of
entering into the Swap Agreement is A/A3 by S&P or Moody’s (or their equivalent)
or higher.

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

“Approved Petroleum Engineers” means (a) Netherland, Sewell & Associates, Inc.,
(b) Ryder Scott Company Petroleum Consultants, L.P., (c) DeGolyer & MacNaughton
and (d) any other independent petroleum engineers reasonably acceptable to the
Administrative Agent.

“Arranger” means BMO Capital Markets Corp., in its capacities as the sole lead
arranger and sole bookrunner hereunder.

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

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

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

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

“Borrowing Base” means at any time an amount equal to the loan value of the
Borrower’s and its Subsidiaries’ proved Oil and Gas Properties evaluated in the
most recently delivered Reserve Report determined in accordance with
Section 2.07, as the same may be adjusted from time to time pursuant to
Section 2.07(e), Section 8.13(c) or Section 9.12(d).

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

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

 

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

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

“Capital Leases” means, in respect of any Person, all leases that are or should
be, in accordance with GAAP, recorded as capital leases on the balance sheet of
the Person liable (whether contingent or otherwise) for the payment of rent
thereunder. Any lease that was treated as an operating lease under GAAP at the
time it was entered into that later becomes a capital lease as a result of a
change in GAAP during the life of such lease, including any renewals, shall be
treated as an operating lease for all purposes under this Agreement, and any
lease that was treated as a capital lease under GAAP at the time it was entered
into that later becomes an operating lease as a result of a change in GAAP
during the life of such lease, including any renewals, shall be treated as a
capital lease for all purposes under this Agreement.

“Cash Management Agreement” means any agreement to provide Cash Management
Services.

“Cash Management Services” means any one or more of the following types of
services or facilities: (i) ACH transactions, (ii) treasury and/or cash
management services, including, without limitation, controlled disbursement
services, (iii) foreign exchange facilities, (iv) credit or debit cards,
(v) deposit and other accounts and (vi) merchant services (other than those
constituting a line of credit).

“Casualty Event” means any loss, casualty or other damage to, or any
nationalization, taking under power of eminent domain or by condemnation or
similar proceeding of, any Oil and Gas Property of the Borrower or any of its
Subsidiaries having an estimated dollar amount in excess of $1,000,000.

“Change in Control” means (a) the acquisition of ownership, directly or
indirectly, beneficially or of record, by any Person or group (within the
meaning of the Securities Exchange Act of 1934 and the rules of the SEC
thereunder as in effect on the date hereof), other than a Permitted Holder, of
Equity Interests representing more than 50% of the aggregate ordinary voting
power represented by the issued and outstanding Equity Interests of the Borrower
or (b) occupation of a majority of the seats (other than vacant seats) on the
board of directors of the Borrower by Persons who were not (i) nominated by the
Permitted Holders, (ii) nominated by the board of directors of the Borrower or
(iii) appointed by directors so nominated.

 

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

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

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

“Consolidated Net Income” means with respect to the Borrower and the
Consolidated Subsidiaries, for any period, the aggregate of the net income (or
loss) of the Borrower and the Consolidated Subsidiaries after allowances for
taxes for such period determined on a consolidated basis in accordance with
GAAP; provided that there shall be excluded from such net income (or loss) (to
the extent otherwise included therein) the following: (a) the net income (or
loss) of any Person in which the Borrower or any Consolidated Subsidiary has an
interest (which interest does not cause the net income of such other Person to
be consolidated with the net income of the Borrower and the Consolidated
Subsidiaries in accordance with GAAP), except to the extent of the amount of
dividends or distributions actually paid in cash during such period by such
other Person to the Borrower or to a Consolidated Subsidiary, as the case may
be; (b) the net income (but not loss) during such period of any Consolidated
Subsidiary to the extent that the declaration or payment of dividends or similar
distributions or transfers or loans by that Consolidated Subsidiary is not at
the time permitted by operation of the terms of its charter or any agreement,
instrument or Governmental Requirement applicable to such Consolidated
Subsidiary or is otherwise consensually restricted or prohibited; (c) any
extraordinary non-cash gains or losses during such period, (d) non-cash gains,
losses or adjustments, including non-cash gains, losses or adjustments under
authoritative guidance from the FASB as a result of changes in the fair market
value of derivatives and any gains or losses attributable to writeups or
writedowns of assets, including ceiling test writedowns and writedowns under
authoritative guidance from the FASB as a result of accounting for oil and gas
activities, goodwill and other intangible assets, and property, plant and
equipment (for the avoidance of doubt, realized gains or losses will be counted
in Consolidated Net Income in the quarter that cash is actually received or
paid); (e) any non-cash employee based compensation; and (f) any gain or loss
realized in connection with asset sales.

 

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

“Control” means the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or otherwise. For the
purposes of this definition, and without limiting the generality of the
foregoing, any Person that owns directly or indirectly 20% or more of the Equity
Interests having ordinary voting power for the election of the directors or
other governing body of a Person (other than as a limited partner of such other
Person) will be deemed to “control” such other Person. “Controlling” and
“Controlled” have meanings correlative thereto.

“Debt” means, for any Person, the sum of the following (without duplication):
(a) all obligations of such Person for borrowed money or evidenced by bonds,
bankers’ acceptances, debentures, notes or other similar instruments; (b) all
obligations of such Person (whether contingent or otherwise) in respect of
letters of credit, surety or other bonds and similar instruments; (c) all
accounts payable and all accrued expenses, liabilities or other obligations of
such Person to pay the deferred purchase price of Property or services (other
than earn-out obligations and liabilities of such Person to trade creditors
arising in the ordinary course of business (including guarantees thereof or
instruments evidencing such liabilities) that are either (i) not greater than 90
days past due or (ii) are being contested in good faith by appropriate
proceedings and adequate reserves therefore have been established under GAAP);
(d) the principal component of obligations under Capital Leases; (e) all
obligations under Synthetic Leases; (f) all Debt (as defined in the other
clauses of this definition) of others secured by (or for which the holder of
such Debt has an existing right, contingent or otherwise, to be secured by) a
Lien on any Property of such Person, whether or not such Debt is assumed by such
Person; (g) all Debt (as defined in the other clauses of this definition) of
others guaranteed by such Person or in which such Person otherwise assures a
creditor against loss of the Debt (howsoever such assurance shall be made) to
the extent of the lesser of the amount of such Debt and the maximum stated
amount of such guarantee or assurance against loss; (h) all obligations or
undertakings of such Person to maintain or cause to be maintained the financial
position or covenants of others or to purchase the Debt or Property of others;
(i) obligations to deliver commodities, goods or services, including, without
limitation, Hydrocarbons, in consideration of one or more advance payments,
other than gas balancing agreements in the ordinary course of business;
(j) obligations to pay for goods or services even if such goods or services are
not actually received or utilized by such Person, excluding payables for AFEs
and suspended royalty payments; (k) any Debt of a partnership for which such
Person is liable either by agreement, by operation of law or by a Governmental
Requirement but only to the extent of such liability; (l) Disqualified Capital
Stock; and (m) the undischarged balance of any production payment created by
such Person or for the creation of which such Person directly or indirectly
received payment. The Debt of any Person shall include all obligations of such
Person of the character described above to the extent such Person remains
legally liable in respect thereof notwithstanding that any such obligation is
not included as a liability of such Person under GAAP.

 

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For the avoidance of doubt, “Debt” does not include obligations in respect of
Swap Agreements, indemnities incurred in the ordinary course of business or in
connection with the disposition of assets, any employee or director
compensation, any compensation paid to employees or directors pursuant to stock
appreciation rights, or obligations under operating leases.

“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.

“Defaulting Lender” means any Lender that (a) has failed to (i) fund all or any
portion of its Loans within two Business Days of the date such Loans were
required to be funded hereunder unless such Lender notifies the Administrative
Agent and the Borrower in writing that such failure is the result of such
Lender’s determination that one or more conditions precedent to funding (each of
which conditions precedent, together with any applicable default, shall be
specifically identified in such writing) has not been satisfied, or (ii) pay to
the Administrative Agent, the Issuing Bank or any other Lender any other amount
required to be paid by it hereunder (including in respect of its participation
in Letters of Credit) within two Business Days of the date when due, (b) has
notified the Borrower, the Administrative Agent or the Issuing Bank in writing
that it does not intend to comply with its funding obligations hereunder, or has
made a public statement to that effect (unless such writing or public statement
relates to such Lender’s obligation to fund a Loan hereunder and states that
such position is based on such Lender’s determination that a condition precedent
to funding (which condition precedent, together with any applicable default,
shall be specifically identified in such writing or public statement) cannot be
satisfied), (c) has failed, within three Business Days after written request by
the Administrative Agent or the Borrower, to confirm in writing to the
Administrative Agent and the Borrower that it will comply with its prospective
funding obligations hereunder (provided that such Lender shall cease to be a
Defaulting Lender pursuant to this clause (c) upon receipt of such written
confirmation by the Administrative Agent and the Borrower), or (d) has, or has a
direct or indirect parent company that has, (i) become the subject of a
proceeding under any debtor relief law, or (ii) had appointed for it a receiver,
custodian, conservator, trustee, administrator, assignee for the benefit of
creditors or similar Person charged with reorganization or liquidation of its
business or assets, including the Federal Deposit Insurance Corporation or any
other state or federal regulatory authority acting in such a capacity; provided
that a Lender shall not be a Defaulting Lender solely by virtue of the ownership
or acquisition of any equity interest in that Lender or any direct or indirect
parent company thereof by a Governmental Authority so long as such ownership
interest does not result in or provide such Lender with immunity from the
jurisdiction of courts within the United States of America or from the
enforcement of judgments or writs of attachment on its assets or permit such
Lender (or such Governmental Authority) to reject, repudiate, disavow or
disaffirm any contracts or agreements made with such Lender. Any determination
by the Administrative Agent that a Lender is a Defaulting Lender under
clauses (a) through (d) above shall be made in the Administrative Agent’s
reasonable discretion, and such Lender shall be deemed to be a Defaulting Lender
upon delivery of written notice of such determination to the Borrower, the
Issuing Bank and each Lender.

“Disqualified Capital Stock” means any Equity Interest that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable) or upon the happening of any event, matures or is mandatorily
redeemable (except as a result of a Change in Control or asset sale so long as
any rights of the holders thereof upon the occurrence of a Change

 

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in Control or asset sale event shall be subject to the prior repayment in full
of the Loans and all other Obligations that are accrued and payable and the
termination of the Commitments and all outstanding Letters of Credit) for any
consideration other than other Equity Interests (which would not constitute
Disqualified Capital Stock), pursuant to a sinking fund obligation or otherwise,
or is convertible or exchangeable for Debt or redeemable for any consideration
other than other Equity Interests (which would not constitute Disqualified
Capital Stock) at the option of the holder thereof, in whole or in part, on or
prior to the date that is 91 days after the earlier of (a) the Maturity Date and
(b) the date on which there are no Loans, LC Exposure or other obligations
hereunder outstanding and all of the Commitments are terminated.

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

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

“EBITDAX” means, for any period of four consecutive fiscal quarters, the sum of
Consolidated Net Income for such period plus the following expenses or charges
to the extent deducted from Consolidated Net Income in such period: interest,
income taxes, depreciation, depletion, amortization (including amortization of
deferred financing costs), exploration expenses, accretion of asset retirement
obligations, and other similar noncash charges, minus all noncash income
included in the calculation of Consolidated Net Income; provided, however, that
if any such Person shall have consummated any Material Acquisition or
Disposition during such period, EBITDAX shall be subject to pro forma
adjustments for such acquisition or disposition (calculated in accordance with
Regulation S-X under the Securities Exchange Act of 1934, as amended or as
otherwise approved by the Administrative Agent), as if such acquisition or
disposition had occurred on the first day of such period and shall also include
adding back to Consolidated Net Income any non-recurring or one-time cash or
non-cash charges or expenses associated with such acquisition or disposition.

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

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

“Environmental Laws” means any and all Governmental Requirements pertaining in
any way to health and safety (insofar as either may be affected by a Release of,
or exposure to, Hazardous Materials), the environment, the preservation or
reclamation of natural resources, or the management, Release or threatened
Release of any Hazardous Materials, in effect in any and all jurisdictions in
which the Borrower or any Subsidiary is conducting, or at any time has
conducted, business, or where any Property of the Borrower or any Subsidiary is
located, including, the Oil Pollution Act of 1990, as amended, the Clean Air
Act, as amended, the Comprehensive Environmental, Response, Compensation, and
Liability Act of 1980 (“CERCLA”), as amended, the Federal Water Pollution
Control Act, as amended, the Occupational Safety and Health Act of 1970, as
amended, the Resource Conservation and Recovery Act of 1976 (“RCRA”), as
amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control
Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as
amended, the Hazardous Materials Transportation Act, as amended, and other
environmental conservation or protection Governmental Requirements.

 

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

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

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

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

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

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

“Excepted Liens” means: (a) Liens for Taxes, assessments or other governmental
charges or levies which are not delinquent or which are being contested in good
faith by appropriate action and for which adequate reserves have been maintained
in accordance with GAAP; (b) Liens in connection with workers’ compensation,
unemployment insurance or other social security, old age pension or public
liability obligations which are not delinquent or which are being contested in
good faith by appropriate action and for which adequate reserves have been
maintained in accordance with GAAP; (c) landlord’s liens, operators’, vendors’,
carriers’, warehousemen’s, repairmen’s, mechanics’, suppliers’, workers’,
materialmen’s, construction or other like Liens arising by operation of law or
otherwise in the ordinary course of business or incident to the exploration,
development, operation and maintenance of Oil and Gas Properties each of which
is in respect of obligations that are not delinquent or which are being
contested in good faith by appropriate action and for which adequate reserves
have been maintained in accordance with GAAP; (d) contractual Liens which arise
in the ordinary course of business under operating agreements, joint venture
agreements, oil and gas partnership agreements, oil and gas leases, farm-out and
farm-in agreements, division orders, contracts for the sale, transportation or
exchange of oil and natural gas, unitization and pooling declarations and
agreements, area of mutual interest agreements, overriding royalty agreements,
marketing agreements, processing agreements, net profits agreements, development
agreements, gas balancing or deferred production agreements, injection,
repressuring and recycling agreements, salt water or other disposal agreements,
seismic or other geophysical permits or agreements, and other agreements which
are usual and customary in the oil and gas business and are for claims

 

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which are not delinquent or which are being contested in good faith by
appropriate action and for which adequate reserves have been maintained in
accordance with GAAP, provided that any such Lien referred to in this clause
does not materially impair the use of the Property covered by such Lien for the
purposes for which such Property is held by the Borrower or any Subsidiary or
materially impair the value of such Property subject thereto; (e) Liens arising
solely by virtue of any statutory or common law provision or any deposit account
agreement or similar agreement relating to banker’s liens, rights of set-off or
similar rights and remedies and burdening only deposit accounts or other funds
maintained with a creditor depository institution, provided that no such deposit
account is a dedicated cash collateral account or is subject to restrictions
against access by the depositor in excess of those set forth by regulations
promulgated by the Board and no such deposit account is intended by Borrower or
any of its Subsidiaries to provide collateral to the depository institution;
(f) easements, restrictions, servitudes, permits, conditions, covenants,
exceptions or reservations in any Property of the Borrower or any Subsidiary for
the purpose of roads, pipelines, transmission lines, transportation lines,
distribution lines for the removal of gas, oil, coal or other minerals or
timber, and other like purposes, or for the joint or common use of real estate,
rights of way, facilities and equipment, that do not secure any monetary
obligations and which in the aggregate do not materially impair the use of such
Property for the purposes of which such Property is held by the Borrower or any
Subsidiary or materially impair the value of such Property subject thereto;
(g) Liens on cash or securities pledged to secure performance of tenders, surety
and appeal bonds, government contracts, performance and return of money bonds,
bids, trade contracts, leases, statutory obligations, regulatory obligations and
other obligations of a like nature incurred in the ordinary course of business
and (h) judgment and attachment Liens not giving rise to an Event of Default,
provided that any appropriate legal proceedings which may have been duly
initiated for the review of such judgment shall not have been finally terminated
or the period within which such proceeding may be initiated shall not have
expired and no action to enforce such Lien has been commenced; provided, further
that Liens described in clauses (a) through (e) shall remain “Excepted Liens”
only for so long as no action to enforce such Lien has been commenced and no
intention to subordinate the first priority Lien granted in favor of the
Administrative Agent and the Lenders is to be hereby implied or expressed by the
permitted existence of such Excepted Liens.

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

 

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“Existing Credit Agreement” has the meaning assigned to that term in the
Recitals.

“Existing Preferred Stock” means the Borrower’s 10% senior redeemable
convertible preferred stock, par value $0.001 per share.

“Existing Senior Notes” means the Borrower’s $300,000,000 10-1/2% senior secured
notes due 2012.

“FATCA” means Sections 1471 through 1474 of the Internal Revenue Code, including
any regulations or official interpretations thereof.

“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.

“Financial Officer” means, for any Person, the chief financial officer,
principal accounting officer, treasurer or controller of such Person. Unless
otherwise specified, all references herein to a Financial Officer means a
Financial Officer of the Borrower.

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

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

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

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

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

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

 

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“Guarantors” means:

(a) Dune Operating Company, a Texas corporation,

(b) Dune Properties, Inc., a Texas corporation, and

(c) each other Domestic Subsidiary that guarantees the Secured Obligations
pursuant to Section 8.14(b);

but excluding any Person released as a Guarantor pursuant to Section 11.10.

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

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

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

“Hydrocarbon Interests” means all rights, titles, interests and estates now or
hereafter acquired by the Borrower or any Guarantor in and to oil and gas
leases, oil, gas and mineral leases, or other liquid or gaseous hydrocarbon
leases, mineral fee interests, overriding royalty and royalty interests, net
profit interests and production payment interests, including any reserved or
residual interests of whatever nature.

“Hydrocarbons” means oil, gas, casinghead gas, drip gasoline, natural gasoline,
condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all
products refined or separated therefrom.

“Indemnified Taxes” means Taxes other than Excluded Taxes.

 

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“Initial Reserve Report” means the report of the Borrower with respect to
certain Oil and Gas Properties of the Borrower and its Subsidiaries as of
June 30, 2011.

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

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

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

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

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

“Investment” means, for any Person: (a) the acquisition (whether for cash,
Property, services or securities or otherwise) of Equity Interests of any other
Person (including, without limitation, any “short sale” or any sale of any
securities at a time when such securities are not owned by the Person entering
into such short sale); (b) the making of any deposit with, or advance, loan or
capital contribution to, assumption of Debt of, purchase or other acquisition of
any other Debt or equity participation or interest in, or other extension of
credit to, any other Person (excluding any such advance, loan or extension of
credit having a term not exceeding ninety (90) days representing the purchase
price of inventory or supplies sold by such Person in the ordinary course of
business); or (c) the entering into of any guarantee of, or other contingent
obligation (including the deposit of any Equity Interests to be sold) with
respect to, Debt or other liability of any other Person and (without
duplication) any amount committed to be advanced, lent or extended to such
Person.

 

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

“LC Commitment” at any time means $10,000,000.

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

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

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

“Letter of Credit” means any letter of credit issued pursuant to this Agreement.

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

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

“Lien” means any interest in Property securing an obligation owed to, or a claim
by, a Person other than the owner of the Property, whether such interest is
based on the common law, statute or contract, and whether such obligation or
claim is fixed or contingent, and including but not limited to (a) the lien or
security interest arising from a mortgage, encumbrance, pledge, security
agreement, conditional sale or trust receipt or a lease, consignment or bailment
for

 

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security purposes or (b) production payments and the like payable out of Oil and
Gas Properties. The term “Lien” shall include easements, restrictions,
servitudes, permits, conditions, covenants, exceptions or reservations. For the
purposes of this Agreement, the Borrower and its Subsidiaries shall be deemed to
be the owner of any Property which it has acquired or holds subject to a
conditional sale agreement, or leases under a financing lease or other
arrangement pursuant to which title to the Property has been retained by or
vested in some other Person in a transaction intended to create a financing.

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

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

“Majority Lenders” means, at any time while no Loan or LC Exposure is
outstanding, Lenders having more than 50.0% of the Aggregate Maximum Credit
Amounts; and at any time while any Loan or LC Exposure is outstanding, Lenders
holding more than 50.0% of the outstanding aggregate principal amount of the
Loans and participation interests in Letters of Credit (without regard to any
sale by a Lender of a participation in any Loan under Section 12.04(c));
provided that the Maximum Credit Amounts and the principal amount of the Loans
and participation interests in Letters of Credit of the Defaulting Lenders (if
any) shall be excluded from the determination of Majority Lenders.

“Material Acquisition or Disposition” means an acquisition or disposition of
assets for which the consideration paid or received for the assets exceeds
$10,000,000.

“Material Adverse Effect” means a material adverse change in, or material
adverse effect on (a) the business, operations, Property or financial condition
of the Borrower and the Subsidiaries taken as a whole, excluding the effect of
events, developments and circumstances affecting the oil and gas exploration and
production industry generally, (b) the ability of the Borrower, any Subsidiary
or any Guarantor to perform any of its material obligations under any Loan
Document, (c) the validity or enforceability of any Loan Document or (d) the
rights and remedies of the Administrative Agent, any other Agent, the Issuing
Bank or any Lender under any Loan Document, but in each case excluding the
effects of the Reorganization.

“Material Indebtedness” means Debt (other than the Loans and Letters of Credit),
or obligations in respect of one or more Swap Agreements, of any one or more of
the Borrower and its Subsidiaries in an aggregate principal amount exceeding the
greater of (i) $3,000,000 or (ii) 5% of the Borrowing Base then in effect. 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.

“Maturity Date” means December 22, 2015.

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

 

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“Money Laundering Law” means any law governing conduct or acts designed in whole
or in part to conceal or disguise the nature, location, source, ownership or
control of money (including currency or equivalents, e.g., checks, electronic
transfers, etc.) to avoid a transaction reporting requirement under state or
federal law or to disguise the fact that the money was acquired by illegal
means.

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

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

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

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

“Oil and Gas Properties” means (a) Hydrocarbon Interests; (b) the Properties now
or hereafter pooled or unitized with Hydrocarbon Interests; (c) all presently
existing or future unitization, pooling agreements and declarations of pooled
units and the units created thereby (including without limitation all units
created under orders, regulations and rules of any Governmental Authority) which
may affect all or any portion of the Hydrocarbon Interests; (d) all operating
agreements, contracts and other agreements, including production sharing
contracts and agreements, which relate to any of the Hydrocarbon Interests or
the production, sale, transportation, purchase, exchange or processing of
Hydrocarbons from or attributable to such Hydrocarbon Interests; (e) all
Hydrocarbons in and under and which may be produced and saved or attributable to
the Hydrocarbon Interests, including all oil in tanks, and all rents, issues,
profits, proceeds, products, revenues and other incomes from or attributable to
the Hydrocarbon Interests; (f) all tenements, hereditaments, appurtenances and
Properties in any manner appertaining, belonging, affixed or incidental to the
Hydrocarbon Interests and (g) all Properties, rights, titles, interests and
estates described or referred to above, including any and all Property, real or
personal, now owned or hereinafter acquired and situated upon, used, held for
use or useful in connection with the operating, working or development of any of
such Hydrocarbon Interests or Property (excluding drilling rigs, automotive
equipment, rental equipment or other personal Property which may be on such
premises for the purpose of drilling a well or for other similar temporary uses)
and including any and all oil wells, gas wells, injection wells or other wells,
fuel separators, liquid extraction plants, plant compressors, pumps, pumping
units, field gathering systems, tanks and tank batteries, fixtures, valves,
fittings, machinery and parts, engines, boilers, meters, apparatus, equipment,
appliances, tools, implements, cables, wires, towers, casing, tubing and rods,
surface leases, rights-of-way, easements and servitudes together with all
additions, substitutions, replacements, accessions and attachments to any and
all of the foregoing.

 

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

“Participant” has the meaning assigned to such term in Section 12.04(c)(i).

“Permitted Holder” means any Person converting Existing Senior Notes and
Existing Preferred Stock of the Borrower into common shares of Equity Interest
of the Borrower in conjunction with the Reorganization and such Person’s
Affiliates.

“Permitted Refinancing Debt” means Debt (for purposes of this definition, “new
Debt”) incurred in exchange for, or proceeds of which are used to refinance, all
of any other Debt (the “Refinanced Debt”); provided that (a) such new Debt is in
an aggregate principal amount not in excess of the sum of (i) the aggregate
principal amount then outstanding of the Refinanced Debt (or, if the Refinanced
Debt is exchanged or acquired for an amount less than the principal amount
thereof to be due and payable upon a declaration of acceleration thereof, such
lesser amount) and (ii) an amount necessary to pay any fees and expenses,
including premiums, related to such exchange or refinancing; (b) such new Debt
has a stated maturity no earlier than the stated maturity of the Refinanced Debt
and an average life no shorter than the average life of the Refinanced Debt;
(c) such new Debt does not have a stated and a cash pay interest rate in excess
of the stated interest rate of the Refinanced Debt; (d) such new Debt does not
contain covenants which, taken as a whole, are more onerous to the Borrower and
its Subsidiaries than those imposed by the Refinanced Debt and (e) if such
Refinanced Debt was subordinated, such new Debt (and any guarantees thereof) is
subordinated in right of payment to the Secured Obligations (or, if applicable,
the Guaranty Agreement) to at least the same extent as the Refinanced Debt and
is otherwise subordinated on terms substantially reasonably satisfactory to the
Administrative Agent.

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

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

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

 

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

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

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

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

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

“Refinanced Debt” has the meaning assigned such term in the definition of
“Permitted Refinancing Debt”.

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

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

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

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

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

“Reorganization” means (a) the conversion of the Existing Senior Notes and
Existing Preferred Stock of the Borrower into shares of Equity Interest of the
Borrower, (b) the issuance of the Senior Notes and (c) the other transactions
all as described in the Reorganization Documents.

“Reorganization Documents” means (a) the Borrower’s Offering Memorandum dated as
of November 14, 2011 and (b) all agreements, instruments and documents executed
and delivered in connection therewith, as amended.

“Required Lenders” means, at any time while no Loan or LC Exposure is
outstanding, at least two Lenders having at least 66-2/3% of the Aggregate
Maximum Credit Amounts; and at any time while any Loan or LC Exposure is
outstanding, at least two Lenders holding at least 66-2/3%

 

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of the outstanding aggregate principal amount of the Loans or participation
interests in such Letters of Credit (without regard to any sale by a Lender of a
participation in any Loan under Section 12.04(c)); provided that the Maximum
Credit Amounts and the principal amount of the Loans and participation interests
in Letters of Credit of the Defaulting Lenders (if any) shall be excluded from
the determination of Required Lenders.

“Reserve Report” means a report, in form and substance reasonably satisfactory
to the Administrative Agent, setting forth, as of each December 31 or June 30
(or such other date in the event of an Interim Redetermination) the proved oil
and gas reserves attributable to the Oil and Gas Properties of the Borrower and
the Subsidiaries, together with a projection of the rate of production and
future net income, taxes, operating expenses and capital expenditures with
respect thereto as of such date, based upon the economic assumptions consistent
with the Administrative Agent’s lending requirements at the time.

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

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

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

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

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

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

“Secured Obligations” means any and all amounts owing or to be owing by the
Borrower, any Subsidiary or any Guarantor (whether direct or indirect (including
those acquired by assumption), absolute or contingent, due or to become due, now
existing or hereafter arising): (a) to the Administrative Agent, the Issuing
Bank or any Lender under any Loan Document; (b) to any counterparty under any
Secured Swap Agreement, (c) to any Lender or any Affiliate of a Lender under any
Cash Management Agreement between the Borrower or any Subsidiary and such Lender
or Affiliate of a Lender while such Person (or in the case of its Affiliate, the
Person affiliated therewith) is a Lender hereunder and (d) all renewals,
extensions and/or rearrangements of any of the above.

 

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“Secured Swap Agreement” means any Swap Agreement between the Borrower or any
Subsidiary and a Person that, at the time such Swap Agreement was entered into,
was a Lender or an Affiliate of a Lender (including any Swap Agreement between
such Persons in existence prior to the date thereof).

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

“Senior Indenture” means (a) that certain Indenture dated as of the Effective
Date among the Borrower, as issuer, the Subsidiary Guarantors (as defined
therein) and U.S. Bank National Association, as trustee, pursuant to which the
Senior Notes are issued, and (b) any indenture, note purchase agreement or other
agreement pursuant to which any Permitted Refinancing Debt is issued, in each
case, as hereafter amended, modified or supplemented or restated from time to
time unless such amendment is prohibited by Section 9.04(b).

“Senior Notes” means the Borrower’s floating rate senior secured notes due 2016
amended, modified, supplemented or restated from time to time in an original
principal amount of up to $50,000,000 issued as contemplated by the
Reorganization Documents, and any Permitted Refinancing Debt in respect thereof.

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

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

“subsidiary” means, with respect to any Person (the “parent”) at any date, any
other Person the accounts of which would be consolidated with those of the
parent in the parent’s consolidated financial statements if such financial
statements were prepared in accordance with GAAP as of such date, as well as any
other Person (a) of which Equity Interests representing more than 50% of the
equity or more than 50% of the ordinary voting power (irrespective of

 

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whether or not at the time Equity Interests of any other class or classes of
such Person shall have or might have voting power by reason of the happening of
any contingency) or, in the case of a partnership, any general partnership
interests are, as of such date, owned, controlled or held, or (b) that is, as of
such date, otherwise Controlled, by the parent or one or more subsidiaries of
the parent or by the parent and one or more subsidiaries of the parent.

“Subsidiary” means any subsidiary of the Borrower.

“Swap Agreement” means any agreement with respect to any swap, cap, collar,
forward, future or derivative transaction or option or similar agreement,
whether exchange traded, “over-the-counter” or otherwise, involving, or settled
by reference to, one or more 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.

“Swap Agreement PV” means, with respect to any commodity Swap Agreement, the
present value, discounted at 10% per annum, of the future receipts expected to
be paid to the Borrower or the Subsidiaries thereunder netted against the most
recent price deck provided to the Borrower by the Administrative Agent;
provided, however, that the “Swap Agreement PV” shall never be less than $0.00.

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

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

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

“Termination Date” means the earlier of the Maturity Date and the date of
termination of the Commitments.

“Total Debt” means, at any date, all Debt of the Borrower and the Consolidated
Subsidiaries on a consolidated basis, excluding (i) non-cash obligations under
FAS 133, (ii) Debt of the type described in clause (b) of the definition thereof
except to the extent of any unreimbursed drawings thereon, and (iii) Debt in
respect of insurance premiums which have been financed under Section 9.02(h).

 

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

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

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

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

Section 1.04. Terms Generally; Rules of Construction. The definitions of terms
herein shall apply equally to the singular and plural forms of the terms
defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words “include”,
“includes” and “including” as used in this Credit Agreement shall be deemed to
be followed by the phrase “without limitation”. The word “will” shall be
construed to have the same meaning and effect as the word “shall”. Unless the
context requires otherwise (a) any definition of or reference to any agreement,
instrument or other document herein shall be construed as referring to such
agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth in the Loan Documents),
(b) any reference herein to any law shall be construed as referring to such law
as amended, modified, codified or reenacted, in whole or in part, and in effect
from time to time, (c) any reference herein to any Person shall be construed to
include such Person’s successors and assigns (subject to the restrictions
contained in the Loan Documents), (d) the words “herein”, “hereof” and
“hereunder”, and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (e) with
respect to the determination of any time period, the word “from” means “from and
including” and the word “to” means “to but excluding” and (f) any reference
herein to Articles, Sections, Annexes, Exhibits and Schedules shall be construed
to refer to Articles and Sections of, and Annexes, Exhibits and Schedules to,
this Agreement. No provision of this Agreement or any other Loan Document shall
be interpreted or construed against any Person solely because such Person or its
legal representative drafted such provision.

 

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Section 1.05. Accounting Terms and Determinations; GAAP. Unless otherwise
specified herein, all financial statements and reports as to financial matters
required to be furnished to the Administrative Agent or the Lenders hereunder
shall be prepared in accordance with GAAP as in effect from time to time. All
accounting terms used herein shall be interpreted, and all determinations with
respect to accounting matters hereunder (including with respect to Section 9.01)
shall be made in accordance with GAAP as in effect on the date hereof unless
otherwise agreed to by the Borrower and the Majority Lenders. In the event of
any change in GAAP or in the application thereof that would have an effect on
the calculation of any financial provisions in this Agreement, the Borrower will
furnish to the Administrative Agent and each Lender a certificate of a Financial
Officer specifying such change and the effect of such change on such
calculations.

ARTICLE II

THE CREDITS

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

Section 2.02. Loans and Borrowings.

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

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

(c) Minimum Amounts; Limitation on Number of Borrowings. At the commencement of
each Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an
aggregate amount that is an integral multiple of $100,000 and not less than
$1,000,000. At the time that each ABR Borrowing is made, such Borrowing shall be
in an aggregate amount that is an integral multiple of $100,000 and not less
than $500,000; provided that an ABR Borrowing

 

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may be in an aggregate amount that is equal to the entire unused balance of the
total Commitments or that is required to finance the reimbursement of an LC
Disbursement as contemplated by Section 2.08(e). Borrowings of more than one
Type may be outstanding at the same time, provided that there shall not at any
time be more than a total of five (5) Eurodollar Borrowings outstanding unless
the Administrative Agent otherwise agrees. Notwithstanding any other provision
of this Agreement, the Borrower shall not be entitled to request, or to elect to
convert or continue, any Borrowing if the Interest Period requested with respect
thereto would end after the Maturity Date.

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

Section 2.03. Requests for Borrowings. To request a Borrowing, the Borrower
shall notify the Administrative Agent of such request by telephone (a) in the
case of a Eurodollar Borrowing, not later than 12:00 noon, Houston time, three
Business Days before the date of the proposed Borrowing or (b) in the case of an
ABR Borrowing, not later than 12:00 noon, Houston time, on the date of the
proposed Borrowing; provided that no such notice shall be required for any
deemed request of an ABR Borrowing to finance the reimbursement of an LC
Disbursement as provided in Section 2.08(e). Each such telephonic Borrowing
Request shall be irrevocable and shall be confirmed promptly by hand delivery or
telecopy to the Administrative Agent of a written Borrowing Request in
substantially the form of Exhibit B and signed by the Borrower. Each such
telephonic and written Borrowing Request shall specify the following information
in compliance with Section 2.02:

(i) the aggregate amount of the requested Borrowing;

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

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

 

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

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

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

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

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

Section 2.04. Interest Elections.

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

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

 

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

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

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

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

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

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

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

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

Section 2.05. Funding of Borrowings.

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

 

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

Section 2.06. Termination and Reduction of Aggregate Maximum Credit Amounts.

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

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

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

(ii) The Borrower shall notify the Administrative Agent of any election to
terminate or reduce the Aggregate Maximum Credit Amounts under
Section 2.06(b)(i) at least three Business Days prior to the effective date of
such termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any notice, the Administrative Agent
shall advise the Lenders of the contents thereof. Each notice delivered by the
Borrower pursuant to this Section 2.06(b)(ii) shall be irrevocable; provided
that a notice of termination of the Commitments delivered by the Borrower may
state that such notice is conditioned upon the effectiveness of other credit
facilities, in which case such notice may be revoked by the Borrower (by notice
to the Administrative

 

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Agent on or prior to the specified effective date) if such condition is not
satisfied. Any termination or reduction of the Aggregate Maximum Credit Amounts
shall be permanent and may not be reinstated. Each reduction of the Aggregate
Maximum Credit Amounts shall be made ratably among the Lenders in accordance
with each Lender’s Applicable Percentage.

Section 2.07. Borrowing Base.

(a) Initial Borrowing Base. For the period from and including the Effective Date
to but excluding the first Redetermination Date, the amount of the Borrowing
Base shall be $63,000,000. Notwithstanding the foregoing, the Borrowing Base may
be subject to further adjustments from time to time pursuant to Section 2.07(e),
Section 8.13(c) or Section 9.12(d).

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

(c) Scheduled and Interim Redetermination Procedure. Each Scheduled
Redetermination and each Interim Redetermination shall be effectuated as
follows:

(i) Upon receipt by the Administrative Agent of (A) the Reserve Report and the
certificate required to be delivered by the Borrower to the Administrative
Agent, in the case of a Scheduled Redetermination, pursuant to Section 8.12(a)
and (c), and, in the case of an Interim Redetermination, pursuant to
Section 8.12(b) and (c), and (B) such other reports, data and supplemental
information, including, without limitation, the information provided pursuant to
Section 8.12(c), as may, from time to time, be reasonably requested by the
Majority Lenders (the Reserve Report, such certificate and such other reports,
data and supplemental information being the “Engineering Reports”), the
Administrative Agent shall evaluate the information contained in the Engineering
Reports and shall, in good faith, propose a new Borrowing Base (the “Proposed
Borrowing Base”) based upon such information and such other information
(including, without limitation, the status of title information with respect to
the Oil and Gas Properties as described in the Engineering Reports and the
existence of any other Debt) as the Administrative Agent deems appropriate in
its sole discretion and consistent with its normal oil and gas lending criteria
as it exists at the particular time. In no event shall the Proposed Borrowing
Base exceed the Aggregate Maximum Credit Amounts.

 

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(ii) The Administrative Agent shall notify the Borrower and the Lenders of the
Proposed Borrowing Base (the “Proposed Borrowing Base Notice”):

 

  (A) in the case of a Scheduled Redetermination (1) if the Administrative Agent
shall have received the Engineering Reports required to be delivered by the
Borrower pursuant to Section 8.12(a) and (c) in a timely and complete manner,
then on or before the March 15th and September 15th of such year following the
date of delivery or (2) if the Administrative Agent shall not have received the
Engineering Reports required to be delivered by the Borrower pursuant to
Section 8.12(a) and (c) in a timely and complete manner, then promptly after the
Administrative Agent has received complete Engineering Reports from the Borrower
and has had a reasonable opportunity to determine the Proposed Borrowing Base in
accordance with Section 2.07(c)(i); and

 

  (B) in the case of an Interim Redetermination, promptly, and in any event,
within fifteen (15) days after the Administrative Agent has received the
required Engineering Reports.

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

 

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

(i) in the case of a Scheduled Redetermination, (A) if the Administrative Agent
shall have received the Engineering Reports required to be delivered by the
Borrower pursuant to Section 8.12(a) and (c) in a timely and complete manner,
then on the April 1st or October 1st, as applicable, following such notice, or
(B) if the Administrative Agent shall not have received the Engineering Reports
required to be delivered by the Borrower pursuant to Section 8.12(a) and (c) in
a timely and complete manner, then on the Business Day next succeeding delivery
of such notice; and

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

Such amount shall then become the Borrowing Base until the next Scheduled
Redetermination Date, the next Interim Redetermination Date or the next
adjustment to the Borrowing Base under Section 2.07(e), Section 8.13(c) or
Section 9.12(d), whichever occurs first. Notwithstanding the foregoing, no
Scheduled Redetermination or Interim Redetermination shall become effective
until the New Borrowing Base Notice related thereto is received by the Borrower.

(e) Reduction of Borrowing Base Upon Termination of Hedge Positions. If the
Borrower or any Subsidiary shall terminate or create any off-setting positions
in respect of any hedge positions (whether evidenced by a floor, put or Swap
Agreement) upon which the Lenders relied in determining the Borrowing Base, then
the Borrowing Base shall be contemporaneously reduced in an amount determined by
the Required Lenders equal to the Swap Agreement PV of such terminated or
cancelled hedge positions.

Section 2.08. Letters of Credit.

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

 

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(b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. To
request the issuance of a Letter of Credit (or the amendment, renewal or
extension of an outstanding Letter of Credit), the Borrower shall hand deliver
or telecopy (or transmit by electronic communication, if arrangements for doing
so have been approved by the Issuing Bank) to the Issuing Bank and the
Administrative Agent (not less than three (3) Business Days in advance of the
requested date of issuance, amendment, renewal or extension) a notice:

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

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

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

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

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

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

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

If requested by the Issuing Bank, the Borrower also shall submit a letter of
credit application on the Issuing Bank’s standard form in connection with any
request for a Letter of Credit.

(c) Expiration Date. Each Letter of Credit shall expire at or prior to the close
of business on the earlier of (i) the date one year after the date of issuance
of such Letter of Credit (or, in the case of any renewal or extension thereof,
one year after such renewal or extension) and (ii) the date that is five
Business Days prior to the Maturity Date; provided, however, that any Letter of
Credit with a one-year term may provide for the renewal thereof for additional
one-year periods (which shall in no event extend beyond the date referred to in
clause (ii) above).

 

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

(e) Reimbursement. If the Issuing Bank shall make any LC Disbursement in respect
of a Letter of Credit, the Borrower shall reimburse such LC Disbursement by
paying to the Administrative Agent an amount equal to such LC Disbursement not
later than 12:00 noon, Houston time, on the date that such LC Disbursement is
made, if the Borrower shall have received notice of such LC Disbursement prior
to 10:00 a.m., Houston time, on such date, or, if such notice has not been
received by the Borrower prior to such time on such date, then not later than
12:00 noon, Houston time, on (i) the Business Day that the Borrower receives
such notice, if such notice is received prior to 10:00 a.m., Houston time, on
the day of receipt, or (ii) the Business Day immediately following the day that
the Borrower receives such notice, if such notice is not received prior to such
time on the day of receipt; provided that if such LC Disbursement is not less
than $500,000, the Borrower shall, subject to the conditions to Borrowing set
forth herein, be deemed to have requested, and the Borrower does hereby request
under such circumstances, that such payment be financed with an ABR Borrowing in
an equivalent amount and, to the extent so financed, the Borrower’s obligation
to make such payment shall be discharged and replaced by the resulting ABR
Borrowing. If the Borrower fails to make such payment when due, the
Administrative Agent shall notify each Lender of the applicable LC Disbursement,
the payment then due from the Borrower in respect thereof and such Lender’s
Applicable Percentage thereof. Promptly following receipt of such notice, each
Lender shall pay to the Administrative Agent its Applicable Percentage of the
payment then due from the Borrower, in the same manner as provided in
Section 2.05 with respect to Loans made by such Lender (and Section 2.05 shall
apply, mutatis mutandis, to the payment obligations of the Lenders), and the
Administrative Agent shall promptly pay to the Issuing Bank the amounts so
received by it from the Lenders. Promptly following receipt by the
Administrative Agent of any payment from the Borrower pursuant to this
Section 2.08(e), the Administrative Agent shall distribute such payment to the
Issuing Bank or, to the extent that Lenders have made payments pursuant to this
Section 2.08(e) to reimburse the Issuing Bank, then to such Lenders and the
Issuing Bank as their interests may appear. Any payment made by a Lender
pursuant to this Section 2.08(e) to reimburse the Issuing Bank for any LC
Disbursement (other than the funding of ABR Loans as contemplated above) shall
not constitute a Loan and shall not relieve the Borrower of its obligation to
reimburse such LC Disbursement.

 

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

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

(h) Interim Interest. If the Issuing Bank shall make any LC Disbursement, then,
until the Borrower shall have reimbursed the Issuing Bank for such LC
Disbursement (either with its own funds or a Borrowing under Section 2.08(e)),
the unpaid amount thereof shall bear interest, for each day from and including
the date such LC Disbursement is made to but excluding the

 

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date that the Borrower reimburses such LC Disbursement, at the rate per annum
then applicable to ABR Loans. Interest accrued pursuant to this Section 2.08(h)
shall be for the account of the Issuing Bank, except that interest accrued on
and after the date of payment by any Lender pursuant to Section 2.08(e) to
reimburse the Issuing Bank shall be for the account of such Lender to the extent
of such payment.

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

(j) Cash Collateralization. If any Event of Default shall occur and be
continuing at any time there exists any LC Exposure and the Borrower receives
notice from the Administrative Agent or the Majority Lenders demanding the
deposit of cash collateral pursuant to this Section 2.08(j), then the Borrower
shall deposit, in an account with the Administrative Agent, in the name of the
Administrative Agent and for the benefit of the Lenders, an amount in cash equal
to the LC Exposure. If the Borrower is required to pay to the Administrative
Agent the excess attributable to an LC Exposure in connection with any
prepayment pursuant to Section 3.04(c), the Borrower shall deposit in such an
account an amount equal to the amount of such excess as provided in
Section 3.04(c), as of such date plus any accrued and unpaid interest thereon.
The obligation to deposit such cash collateral pursuant to the two preceding
sentences shall become effective immediately, and such deposit shall become
immediately due and payable, without demand or other notice of any kind, upon
the occurrence of any Event of Default with respect to the Borrower or any
Subsidiary described in Section 10.01(h) or Section 10.01(i). The Borrower
hereby grants to the Administrative Agent, for the benefit of the Issuing Bank
and the Lenders, an exclusive first priority and continuing perfected security
interest in and Lien on such account and all cash, checks, drafts, certificates
and instruments, if any, from time to time deposited or held in such account,
all deposits or wire transfers made thereto, any and all investments purchased
with funds deposited in such account, all interest, dividends, cash,
instruments, financial assets and other Property from time to time received,
receivable or otherwise payable in respect of, or in exchange for, any or all of
the foregoing, and all proceeds, products, accessions, rents, profits, income
and benefits therefrom, and any substitutions and replacements therefor. The
Borrower’s obligation to deposit amounts pursuant to this Section 2.08(j) shall
be absolute and unconditional, without regard to whether any beneficiary of any
such Letter of Credit has attempted to draw down all or a portion of such amount
under the terms of a Letter of Credit, and, to the fullest extent permitted by
applicable law, shall not be subject to any defense or be affected by a right of
set-off, counterclaim or recoupment which the Borrower or any of its
Subsidiaries may now or hereafter have against any such beneficiary, the Issuing
Bank, the Administrative Agent, the Lenders or any other Person for any reason
whatsoever. Such account

 

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shall be held as collateral securing the payment and performance of the
Borrower’s and the Guarantor’s obligations under this Agreement and the other
Loan Documents. The Administrative Agent shall have exclusive dominion and
control, including the exclusive right of withdrawal, over such account. Other
than any interest earned on the investment of such deposits, which investments
shall be made at the option and sole discretion of the Administrative Agent and
at the Borrower’s risk and expense, such deposits shall not bear interest.
Interest or profits, if any, on such investments shall accumulate in such
account. Moneys in such account shall be applied by the Administrative Agent to
reimburse the Issuing Bank for LC Disbursements for which it has not been
reimbursed and, to the extent not so applied, shall be held for the satisfaction
of the reimbursement obligations of the Borrower for the LC Exposure at such
time or, if the maturity of the Loans has been accelerated, be applied to
satisfy other obligations of the Borrower and the Guarantors under this
Agreement or the other Loan Documents. If the Borrower is required to provide an
amount of cash collateral hereunder as a result of the occurrence of an Event of
Default, and the Borrower is not otherwise required to pay to the Administrative
Agent the excess attributable to an LC Exposure in connection with any
prepayment pursuant to Section 3.04(c), then such amount (to the extent not
applied as aforesaid) shall be returned to the Borrower within three Business
Days after all Events of Default have been cured or waived.

ARTICLE III

PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES

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

Section 3.02. Interest.

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

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

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

 

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

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

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

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

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

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

Section 3.04. Prepayments.

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

 

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

(c) Mandatory Prepayments.

(i) If, after giving effect to any termination or reduction of the Aggregate
Maximum Credit Amounts pursuant to Section 2.06(b), the total Revolving Credit
Exposures exceeds the total Commitments, then the Borrower shall (A) prepay the
Borrowings on the date of such termination or reduction in an aggregate
principal amount equal to such excess, and (B) if any excess remains after
prepaying all of the Borrowings as a result of an LC Exposure, pay to the
Administrative Agent on behalf of the Lenders an amount equal to such excess to
be held as cash collateral as provided in Section 2.08(j).

(ii) Upon any redetermination of the Borrowing Base pursuant to Section 2.07 or
adjustment to the amount of the Borrowing Base in accordance with
Section 8.13(c), if the aggregate Revolving Credit Exposures of all Lenders
exceeds the redetermined or adjusted Borrowing Base, then the Borrower shall,
within 10 Business Days after its receipt of a New Borrowing Base Notice inform
the Administrative Agent of the Borrower’s election to: (A) within 30 days
following its receipt of such New Borrowing Base Notice (1) prepay the Loans in
an aggregate principal amount equal to such excess and (2) if any excess remains
after prepaying all of the Loans as a result of any Letter of Credit Exposure,
cash collateralize such excess as provided in Section 2.08(j) (provided that all
payments required to be made pursuant to this Section 4.02(c) must be made on or
prior to the Termination Date), (B) prepay the Loans in four equal monthly
installments, commencing on the 30th day following its receipt of such New
Borrowing Base Notice with each payment being equal to 1/4th of the aggregate
principal amount of such excess (provided that all payments required to be made
pursuant to this Section 4.02(c) must be made on or prior to the Termination
Date), (C) within 30 days following its receipt of such New Borrowing Base
Notice, provide additional collateral in the form of additional Oil and Gas
Properties not evaluated in the most recently delivered Reserve Report or other
collateral reasonably acceptable to the Administrative Agent having a Borrowing
Base value (as proposed by the Administrative Agent and approved by the Required
Lenders) sufficient, after giving effect to any other actions taken pursuant to
this Section 4.02(c) to eliminate any such excess or (D) undertake a combination
of clauses (A), (B) and (C). If,

 

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because of Letter of Credit Exposure, a Borrowing Base Deficiency remains after
prepaying all of the Loans, the Borrower shall cash collateralize such remaining
Borrowing Base Deficiency as provided in Section 2.08(j).

(iii) Upon any adjustments to the Borrowing Base pursuant to Section 2.07(e) or
Section 9.12, if the total Revolving Credit Exposures exceeds the Borrowing Base
as adjusted, then the Borrower shall (A) prepay the Borrowings in an aggregate
principal amount equal to such excess, and (B) if any excess remains after
prepaying all of the Borrowings as a result of an LC Exposure, pay to the
Administrative Agent on behalf of the Lenders an amount equal to such excess to
be held as cash collateral as provided in Section 2.08(j). The Borrower shall be
obligated to make such prepayment and/or deposit of cash collateral on the date
it or any Subsidiary receives cash proceeds as a result of such termination of a
Swap Agreement or disposition; provided that all payments required to be made
pursuant to this Section 3.04(c) must be made on or prior to the Termination
Date.

(iv) Each prepayment of Borrowings pursuant to this Section 3.04(c) shall be
applied, first, ratably to any ABR Borrowings then outstanding, and, second, to
any Eurodollar Borrowings then outstanding, and if more than one Eurodollar
Borrowing is then outstanding, to each such Eurodollar Borrowing in order of
priority beginning with the Eurodollar Borrowing with the least number of days
remaining in the Interest Period applicable thereto and ending with the
Eurodollar Borrowing with the most number of days remaining in the Interest
Period applicable thereto.

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

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

Section 3.05. Fees.

(a) Commitment Fees. The Borrower agrees to pay to the Administrative Agent for
the account of each Lender (other than a Defaulting Lender to the extent set
forth in Section 4.05) a commitment fee, which shall accrue at a rate per annum
of 0.50% on the average daily amount of the unused amount of the Commitment of
such Lender during the period from and including the date of this Agreement to
but excluding the Termination Date. Accrued commitment fees shall be payable in
arrears on the last day of March, June, September and December of each year and
on the Termination Date, commencing on the first such date to occur after the
date hereof. All commitment fees shall be computed on the basis of a year of 360
days, unless such computation would exceed the Highest Lawful Rate, in which
case interest shall be computed on the basis of a year of 365 days (or 366 days
in a leap year), and shall be payable for the actual number of days elapsed
(including the first day but excluding the last day).

 

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(b) Letter of Credit Fees. The Borrower agrees to pay (i) to the Administrative
Agent for the account of each Lender (other than a Defaulting Lender to the
extent set forth in Section 4.05) a participation fee with respect to its
participations in Letters of Credit, which shall accrue at the same Applicable
Margin used to determine the interest rate applicable to Eurodollar Loans on the
average daily amount of such Lender’s LC Exposure (excluding any portion thereof
attributable to unreimbursed LC Disbursements which has been funded by such
Lender) during the period from and including the date of this Agreement to but
excluding the later of the date on which such Lender’s Commitment terminates and
the date on which such Lender ceases to have any LC Exposure, (ii) to the
Issuing Bank a fronting fee, which shall accrue at the rate of 0.25% per annum
on the average daily amount of the LC Exposure (excluding any portion thereof
attributable to unreimbursed LC Disbursements) during the period from and
including the date of this Agreement to but excluding the later of the date of
termination of the Commitments and the date on which there ceases to be any LC
Exposure, provided that in no event shall such fee be less than $125 during any
quarter, and (iii) to the Issuing Bank, for its own account, its standard fees
with respect to the issuance, amendment, renewal or extension of any Letter of
Credit or processing of drawings thereunder. Participation fees and fronting
fees accrued through and including the last day of March, June, September and
December of each year shall be payable on the third Business Day following such
last day, commencing on the first such date to occur after the date of this
Agreement; provided that all such fees shall be payable on the Termination Date
and any such fees accruing after the Termination Date shall be payable on
demand. Any other fees payable to the Issuing Bank pursuant to this
Section 3.05(a) shall be payable within 10 days after demand. All participation
fees and fronting fees shall be computed on the basis of a year of 360 days,
unless such computation would exceed the Highest Lawful Rate, in which case
interest shall be computed on the basis of a year of 365 days (or 366 days in a
leap year), and shall be payable for the actual number of days elapsed
(including the first day but excluding the last day).

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

(d) Borrowing Base Increase Fees. The Borrower agrees to pay to the
Administrative Agent, for the account of each Lender then party to this
Agreement, ratably in accordance with its Applicable Percentage, a Borrowing
Base increase fee to be agreed by the Lenders and the Borrower on the occasion
of any increase of the Borrowing Base, payable on the effective date of any such
increase to the Borrowing Base.

ARTICLE IV

PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS

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

(a) Payments by the Borrower. The Borrower shall make each payment required to
be made by it hereunder (whether of principal, interest, fees or reimbursement
of LC Disbursements, or of amounts payable under Section 5.01, Section 5.02,
Section 5.03 or otherwise) prior to 12:00 noon, Houston time, on the date when
due, in immediately available funds and, subject to Section 5.03, without
defense, deduction, recoupment, set-off or counterclaim. Fees, once paid, shall
be fully earned and shall not be refundable under any circumstances. Any amounts
received after such time on any date may, in the discretion of the
Administrative Agent, be deemed to have been received on the next succeeding
Business Day for

 

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purposes of calculating interest thereon. All such payments shall be made to the
Administrative Agent at its offices specified in Section 12.01, except payments
to be made directly to the Issuing Bank as expressly provided herein and except
that payments pursuant to Section 5.01, Section 5.02, Section 5.03 and
Section 12.03 shall be made directly to the Persons entitled thereto. The
Administrative Agent shall distribute any such payments received by it for the
account of any other Person to the appropriate recipient promptly following
receipt thereof. If any payment hereunder shall be due on a day that is not a
Business Day, the date for payment shall be extended to the next succeeding
Business Day, and, in the case of any payment accruing interest, interest
thereon shall be payable for the period of such extension. All payments
hereunder shall be made in dollars.

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

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

Section 4.02. Presumption of Payment by the Borrower. Unless the Administrative
Agent shall have received notice from the Borrower prior to the date on which
any payment is due to the Administrative Agent for the account of the Lenders or
the Issuing Bank that the Borrower will not make such payment, the
Administrative Agent may assume that the Borrower

 

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

Section 4.03. Certain Deductions by the Administrative Agent. If any Lender
shall fail to make any payment required to be made by it pursuant to
Section 2.05(a), Section 2.08(d), Section 2.08(e) or Section 4.02 then the
Administrative Agent may, in its discretion (notwithstanding any contrary
provision hereof), apply any amounts thereafter received by the Administrative
Agent for the account of such Lender to satisfy such Lender’s obligations under
such Sections until all such unsatisfied obligations are fully paid. If at any
time prior to the acceleration or maturity of the Loans, the Administrative
Agent shall receive any payment in respect of principal of a Loan or a
reimbursement of an LC Disbursement while one or more Defaulting Lenders shall
be party to this Agreement, the Administrative Agent shall apply such payment
first to the Borrowing(s) for which such Defaulting Lender(s) shall have failed
to fund its pro rata share until such time as such Borrowing(s) are paid in full
or each Lender (including each Defaulting Lender) is owed its Applicable
Percentage of all Loans then outstanding. After acceleration or maturity of the
Loans, all principal will be paid ratably as provided in Section 10.02(c).

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

Section 4.05. Defaulting Lenders. Notwithstanding any provision of this
Agreement to the contrary, if any Lender becomes a Defaulting Lender, then the
following provisions shall apply for so long as such Lender is a Defaulting
Lender:

(a) commitment fees shall cease to accrue on the unfunded portion of the
Commitment of such Defaulting Lender pursuant to Section 3.05(a);

 

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(b) the Commitment of such Defaulting Lender shall not be included in
determining whether all Lenders, the Majority Lenders or the Required Lenders
have taken or may take any action hereunder (including any consent to any
amendment or waiver pursuant to Section 12.02 or any redetermination of the
Borrowing Base), provided that any waiver, amendment or modification that
(i) reduces the amount of principal of or the rate at which interest is payable
on the Loans, (ii) increases the Defaulting Lender’s Commitment or (iii) extends
the dates fixed for payments of principal or interest on the Loans shall require
the approval or consent of such Defaulting Lender;

(c) if any LC Exposure exists at the time a Lender becomes a Defaulting Lender
then:

(i) all or any part of the LC Exposure of such Defaulting Lender shall be
reallocated among the non-Defaulting Lenders in accordance with their respective
Applicable Percentages and this obligation to reallocate shall be absolute and
unconditional under any and all circumstances and irrespective of any setoff,
counterclaim or defense to reallocation that any non-Defaulting Lender may have
or have had against the Issuing Bank, the Borrower, any Guarantor or any other
Lender (including the Defaulting Lender); provided that such LC Exposure shall
be reallocated among the non-Defaulting Lenders only to the extent that (x) the
sum of all non-Defaulting Lenders’ Loans and all non-Defaulting Lenders’ LC
Exposure plus such Defaulting Lender’s LC Exposure does not exceed the total of
all non-Defaulting Lenders’ Commitments, (y) the sum of each non-Defaulting
Lender’s Loans and such non-Defaulting Lender’s LC Exposure plus its reallocated
share of such Defaulting Lender’s LC Exposure does not exceed such
non-Defaulting Lender’s Commitment and (z) the conditions set forth in
Section 6.02 are satisfied at such time;

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

(iii) if the Borrower cash collateralizes any portion of such Defaulting
Lender’s LC Exposure pursuant to this Section 4.05(c), the Borrower shall not be
required to pay any fees to such Defaulting Lender pursuant to Section 3.05(b)
with respect to such Defaulting Lender’s LC Exposure during the period such
Defaulting Lender’s LC Exposure is cash collateralized;

(iv) if the LC Exposure of the Defaulting Lenders is reallocated pursuant to
Section 4.05(c), then the fees payable to the Lenders pursuant to
Section 3.05(b) shall be adjusted in accordance with such non-Defaulting
Lenders’ Applicable Percentages; and

(v) to the extent that any Defaulting Lender’s LC Exposure is neither cash
collateralized nor reallocated pursuant to Section 4.05(c), then, without
prejudice to any rights or remedies of the Issuing Bank or any Lender hereunder,
the portion of Letter of Credit fees payable under Section 3.05(b) corresponding
to such Defaulting Lender’s LC Exposure that are neither so cash collateralized
nor reallocated shall be payable to the Issuing Bank until such LC Exposure is
cash collateralized and/or reallocated;

 

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(d) so long as any Lender is a Defaulting Lender, the Issuing Bank shall not be
required to issue, amend or increase any Letter of Credit, unless it is
satisfied that the related exposure will be 100% covered by the Commitments of
the non-Defaulting Lenders and/or cash collateral that will be provided by the
Borrower in accordance with Section 4.05(c), and participating interests in any
such newly issued or increased Letter of Credit shall be allocated among
non-Defaulting Lenders in a manner consistent with Section 4.05(c)(i) (and
Defaulting Lenders shall not participate therein); and

(e) any amount payable to such Defaulting Lender hereunder (whether on account
of principal, interest, fees or otherwise and including any amount that would
otherwise be payable to such Defaulting Lender) shall, to the extent permitted
by applicable law, in lieu of being distributed to such Defaulting Lender, be
retained by the Administrative Agent in a segregated account and, subject to any
applicable requirements of law, be applied at such time or times as may be
determined by the Administrative Agent (i) first, to the payment of any amounts
owing by such Defaulting Lender to the Administrative Agent hereunder;
(ii) second, to the payment of any amounts owing by such Defaulting Lender to
the Issuing Bank hereunder, (iii) third, to the funding of any Loan or the
funding or cash collateralization of any participating interest in any Letter of
Credit in respect of which such Defaulting Lender has failed to fund its portion
thereof as required by this Agreement, (iv) fourth, if so determined by the
Administrative Agent and the Borrower, held in such account as cash collateral
for future funding obligations of the Defaulting Lender under this Agreement,
(v) fifth, pro rata, to the payment of any amounts owing to the Borrower or the
Lenders as a result of any judgment of a court of competent jurisdiction
obtained by the Borrower or any Lender against such Defaulting Lender as a
result of such Defaulting Lender’s breach of its obligations under this
Agreement and (vi) sixth, to such Defaulting Lender or as otherwise directed by
a court of competent jurisdiction; provided that if such payment is (x) a
prepayment of the principal amount of any Loans or reimbursement obligations in
respect of Letter of Credit Disbursements of which a Defaulting Lender has
funded its participation obligations and (y) made at a time when the conditions
set forth in Section 4.02 are satisfied, such payment shall be applied solely to
prepay the Loans of, and reimbursement obligations owed to, all non-Defaulting
Lenders pro rata prior to being applied to the prepayment of any Loans, or
reimbursements obligations owed to, any Defaulting Lender.

ARTICLE V

INCREASED COSTS; BREAK FUNDING PAYMENTS; TAXES; ILLEGALITY

Section 5.01. Increased Costs.

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

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

 

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

and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to reduce the amount of any sum received or
receivable by such Lender (whether of principal, interest or otherwise, but not
including Excluded Taxes, Indemnified Taxes or Other Taxes), then the Borrower
will pay to such Lender such additional amount or amounts as will compensate
such Lender for such additional costs incurred or reduction suffered.

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

(c) Certificates. A certificate of a Lender or the Issuing Bank setting forth in
reasonable detail the basis for, and a calculation of, the amount or amounts
necessary to compensate such Lender or the Issuing Bank or its holding company,
as the case may be, as specified in Section 5.01(a) or (b) shall be delivered to
the Borrower and shall be presumptively correct. Within 10 days after receipt
thereof, the Borrower shall either (i) pay such Lender or the Issuing Bank, as
the case may be, the amount shown as due on any such certificate, or (ii) notify
such payee in writing that the Borrower disputes the amount shown as due. If,
after receiving such written notice, such payee disagrees with the Borrower as
to the amount owed, the Borrower and such payee will meet in good faith to
discuss the basis for, and calculation of, the amount, and the Borrower’s basis
for disputing such amount. If, after an additional 10 days following such good
faith meeting, the Borrower and payee are unable to agree upon the amount owed,
both parties will submit to binding arbitration to resolve the dispute as to the
amount owed.

(d) Effect of Failure or Delay in Requesting Compensation. Failure or delay on
the part of any Lender or the Issuing Bank to demand compensation pursuant to
this Section 5.01 shall not constitute a waiver of such Lender’s or the Issuing
Bank’s right to demand such compensation; provided that the Borrower shall not
be required to compensate a Lender or the Issuing Bank pursuant to this
Section 5.01 for any increased costs or reductions incurred more than 180 days
prior to the date that such Lender or the Issuing Bank, as the case may be,
notifies the Borrower of the Change in Law giving rise to such increased costs
or reductions and of such Lender’s or the Issuing Bank’s intention to claim
compensation therefor; provided further that, if the Change in Law giving rise
to such increased costs or reductions is retroactive, then the 180-day period
referred to above shall be extended to include the period of retroactive effect
thereof.

 

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Section 5.02. Break Funding Payments. In the event of (a) the payment of any
principal of any Eurodollar Loan other than on the last day of an Interest
Period applicable thereto (including as a result of an Event of Default),
(b) the conversion of any Eurodollar Loan into an ABR Loan other than on the
last day of the Interest Period applicable thereto, (c) the failure to borrow,
convert, continue or prepay any Eurodollar Loan on the date specified in any
notice delivered pursuant hereto, or (d) the assignment of any Eurodollar Loan
other than on the last day of the Interest Period applicable thereto as a result
of a request by the Borrower pursuant to Section 5.04(a), then, in any such
event, the Borrower shall compensate each Lender for the loss, cost and expense
attributable to such event (exclusive of any lost profits or opportunity costs).
In the case of a Eurodollar Loan, such loss, cost or expense to any Lender shall
be deemed to include an amount determined by such Lender to be the excess, if
any, of (i) the amount of interest which would have accrued on the principal
amount of such Loan had such event not occurred, at the Adjusted LIBO Rate that
would have been applicable to such Loan, for the period from the date of such
event to the last day of the then current Interest Period therefor (or, in the
case of a failure to borrow, convert or continue, for the period that would have
been the Interest Period for such Loan), over (ii) the amount of interest which
would accrue on such principal amount for such period at the interest rate which
such Lender would bid were it to bid, at the commencement of such period, for
dollar deposits of a comparable amount and period from other banks in the
eurodollar market. A certificate of any Lender setting forth any amount or
amounts that such Lender is entitled to receive pursuant to this Section 5.02
shall be delivered to the Borrower and shall be conclusive absent manifest
error. The Borrower shall pay such Lender the amount shown as due on any such
certificate within 10 days after receipt thereof.

Section 5.03. Taxes.

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

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

(c) Indemnification by the Borrower. The Borrower shall indemnify the
Administrative Agent, each Lender and the Issuing Bank, within 10 days after
written demand therefor, for the full amount of any Indemnified Taxes or Other
Taxes paid by the Administrative Agent, such Lender or the Issuing Bank, as the
case may be, on or with respect to any payment by or on account of any
obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes
imposed or asserted on or attributable to amounts payable under this
Section 5.03) and any penalties, interest and reasonable expenses arising
therefrom or with respect thereto,

 

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whether or not such Indemnified Taxes or Other Taxes were correctly or legally
imposed or asserted by the relevant Governmental Authority; provided that the
Borrower shall not be required to indemnify the Administrative Agent, any Lender
or the Issuing Bank for any amounts under this Section 5.03(c) to the extent
that such Person fails to notify the Borrower of its intent to make a claim for
indemnification under this Section 5.03(c) within 180 days after a claim is
asserted against such Person by the relevant Governmental Authority. A
certificate of the Administrative Agent, a Lender or the Issuing Bank as to the
amount of such payment or liability under this Section 5.03 shall be delivered
to the Borrower and shall be conclusive absent manifest error.

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

(e) Foreign Lenders. Any Foreign Lender that is entitled to an exemption from or
reduction of withholding tax under the law of the jurisdiction in which the
Borrower is located, or any treaty to which such jurisdiction is a party, with
respect to payments under this Agreement or any other Loan Document shall
deliver to the Borrower (with a copy to the Administrative Agent), at the time
or times prescribed by applicable law, such properly completed and executed
documentation prescribed by applicable law or reasonably requested by the
Borrower as will permit such payments to be made without withholding or at a
reduced rate.

(f) If a payment made to a Lender or Issuing Bank under this Agreement or any
other Loan Document would be subject to U.S. Federal withholding of Taxes
imposed by FATCA if such Lender 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 Lender or Issuing Bank 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 either 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 either the Borrower or the Administrative
Agent, as applicable, as may be necessary for either the Borrower or the
Administrative Agent, as applicable, to comply with its obligations under FATCA,
to determine that such Lender or Issuing Bank has complied with such Lender’s or
Issuing Bank’s obligations under FATCA or to determine the amount to deduct and
withhold from such payment.

(g) Tax Refunds. If the Administrative Agent or a Lender determines, in its sole
discretion, that it has received a refund of any Taxes or Other Taxes as to
which it has been indemnified by the Borrower or with respect to which the
Borrower has paid additional amounts pursuant to Section 5.03, it shall pay over
such refund to the Borrower (but only to the extent of indemnity payments made,
or additional amounts paid, by the Borrower under Section 5.03 with respect to
the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket
expenses of the Administrative Agent or such Lender and without interest (other
than any interest paid by the relevant Governmental Authority with respect to
such refund); provided, that the Borrower,

 

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upon the request of the Administrative Agent or such Lender, shall repay the
amount paid over to the Borrower (plus any penalties, interest or other charges
imposed by the relevant Governmental Authority) to the Administrative Agent or
such Lender in the event the Administrative Agent or such Lender is required to
repay such refund to such Governmental Authority. This Section 5.03(g) shall not
be construed to require the Administrative Agent or any Lender to make available
its tax returns (or any other information relating to its taxes which it deems
confidential) to the Borrower or any other Person.

Section 5.04. Mitigation Obligations; Replacement of Lenders.

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

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

 

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

ARTICLE VI

CONDITIONS PRECEDENT

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

(a) The Administrative Agent, the Arranger and the Lenders shall have received
all commitment, facility and agency fees and all other fees and amounts due and
payable on or prior to the Effective Date, including, to the extent invoiced,
reimbursement or payment of all reasonable out-of-pocket expenses required to be
reimbursed or paid by the Borrower hereunder.

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

(c) The Administrative Agent shall have received certificates of the appropriate
State agencies with respect to the existence, qualification and good standing of
the Borrower and each Guarantor.

 

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

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

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

(i) be reasonably satisfied that the Security Instruments create first priority,
perfected Liens (subject only to Excepted Liens identified in clauses (a) to
(d) and (f) of the definition thereof, but subject to the provisos at the end of
such definition, and the liens described on Schedule 9.03) on at least (i) 85%
of the total proved value and (ii) 90% of total proved developed producing value
of the Oil and Gas Properties evaluated in the Initial Reserve Report;

(ii) be reasonably satisfied that the Security Instruments create first
priority, perfected Liens (subject only to Excepted Liens identified in clauses
(a) to (d) and (f) of the definition thereof, but subject to the provisos at the
end of such definition, and the liens described on Schedule 9.03) on such other
Oil and Gas Properties that have probable or possible reserves and other acreage
positions as to which the Administrative Agent shall determine in its reasonable
discretion that the cost of obtaining a Lien on such Property is not excessive
in relation to the value of the collateral to be afforded thereby; and

(iii) have received certificates, together with undated, blank stock powers for
each such certificate, representing all of the issued and outstanding Equity
Interests of each of the Guarantors.

(g) The Administrative Agent shall have received an opinion of (i) Andrews Kurth
LLP, special counsel to the Borrower, substantially in the form of Exhibit E-1
hereto, and (ii) local counsel in each of the following states: Louisiana and
any other jurisdictions requested by the Administrative Agent, substantially in
the form of Exhibit E-2. The Borrower hereby requests such firms to deliver such
opinions.

(h) The Administrative Agent shall have received a certificate of insurance
coverage of the Borrower evidencing that the Borrower is carrying insurance in
accordance with Section 7.12.

(i) The Administrative Agent shall have received title information as the
Administrative Agent may reasonably require satisfactory to the Administrative
Agent setting forth the status of title to at least 85% of the total value of
the Oil and Gas Properties evaluated in the Initial Reserve Report.

 

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(j) The Administrative Agent shall be reasonably satisfied with the
environmental condition of the Oil and Gas Properties of the Borrower and its
Subsidiaries.

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

(l) The Administrative Agent shall have received the financial statements
referred to in Section 7.04(a) and the Initial Reserve Report accompanied by a
certificate covering the matters described in Section 8.01(h).

(m) The Administrative Agent shall have received appropriate UCC search
certificates reflecting no prior Liens encumbering the Properties of the
Borrower and the Subsidiaries for each of the following jurisdictions: Texas,
Delaware and Louisiana and any other jurisdiction requested by the
Administrative Agent; other than those being assigned or released on or prior to
the Effective Date or Liens permitted by Section 9.03.

(n) The Administrative Agent shall be reasonably satisfied with the terms,
conditions and documentation of the Reorganization and the Reorganization
Documents, including the terms of the Senior Notes and the intercreditor
agreement with the collateral agent for the holders of the Senior Notes.

(o) The Administrative Agent shall be reasonably satisfied that after giving pro
forma effect to the Reorganization and the funding of the initial Loans
hereunder: (i) the Borrower has cash and unused availability under this
Agreement of not less than $20,000,000 and, as of October 31, 2011, a positive
working capital balance (i.e., current assets, excluding undrawn availability
under this Agreement, exceed current liabilities) and (ii) the Borrower has no
other Debt for borrowed money other than (1) the Senior Notes in an original
principal amount of not more than $50,000,000, (2) the Existing Senior Notes in
an principal amount of not more than $6,000,000, and (3) Debt consisting of the
financing of insurance premiums if the amount financed does not exceed the
premium payable for the current policy period.

(p) The Administrative Agent shall have received a certificate of a Responsible
Officer of the Borrower certifying that: (i) concurrently with the delivery of
this certificate, (A) the Borrower is consummating the Reorganization in
accordance with the terms of the Reorganization Documents (with all of the
material conditions precedent thereto having been satisfied in all material
respects by the parties thereto), (B) not less than 97.5% of the Existing Senior
Notes are being exchanged for (1) shares of certain common and convertible
preferred Equity Interest of the Borrower representing approximately 97.25%
(assuming 100% of the Existing Senior Notes are exchanged) of the issued and
outstanding Equity Interest of the Borrower and (2) the Senior Notes, and
(C) not less than 100% of the Existing Preferred Stock are being converted into
cash and shares of common Equity Interest of the Borrower representing
approximately 1.5% of the issued and outstanding Equity Interest of the
Borrower, (ii) attached thereto is a true and complete copy of the Certificate
of Amendment filed with the Delaware Secretary of State and any equivalent
documents or certificates filed with the Texas Secretary of State by the
Borrower, and (iii) the Borrower is in compliance with Section 9.01(a) and
(b) as of the last day of the most recently ended fiscal quarter for which
financial statements are available prior to the Effective Date after giving pro
forma effect to the Reorganization and the funding of the initial Loans
hereunder (and attaching thereto calculations in reasonable detail demonstrating
such compliance).

 

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(q) The Administrative Agent shall have received a copy, certified by a
Responsible Officer as true and complete, of the Senior Indenture pursuant to
which the Senior Notes have been issued.

(r) The Administrative Agent and the Lenders shall have contemporaneously with
the funding of the initial Loans purchased via an assignment of notes and liens
in form and substance reasonably satisfactory to the Administrative Agent the
Debt and Liens outstanding under the Existing Credit Agreement.

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

The Administrative Agent shall notify the Borrower and the Lenders of the
Effective Date, and such notice shall be conclusive and binding. Notwithstanding
the foregoing, the obligations of the Lenders to make Loans and of the Issuing
Bank to issue Letters of Credit hereunder shall not become effective unless each
of the foregoing conditions is satisfied (or waived pursuant to Section 12.02)
at or prior to 5:00 p.m., Houston time, on December 31, 2011 (and, in the event
such conditions are not so satisfied or waived, the Commitments shall terminate
at such time).

Section 6.02. Each Credit Event. The obligation of each Lender to make a Loan on
the occasion of any Borrowing (including the initial funding but excluding any
Loan made pursuant to Section 2.08(e)), and of the Issuing Bank to issue, amend,
renew or extend any Letter of Credit, is subject to the satisfaction of the
following conditions:

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

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

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

 

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

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

ARTICLE VII

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to the Lenders that:

Section 7.01. Organization; Powers. Each of the Borrower and the Subsidiaries is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, has all requisite power and authority, and has
all material governmental licenses, authorizations, consents and approvals
necessary, to own its assets and to carry on its business as now conducted, and
is qualified to do business in, and is in good standing in, every jurisdiction
where such qualification is required, except where failure to have such power,
authority, licenses, authorizations, consents, approvals and qualifications
could not reasonably be expected to have a Material Adverse Effect.

Section 7.02. Authority; Enforceability. The Transactions are within the
Borrower’s and each Guarantor’s corporate, partnership or limited liability
company powers and have been duly authorized by all necessary corporate,
partnership or limited liability company and, if required, stockholder, partner
or member action (including, without limitation, any action required to be taken
by any class of directors of the Borrower or any other Person, whether
interested or disinterested, in order to ensure the due authorization of the
Transactions). Each Loan Document and Reorganization Document to which the
Borrower and each Guarantor is a party has been duly executed and delivered by
the Borrower and such Guarantor and constitutes a legal, valid and binding
obligation of the Borrower and such Guarantor, as applicable, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, fraudulent transfer or conveyance, 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,
and an implied covenant of good faith and fair dealing.

Section 7.03. Approvals; No Conflicts. The Transactions (a) do not require any
consent or approval of, registration or filing with, or any other action by, any
Governmental Authority or any other third Person (including shareholders or any
class of directors, whether interested or disinterested, of the Borrower or any
other Person), nor is any such consent, approval, registration, filing or other
action necessary for the validity or enforceability of any Loan Document or the
consummation of the transactions contemplated thereby, except such as have been
obtained or made and are in full force and effect other than (i) filings with,
and approvals from, the SEC, and approval of the noteholders and the
shareholders of the Borrower that will have been obtained prior to the date of
the initial funding in connection with the Reorganization, (ii) the recording or
filing of the Security Instruments and related financing statements as

 

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required by this Agreement, (iii) those third party approvals or consents which,
if not made or obtained, would not cause a Default hereunder, could not
reasonably be expected to have a Material Adverse Effect or do not have an
adverse effect on the enforceability of the Loan Documents, and (iv) those
necessary to comply with Sections 8.03, 8.09 and 8.14, (b) will not violate any
applicable law or regulation or the charter, by-laws or other organizational
documents of the Borrower or any Subsidiary or any order of any Governmental
Authority, (c) will not violate or result in a default under any material
indenture, agreement or other instrument binding upon the Borrower or any
Subsidiary or its Properties, or give rise to a right thereunder to require any
payment to be made by the Borrower or such Subsidiary and (d) except as
contemplated by this Agreement and the Senior Indenture, will not result in the
creation or imposition of any Lien on any Property of the Borrower or any
Subsidiary.

Section 7.04. Financial Condition; No Material Adverse Change.

(a) The Borrower has heretofore furnished to the Lenders its consolidated
balance sheet and statements of income, stockholders equity and cash flows
(i) as of and for the fiscal year ended December 31, 2010, reported on by
Malone & Bailey PC, independent public accountants, and (ii) as of and for the
fiscal quarter and the portion of the fiscal year ended September 30, 2011,
certified by its chief financial officer. Such financial statements present
fairly, in all material respects, the financial position and results of
operations and cash flows of the Borrower and its Consolidated Subsidiaries as
of such dates and for such periods in accordance with GAAP, subject to year-end
audit adjustments and the absence of footnotes in the case of the unaudited
quarterly financial statements.

(b) The Borrower has heretofore furnished to the Lenders its unaudited pro forma
consolidated balance sheet and capitalization dated as of June 30, 2011 assuming
the Reorganization had occurred as of such date. Such pro forma balance sheet
and capitalization present fairly, in all material respects, the pro form
financial position of the Borrower and its Consolidated Subsidiaries as of such
date.

(c) Since June 30, 2011, except as set forth on Schedule 7.04, (i) there has
been no event, development or circumstance that has had or could reasonably be
expected to have a Material Adverse Effect and (ii) as of the date hereof, the
business of the Borrower and its Subsidiaries has been conducted only in the
ordinary course consistent with past business practices.

(d) Except as set forth on Schedule 7.04, neither the Borrower nor any
Subsidiary has on the date hereof any material Debt (including Disqualified
Capital Stock) or any contingent liabilities, off-balance sheet liabilities or
partnerships, liabilities for taxes, unusual forward or long-term commitments or
unrealized or anticipated losses from any unfavorable commitments, except as
referred to or reflected or provided for in the Financial Statements.

Section 7.05. Litigation.

(a) Except as set forth on Schedule 7.05, there are no actions, suits,
investigations or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of the Borrower, threatened
against or affecting the Borrower or any Subsidiary or

 

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involving the Reorganization (i) not fully covered by insurance (except for
normal deductibles) as to which there is a reasonable possibility of an adverse
determination that could reasonably be expected, individually or in the
aggregate, to result in a Material Adverse Effect or (ii) that seek to enjoin
the performance of any Loan Document, any Reorganization Document or the
Transactions.

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

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

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

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

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

(d) none of the Properties of the Borrower or any Subsidiary contain or have
contained any: (i) underground storage tanks; (ii) asbestos-containing materials
in a condition in violation of any applicable standard under Environmental Law;
(iii) landfills or dumps; (iv) hazardous waste management units as defined
pursuant to RCRA or any comparable state law; or (v) sites on or nominated for
the National Priority List promulgated pursuant to CERCLA or any state remedial
priority list promulgated or published pursuant to any comparable state law.

(e) there has been no Release or, to the Borrower’s knowledge, threatened
Release, of Hazardous Materials in violation of any applicable Environmental Law
at, on, under or from the Borrower’s or any Subsidiary’s Properties, there are
no investigations, remediations, abatements, removals, or monitorings of
Hazardous Materials required under applicable Environmental Laws at such
Properties.

(f) neither the Borrower nor any Subsidiary has received any written notice
asserting an alleged liability or obligation under any applicable Environmental
Laws with respect to the investigation, remediation, abatement, removal, or
monitoring of any Hazardous Materials at, under, or Released or threatened to be
Released from any real properties offsite the Borrower’s or any Subsidiary’s
Properties and, to the Borrower’s knowledge, there are no conditions or
circumstances that could reasonably be expected to result in the receipt of such
written notice.

 

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

(h) The Borrower and the Subsidiaries have provided to the Lenders access to all
material environmental site assessment reports, investigations and written
studies (including those relating to any alleged non-compliance with or
liability under Environmental Laws) that are in any of the Borrower’s or the
Subsidiaries’ possession or control and relating to their respective Properties
or operations thereon.

Section 7.07. Compliance with the Laws and Agreements; No Defaults.

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

(b) Neither the Borrower nor any Subsidiary is in default nor has any event or
circumstance occurred which, but for the expiration of any applicable grace
period or the giving of notice, or both, would constitute a default under any
indenture, note, credit agreement or instrument pursuant to which any Material
Indebtedness is outstanding or by which the Borrower or any Subsidiary or any of
their Properties is bound.

(c) No Default has occurred and is continuing.

Section 7.08. Investment Company Act. Neither the Borrower nor any Subsidiary is
an “investment company” within the meaning of, or subject to regulation under,
the Investment Company Act of 1940, as amended.

Section 7.09. Taxes. Except as set forth on Schedule 7.09, (a) each of the
Borrower and its Subsidiaries has timely filed or caused to be filed all federal
income and other material Tax returns and reports required to have been filed
(or obtained extensions with respect thereto) and has paid or caused to be paid
all Taxes required to have been paid by it, except (i) Taxes that are being
contested in good faith by appropriate proceedings and for which the Borrower or
such Subsidiary, as applicable, has set aside on its books adequate reserves in
accordance with GAAP or (ii) to the extent that the failure to do so could not
reasonably be expected to result in a Material Adverse Effect, and (b) no action
to enforce any Tax Lien has been commenced.

 

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Section 7.10. ERISA. Except as could not reasonably be expected to have a
Material Adverse Effect,

(a) The Borrower, the Subsidiaries and each ERISA Affiliate have complied with
ERISA and, where applicable, the Code regarding each Plan.

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

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

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

(e) Neither the Borrower, the Subsidiaries nor any ERISA Affiliate sponsors,
maintains, or contributes to an employee welfare benefit plan, as defined in
section 3(1) of ERISA, including, without limitation, any such plan maintained
to provide benefits to former employees of such entities, that may not be
terminated by the Borrower, a Subsidiary or any ERISA Affiliate in its sole
discretion at any time without any liability.

(f) Neither the Borrower, the Subsidiaries nor any ERISA Affiliate sponsors,
maintains or contributes to, or has at any time in the six-year period preceding
the date hereof sponsored, maintained or contributed to, any employee pension
benefit plan, as defined in section 3(2) of ERISA, that is subject to Title IV
of ERISA, section 302 of ERISA or section 412 of the Code.

Section 7.11. Disclosure; No Material Misstatements. Taken as a whole, none of
the other reports, financial statements, certificates or other written
information (other than projections) furnished by or on behalf of the Borrower
or any Subsidiary to the Administrative Agent or any Lender or any of their
Affiliates in connection with the negotiation of this Agreement or any other
Loan Document or delivered hereunder or under any other Loan Document (as
modified or supplemented by other information so furnished), when furnished,
contains any material misstatement of fact or omits to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not materially misleading (other than omissions that
pertain to matters of a general economic nature or matters of public knowledge
that generally affect any of the industry segments of the Borrower or its
Subsidiaries); provided that, with respect to projected financial information,
prospect information, geological and geophysical data and engineering
projections the Borrower represents only that such information was prepared in
good faith based upon assumptions believed to be reasonable at the time,
recognizing that there are industry-wide risks normally associated with the
types of business conducted by the Borrower and its Subsidiaries. There are no
statements or conclusions in any Reserve Report which are based upon or include
misleading information or fail to take into account material information
regarding the matters reported therein, it being understood that projections
concerning volumes attributable to the Oil and Gas Properties of the Borrower
and the Subsidiaries and production and cost estimates contained in each Reserve
Report are necessarily based upon professional opinions, estimates and
projections and that the Borrower and the Subsidiaries do not warrant that such
opinions, estimates and projections will ultimately prove to have been accurate.

 

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Section 7.12. Insurance. The Borrower has, and has caused all of its
Subsidiaries to have, (a) all insurance policies sufficient for the compliance
by each of them with all material Governmental Requirements and all material
agreements and (b) insurance coverage in at least amounts and against such risk
(including, without limitation, public liability) that are usually insured
against by companies similarly situated and engaged in the same or a similar
business for the assets and operations of the Borrower and its Subsidiaries. The
Administrative Agent and the Lenders have been named as additional insureds in
respect of such liability insurance policies and the Administrative Agent has
been named as loss payee with respect to Property loss insurance.

Section 7.13. Restriction on Liens. Neither the Borrower nor any of the
Subsidiaries is a party to any material agreement or arrangement (other than the
Senior Indenture, Debt and Capital Leases creating Liens permitted by
Section 9.03(c), but then only on the Property securing such Debt or subject to
such Capital Lease, any accessions thereto and proceeds thereof), or, on the
Effective Date, subject to any order, judgment, writ or decree, which either
restricts or purports to restrict its ability to grant Liens to the
Administrative Agent and the Lenders on or in respect of their Properties to
secure the Secured Obligations and the Loan Documents.

Section 7.14. Subsidiaries; Foreign Operations. Except as set forth on Schedule
7.14 or as disclosed in writing to the Administrative Agent (which shall
promptly furnish a copy to the Lenders), which shall be a supplement to Schedule
7.14, the Borrower has no Subsidiaries and the Borrower has no Foreign
Subsidiaries and no Subsidiary owns any Oil and Gas Properties not located
within the geographic boundaries of the United States of America. Each
Subsidiary on Schedule 7.14 is a Wholly-Owned Subsidiary.

Section 7.15. Location of Business and Offices. The Borrower’s jurisdiction of
organization is Delaware; the name of the Borrower as listed in the public
records of its jurisdiction of organization is Dune Energy, Inc.; and the
organizational identification number of the Borrower in its jurisdiction of
organization is 2969625 (or, in each case, as set forth in a notice delivered to
the Administrative Agent pursuant to Section 8.01(m) in accordance with
Section 12.01). The Borrower’s principal place of business and chief executive
offices are located at the address specified in Section 12.01 (or as set forth
in a notice delivered pursuant to Section 8.01(m) and Section 12.01(c)). Each
Subsidiary’s jurisdiction of organization, name as listed in the public records
of its jurisdiction of organization, organizational identification number in its
jurisdiction of organization, and the location of its principal place of
business and chief executive office is stated on Schedule 7.14 (or as set forth
in a notice delivered pursuant to Section 8.01(m)).

 

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Section 7.16. Properties; Titles, Etc. Except as could not reasonably be
expected to have a Material Adverse Effect:

(a) Each of the Borrower and the Subsidiaries has good and defensible title to
the Oil and Gas Properties evaluated in the most recently delivered Reserve
Report and good title to all its personal Properties that are necessary to
permit the Borrower and the Subsidiaries to conduct their business in all
material respects in the same manner as its business has been conducted prior to
the date hereof, and in each case, free and clear of all Liens except Liens
permitted by Section 9.03. After giving full effect to the Excepted Liens, the
Borrower or the Subsidiary specified as the owner owns the net interests in
production attributable to the Hydrocarbon Interests as reflected in the most
recently delivered Reserve Report, and the ownership of such Properties shall
not obligate the Borrower or such Subsidiary to bear the costs and expenses
relating to the maintenance, development and operations of each such Property in
an amount materially in excess of the working interest of each Property set
forth in the most recently delivered Reserve Report that is not offset by a
corresponding proportionate increase in the Borrower’s or such Subsidiary’s net
revenue interest in such Property; provided that the Borrower or any Subsidiary
shall have the right to bear costs disproportionate to the Borrower’s or such
Subsidiary’s working interest with respect to any Hydrocarbon Interest for a
period of time in order to earn an interest in such Hydrocarbon Interest from a
third party as evidenced by written agreement.

(b) All material leases and agreements necessary for the conduct of the business
of the Borrower and the Subsidiaries are valid and subsisting, in full force and
effect, and there exists no default or event or circumstance which with the
giving of notice or the passage of time or both would give rise to a default
under any such lease or leases.

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

(d) All of the Properties of the Borrower and the Subsidiaries which are
reasonably necessary for the operation of their businesses are in good working
condition (normal wear and tear excepted) and are maintained in accordance with
prudent business standards.

(e) The Borrower and each Subsidiary owns, or is licensed to use, all
trademarks, tradenames, copyrights, patents and other intellectual Property
material to its business, and the use thereof by the Borrower and such
Subsidiary does not infringe upon the rights of any other Person. The Borrower
and its Subsidiaries either own or have valid licenses or other rights to use
all databases, geological data, geophysical data, engineering data, seismic
data, maps, interpretations and other technical information used in their
businesses as presently conducted, subject to the limitations contained in the
agreements governing the use of the same, which limitations are customary for
companies engaged in the business of the exploration and production of
Hydrocarbons.

Section 7.17. Maintenance of Properties. Except for such acts or failures to act
as could not be reasonably expected to have a Material Adverse Effect, the Oil
and Gas Properties (and Properties unitized therewith) of the Borrower and its
Subsidiaries have been maintained, operated and developed in a good and
workmanlike manner and in conformity with all

 

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

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

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

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

 

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Section 7.21. Use of Loans and Letters of Credit. The Borrower and its
Subsidiaries are not engaged principally, or as one of its or their important
activities, in the business of extending credit for the purpose, whether
immediate, incidental or ultimate, of buying or carrying margin stock (within
the meaning of Regulation T, U or X of the Board).

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

Section 7.23. Reorganization. The copies of the Reorganization Documents
previously delivered by the Borrower to the Administrative Agent are complete
and have not been amended or modified in any manner, other than pursuant to
amendments or modifications previously delivered to the Administrative Agent.

Section 7.24. Foreign Corrupt Practices. Neither the Borrower nor any of its
Subsidiaries, nor any director, officer, agent, employee of the Borrower or any
of its Subsidiaries is aware of or has taken any action, directly or indirectly,
that would result in a material violation by such Persons of the Foreign Corrupt
Practices Act, including without limitation, making use of the mails or any
means or instrumentality of interstate commerce corruptly in furtherance of an
offer, payment, promise to pay or authorization of the payment of any money, or
other property, gift, promise to give, or authorization of the giving of
anything of value to any “foreign official” (as such term is defined in the
Foreign Corrupt Practices Act) or any foreign political party or official
thereof or any candidate for foreign political office, in contravention of the
Foreign Corrupt Practices Act; and, the Borrower and its Subsidiaries have
conducted their business in material compliance with the Foreign Corrupt
Practices Act and have instituted and maintain policies and procedures designed
to ensure, and which are reasonably expected to continue to ensure, continued
compliance therewith.

Section 7.25. Money Laundering. The operations of the Borrower and its
Subsidiaries are and have been conducted at all times in material compliance
with applicable financial recordkeeping and reporting requirements of the Money
Laundering Laws, and no action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the Borrower
or any of its Subsidiaries with respect to the Money Laundering Laws is pending
or, to the best knowledge of the Borrower, threatened.

 

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Section 7.26. OFAC. Neither the Borrower nor any of its Subsidiaries, nor any
director, officer, agent, employee or Affiliate of the Borrower or any of its
Subsidiaries is currently subject to any material U.S. sanctions administered by
the Office of Foreign Asset Control, and the Borrower will not directly or
indirectly use the proceeds from the Loans or lend, contribute or otherwise make
available such proceeds to any Subsidiary, joint venture partner or other
Person, for the purpose of financing the activities of any Person currently
subject to any U.S. sanctions administered by the Office of Foreign Asset
Control.

ARTICLE VIII

AFFIRMATIVE COVENANTS

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

Section 8.01. Financial Statements; Other Information. The Borrower will furnish
to the Administrative Agent:

(a) Annual Financial Statements. As soon as available, but in any event in
accordance with then applicable law and not later than 90 days after the end of
each fiscal year of the Borrower, its audited consolidated balance sheet and
related statements of operations, stockholders’ equity and cash flows as of the
end of and for such year, setting forth in each case in comparative form the
figures for the previous fiscal year, all reported on by independent public
accountants of recognized national standing (without a “going concern” or like
qualification or exception and without any qualification or exception as to the
scope of such audit) to the effect that such consolidated financial statements
present fairly in all material respects the financial condition and results of
operations of the Borrower and its Consolidated Subsidiaries on a consolidated
basis in accordance with GAAP consistently applied.

(b) Quarterly Financial Statements. As soon as available, but in any event in
accordance with then applicable law and not later than 45 days after the end of
each of the first three fiscal quarters of each fiscal year of the date
Borrower, its consolidated balance sheet and related statements of operations,
stockholders’ equity and cash flows as of the end of and for such fiscal quarter
and the then elapsed portion of the fiscal year, setting forth in each case in
comparative form the figures for the corresponding period or periods of (or, in
the case of the balance sheet, as of the end of) the previous fiscal year, all
certified by 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) Certificate of Financial Officer — Compliance. Within 10 Business Days after
any delivery of financial statements under Section 8.01(a) or Section 8.01(b), a
certificate of a Financial Officer in substantially the form of Exhibit D hereto
(i) certifying as to whether a Default has occurred and, if a Default has
occurred, specifying the details thereof and any action taken or proposed to be
taken with respect thereto, and (ii) setting forth reasonably detailed
calculations demonstrating compliance with Section 9.01.

 

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(d) Certificate of Financial Officer — Swap Agreements. Concurrently with the
delivery of each Reserve Report hereunder, a certificate of a Financial Officer,
in form and substance satisfactory to the Administrative Agent, setting forth as
of a recent date, a true and complete list of all Swap Agreements between the
Borrower or any Subsidiary with counterparties other than BMO or any of its
Affiliates, the material terms thereof (including the type, term, effective
date, termination date and notional amounts or volumes), any new credit support
agreements relating thereto not listed on Schedule 7.20, any margin required or
supplied under any credit support document, and the counterparty to each such
agreement.

(e) Certificate of Insurer — Insurance Coverage. Within 10 Business Days after
any delivery of financial statements under Section 8.01(a), a certificate of
insurance coverage from each insurer with respect to the insurance required by
Section 8.07, in form and substance reasonably satisfactory to the
Administrative Agent, and, if requested by the Administrative Agent or any
Lender, all copies of the applicable policies.

(f) SEC and Other Filings; Reports to Shareholders. Promptly after the same
become publicly available, copies of all periodic and other reports, proxy
statements and other materials (other than filings under Section 16 of the
Securities Exchange Act of 1934) filed by the Borrower or any Subsidiary with
the SEC, or with any national securities exchange, or distributed by the
Borrower to its shareholders generally, as the case may be.

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

(h) Lists of Purchasers and Reserve Report Certificate. Concurrently with the
delivery of any Reserve Report to the Administrative Agent pursuant to
Section 8.12, (i) a list of all Persons purchasing Hydrocarbons from the
Borrower or any Subsidiary and (ii) a certificate from a Responsible Officer
certifying that in all material respects: (A) the information provided by the
Borrower in connection with the Reserve Report and any other information
delivered in connection therewith is true and correct and any projections based
upon such information have been prepared in good faith based upon assumptions
believed by the Borrower to be reasonable, subject to uncertainties inherent in
all projections, (B) the Borrower or its Subsidiaries owns good and defensible
title to the Oil and Gas Properties evaluated in such Reserve Report and such
Properties are free of all Liens except for Liens permitted by Section 9.03,
(C) except as set forth on an exhibit to the certificate, on a net basis there
are no gas imbalances, take or pay or other prepayments in excess of the volume
specified in Section 7.18 with respect to its Oil and Gas Properties evaluated
in such Reserve Report which would require the Borrower or any Subsidiary to
deliver Hydrocarbons either generally or produced from such Oil and Gas
Properties at some future time without then or thereafter receiving full payment
therefor, (D) none of their Oil and Gas Properties have been sold since the date
of the last Borrowing Base determination except as set forth on an exhibit to
the certificate, which certificate shall list all of its Oil and Gas Properties
sold and in such detail as reasonably required by the Administrative Agent,
(E) attached to the certificate is a list of all marketing agreements entered
into subsequent to the later of the date hereof or the most recently delivered
Reserve Report which the Borrower could reasonably be expected to have been
obligated to list on Schedule 7.19 had such agreement been in effect on the date
hereof, and (F) except as disclosed in such certificate, all of the Oil and Gas
Properties evaluated by such Reserve Report are Mortgaged Property.

 

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(i) Notice of Sales of Oil and Gas Properties. In the event the Borrower or any
Subsidiary sells, transfers, assigns or otherwise disposes of any Oil or Gas
Properties during any period between two successive Scheduled Redetermination
Dates having a fair market value in excess of 5% of the Borrowing Base then in
effect, written notice of such disposition, the price thereof and the
anticipated date of closing and any other details thereof requested by the
Administrative Agent or any Lender.

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

(k) Issuance of Permitted Refinancing Debt. In the event the Borrower intends to
refinance any Debt with the proceeds of Permitted Refinancing Debt as
contemplated by Section 9.02(h), prior written notice of such intended offering
therefor, the amount thereof, the anticipated date of closing and a copy of the
preliminary offering memorandum (if any) and the final offering memorandum (if
any).

(l) Information Regarding Borrower and Guarantors. At least 20 days’ prior
written notice of any change (i) in the Borrower’s or any Guarantor’s corporate
name, (ii) in the location of the Borrower or any Guarantor’s chief executive
office or principal place of business, (iii) in the Borrower’s or any
Guarantor’s identity or corporate structure or in the jurisdiction in which such
Person is incorporated or formed, (iv) in the Borrower’s or any Guarantor’s
jurisdiction of organization or such Person’s organizational identification
number in such jurisdiction of organization, and (v) in the Borrower’s or any
Guarantor’s Federal taxpayer identification number.

(m) Production Report and Lease Operating Statements. Within 60 days after the
end of each fiscal quarter, a report setting forth, for each calendar month
during the then current fiscal year to date, the volume of production and sales
attributable to production (and the prices at which such sales were made and the
revenues derived from such sales) for each such calendar month from the Oil and
Gas Properties, and setting forth the related ad valorem, severance and
production taxes and lease operating expenses attributable thereto and incurred
for each such calendar month.

(n) Notices of Certain Changes. Promptly, but in any event within 10 Business
Days after the execution thereof, copies of any amendment, modification or
supplement to the certificate or articles of incorporation, by-laws, any
preferred stock designation or any other organic document of the Borrower or any
Subsidiary.

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

 

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Documents required to be delivered pursuant to this Article VIII shall be
delivered in accordance with the terms of this Agreement either as a hard-copy
or electronically, at the Borrower’s discretion. If the Borrower delivers
hard-copies of such certificates, statements or other reports, then the Borrower
shall so deliver to the Administrative Agent directly full, accurate and
complete copies of such certificates, statements or other reports with written
or electronic notice of such delivery and an accompanying description of the
items delivered. If the Borrower delivers the certificates, statements or other
reports required by this Article VIII electronically, such certificates,
statements or other reports shall be deemed to have been delivered on the date
(i) on which the Borrower posts such documents, or provides a link thereto on
the Borrower’s website on the Internet at www.duneenergy.com or (ii) on which
such documents are delivered to the Administrative Agent. The Administrative
Agent shall promptly post such electronically provided documents 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); provided
that the Borrower shall deliver such documents in a form acceptable to the
Administrative Agent. For the avoidance of doubt, the Administrative Agent shall
post all material certificates, statements or other reports it receives from the
Borrower. Except for such compliance certificates and other reports and
statements, the Administrative Agent shall have no obligation to request the
delivery or to maintain copies of the documents referred to above, and in any
event shall have no responsibility to monitor compliance by the Borrower with
any such request for delivery, and each Lender shall be solely responsible for
requesting delivery to it or maintaining its copies of such documents.

Section 8.02. Notices of Material Events. After a Responsible Officer has
obtained actual knowledge thereof, the Borrower will furnish to the
Administrative Agent and each Lender prompt written notice of the following:

(a) the occurrence of any Default;

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

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

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

 

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

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

Section 8.05. Performance of Obligations under Loan Documents. The Borrower will
pay the Notes according to the terms thereof, and the Borrower will, and will
cause each Subsidiary to, do and perform every act and discharge all of the
obligations to be performed and discharged by them under the Loan Documents,
including, without limitation, this Agreement, at the time or times and in the
manner specified.

Section 8.06. Operation and Maintenance of Properties. The Borrower, at its own
expense, will, and will cause each Subsidiary to:

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

(b) preserve, maintain and keep in good repair, working order and efficiency
(ordinary wear and tear excepted) all of its material Oil and Gas Properties
described in the most recent Reserve Report, including, without limitation, all
equipment, machinery and facilities.

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

 

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

(e) to the extent the Borrower is not the operator of any Property, the Borrower
shall use commercially reasonable efforts to cause the operator to comply with
this Section 8.06.

Section 8.07. Insurance. The Borrower will, and will cause each Subsidiary to,
maintain, with financially sound and reputable insurance companies, insurance in
such amounts and against such risks as are customarily maintained by companies
engaged in the same or similar businesses operating in the same or similar
locations. The loss payable clauses or provisions in said insurance policy or
policies insuring any of the collateral for the Loans shall be endorsed in favor
of the Administrative Agent as its interests may appear and such policies shall
name the Administrative Agent and the Lenders as “additional insureds” and
provide that the insurer will endeavor to give at least 30 days prior notice of
any cancellation to the Administrative Agent.

Section 8.08. 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.
The Borrower shall bear the cost of not more than one (1) such inspection and
examination during any 12-month period unless a Default or Event of Default then
exists, in which event the Borrower shall bear such cost.

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

Section 8.10. Environmental Matters.

(a) The Borrower shall at its sole expense: (i) comply, and shall cause its
Properties and operations and each Subsidiary and each Subsidiary’s Properties
and operations to comply, with all applicable Environmental Laws, the breach of
which could be reasonably expected to have a Material Adverse Effect; (ii) not
Release or threaten to Release, and shall cause each Subsidiary not to Release
or threaten to Release, any Hazardous Material on, under, about or from any of
the Borrower’s or its Subsidiaries’ Properties or any other property offsite the
Property to the extent caused by the Borrower’s or any of its Subsidiaries’
operations except in

 

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

(b) The Borrower will promptly, but in no event later than five days after
obtaining knowledge of the occurrence of a triggering event, notify the
Administrative Agent and the Lenders in writing of any threatened action,
investigation or inquiry by any Governmental Authority or any threatened demand
or lawsuit by any Person against the Borrower or its Subsidiaries or their
Properties in connection with any Environmental Laws if the Borrower could
reasonably anticipate that such action will result in liability (whether
individually or in the aggregate) in excess of $1,000,000, not covered by
insurance, subject to normal deductibles.

(c) The Borrower will, and will cause each Subsidiary to, provide environmental
assessments, audits and tests in accordance with the most current version of the
American Society of Testing Materials standards as required to be obtained by
the Administrative Agent or the Lenders by any Governmental Authority, in
connection with any future acquisitions of Oil and Gas Properties or other
Properties.

(d) To the extent the Borrower or a Subsidiary is not the operator of any
Property, none of the Borrower and its Subsidiaries shall be obligated to
directly perform any undertakings contemplated by the covenants and agreements
contained in this Section 8.10 which are performable only by such operators and
are beyond the control of the Borrower or any of its Subsidiaries.
Notwithstanding the above and except to the extent that the failure to do so
could not reasonably be expected to have a Material Adverse Effect, the Borrower
shall, and shall cause its Subsidiaries to, use commercially reasonable efforts
to cause the operator to comply with this Section 8.10.

 

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Section 8.11. Further Assurances.

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

(b) The Borrower hereby authorizes the Administrative Agent to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Mortgaged Property without the signature of the Borrower or any
other Guarantor where permitted by law. A carbon, photographic or other
reproduction of the Security Instruments or any financing statement covering the
Mortgaged Property or any part thereof shall be sufficient as a financing
statement where permitted by law.

Section 8.12. Reserve Reports.

(a) On or before March 1st and September 1st of each year, commencing March 1st,
2012, the Borrower shall furnish to the Administrative Agent and the Lenders a
Reserve Report evaluating the Oil and Gas Properties of the Borrower and its
Subsidiaries as of the immediately preceding December 31 and June 30. The
Reserve Report as of December 31 of each year shall be prepared by or under the
supervision of the chief engineer of the Borrower who shall certify such Reserve
Report to be true and accurate and to have been prepared in accordance with the
procedures used in the immediately preceding Reserve Report, if applicable,
prepared by one or more Approved Petroleum Engineers and the June 30 Reserve
Report of each year shall be prepared by one or more Approved Petroleum
Engineers. It is understood that projections concerning volumes attributable to
the Oil and Gas Properties and production and cost estimates contained in each
Reserve Report are necessarily based upon professional opinions, estimates and
projections and that the Borrower and the Subsidiaries do not warrant that such
opinions, estimates and projections will ultimately prove to have been accurate.

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

 

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Section 8.13. Title Information.

(a) On or before the delivery to the Administrative Agent and the Lenders of
each Reserve Report required by Section 8.12(a), the Borrower will deliver title
information in form and substance acceptable to the Administrative Agent
covering enough of the Oil and Gas Properties evaluated by such Reserve Report
that were not included in the immediately preceding Reserve Report, so that the
Administrative Agent shall have received together with title information
previously delivered to the Administrative Agent, satisfactory title information
on at least 85% of the total value of the Oil and Gas Properties evaluated by
such Reserve Report.

(b) If the Borrower has provided title information for additional Properties
under Section 8.13(a), the Borrower shall, within 60 days of notice from the
Administrative Agent that title defects or exceptions exist with respect to such
additional Properties, either (i) cure any such title defects or exceptions
(including defects or exceptions as to priority) which are not permitted by
Section 9.03 raised by such information, (ii) substitute acceptable Mortgaged
Properties with no title defects or exceptions except for Excepted Liens (other
than Excepted Liens described in clauses (e), (g) and (h) of such definition)
having an equivalent value or (iii) deliver title information in form and
substance acceptable to the Administrative Agent so that the Administrative
Agent shall have received, together with title information previously delivered
to the Administrative Agent, satisfactory title information on at least 85% of
the value of the Oil and Gas Properties evaluated by such Reserve Report.

(c) If the Borrower is unable to cure any title defect requested by the
Administrative Agent or the Lenders to be cured within the 60-day period or the
Borrower does not comply with the requirements to provide acceptable title
information covering 85% of the value of the Oil and Gas Properties evaluated in
the most recent Reserve Report, such default shall not be a Default, but instead
the Administrative Agent and/or the Majority Lenders shall have the right to
exercise the following remedy in their sole discretion from time to time, and
any failure to so exercise this remedy at any time shall not be a waiver as to
future exercise of the remedy by the Administrative Agent or the Lenders. To the
extent that the Administrative Agent or the Majority Lenders are not satisfied
with title to any Mortgaged Property after the 60-day period has elapsed, such
unacceptable Mortgaged Property shall not count towards the 85% requirement, and
the Administrative Agent may send a notice to the Borrower and the Lenders that
the then outstanding Borrowing Base shall be reduced by an amount as determined
by the Required Lenders to cause the Borrower to be in compliance with the
requirement to provide acceptable title information on 80% of the value of the
Oil and Gas Properties. This new Borrowing Base shall become effective
immediately after receipt of such notice.

Section 8.14. Additional Collateral; Additional Guarantors.

(a) In connection with each redetermination of the Borrowing Base, the Borrower
shall review the Reserve Report and the list of current Mortgaged Properties (as
described in Section 8.12(c)(vi)) to ascertain whether the Mortgaged Properties
represent at least (i) 85% of the total proved value and (ii) 90% of the total
proved value attributable to proved developed producing of the Oil and Gas
Properties evaluated in the most recently completed Reserve Report after giving
effect to exploration and production activities, acquisitions, dispositions and
production. In the event that the Mortgaged Properties do not represent at least
(i) 85% of such total value and (ii) 90% of the proved developed producing
value, then the Borrower shall, and

 

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shall cause its Subsidiaries to, grant, within thirty (30) days of delivery of
the certificate required under Section 8.12(c), to the Administrative Agent as
security for the Secured Obligations a first-priority Lien interest (provided
that Excepted Liens of the type described in clauses (a) to (d) and (f) of the
definition thereof may exist, but subject to the provisos at the end of such
definition, and Liens permitted by Section 9.03(e) may exist) on additional Oil
and Gas Properties not already subject to a Lien of the Security Instruments
such that after giving effect thereto, the Mortgaged Properties will represent
not less than the minimum set forth above. All such Liens will be created and
perfected by and in accordance with the provisions of deeds of trust, security
agreements and financing statements or other Security Instruments, all in form
and substance reasonably satisfactory to the Administrative Agent and in
sufficient executed (and acknowledged where necessary or appropriate)
counterparts for recording purposes. In order to comply with the foregoing, if
any Subsidiary places a Lien on its Oil and Gas Properties and such Subsidiary
is not a Guarantor, then it shall become a Guarantor and comply with
Section 8.14(b).

(b) In the event that the Borrower creates or acquires any Domestic Subsidiary,
the Borrower shall promptly cause such Subsidiary to guarantee the Secured
Obligations pursuant to the Guaranty Agreement. In connection with any such
guaranty, the Borrower shall, or shall cause such Subsidiary to, (A) execute and
deliver a supplement to the Guaranty Agreement executed by such Subsidiary,
(B) pledge all of the Equity Interests of such new Subsidiary (including,
without limitation, delivery of original stock certificates evidencing the
Equity Interests of such Subsidiary, if any, together with an appropriate
undated stock powers for each certificate duly executed in blank by the
registered owner thereof) and (C) execute and deliver such other additional
closing documents, certificates and legal opinions as shall reasonably be
requested by the Administrative Agent.

(c) At any time during the continuation of an Event of Default, if required by
the Administrative Agent, the Borrower shall, and shall cause each of its
Domestic Subsidiaries to grant to the Administrative Agent a Lien to secure the
Secured Obligations on all other Oil and Gas Properties having probable and
possible reserves and other acreage positions, except those assets as to which
the Administrative Agent shall determine in its reasonable discretion that the
cost of obtaining a Lien or other security interest therein is excessive in
relation to the value of the security to be afforded thereby.

Section 8.15. ERISA Compliance. The Borrower will promptly furnish and will
cause the Subsidiaries and any ERISA Affiliate to promptly furnish to the
Administrative Agent immediately upon becoming aware of the occurrence of any
non-exempt “prohibited transaction,” as described in section 406 of ERISA or in
section 4975 of the Code, in connection with any Plan or any trust created
thereunder, a written notice signed by the President or the principal Financial
Officer, the Subsidiary or the ERISA Affiliate, as the case may be, specifying
the nature thereof, what action the Borrower, the Subsidiary or the ERISA
Affiliate is taking or proposes to take with respect thereto, and, when known,
any action taken or proposed by the Internal Revenue Service or the Department
of Labor with respect thereto.

 

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Section 8.16. Swap Agreements. Within three (3) Business Days after purchase by
the Borrower, the Administrative Agent shall have received evidence that the
Borrower, for each year during the period commencing not later than fifteen
(15) Business Days after the Effective Date and ending on December 2014, has
purchased one or more commodity price floors or collars with one or more
Approved Counterparties and which have (a) a floor strike price of not less than
$85 per barrel in respect of crude oil (NYMEX/WTI basis adjusted equivalent) for
calendar years 2012-2014 on notional volumes representing not less than 37.5% of
projected production from proved developed producing Oil and Gas Properties,
(b) a floor strike price of not less than $3.00/mmbtu for calendar year 2012,
$3.50/mmbtu for calendar year 2013 and $3.75/mmbtu for calendar year 2014 in
respect of natural gas (NYMEX/Henry Hub basis adjusted equivalent) on notional
volumes representing not less than 60% of projected production from proved
developed producing Oil and Gas Properties, and (c) a swap price of $94 per
barrel for calendar year 2012, $92 per barrel for calendar year 2013 and $90 per
barrel for calendar year 2014 in respect of crude oil (NYMEX/WTI basis adjusted
equivalent) on notional volumes representing not less than 37.5% of projected
production from proved developed producing Oil and Gas Properties, or in each
case for notional volumes for equivalent or greater value, as determined by the
Administrative Agent in its reasonable discretion, and in each case as
determined by reference to the Initial Reserve Reports. The Borrower shall
maintain the hedge position established by the Swap Agreements required under
this Section 8.16 during the period specified therein and shall neither assign,
terminate or unwind any such Swap Agreements nor sell any Swap Agreements
without prior notice to the Administrative Agent and the Lenders and an
adjustment to the Borrowing Base as contemplated by Section 2.07(e).

ARTICLE IX

NEGATIVE COVENANTS

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

Section 9.01. Financial Covenants.

(a) Ratio of Total Debt to EBITDAX. The Borrower will not, as of the last day of
any fiscal quarter ending on or after December 31, 2011, permit its ratio of
Total Debt as of such day to EBITDAX for the immediately preceding four fiscal
quarters ending on such day to be greater than 4.0 to 1.0.

(b) Current Ratio. The Borrower will not permit, as of the last day of any
fiscal quarter ending on or after March 31, 2012, its ratio of (i) consolidated
current assets (including the unused amount of the total Commitments, but
excluding non-cash assets under FAS 133) to (ii) consolidated current
liabilities (excluding non-cash obligations under FAS 133 and current maturities
under this Agreement) to be less than 1.0 to 1.0.

 

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

(a) the Notes or other Secured Obligations or any guaranty of or suretyship
arrangement for the Notes or other Secured Obligations and any Permitted
Refinancing Debt in respect thereof.

(b) Debt of the Borrower and its Subsidiaries existing on the date hereof that
is reflected in the Financial Statements, or set forth on Schedule 9.02, and any
Permitted Refinancing Debt in respect thereof.

(c) Purchase money Debt and Debt under Capital Leases not to exceed $2,000,000
in the aggregate.

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

(e) intercompany Debt between the Borrower and any Subsidiary or between
Subsidiaries to the extent permitted by Section 9.05(g); provided that such Debt
is not held, assigned, transferred, negotiated or pledged to any Person other
than the Borrower or one of its Wholly-Owned Subsidiaries, and, provided
further, that any such Debt owed by either the Borrower or a Guarantor shall be
subordinated to the Secured Obligations on terms set forth in the Guaranty
Agreement.

(f) endorsements of negotiable instruments for collection in the ordinary course
of business.

(g) Debt (i) under the Senior Notes, the original principal amount of which does
not exceed $50,000,000 in the aggregate, and under any guarantees thereof,
(ii) under the “payment-in-kind” provisions of the Senior Notes which is added
to the principal balance of the Senior Notes in accordance with the terms of the
Senior Notes, (iii) and Permitted Refinancing Debt in respect of the Senior
Notes, and any guaranties thereof and (iv) under the Existing Senior Notes and
any guarantees thereof in an aggregate principal amount not to exceed
$6,000,000.

(h) insurance premiums if the amount financed does not exceed the premium
payable for the current policy period.

(i) other Debt not to exceed, in the aggregate at any one time outstanding, an
amount equal to the greater of (A) $3,000,000 or (B) 5% of the Borrowing Base in
effect on the date such Debt is incurred.

(j) Debt arising under Cash Management Agreements with any financial institution
in which the Borrower or any of its Subsidiaries maintains a deposit account.

Section 9.03. Liens

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

(a) Liens securing the payment of any Secured Obligations.

(b) Excepted Liens.

 

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(c) Liens securing purchase money Debt and Capital Leases permitted by
Section 9.02(c) but only on the Property and improvements and accessions thereof
and proceeds thereof acquired or under lease; provided that such Liens are
created within 180 days of construction, acquisition or lease of such Property.

(d) Liens on Property not otherwise permitted by the foregoing clauses of this
Section 9.03; provided that the aggregate principal or face amount of all Debt
secured under this Section 9.03(d) shall not exceed $1,000,000 at any time.

(e) Liens on Property securing the Senior Notes, the guaranties thereof and any
Permitted Refinancing Debt and guaranties thereof and all obligations under the
Senior Indenture provided that such Liens are subordinated to the Liens securing
the Secured Obligations.

(f) Liens existing on the date hereof; provided that any such Lien shall only be
permitted to the extent such Lien is listed on Schedule 9.03.

Section 9.04. Dividends, Distributions and Redemptions; Repayment of Senior
Notes.

(a) Restricted Payments. The Borrower will not declare or make, or agree to pay
or make, directly or indirectly, any Restricted Payment, return any capital to
its stockholders or make any distribution of its Property to its Equity Interest
holders, except (i) the Borrower may declare and pay dividends with respect to
its Equity Interests payable solely in additional shares of its Equity Interests
(other than Disqualified Capital Stock), (ii) the Borrower may make Restricted
Payments pursuant to and in accordance with stock option plans or other benefit
plans for management or employees of the Borrower and its Subsidiaries, and
(iii) the redemption, repurchase or other acquisition or retirement for value of
Equity Interests of the Borrower held by officers, directors or employees or
former officers, directors or employees (or their transferees, estates or
beneficiaries under their estates), upon any such individual’s death,
disability, retirement, severance or termination of employment or service;
provided, in any case, that the aggregate cash consideration paid for all such
redemptions, repurchases or other acquisitions or retirements does not exceed
the greater of (A) $3,000,000 or (B) 5% of the Borrowing Base in effect on the
date such redemptions, repurchases or other acquisitions or retirements are
made.

(b) Redemption of Senior Notes; Amendment of Senior Indenture. The Borrower will
not, and will not permit any Subsidiary to, prior to the date that is ninety-one
(91) days after the Maturity Date: (i) call, make or offer to make any optional
or voluntary Redemption of or otherwise optionally or voluntarily Redeem
(whether in whole or in part) the Senior Notes or any Permitted Refinancing Debt
in respect thereof; provided that the Borrower may Redeem or prepay the Senior
Notes with the proceeds of any Permitted Refinancing Debt or with the net cash
proceeds of any sale of Equity Interests (other than Disqualified Capital Stock)
of the Borrower, or (ii) amend, modify, waive or otherwise change, consent or
agree to any amendment, modification, waiver or other change to, any of the
terms of the Senior Notes, any Permitted Refinancing Debt in respect of the
Senior Notes or the Senior Indenture if the effect thereof would be to shorten
its maturity or average life or increase the amount of any payment of principal
thereof or increase the rate or shorten any period for payment of interest
thereon, provided that the foregoing shall not prohibit the execution of
supplemental indentures

 

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associated with the execution of other indentures or agreements in connection
with the issuance of Permitted Refinancing Debt or the execution of supplemental
indentures to add guarantors if required by the terms of any Senior Indenture
provided such Person is also a Guarantor of the Secured Obligations.

Section 9.05. Investments, Loans and Advances. The Borrower will not, and will
not permit any Subsidiary to, make or permit to remain outstanding any
Investments in or to any Person, except that the foregoing restriction shall not
apply to:

(a) Investments reflected in the Financial Statements or which are disclosed to
the Lenders in Schedule 9.05.

(b) accounts receivable arising in the ordinary course of business.

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

(d) commercial paper maturing within one year from the date of creation thereof
rated in the highest grade by S&P or Moody’s.

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

(f) Investments in money market or other mutual funds substantially all of whose
assets are described in Section 9.05(c), Section 9.05(d) and Section 9.05(e).

(g) Investments (i) made by the Borrower in or to the Guarantors and (ii) made
by any Guarantor in or to the Borrower or any Guarantor.

(h) subject to the limits in Section 9.07, Investments (including, without
limitation, capital contributions) in general or limited partnerships or other
types of entities (each a “venture”) entered into by the Borrower or a
Subsidiary with others in the ordinary course of business; provided that (i) any
such venture is engaged exclusively in oil and gas exploration, development,
production, processing and related activities, including transportation,
(ii) the interest in such venture is acquired in the ordinary course of
business, and (iii) such venture interests acquired and capital contributions
made (valued as of the date such interest was acquired or the contribution made)
do not exceed, in the aggregate at any time outstanding an amount equal to the
greater of (A) $5,000,000 or (B) 5% of the Borrowing Base in effect on the date
such Investment was made.

(i) loans or advances to employees, officers or directors in the ordinary course
of business of the Borrower or any of its Subsidiaries, in each case only as
permitted by applicable law, including Section 402 of the Sarbanes-Oxley Act of
2002, but in any event not to exceed $1,000,000 in the aggregate outstanding at
any time.

 

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(j) Investments in stock, obligations or securities received in settlement of
debts arising from Investments permitted under this Section 9.05 owing to the
Borrower or any Subsidiary as a result of a bankruptcy or other insolvency
proceeding of the obligor in respect of such debts or upon the enforcement of
any Lien in favor of the Borrower or any of its Subsidiaries.

(k) guarantees by the Borrower and any Guarantor of Debt permitted by
Section 9.02.

(l) Investments arising from the endorsement of financial instruments in the
ordinary course of business.

(m) other Investments not to exceed, in the aggregate at any time outstanding,
an amount equal to the greater of (A) $3,000,000 or (B) 5% of the Borrowing Base
in effect on the date such Investments are made.

Section 9.06. Nature of Business; International Operations. The Borrower will
not, and will not permit any Subsidiary to, allow any material change to be made
in the character of its business as an independent oil and gas exploration and
production company. From and after the date hereof, the Borrower and its
Domestic Subsidiaries will not acquire or make any other expenditure (whether
such expenditure is capital, operating or otherwise) in or related to, any Oil
and Gas Properties not located within the geographical boundaries of the United
States of America.

Section 9.07. Limitation on Leases. The Borrower will not, and will not permit
any Subsidiary to, create, incur, assume or suffer to exist any obligation for
the payment of rent or hire of Property of any kind whatsoever (real or personal
but excluding Capital Leases and leases of Hydrocarbon Interests), under leases
or lease agreements which would cause the aggregate amount of all payments made
by the Borrower and the Subsidiaries pursuant to all such leases or lease
agreements, including, without limitation, any residual payments at the end of
any lease, to exceed $5,000,000 in any period of twelve consecutive calendar
months during the life of such leases.

Section 9.08. Proceeds of Loans. The Borrower will not permit the proceeds of
the Loans to be used for any purpose other than (i) funding in connection with
the Reorganization, (ii) the acquisition and development by the Borrower and its
Subsidiaries of oil and natural gas properties, and (iii) other general
corporate purposes. Neither the Borrower nor any Person acting on behalf of the
Borrower has taken or will take any action which might cause any of the Loan
Documents to violate Regulations T, U or X or any other regulation of the Board
or to violate Section 7 of the Securities Exchange Act of 1934 or any rule or
regulation thereunder, in each case as now in effect or as the same may
hereinafter be in effect.

 

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

(a) engage in, or permit any ERISA Affiliate to engage in, any transaction in
connection with which the Borrower, a Subsidiary or any ERISA Affiliate could be
subjected to either a civil penalty assessed pursuant to subsections (c), (i),
(l) or (m) of section 502 of ERISA or a tax imposed by Chapter 43 of Subtitle D
of the Code that would reasonably be expected to result in a material liability
to the Borrower or any of its Subsidiaries.

(b) fail to make, or permit any ERISA Affiliate to fail to make, full payment
when due of all amounts which, under the provisions of any Plan, agreement
relating thereto or applicable law, the Borrower, a Subsidiary or any ERISA
Affiliate is required to pay as contributions thereto that would reasonably be
expected to result in a material liability to the Borrower or any of its
Subsidiaries.

(c) contribute to or assume an obligation to contribute to, or permit any ERISA
Affiliate to contribute to or assume an obligation to contribute to (i) any
employee welfare benefit plan, as defined in section 3(1) of ERISA, including,
without limitation, any such plan maintained to provide benefits to former
employees of such entities, that may not be terminated by such entities in their
sole discretion at any time without any material liability, or (ii) any employee
pension benefit plan, as defined in section 3(2) of ERISA, that is subject to
Title IV of ERISA, section 302 of ERISA or section 412 of the Code.

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

Section 9.11. Mergers, Etc. The Borrower will not, and will not permit any
Subsidiary to, merge into or with or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (whether in one transaction or in a series of
transactions) all or substantially all of its Property to any other Person
(whether now owned or hereafter acquired) (any such transaction, a
“consolidation”), or liquidate or dissolve; provided that

(a) any Subsidiary may participate in a consolidation with the Borrower
(provided that the Borrower shall be the continuing or surviving corporation) or
any other Subsidiary that is a Domestic Subsidiary (provided that if one of such
Subsidiaries is a Wholly-Owned Subsidiary, then the surviving Person shall be a
Wholly-Owned Subsidiary);

(b) any sale of all or substantially all of the assets of any Subsidiary
provided that such sale is permitted by Section 9.12(d);

(c) any Subsidiary may liquidate or dissolve if (i) the continued existence and
operation of such Subsidiary is no longer in the best interests of the Borrower
and its Subsidiaries taken as a whole (as determined by a Responsible Officer of
the Borrower), (ii) such liquidation and dissolution is not disadvantageous in
any material respect to the Lenders, and (iii) at the time thereof and
immediately after giving effect thereto, no Default shall occur and be
continuing and no Borrowing Base Deficiency would result therefrom; and

 

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(d) any sale or other disposition permitted by Section 9.12.

Section 9.12. Sale of Properties. Section 1.02 . The Borrower will not, and will
not permit any Subsidiary to, sell, transfer, assign, farm-out, lease or
otherwise transfer or dispose of any Property or any interest therein (including
within such prohibition transfers and dispositions of overriding royalty
interests, production payments, net profits interests and any other interests
payable out of or measured by production or the proceeds of production) or any
Subsidiary owning any such Oil and Gas Property, other than:

(a) sales of Hydrocarbons in the ordinary course of business and sales of
obsolete, worn-out or surplus equipment in the ordinary course of business;

(b) so long as no Event of Default then exists or would result from such action,
farmouts and leases of any of the Oil and Gas Properties not included in the
determination of the then current Borrowing Base, so long as such farmouts and
leases are in the ordinary course of business and on terms customary in the
industry;

(c) disposition of any Investments permitted under Section 9.05(c) through
9.05(f) and 9.05(j);

(d) dispositions (including farmouts) of any Oil and Gas Properties included in
the determination of the then current Borrowing Base or any interest therein or
Equity Interests of any Subsidiary owning Oil and Gas Properties included in the
determination of the then current Borrowing Base for cash consideration of not
less than fair market value, provided that (1) no Event of Default has occurred
and is continuing at the date of such disposition and no Event of Default would
result therefrom and (2) if the aggregate fair market value (calculated at the
time of such disposition) of all such Oil and Gas Properties disposed of,
together with the aggregate Swap Agreement PV of all commodity hedge positions
terminated and/or offset, in each case, since the last Scheduled Redetermination
Date exceeds 5% of the then-effective Borrowing Base, then no later than two
Business Days’ after the date of consummation of any such disposition, the
Borrower shall provide notice to the Administrative Agent of such disposition
and the Borrowing Base shall be adjusted to remove the Borrowing Base value of
such Oil and Gas Properties so disposed;

(e) sales and other dispositions of Properties not regulated by Section 9.12(a)
to (d) having a fair market value not to exceed $500,000 during any 6-month
period; and

(f) transfers between the Borrower and a Subsidiary or between Subsidiaries.

Notwithstanding anything to the contrary herein contained, the Borrower shall,
or shall cause its Subsidiaries to, use the net cash proceeds, if any, of any
disposition made while a Borrowing Base Deficiency exists to eliminate such
Borrowing Base Deficiency (or reduce such Borrowing Base Deficiency to the
extent such net cash proceeds are not sufficient to eliminate such Borrowing
Base Deficiency); provided that the Borrower will not be required to so apply
the net cash proceeds from the sale or transfer of the property or assets
securing any secured Debt permitted by Section 9.03(c) or (d) to the extent such
net cash proceeds are applied to discharge such Debt.

 

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Section 9.13. Transactions with Affiliates. The Borrower will not, and will not
permit any Subsidiary to, enter into any transaction, including, without
limitation, any purchase, sale, lease or exchange of Property or the rendering
of any service, with any Affiliate (other than the Guarantors and Wholly-Owned
Subsidiaries of the Borrower); provided, however, that the foregoing
restrictions will not apply to (a) transactions that are not otherwise
prohibited under this Agreement and are upon fair and reasonable terms no less
favorable to it than it would obtain in a comparable arm’s length transaction
with a Person not an Affiliate, (b) reasonable and customary fees paid to
members of the board of directors (or similar governing body) of the Borrower
and its Subsidiaries, (c) compensation arrangements for officers and other
employees of the Borrower and its Subsidiaries entered into in the ordinary
course of business, (d) transactions permitted by Section 9.04(a), and
(e) transactions set forth on Schedule 9.13.

Section 9.14. Subsidiaries. The Borrower will not, and will not permit any
Subsidiary to, create or acquire any additional Subsidiary unless the Borrower
gives written notice to the Administrative Agent of such creation or acquisition
and complies with Section 8.14(b). The Borrower shall not, and shall not permit
any Subsidiary to, sell, assign or otherwise dispose of any Equity Interests in
any Subsidiary except in compliance with Section 9.11 or Section 9.12(d).

Section 9.15. Negative Pledge Agreements; Dividend Restrictions. The Borrower
will not, and will not permit any Subsidiary to, create, incur, assume or suffer
to exist any contract, agreement or understanding which in any way prohibits or
restricts the granting, conveying, creation or imposition of any Lien on any of
its Property in favor of the Administrative Agent and the Lenders or restricts
any Subsidiary from paying dividends or making distributions to the Borrower or
any Guarantor, or which requires the consent of or notice to other Persons in
connection therewith; provided, however, that the preceding restrictions will
not apply to encumbrances or restrictions arising under or by reason of (i) this
Agreement, the Security Instruments or the Senior Indenture, (ii) Liens
permitted by Section 9.03(c) (but only to the extent related to the Property on
which such Liens were created), (iii) any leases or licenses or similar
contracts as they affect any Property or Lien subject to a lease or license,
(iv) any restriction with respect to the Borrower or a Subsidiary imposed
pursuant to an agreement entered into for the direct or indirect sale or
disposition of the Property of the Borrower or such Subsidiary or all or
substantially all the equity of a Subsidiary (or the Property that is subject to
such restriction) pending the closing of such sale or disposition, or
(v) customary provisions with respect to the distribution of Property in joint
venture agreements.

Section 9.16. Gas Imbalances, Take-or-Pay or Other Prepayments. The Borrower
will not, and will not permit any Subsidiary to, allow gas imbalances,
take-or-pay or other prepayments with respect to the Oil and Gas Properties of
the Borrower or any Subsidiary that would require the Borrower or such
Subsidiary to deliver Hydrocarbons at some future time without then or
thereafter receiving full payment therefor to exceed one half bcf of gas (on an
mcf equivalent basis) in the aggregate.

 

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Section 9.17. Swap Agreements. The Borrower will not, and will not permit any
Subsidiary to, enter into any Swap Agreements with any Person other than
(a) Swap Agreements in respect of commodities (i) with an Approved Counterparty,
(ii) which do not have a tenor of longer than forty-eight (48) months and
(iii) the notional volumes for which (when aggregated with other commodity Swap
Agreements then in effect other than basis differential swaps on volumes already
hedged pursuant to other Swap Agreements) do not exceed, as of the date such
Swap Agreement is executed, 80% of the reasonably anticipated projected
production from proved, developed, producing Oil and Gas Properties for each
month during the period during which such Swap Agreement is in effect for each
of crude oil, natural gas liquids and natural gas, calculated separately, and
(b) Swap Agreements in respect of interest rates with an Approved Counterparty,
Swap Agreements effectively converting interest rates from floating to fixed,
the notional amounts of which (when aggregated with all other Swap Agreements of
the Borrower and its Subsidiaries then in effect effectively converting interest
rates from floating to fixed) do not exceed 75% of the then outstanding
principal amount of the Borrower’s Debt for borrowed money which bears interest
at a floating rate.

Section 9.18. Reorganization Documents. The Borrower will not, and will not
permit any of its Subsidiaries to, amend, modify or supplement any of the
Reorganization Documents if the effect thereof could reasonably be expected to
have a Material Adverse Effect (and provided that the Borrower promptly
furnishes to the Administrative Agent a copy of such amendment, modification or
supplement).

Section 9.19. Marketing Activities. The Borrower will not, and will not permit
any of its Subsidiaries to, engage in marketing activities for any Hydrocarbons
or enter into any contracts related thereto other than (i) contracts for the
sale of Hydrocarbons scheduled or reasonably estimated to be produced from their
proved Oil and Gas Properties during the period of such contract, (ii) contracts
for the sale of Hydrocarbons scheduled or reasonably estimated to be produced
from proved Oil and Gas Properties of third parties during the period of such
contract associated with the Oil and Gas Properties of the Borrower and its
Subsidiaries that the Borrower or one of its Subsidiaries has the right to
market pursuant to joint operating agreements, unitization agreements or other
similar contracts that are usual and customary in the oil and gas business and
(iii) other contracts for the purchase and/or sale of Hydrocarbons of third
parties (A) which have generally offsetting provisions (i.e., corresponding
pricing mechanics, delivery dates and points and volumes) such that no
“position” is taken and (B) for which appropriate credit support has been taken
to alleviate the material credit risks of the counterparty thereto.

ARTICLE X

EVENTS OF DEFAULT; REMEDIES

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

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

 

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

(c) any representation or warranty made or deemed made by or on behalf of the
Borrower or any Subsidiary in or in connection with any Loan Document or any
amendment or modification of any Loan Document or waiver under such Loan
Document, or in any report, certificate, financial statement or other document
furnished pursuant to or in connection with any Loan Document or any amendment
or modification thereof or waiver thereunder, shall prove to have been incorrect
in any material respect when made or deemed made (unless such representation or
warranty was already qualified by materiality, in which case such representation
or warranty shall simply have been true and correct).

(d) the Borrower or any Subsidiary shall fail to observe or perform any
covenant, condition or agreement contained in Section 8.02, Section 8.03,
Section 8.14, or in Article IX.

(e) the Borrower or any Subsidiary shall fail to observe or perform any
covenant, condition or agreement contained in this Agreement (other than those
specified in Section 10.01(a), Section 10.01(b) or Section 10.01(d)) or any
other Loan Document, and such failure shall continue unremedied for a period of
30 days after the earlier to occur of (A) notice thereof from the Administrative
Agent to the Borrower (which notice will be given at the request of any Lender)
or (B) a Responsible Officer of the Borrower or such Subsidiary otherwise
becoming aware of such default; provided, however, that if the Borrower fails to
deliver any financial statements, certificates or other information within the
time period required by Sections 8.01, 8.02, 8.11 or 8.13 and subsequently
delivers such financial statements, certificates or other information as
required by such Sections prior to acceleration or the exercise of any remedy by
the Lenders, then such Event of Default shall be deemed to have been cured
without any further action by the Administrative Agent or Lenders.

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

(g) any event or condition occurs that results in any Material Indebtedness
becoming due prior to its scheduled maturity or that enables or permits (with or
without the giving of notice, the lapse of time or both) the holder or holders
of any Material Indebtedness or any trustee or agent on its or their behalf to
cause any Material Indebtedness to become due, or to require the Redemption
thereof or any offer to Redeem to be made in respect thereof, prior to its
scheduled maturity or require the Borrower or any Subsidiary to make an offer in
respect thereof provided that this clause (g) shall not apply to secured Debt
that becomes due as a result of the voluntary sale or transfer of the property
or assets securing such Debt.

(h) an involuntary proceeding shall be commenced or an involuntary petition
shall be filed seeking (i) liquidation, reorganization or other relief in
respect of the Borrower or any Subsidiary or its debts, or of a substantial part
of its assets, under any Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect or (ii) the

 

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appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for the Borrower or any Subsidiary or for a substantial part of
its assets, and, in any such case, such proceeding or petition shall continue
undismissed for 60 days or an order or decree approving or ordering any of the
foregoing shall be entered.

(i) the Borrower or any Subsidiary shall (i) voluntarily commence any proceeding
or file any petition seeking liquidation, reorganization or other relief under
any Federal, state or foreign bankruptcy, insolvency, receivership or similar
law now or hereafter in effect, (ii) consent to the institution of, or fail to
contest in a timely and appropriate manner, any proceeding or petition described
in Section 10.01(h), (iii) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official for
the Borrower or any Subsidiary or for a substantial part of its assets,
(iv) file an answer admitting the material allegations of a petition filed
against it in any such proceeding, (v) make a general assignment for the benefit
of creditors or (vi) take any action for the purpose of effecting any of the
foregoing; or a meeting of the stockholders of the Borrower to consider a
resolution to dissolve and wind-up the Borrower’s affairs shall be called.

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

(k) one or more judgments for the payment of money in an aggregate amount in
excess of $2,500,000 (to the extent not covered by independent third party
insurance as to which the insurer does not dispute coverage and is not subject
to an insolvency proceeding) shall be rendered against the Borrower, any
Subsidiary or any combination thereof and the same shall remain undischarged for
a period of 60 consecutive days during which execution shall not be effectively
stayed, or any action shall be legally taken by a judgment creditor to attach or
levy upon any assets of the Borrower or any Subsidiary to enforce any such
judgment.

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

(m) a Change in Control shall occur.

Section 10.02. Remedies.

(a) In the case of an Event of Default other than one described in
Section 10.01(h), Section 10.01(i) or Section 10.01(j), at any time thereafter
during the continuance of such Event of Default, the Administrative Agent may,
and at the request of the Majority Lenders, shall, by notice to the Borrower,
take either or both of the following actions, at the same or different times:
(i) terminate the Commitments, and thereupon the Commitments shall terminate
immediately, and (ii) declare the Notes and the Loans then outstanding to be due
and payable in whole (or in part, in which case any principal not so declared to
be due and payable may

 

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thereafter be declared to be due and payable), and thereupon the principal of
the Loans so declared to be due and payable, together with accrued interest
thereon and all fees and other obligations of the Borrower and the Guarantors
accrued hereunder and under the Notes and the other Loan Documents (including,
without limitation, the payment of cash collateral to secure the LC Exposure as
provided in Section 2.08(j)), shall become due and payable immediately, without
presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or other notice of any kind, all of which are hereby waived by the
Borrower and each Guarantor; and in case of an Event of Default described in
Section 10.01(h), Section 10.01(i) or Section 10.01(j), the Commitments shall
automatically terminate and the Notes and the principal of the Loans then
outstanding, together with accrued interest thereon and all fees and the other
obligations of the Borrower and the Guarantors accrued hereunder and under the
Notes and the other Loan Documents (including, without limitation, the payment
of cash collateral to secure the LC Exposure as provided in Section 2.08(j)),
shall automatically become due and payable, without presentment, demand,
protest, notice of intent to accelerate, notice of acceleration, or other notice
of any kind, all of which are hereby waived by the Borrower and each Guarantor.

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

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

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

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

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

(iv) fourth, pro rata to payment of principal outstanding on the Loans and
Secured Obligations referred to in Clauses (b) and (c) of the definition of
Secured Obligations owing to each Person to whom a Secured Obligation is owed;

(v) fifth, pro rata to any other Secured Obligations;

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

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

 

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ARTICLE XI

THE AGENTS

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

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

 

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Section 11.03. Action by Administrative Agent. The Administrative Agent shall
have no duty to take any discretionary action or exercise any discretionary
powers, except discretionary rights and powers expressly contemplated hereby or
by the other Loan Documents that the Administrative Agent is required to
exercise in writing as directed by the Majority Lenders (or such other number or
percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 12.02) and in all cases the Administrative Agent shall be
fully justified in failing or refusing to act hereunder or under any other Loan
Documents unless it shall (a) receive written instructions from the Majority
Lenders or the Lenders, as applicable, (or such other number or percentage of
the Lenders as shall be necessary under the circumstances as provided in
Section 12.02) specifying the action to be taken and (b) be indemnified to its
satisfaction by the Lenders against any and all liability and expenses which may
be incurred by it by reason of taking or continuing to take any such action. The
instructions as aforesaid and any action taken or failure to act pursuant
thereto by the Administrative Agent shall be binding on all of the Lenders. If a
Default has occurred and is continuing, then the Administrative Agent shall take
such action with respect to such Default as shall be directed by the requisite
Lenders in the written instructions (with indemnities) described in this
Section 11.03, provided that, unless and until the Administrative Agent shall
have received such directions, the Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default as it shall deem advisable in the best interests of the Lenders.
In no event, however, shall the Administrative Agent be required to take any
action which exposes the Administrative Agent to personal liability or which is
contrary to this Agreement, the Loan Documents or applicable law. If a Default
has occurred and is continuing, the Syndication Agent shall not have any
obligation to perform any act in respect thereof. The Administrative Agent shall
not be liable for any action taken or not taken by it with the consent or at the
request of the Majority Lenders or the Lenders (or such other number or
percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 12.02), and otherwise the Administrative Agent shall not be
liable for any action taken or not taken by it hereunder or under any other Loan
Document or under any other document or instrument referred to or provided for
herein or therein or in connection herewith or therewith INCLUDING ITS OWN
ORDINARY NEGLIGENCE, except for its own gross negligence or willful misconduct.

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

 

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

Section 11.06. Resignation of Administrative Agent. Subject to the appointment
and acceptance of a successor Administrative Agent as provided in this
Section 11.06, the Administrative Agent may resign at any time by notifying the
Lenders, the Issuing Bank and the Borrower. Upon any such resignation, the
Majority Lenders shall have the right, in consultation with the Borrower, to
appoint a successor. If no successor shall have been so appointed by the
Majority Lenders and shall have accepted such appointment within 30 days after
the retiring Agent gives notice of its resignation of the retiring Agent, then
the retiring Agent may, on behalf of the Lenders and the Issuing Bank, appoint a
successor Agent. Upon the acceptance of its appointment as Agent hereunder by a
successor, such successor shall succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations hereunder. The fees
payable by the Borrower to a successor Agent shall be the same as those payable
to its predecessor unless otherwise agreed between the Borrower and such
successor. After the Agent’s resignation hereunder, the provisions of this
Article XI and Section 12.03 shall continue in effect for the benefit of such
retiring 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 Agent.

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

Section 11.08. No Reliance. Each Lender acknowledges that it has, independently
and without reliance upon the Administrative Agent, any other Agent or any other
Lender and based on such documents and information as it has deemed appropriate,
made its own credit analysis and decision to enter into this Agreement and each
other Loan Document to which it is a party. Each Lender also acknowledges that
it will, independently and without reliance upon the Administrative Agent, any
other Agent or any other Lender and based on such documents and information as
it shall from time to time deem appropriate, continue to make its own decisions
in taking or not taking action under or based upon this Agreement, any other
Loan Document, any related agreement or any document furnished hereunder or
thereunder. The Agents shall not be required to keep themselves informed as to
the performance or observance by the Borrower or any of its Subsidiaries of this
Agreement, the Loan Documents or any other document referred to or provided for
herein or to inspect the Properties or books of the Borrower or its
Subsidiaries. Except for notices, reports and other documents and information
expressly required to be furnished to the Lenders by the Administrative Agent
hereunder, no Agent or the Arranger shall have any duty or responsibility to
provide any Lender with any credit or other information concerning the affairs,
financial condition or business of the Borrower (or any of its Affiliates) which
may come into the possession of such Agent or any of its Affiliates. In this
regard, each

 

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Lender acknowledges that Simpson, Thacher & Bartlett L.L.P. is acting in this
transaction as special counsel to the Administrative Agent only, except to the
extent otherwise expressly stated in any legal opinion or any Loan Document.
Each other party hereto will consult with its own legal counsel to the extent
that it deems necessary in connection with the Loan Documents and the matters
contemplated therein.

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

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

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

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

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

Section 11.10. Authority of Administrative Agent to Release Collateral and
Liens. Each Lender and the Issuing Bank hereby authorizes the Administrative
Agent to release any collateral that is permitted to be sold or released
pursuant to the terms of the Loan Documents. Each Lender and the Issuing Bank
hereby authorizes the Administrative Agent to execute and deliver to the
Borrower, at the Borrower’s sole cost and expense, any and all releases of
Liens, termination statements, assignments or other documents reasonably
requested by the Borrower in connection with any sale or other disposition of
Property to the extent such sale or other disposition is permitted by the terms
of Section 9.12 or is otherwise authorized by the terms of the Loan Documents.

 

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

ARTICLE XII

MISCELLANEOUS

Section 12.01. Notices.

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

(i) if to the Borrower, to it at

Two Shell Plaza

777 Walker Street, Suite 2300

Houston, Texas 77002

Attention of Richard H. Mourglia

(Telecopy No. 713-229-6398);

(ii) if to the Administrative Agent, to it at

700 Louisiana Street, Suite 2100

Houston, Texas 77002

Attention: George Serice

Tel: 713-546-9723

Fax: 713-223-4007

and

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

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

 

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

Section 12.02. Waivers; Amendments.

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

(b) Neither this Agreement nor any provision hereof nor any Security Instrument
nor any provision thereof may be waived, amended or modified except pursuant to
an agreement or agreements in writing entered into by the Borrower and the
Majority Lenders or by the Borrower and the Administrative Agent with the
consent of the Majority Lenders; provided that no such agreement shall
(i) increase the Commitment or the Maximum Credit Amount of any Lender without
the written consent of such Lender, (ii) increase the Borrowing Base without the
written consent of all of the Lenders, decrease or maintain the Borrowing Base
without the consent of the Required Lenders, or modify Section 2.07 in any
manner without the consent of each Lender (other than any Defaulting Lender);
provided that a Scheduled Redetermination may be postponed by the Required
Lenders, (iii) reduce the principal amount of any Loan or LC Disbursement or
reduce the rate of interest thereon, or reduce any fees payable hereunder, or
reduce any other Secured Obligations hereunder or under any other Loan Document,
without the written consent of each Lender directly affected thereby,
(iv) postpone the scheduled date of payment or prepayment of the principal
amount of any Loan or LC Disbursement, or any interest thereon, or any fees
payable hereunder, or any other Secured Obligations hereunder or under any other
Loan Document, or reduce the amount of, waive or excuse any such payment, or
postpone or extend the Maturity Date or the Termination Date without the written
consent of each Lender directly affected thereby, (v) change Section 4.01(b) or
Section 4.01(c) in a manner that would alter the pro rata sharing of payments
required thereby, without the written consent of each Lender, (vi) waive or
amend Section 3.04(c), Section 6.01, Section 10.02(c) or Section 12.14 without
the written consent of each Lender directly affected thereby (other than any
Defaulting Lender), (vii) release any Guarantor (except as set forth in the
Guaranty Agreement), release all or substantially all of the collateral (other
than as provided in Section 11.10), without the written

 

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consent of each Lender (other than any Defaulting Lender), (viii) change any of
the provisions of this Section 12.02(b) or the definitions of “Required Lenders”
or “Majority Lenders” or any other provision hereof specifying the number or
percentage of Lenders required to waive, amend or modify any rights hereunder or
under any other Loan Documents or make any determination or grant any consent
hereunder or any other Loan Documents, without the written consent of each
Lender (other than any Defaulting Lender), (ix) change Section 10.02(c) without
the consent of each Person to whom a Secured Obligation is owed; provided
further that no such agreement shall amend, modify or otherwise affect the
rights or duties of the Administrative Agent, any other Agent, or the Issuing
Bank hereunder or under any other Loan Document without the prior written
consent of the Administrative Agent, such other Agent or the Issuing Bank, as
the case may be, or (x) contractually subordinate the payment of all the Secured
Obligations to any other Debt or contractually subordinate the priority of any
of the Administrative Agent’s Liens to the Liens securing any other Debt, in
each case, without the written consent of each Lender (other than any Defaulting
Lender). Notwithstanding the foregoing, any supplement to Schedule 7.14
(Subsidiaries) shall be effective simply by delivering to the Administrative
Agent a supplemental schedule clearly marked as such and, upon receipt, the
Administrative Agent will promptly deliver a copy thereof to the Lenders.

Section 12.03. Expenses, Indemnity; Damage Waiver.

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

 

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(b) THE BORROWER SHALL INDEMNIFY EACH AGENT, THE ARRANGER, THE ISSUING BANK AND
EACH LENDER, AND EACH RELATED PARTY OF ANY OF THE FOREGOING PERSONS (EACH SUCH
PERSON BEING CALLED AN “INDEMNITEE”) AGAINST, AND DEFEND AND HOLD EACH
INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES, PENALTIES,
LIABILITIES AND RELATED EXPENSES, INCLUDING THE FEES, CHARGES AND DISBURSEMENTS
OF ANY COUNSEL FOR ANY INDEMNITEE, INCURRED BY OR ASSERTED AGAINST ANY
INDEMNITEE ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF (i) THE
EXECUTION OR DELIVERY OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY
AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, THE PERFORMANCE BY THE
PARTIES HERETO OR THE PARTIES TO ANY OTHER LOAN DOCUMENT OF THEIR RESPECTIVE
OBLIGATIONS HEREUNDER OR THEREUNDER OR THE CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED HEREBY OR BY ANY OTHER LOAN DOCUMENT, (ii) THE FAILURE OF THE
BORROWER OR ANY SUBSIDIARY TO COMPLY WITH THE TERMS OF ANY LOAN DOCUMENT,
INCLUDING THIS AGREEMENT, OR WITH ANY GOVERNMENTAL REQUIREMENT, (iii) ANY
INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY WARRANTY OR COVENANT OF
THE BORROWER OR ANY GUARANTOR SET FORTH IN ANY OF THE LOAN DOCUMENTS OR ANY
INSTRUMENTS, DOCUMENTS OR CERTIFICATIONS DELIVERED IN CONNECTION THEREWITH,
(iv) ANY LOAN OR LETTER OF CREDIT OR THE USE OF THE PROCEEDS THEREFROM,
INCLUDING, WITHOUT LIMITATION, (A) ANY REFUSAL BY THE ISSUING BANK TO HONOR A
DEMAND FOR PAYMENT UNDER A LETTER OF CREDIT IF THE DOCUMENTS PRESENTED IN
CONNECTION WITH SUCH DEMAND DO NOT STRICTLY COMPLY WITH THE TERMS OF SUCH LETTER
OF CREDIT, OR (B) THE PAYMENT OF A DRAWING UNDER ANY LETTER OF CREDIT
NOTWITHSTANDING THE NON-COMPLIANCE, NON-DELIVERY OR OTHER IMPROPER PRESENTATION
OF THE DOCUMENTS PRESENTED IN CONNECTION THEREWITH, (v) ANY OTHER ASPECT OF THE
LOAN DOCUMENTS, (vi) THE OPERATIONS OF THE BUSINESS OF THE BORROWER AND ITS
SUBSIDIARIES BY THE BORROWER AND ITS SUBSIDIARIES, (vii) ANY ASSERTION THAT THE
LENDERS WERE NOT ENTITLED TO RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THE
SECURITY INSTRUMENTS, (viii) ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR
ANY SUBSIDIARY OR ANY OF THEIR PROPERTIES OR OPERATIONS, INCLUDING, THE
PRESENCE, GENERATION, STORAGE, RELEASE, THREATENED RELEASE, USE, TRANSPORT,
DISPOSAL, ARRANGEMENT OF DISPOSAL OR TREATMENT OF HAZARDOUS MATERIALS ON OR AT
ANY OF THEIR PROPERTIES, (ix) THE BREACH OR NON-COMPLIANCE BY THE BORROWER OR
ANY SUBSIDIARY WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY
SUBSIDIARY, (x) THE PAST OWNERSHIP BY THE BORROWER OR ANY SUBSIDIARY OF ANY OF
THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES WHICH, THOUGH
LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT LIABILITY,
(xi) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT, DISPOSAL, GENERATION,
THREATENED RELEASE, TRANSPORT, ARRANGEMENT FOR TRANSPORT OR ARRANGEMENT FOR
DISPOSAL OF HAZARDOUS MATERIALS ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED
BY THE BORROWER OR ANY SUBSIDIARY OR ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE
OF

 

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HAZARDOUS MATERIALS ON OR FROM ANY PROPERTY OWNED OR OPERATED BY THE BORROWER OR
ANY OF ITS SUBSIDIARIES, (xii) ANY ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO
THE BORROWER OR ANY OF ITS SUBSIDIARIES, OR (xiii) ANY OTHER ENVIRONMENTAL,
HEALTH OR SAFETY CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS, OR (xiv) ANY
ACTUAL OR PROSPECTIVE CLAIM, LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO
ANY OF THE FOREGOING, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY AND
REGARDLESS OF WHETHER ANY INDEMNITEE IS A PARTY THERETO, AND SUCH INDEMNITY
SHALL EXTEND TO EACH INDEMNITEE NOTWITHSTANDING THE SOLE OR CONCURRENT
NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE,
WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL
TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF
ONE OR MORE OF THE INDEMNITEES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT
FAULT ON ANY ONE OR MORE OF THE INDEMNITEES; provided THAT SUCH INDEMNITY SHALL
NOT, AS TO ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS,
DAMAGES, LIABILITIES OR RELATED EXPENSES ARE DETERMINED BY A COURT OF COMPETENT
JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE, ANY MATERIAL BREACH BY ANY
INDEMNITEE OF ITS OBLIGATIONS UNDER THE LOAN DOCUMENTS, OR ANY DISPUTE SOLELY
BETWEEN INDEMNITEES.

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

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

(e) All amounts due under this Section 12.03 shall be payable not later than 10
Business Days after written demand therefor.

 

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Section 12.04. Successors and Assigns.

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

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

 

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

 

  (B) the Administrative Agent, provided that no consent of the Administrative
Agent shall be required for an assignment to an assignee that is a Lender
immediately prior to giving effect to such assignment, an Affiliate of a Lender
or an Approved Fund.

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

 

  (A) except in the case of an assignment to a Lender or an Affiliate of a
Lender or an assignment of the entire remaining amount of the assigning Lender’s
Commitment or Loans, the amount of the Commitment or Loans of the assigning
Lender subject to each such assignment (determined as of the date the Assignment
and Assumption with respect to such assignment is delivered to the
Administrative Agent) shall not be less than $5,000,000 and the amount of the
Commitment of Loans of the assigning Lender after such assignment 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;

 

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

 

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

 

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

 

  (E) The Assignee must not be a Defaulting Lender or an Affiliate of the
Borrower.

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

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

 

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

(c) (i) Any Lender may, without the consent of the Borrower, the Administrative
Agent or the Issuing Bank, sell participations to one or more banks or other
entities (a “Participant”) in all or a portion of such Lender’s rights and
obligations under this Agreement (including all or a portion of its Commitment
and the Loans owing to it); provided that (A) such Lender’s obligations under
this Agreement shall remain unchanged, (B) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations
and (C) the Borrower, the Administrative Agent, the Issuing Bank and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender’s rights and obligations under this Agreement. Any
agreement or instrument pursuant to which a Lender sells such a participation
shall provide that such Lender shall retain the sole right to enforce this
Agreement and to approve any amendment, modification or waiver of any provision
of this Agreement; provided that such agreement or instrument may provide that
such Lender will not, without the consent of the Participant, agree to any
amendment, modification or waiver described in the first proviso to
Section 12.02(b) that affects such Participant. In addition such agreement must
provide that the Participant be bound by the provisions of Section 12.03.
Subject to Section 12.04(c)(ii), the Borrower agrees that each Participant shall
be entitled to the benefits of Section 5.01, Section 5.02 and Section 5.03 to
the same extent as if it were a Lender and had acquired its interest by
assignment pursuant to Section 12.04(a). To the extent permitted by law, each
Participant also shall be entitled to the benefits of Section 12.08 as though it
were a Lender, provided such Participant agrees to be subject to Section 4.01(c)
as though it were a Lender.

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

(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 a central bank, and this
Section 12.04(d) shall not apply to any such pledge or assignment of a security
interest; provided that no such pledge or assignment of a security interest
shall release a Lender from any of its obligations hereunder or substitute any
such pledgee or assignee for such Lender as a party hereto.

 

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

Section 12.05. Survival; Revival; Reinstatement.

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

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

Section 12.06. Counterparts; Integration; Effectiveness.

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

(b) THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
AMONG THE PARTIES HERETO AND THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

 

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

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

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

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

(a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT THAT UNITED
STATES FEDERAL LAW PERMITS ANY LENDER TO CONTRACT FOR, CHARGE, RECEIVE, RESERVE
OR TAKE INTEREST AT THE RATE ALLOWED BY THE LAWS OF THE STATE WHERE SUCH LENDER
IS LOCATED. CHAPTER 346 OF THE TEXAS FINANCE CODE (WHICH REGULATES CERTAIN
REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRI-PARTY ACCOUNTS) SHALL NOT APPLY
TO THIS AGREEMENT OR THE NOTES.

(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS SHALL BE
BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES OF AMERICA
FOR THE SOUTHERN DISTRICT OF TEXAS, AND, BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH PARTY HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED BY
LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION
OF THE AFORESAID COURTS. EACH PARTY HEREBY

 

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IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION
TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN
SUCH RESPECTIVE JURISDICTIONS. THIS SUBMISSION TO JURISDICTION IS NON-EXCLUSIVE
AND DOES NOT PRECLUDE A PARTY FROM OBTAINING JURISDICTION OVER ANOTHER PARTY IN
ANY COURT OTHERWISE HAVING JURISDICTION.

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

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

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

Section 12.11. Confidentiality. Each of the Administrative Agent, the Issuing
Bank and the Lenders agrees to maintain the confidentiality of the Information
(as defined below), except that Information may be disclosed (a) to its and its
Affiliates’ directors, officers, employees and agents, including accountants,
legal counsel and other advisors (it being understood that the Persons to whom
such disclosure is made will be informed of the confidential nature of such
Information and required to keep such Information confidential), (b) to the
extent requested by

 

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any regulatory authority having authority over the Administrative Agent or any
Lender, (c) to the extent required by applicable laws or regulations or by any
subpoena or similar legal process, (d) to any other party to this Agreement or
any other Loan Document, (e) in connection with the exercise of any remedies
hereunder or under any other Loan Document or any suit, action or proceeding
relating to this Agreement or any other Loan Document or the enforcement of
rights hereunder or thereunder, (f) subject to an agreement containing
provisions substantially the same as those of this Section 12.11, to (i) any
assignee of or Participant in, or any prospective assignee of or Participant in,
any of its rights or obligations under this Agreement (provided that such Person
agrees to be bound by the provisions of this Section 12.11) or (ii) any actual
or prospective counterparty (or its advisors) to any Swap Agreement relating to
the Borrower and its obligations (provided that such Person agrees to be bound
by the provisions of this Section 12.11), (g) with the consent of the Borrower
or (h) to the extent such Information (i) becomes publicly available other than
as a result of a breach of this Section 12.11 or (ii) becomes available to the
Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis
from a source other than the Borrower. For the purposes of this Section 12.11,
“Information” means all information received from the Borrower or any Subsidiary
relating to the Borrower or any Subsidiary and their businesses, other than any
such information that is available to the Administrative Agent, the Issuing Bank
or any Lender on a nonconfidential basis prior to disclosure by the Borrower or
a Subsidiary or otherwise identified by the Borrower as being nonconfidential.
Any Person required to maintain the confidentiality of Information as provided
in this Section 12.11 shall be considered to have complied with its obligation
to do so if such Person has exercised the same degree of care to maintain the
confidentiality of such Information as such Person would accord to its own
confidential information.

Section 12.12. Interest Rate Limitation. It is the intention of the parties
hereto that each Lender shall conform strictly to usury laws applicable to it.
Accordingly, if the transactions contemplated hereby would be usurious as to any
Lender under laws applicable to it (including the laws of the United States of
America and the State of Texas or any other jurisdiction whose laws may be
mandatorily applicable to such Lender notwithstanding the other provisions of
this Agreement), then, in that event, notwithstanding anything to the contrary
in any of the Loan Documents or any agreement entered into in connection with or
as security for the Notes, it is agreed as follows: (i) the aggregate of all
consideration which constitutes interest under law applicable to any Lender that
is contracted for, taken, reserved, charged or received by such Lender under any
of the Loan Documents or agreements or otherwise in connection with the Notes
shall under no circumstances exceed the maximum amount allowed by such
applicable law, and any excess shall be canceled automatically and if
theretofore paid shall be credited by such Lender on the principal amount of the
Secured Obligations (or, to the extent that the principal amount of the Secured
Obligations shall have been or would thereby be paid in full, refunded by such
Lender to the Borrower); and (ii) in the event that the maturity of the Notes is
accelerated by reason of an election of the holder thereof resulting from any
Event of Default under this Agreement or otherwise, or in the event of any
required or permitted prepayment, then such consideration that constitutes
interest under law applicable to any Lender may never include more than the
maximum amount allowed by such applicable law, and excess interest, if any,
provided for in this Agreement or otherwise shall be canceled automatically by
such Lender as of the date of such acceleration or prepayment and, if
theretofore paid, shall be credited by such Lender on the principal amount of
the Secured Obligations (or, to the extent that the principal amount of the
Secured Obligations shall have been or would thereby be paid in full, refunded
by

 

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such Lender to the Borrower). All sums paid or agreed to be paid to any Lender
for the use, forbearance or detention of sums due hereunder shall, to the extent
permitted by law applicable to such Lender, be amortized, prorated, allocated
and spread throughout the stated term of the Loans evidenced by the Notes until
payment in full so that the rate or amount of interest on account of any Loans
hereunder does not exceed the maximum amount allowed by such applicable law. If
at any time and from time to time (i) the amount of interest payable to any
Lender on any date shall be computed at the Highest Lawful Rate applicable to
such Lender pursuant to this Section 12.12 and (ii) in respect of any subsequent
interest computation period the amount of interest otherwise payable to such
Lender would be less than the amount of interest payable to such Lender computed
at the Highest Lawful Rate applicable to such Lender, then the amount of
interest payable to such Lender in respect of such subsequent interest
computation period shall continue to be computed at the Highest Lawful Rate
applicable to such Lender until the total amount of interest payable to such
Lender shall equal the total amount of interest which would have been payable to
such Lender if the total amount of interest had been computed without giving
effect to this Section 12.12. To the extent that Chapter 303 of the Texas
Finance Code is relevant for the purpose of determining the Highest Lawful Rate
applicable to a Lender, such Lender elects to determine the applicable rate
ceiling under such Chapter by the weekly ceiling from time to time in effect.
Chapter 346 of the Texas Finance Code does not apply to the Borrower’s
obligations hereunder.

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

Section 12.14. Collateral Matters; Swap Agreements. The benefit of the Security
Instruments and of the provisions of this Agreement relating to any collateral
securing the Secured Obligations shall also extend to and be available to any
Lender or any Affiliate of a Lender that is counterparty to any Swap Agreement
with the Borrower or any of its Subsidiaries (including any Swap Agreement
between such Persons in existence prior to the date hereof) on a pro rata basis
in respect of any obligations of the Borrower or any of its Subsidiaries which
arise

 

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under any such Swap Agreement. If any Lender or any Affiliate of a Lender ceases
to be a Lender under this Agreement, then the benefit of the Security
Instruments and such provisions will continue to apply to the Swap Agreements to
which such Lender or its Affiliate is a party at the time that Lender ceases to
be a Lender, but will not apply to any Swap Agreements entered into by that
Lender or any of its Affiliates after that date. No Lender or any Affiliate of a
Lender shall have any voting rights under any Loan Document as a result of the
existence of obligations owed to it under any such Swap Agreements.

Section 12.15. No Third Party Beneficiaries. This Agreement, the other Loan
Documents, and the agreement of the Lenders to make Loans and the Issuing Bank
to issue, amend, renew or extend Letters of Credit hereunder are solely for the
benefit of the Borrower, and no other Person (including, without limitation, any
Subsidiary of the Borrower, any obligor, contractor, subcontractor, supplier or
materialsman) shall have any rights, claims, remedies or privileges hereunder or
under any other Loan Document against the Administrative Agent, any other Agent,
the Issuing Bank or any Lender for any reason whatsoever. There are no third
party beneficiaries.

Section 12.16. Flood Insurance. Notwithstanding any provision in this Agreement,
any Mortgage or other Loan Document 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) included
in the definition of “Mortgaged Property” and no Building or Manufactured
(Mobile) Home is hereby encumbered by any Security Instrument or other Loan
Document. As used herein, “Flood Insurance Regulations” shall mean (i) the
National Flood Insurance Act of 1968 as now or hereafter in effect or any
successor statute thereto, (ii) the Flood Disaster Protection Act of 1973 as now
or hereafter in effect or any successor statute thereto, (iii) the National
Flood Insurance Reform Act of 1994 (amending 42 USC 4001, et. seq.), as the same
may be amended or recodified from time to time, and (iv) the Flood Insurance
Reform Act of 2004 and any regulations promulgated thereunder.

Section 12.17. USA Patriot Act Notice. Each Lender hereby notifies the Borrower
that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L.
107-56 (signed into law October 26, 2001)) (the “Act”), it is required to
obtain, verify and record information that identifies the Borrower, which
information includes the name and address of the Borrower and other information
that will allow such Lender to identify the Borrower in accordance with the Act.

[SIGNATURES BEGIN NEXT PAGE]

 

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

 

BORROWER:     DUNE ENERGY, INC.       By:   /s/ James A. Watt       Name:  
James A. Watt       Title:   President and CEO

[Signature Page – Credit Agreement]

 

1

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ADMINISTRATIVE AGENT:     BANK OF MONTREAL, as Administrative Agent       By:  
/s/ James V. Ducote       Name:   James V. Ducote       Title:   Director

[Signature Page – Credit Agreement]

 

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SYNDICATION AGENT:     CIT CAPITAL SECURITIES LLC, as Syndication Agent      
By:   /s/ Michael Lorusso       Name:   Michael Lorusso       Title:   Managing
Director Energy

[Signature Page – Credit Agreement]

 

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LENDERS:     BMO HARRIS FINANCING, INC.       By:   /s/ James V. Ducote      
Name:   James V. Ducote       Title:   Director

[Signature Page – Credit Agreement]

 

4

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LENDERS:     CIT BANK       By:   /s/ Kelly Hartnett       Name:   Kelly
Hartnett       Title:   Authorized Signatory

[Signature Page – Credit Agreement]

 

5

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ANNEX I

LIST OF MAXIMUM CREDIT AMOUNTS

Aggregate Maximum Credit Amounts

 

Name of Lender

   Allocation to Initial
Borrowing Base      Applicable Percentage     Maximum Credit Amount  

BMO Harris Financing, Inc.

   $ 43,000,000.00         68.2539682539683 %    $ 136,507,936.50   

CIT Bank

   $ 20,000,000.00         31.7460317460317 %    $ 063,492,063.50      

 

 

    

 

 

   

 

 

 

TOTAL

   $ 63,000,000.00         100.00 %    $ 200,000,000.00      

 

 

    

 

 

   

 

 

 

 

Annex I-1

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EXHIBIT A

FORM OF NOTE

 

$[            ]

   [            ], 201[            ]

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

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

This Note is one of the Notes referred to in the Amended and Restated Credit
Agreement dated as of December 22, 2011 among the Borrower, the Administrative
Agent, and the other agents and lenders signatory thereto (including the
Lender), and evidences Loans made by the Lender thereunder (such Credit
Agreement as the same may be amended, supplemented or restated from time to
time, the “Credit Agreement”). Capitalized terms used in this Note have the
respective meanings assigned to them in the Credit Agreement.

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

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

 

DUNE ENERGY, INC. By:     Name:   Title:  

 

Exhibit A - 1

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EXHIBIT B

FORM OF BORROWING REQUEST

[            ], 201[    ]

Dune Energy, Inc., a Delaware corporation (the “Borrower”), pursuant to
Section 2.03 of the Amended and Restated Credit Agreement dated as of
December 22, 2011 (together with all amendments, restatements, supplements or
other modifications thereto, the “Credit Agreement”) among the Borrower, Bank of
Montreal, as Administrative Agent and the other agents and lenders (the
“Lenders”) which are or become parties thereto (unless otherwise defined herein,
each capitalized term used herein is defined in the Credit Agreement), hereby
requests a Borrowing as follows:

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

(ii) Date of such Borrowing is [            ], 201[    ];

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

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

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

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

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

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

[                     ]

[                     ]

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

 

DUNE ENERGY, INC. By:     Name:   Title:  

 

Exhibit B - 1

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EXHIBIT C

FORM OF INTEREST ELECTION REQUEST

[            ], 201[    ]

Dune Energy, Inc., a Delaware corporation (the “Borrower”), pursuant to
Section 2.04 of the Amended and Restated Credit Agreement dated as of
December 22, 2011 (together with all amendments, restatements, supplements or
other modifications thereto, the “Credit Agreement”) among the Borrower, Bank of
Montreal, as Administrative Agent and the other agents and lenders (the
“Lenders”) which are or become parties thereto (unless otherwise defined herein,
each capitalized term used herein is defined in the Credit Agreement), hereby
makes an Interest Election Request as follows:

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

(ii) The effective date of the election made pursuant to this Interest Election
Request is [            ], 201[    ];[and]

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

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

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

 

DUNE ENERGY, INC. By:     Name:   Title:  

 

Exhibit C - 1

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EXHIBIT D

FORM OF

COMPLIANCE CERTIFICATE

The undersigned hereby certifies that he/she is the [            ] of Dune
Energy, Inc., a Delaware corporation (the “Borrower”), and that as such he/she
is authorized to execute this certificate on behalf of the Borrower. With
reference to the Amended and Restated Credit Agreement dated as of December 22,
2011 (together with all amendments, restatements, supplements or other
modifications thereto being the “Agreement”) among the Borrower, Bank of
Montreal, as Administrative Agent, and the other agents and lenders (the
“Lenders”) which are or become a party thereto, and such Lenders, the
undersigned represents and warrants as follows (each capitalized term used
herein having the same meaning given to it in the Agreement unless otherwise
specified):

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

(b) Since June 30, 2011, no change has occurred, either in any case or in the
aggregate, in the condition, financial or otherwise, of the Borrower or any
Subsidiary which could reasonably be expected to have a Material Adverse Effect
[or specify event].

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

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

EXECUTED AND DELIVERED this [            ] day of 201[_].

 

DUNE ENERGY, INC. By:     Name:   Title:  

 

Exhibit D - 1

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EXHIBIT E-1

FORM OF LEGAL OPINION OF ANDREWS KURTH LLP

See attached.

 

Exhibit E - 1

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EXHIBIT E-2

FORM OF LEGAL OPINION OF LOCAL COUNSEL

See attached.

 

Exhibit E-2 - 1

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EXHIBIT F

SECURITY INSTRUMENTS

1) Amended and Restated Guarantee and Collateral Agreement dated as of
December 22, 2011 by the Borrower and Dune Operating Company and Dune
Properties, Inc. as the Guarantors, in favor of the Administrative Agent and the
secured parties named therein.

2) Financing Statements in respect of item 1.

3) Stock Powers delivered in respect of the Pledged Securities.

4) Amended and Restated Mortgage, Deed of Trust, Assignment of As-Extracted
Collateral, Security Agreement, Fixture Filing and Financing Statement dated as
of December 22, 2011 by Dune Properties, Inc., as mortgagor, in favor of George
Serice, as Trustee, for the benefit the Administrative Agent and the secured
parties named therein.

5) Financing Statement in respect of item 4.

 

Exhibit F - 1

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EXHIBIT G

FORM OF ASSIGNMENT AND ASSUMPTION

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

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

 

1.    Assignor:    _______________________________ 2.    Assignee:   

_______________________________

[and is an Affiliate/Approved Fund of [identify Lender]1]

3.    Borrower:    Dune Energy, Inc. 4.    Administrative Agent:    Bank of
Montreal, as the administrative agent under the Credit Agreement

 

1 

Select as applicable.

 

Exhibit G - 1

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5.    Credit Agreement:    The Amended and Restated Credit Agreement dated as of
December 22, 2011 among the Borrower, the Lenders parties thereto, the
Administrative Agent and the other agents parties thereto 6.    Assigned
Interest:   

 

Commitment

Assigned

   Aggregate  Amount
of
Commitment/Loans
for all Lenders      Amount of
Commitment/Loans
Assigned      Percentage Assigned of
Commitment/Loans2      $                    $                                  
%     $                    $                                   %     $
                   $                                   % 

Effective Date:                      , 201     [TO BE INSERTED BY ADMINISTRATIVE
AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE
REGISTER THEREFOR.]

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

 

            ASSIGNOR

 

            [NAME OF ASSIGNOR]

By:     Title:  

 

2 

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

 

Exhibit G - 2

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            ASSIGNEE

 

            [NAME OF ASSIGNEE]

By:     Title:  

 

[Consented to and]3 Accepted:

 

BANK OF MONTREAL, as Administrative Agent

By       Title:

 

[Consented to:]4

 

DUNE ENERGY, INC.

By       Title:

 

3 

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

4 

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

 

Exhibit G - 3

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ANNEX 1

STANDARD TERMS AND CONDITIONS FOR

ASSIGNMENT AND ASSUMPTION

1. Representations and Warranties.

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

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

 

Exhibit G - 4

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

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

 

Exhibit G - 5

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SCHEDULE 7.04

MATERIAL ADVERSE EFFECT EVENTS

None

 

Schedule 7.04 - 1

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SCHEDULE 7.05

LITIGATION

None

 

Schedule 7.05 - 1

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SCHEDULE 7.06

ENVIRONMENTAL MATTERS

None

 

Schedule 7.06 - 1

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SCHEDULE 7.09

TAX RETURNS AND REPORTS

None

 

Schedule 7.09 - 1

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SCHEDULE 7.14

SUBSIDIARIES AND PARTNERSHIPS

 

(a) Subsidiaries

   (b) Jurisdiction of
Organization    (c) Organizational
Identification  Number    (d) Principal Place of Business
and Chief Executive Office

Dune Properties, Inc.

   Texas    149826000    777 Walker

Houston, TX 77002

Dune Operating Company

   Texas    800447859    777 Walker

Houston, TX 77002

 

Schedule 7.14 - 1

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SCHEDULE 7.18

GAS IMBALANCES

None

 

Schedule 7.18 - 1

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SCHEDULE 7.19

MARKETING CONTRACTS

Long Term Crude Oil Sales Agreements

None.

Long Term Natural Gas Sales Agreements

None

 

Schedule 7.19 - 1

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SCHEDULE 7.20

SWAP AGREEMENTS

None

 

Schedule 7.20 - 1

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SCHEDULE 9.02

DEBT

None

 

Schedule 9.02 - 1

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SCHEDULE 9.03

LIENS

None

 

Schedule 9.03 - 1

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SCHEDULE 9.05

INVESTMENTS

None

 

Schedule 9.05 - 1

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SCHEDULE 9.13

TRANSACTIONS WITH AFFILIATES

None

 

Schedule 9.13 - 1