Exhibit 10.2

 

EXECUTION

 

$650,000,000

 

BREITBURN ENERGY PARTNERS LP

 

BREITBURN OPERATING LP
BREITBURN FINANCE CORPORATION

 

9.25% Senior Secured Second Lien Notes due 2020

 

PURCHASE AGREEMENT

 

March 27, 2015

 

Representative and the Purchasers named in Schedule I attached hereto

 

Ladies and Gentlemen:

 

Breitburn Energy Partners LP, a Delaware limited partnership (the
“Partnership”), Breitburn Operating LP, a Delaware limited partnership (the
“Operating LP”), and Breitburn Finance Corporation, a Delaware corporation
(“Breitburn Finance,” and together with the Partnership and the Operating LP,
the “Issuers”), propose to issue and sell, severally and not jointly, upon the
terms and conditions set forth in this agreement (this “Agreement”), to the
purchasers named in Schedule I attached to this agreement (the “Purchasers”),
$650,000,000 in aggregate principal amount of their 9.25% Senior Secured Second
Lien Notes due 2020 (the “Notes”). EIG Redwood Debt Aggregator, LP is acting as
representative (the “Representative”) hereunder. The Notes are to be issued
pursuant to an indenture (the “Indenture”) to be dated as of the Closing Date
(as defined in Section 3 hereof), among the Issuers, the Guarantors listed on
Schedule II hereto (the “Guarantors”) and U.S. Bank National Association, as
trustee (in such capacity, the “Trustee”) and as collateral agent (in such
capacity, the “Collateral Agent”). The Issuers’ obligations under the Notes,
including the due and punctual payment of interest on the Notes, will be
irrevocably and unconditionally guaranteed (the “Guarantees” and, together with
the Notes, the “Securities”) by the Guarantors. As used herein, the term “Notes”
shall include the Guarantees, unless the context otherwise requires. This is to
confirm the agreement among the Issuers and the Guarantors (collectively, the
“Breitburn Parties”), on the one hand, and the Purchasers, on the other hand,
concerning the purchase of the Notes from the Issuers by the Purchasers. Any
term used but not otherwise defined herein shall have the meaning ascribed
thereto in Schedule IV hereto.

 

 

 

 

Each of the Partnership and its Subsidiaries (collectively, the “Breitburn
Entities”) is listed on Schedule III hereof.

 

The Securities and the Guarantees will be secured by a Second-Priority lien on
substantially all of the tangible and intangible assets of the Breitburn
Parties, now owned or hereafter acquired by any of the Breitburn Parties, that
secure borrowings under the Credit Facility (as defined below) on a
first-priority basis, subject to certain exceptions to be agreed (the
“Collateral”). The Collateral shall be described in (a) with respect to real
property (including titles, rights and interests therein) that constitutes
Collateral, the mortgages, debentures, hypothecs, deeds of trust or deeds to
secure debt to be entered into after the date hereof (collectively, the
“Mortgages”), (b) with respect to personal property that constitutes Collateral,
the Security Agreement, to be dated the date hereof, and entered into by the
Issuers and the Guarantors party hereto (the “Security Agreement”) and (c) with
respect to cash, deposit accounts, securities accounts and commodity accounts
that constitute Collateral, the deposit account control agreements, securities
account control agreements and commodity account control agreements to be
entered into after the date hereof (the “Control Agreements”). The term
“Collateral Documents” as used herein shall mean the Mortgages, the Security
Agreement, the Control Agreements and related financing statements as the same
may be amended from time to time and any and all other instruments heretofore,
now or hereafter executed in connection with or as security for the payment of
the Obligations. The rights of the holders of the Securities with respect to the
Collateral shall be further governed by the Intercreditor Agreement to be dated
as of the Closing Date (as defined below), among the Collateral Agent and the
Priority Lien Collateral Agent and acknowledged by the Breitburn Parties (the
“Intercreditor Agreement”). “Second-Priority” means, with respect to any Lien, a
Lien that is second priority to the Priority Lien Debt (as defined in the
Description of Notes), in each instance, subject to the Intercreditor Agreement
and any Liens expressly permitted to be incurred or exist on the Collateral
under the Indenture (“Permitted Liens”).

 

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EXECUTION

 

1. Representations, Warranties and Agreements of the Breitburn Parties. The
Breitburn Parties, jointly and severally, represent, warrant to, and agree with,
each of the Purchasers that:

 

(a) Organization and Good Standing of the Breitburn Parties. Each of the
Breitburn Parties: i) is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization or formation except to
the extent, in the case of any Restricted Subsidiary, that any such failure of
such Restricted Subsidiary to be in good standing would not reasonably be
expected to have a Material Adverse Effect; ii) has the power and authority and
all material governmental licenses, authorizations, consents and approvals to
execute, deliver, and perform its obligations under the Note Documents and,
except to the extent that any failure to have any thereof could not reasonably
be expected to have a Material Adverse Effect, to own its assets and carry on
its business; iii) is duly qualified as a foreign corporation and is licensed
and in good standing under the laws of each jurisdiction where its ownership,
lease or operation of property or the conduct of its business requires such
qualification or license, except where failure to do so would not reasonably be
expected to have a Material Adverse Effect; and iv) is in compliance in all
material respects with all Requirements of Law, except to the extent that the
failure to be in compliance could not reasonably be expected to have a Material
Adverse Effect.

 

(b) Corporate Authorization; No Contravention. The execution, delivery and
performance by each Breitburn Party of this Agreement and each other Note
Document to which such Person is a party, have been duly authorized by all
necessary organizational action, and do not and will not: v) contravene the
terms of any of that Person’s Organization Documents; vi) conflict with or
result in any breach or contravention of, or the creation of any Lien under, any
document evidencing any Contractual Obligation to which such Person is a party
that would be prior to the Liens granted to the Collateral Agent for the benefit
of the Secured Parties or otherwise that would constitute a Material Adverse
Effect or, except to the extent that any such conflict, breach or contravention
would not reasonably be expected to have a Material Adverse Effect, any order,
injunction, writ or decree of any Governmental Authority to which such Person or
its property is subject; or vii) violate any Requirement of Law, that would
constitute a Material Adverse Effect, including any California Requirement of
Law promulgated with respect to preparedness and damage prevention associated
with earthquakes.

 

(c) Governmental Authorizations. No approval, consent, exemption, authorization,
or other action by, or notice to, or filing with, any Governmental Authority is
necessary or required in connection with the execution, delivery or performance
by, or enforcement against, any Breitburn Party of this Agreement or any other
Note Document to which it is a party, except for filings necessary to obtain and
maintain perfection of Liens; routine filings related to the Breitburn Parties
and the operation of their business; and such filings as may be necessary in
connection with the Collateral Agent’s exercise of remedies under the Note
Documents.

 

 

 

 

(d) Binding Effect. This Agreement and each other Note Document to which any
Breitburn Party is a party constitute the legal, valid and binding obligations
of such Person to the extent it is a party thereto, enforceable against such
Person in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, or similar laws affecting creditors’ rights generally
and general equitable principles.

 

(e) Litigation. There are no actions, suits, proceedings, claims or disputes
pending, or to the knowledge of the Breitburn Parties, threatened or
contemplated, at law, in equity, in arbitration or before any Governmental
Authority, against any Breitburn Party or any of its subsidiaries, or any of
their respective Properties which: viii) purport to affect or pertain to this
Agreement or any other Note Document, or any of the transactions contemplated
hereby or thereby; or ix) either individually or in the aggregate could
reasonably be expected to have a Material Adverse Effect. To the knowledge of
each Breitburn Party, no injunction, writ, temporary restraining order or any
order of any nature has been issued by any court or other Governmental Authority
purporting to enjoin or restrain the execution, delivery or performance of this
Agreement or any other Note Document, or directing that the transactions
provided for herein or therein not be consummated as herein or therein provided.

 

(f) No Default.

 

(i) No Default or Event of Default exists or would be reasonably expected to
result from the incurring of any Obligations by the Breitburn Parties;

 

(ii) No Breitburn Party or any Restricted Subsidiary or any Unrestricted
Subsidiary is in default under or with respect to any Contractual Obligation in
any respect which, individually or together with all such defaults, would
reasonably be expected to have a Material Adverse Effect. Each Breitburn Party
and its subsidiaries is in compliance with all requirements of any Governmental
Authority 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 authorizations granted by
Governmental Authorities necessary for the ownership of its Property and the
present conduct of its business, except in each case where the failure to do so,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect;

 

(g) ERISA Compliance. Except as specifically disclosed in Schedule  1(g):

 

(i) Each Plan is in compliance in all material respects with the applicable
provisions of ERISA, the Code and other federal or state law. Each Plan which is
intended to qualify under Section 401(a) of the Code has either received a
favorable determination letter from the IRS or may rely on favorable opinion
letter issued by the IRS, and to the knowledge of any Issuer, nothing has
occurred which would cause the loss of such qualification. Each Breitburn Party
and each ERISA Affiliate has made all required contributions to any Plan subject
to Section 412 of the Code, and no application for a funding waiver or an
extension of any amortization period pursuant to Section 412 of the Code has
been made with respect to any Plan.

 

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(ii) There are no pending or, to the knowledge of any Breitburn Party,
threatened claims, actions or lawsuits, or action by any Governmental Authority,
with respect to any Plan which has resulted or could reasonably be expected to
result in a Material Adverse Effect. There has been no prohibited transaction or
violation of the fiduciary responsibility rules with respect to any Plan which
has resulted or could reasonably be expected to result in a Material Adverse
Effect.

 

(iii) (1) No ERISA Event has occurred or is reasonably expected to occur; (2) no
Pension Plan has any Unfunded Pension Liability; (3) no Breitburn Party nor any
ERISA Affiliate has incurred, or reasonably expects to incur, any liability
under Title IV of ERISA with respect to any Pension Plan (other than premiums
due and not delinquent under Section 4007 of ERISA); (4) no Breitburn Party nor
any ERISA Affiliate has incurred, or reasonably expects to incur, any liability
(and no event has occurred which, with the giving of notice under Section 4219
of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA
with respect to a Multiemployer Plan; and (5) no Breitburn Party nor any ERISA
Affiliate has engaged in a transaction that could be subject to Section 4069 or
4212(c) or ERISA.

 

(h) Margin Regulations. No Breitburn Party is generally engaged in the business
of purchasing or selling Margin Stock or extending credit for the purpose of
purchasing or carrying Margin Stock. No proceeds from the sale of any Note shall
be used, whether directly or indirectly, and whether immediately, incidentally
or ultimately, to purchase or carry margin stock (within the meaning of
Regulation U) or to extend credit to others for the purpose of purchasing or
carrying margin stock or to refund indebtedness originally incurred for such
purpose in violation of Regulation U.

 

(i) Title to Properties. Subject to Permitted Liens, the Breitburn Parties and
their Restricted Subsidiaries shall each have good and defensible title to all
of their respective Oil and Gas Properties evaluated in the most recently
delivered Reserve Report (other than the interests that have been disposed of in
one or more dispositions permitted under the Indenture), and except for such
defects in title as would not, individually or in the aggregate, reasonably be
expected to be have a Material Adverse Effect, and each Breitburn Party and its
Restricted Subsidiaries shall have good title to all other Oil and Gas
Properties necessary or used in the ordinary conduct of their respective
businesses. After giving full effect to the Permitted Liens, any Breitburn Party
or Restricted Subsidiary thereof specified as the owner under the Initial
Reserve Report owns the net interests in production attributable to the Oil and
Gas Properties as reflected in the most recently delivered Reserve Report (other
than the interests that have been disposed of in one or more dispositions
permitted under the Indenture), and the ownership of such Properties shall not
in any material respect obligate such Breitburn Party or Restricted Subsidiary
thereof to bear the costs and expenses relating to the maintenance, development
and operations of each such Property in an amount in excess of the working
interest of each Property set forth in the Initial Reserve Report that is not
offset by a corresponding proportionate increase in such Breitburn Party’s or
Restricted Subsidiary’s net revenue interest in such Property. Other than as set
forth on Schedule  1(i), no consents or rights of first refusal exist or remain
outstanding with respect to such Breitburn Party’s or Restricted Subsidiary’s
interest in the Mortgaged Properties assigned to it pursuant to any acquisition
of Oil and Gas Properties other than Permitted Liens. Other than as set forth on
Schedule  1(i), as of the Closing Date, the property of the Breitburn Parties
and their Restricted Subsidiaries is subject to no Liens, other than Permitted
Liens.

 

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(j) Oil and Gas Reserves. Each Breitburn Party and each of its Restricted
Subsidiaries is and will hereafter be, in all material respects, the owner of
the Oil and Gas that it purports to own from time to time in and under its Oil
and Gas Properties, together with the right to produce the same. The Oil and Gas
Properties are not subject to any Lien other than Permitted Liens. All Oil and
Gas has been and will hereafter be produced, sold and delivered in accordance in
all material respects with all applicable laws and regulations of any
Governmental Authority; each of the Breitburn Parties and its Restricted
Subsidiaries has complied in all material respects and will hereafter use
commercially reasonable efforts to comply with all material terms of each oil,
gas and mineral lease and any other agreement comprising its Oil and Gas
Properties; and all such oil, gas and mineral leases and other agreements have
been and will hereafter be maintained in full force and effect; provided,
however that nothing in this Section  1(j) shall prevent any Breitburn Party or
its Restricted Subsidiaries from x) abandoning any well or forfeiting,
surrendering, releasing or defaulting under any lease in the ordinary course of
business which is not disadvantageous in any material respect to the Holders and
which, in the opinion of such Breitburn Party, is in its best interest, and such
Breitburn Party and its Restricted Subsidiaries is and will hereafter be in
compliance with all obligations hereunder and xi) making any disposition
permitted hereunder. All of the Breitburn Parties’ and their Restricted
Subsidiaries’ operating agreements and operating leases with respect to their
Oil and Gas Properties are and will hereafter be enforceable in all material
respects in accordance with their terms except as such may be modified by
applicable bankruptcy law or an order of a court in equity.

 

(k) Initial Reserve Report. The Issuers have heretofore delivered to the
Representative a true and complete copy of (x) reserve reports, each dated
effective as of December 31, 2014 prepared by Netherland, Sewell and Associates,
Inc. (the “Initial Reserve Report”) relating to an evaluation of the Oil and Gas
attributable to the Oil and Gas Properties described therein. To the knowledge
of the Issuers, xii) the assumptions stated or used in the preparation of the
Initial Reserve Report are reasonable, xiii) all information furnished by the
Breitburn Parties for use in the preparation of the Initial Reserve Report, was
accurate in all material respects, xiv) there has been no material adverse
change in the amount of the estimated Oil and Gas shown in the Initial Reserve
Report since the date thereof, except for changes which have occurred as a
result of production in the ordinary course of business, and xv) the Initial
Reserve Report does not omit any material statement or information necessary to
cause the same not to be misleading to the Purchasers.

 

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(l) Gas Imbalances. There are no gas imbalances, take or pay or other
prepayments with respect to any of the Oil and Gas Properties which would
require the Breitburn Parties or their Restricted Subsidiaries to deliver Oil
and Gas produced from any of the Oil and Gas Properties at some future time
without then or thereafter receiving full payment therefor exceeding 5,000,000
Mcf of gas (on an Mcf equivalent basis) in the aggregate.

 

(m) Taxes. Unless specifically disclosed on Schedule  1(m), the Breitburn
Parties and their Restricted Subsidiaries have filed all federal tax returns and
reports required to be filed by them, including any filing extensions together
with payments for any estimated taxes due thereon on or before the time the
extension is due, and have paid all federal taxes, assessments, fees and other
governmental charges levied or imposed upon them or their properties, income or
assets otherwise due and payable, except those which are being contested in good
faith by appropriate proceedings and for which adequate reserves have been
provided in accordance with GAAP. The Breitburn Parties and their Restricted
Subsidiaries have filed all material state and other non-federal tax returns and
reports required to be filed by them, and have paid all material state and other
non-federal taxes, assessments, fees and other governmental charges levied or
imposed upon them or their properties, income or assets prior to delinquency
thereof, except those which are being contested in good faith by appropriate
proceedings and for which adequate reserves have been provided in accordance
with GAAP. To the knowledge of the Breitburn Parties, there is no proposed tax
assessment against any Breitburn Party or any of its Restricted Subsidiaries
that would, if made, reasonably be expected to have a Material Adverse Effect.

 

(n) Financial Condition.

 

(i) The audited consolidated balance sheet of Partnership and its Consolidated
Subsidiaries as of December 31, 2014, the related consolidated statement of
income, partners’ equity and cash flow of Partnership and its Consolidated
Subsidiaries for the fiscal year ended on said date, (1) were prepared in
accordance with GAAP consistently applied throughout the period covered thereby,
except as otherwise expressly noted therein; (2) fairly present the financial
condition of Partnership and its Consolidated Subsidiaries as of the date
thereof and their results of operations for the period covered thereby in
accordance with GAAP consistently applied throughout the period covered thereby,
except as otherwise expressly noted therein; and (3) show all material
indebtedness and other liabilities, direct or contingent, of Partnership and its
Consolidated Subsidiaries as of the date thereof, including liabilities for
taxes, material commitments and Indebtedness.

 

(ii) Since December 31, 2014, (4) there has been no event, development or
circumstance that has had or could reasonably be expected to have a Material
Adverse Effect, and (5) the business of Partnership and the other Breitburn
Parties have been conducted only in the ordinary course consistent with past
business practices.

 

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(o) Environmental Matters. Except as described on Schedule  1(o) hereto or that,
either individually or in the aggregate, could not be reasonably expected to
have a Material Adverse Effect (or with respect to (ii) and (iii) below, where
the failure, either individually or in the aggregate, to take such actions could
not be reasonably expected to have a Material Adverse Effect)

 

(i) neither any Property of any Breitburn Party or any of its Restricted
Subsidiaries, nor the operations conducted thereon, violate Environmental Laws.

 

(ii) no Property of any Breitburn Party or any of its Restricted Subsidiaries,
nor the operations currently conducted thereon by any Breitburn Party, or, to
the knowledge of such Breitburn Party, no operations conducted thereon by any
prior owner or operator of such Property, are in violation of or subject to any
existing, or to the knowledge of such Breitburn Party, pending or threatened
action, suit, investigation, inquiry or proceeding by or before any Governmental
Authority under Environmental Laws.

 

(iii) all notices, permits, licenses, exemptions and approvals, if any, required
to be obtained or filed under any Environmental Law in connection with the
operation or use of any and all Property by each Breitburn Party, including any
treatment, storage, disposal or Release of any Hazardous Materials into the
environment, have been duly obtained or filed or requested, and each Breitburn
Party and its Restricted Subsidiaries is in compliance with the material terms
and conditions of all such notices, permits, licenses, exemptions and approvals.

 

(iv) Hazardous Materials, if any, generated by the Breitburn Parties or any of
their Restricted Subsidiaries at any and all Property of any such Restricted
Subsidiary have in the past been transported, treated and disposed of in
compliance with Environmental Laws then in effect, and, to the knowledge of such
Breitburn Party, transport carriers and treatment and disposal facilities known
by such Breitburn Party to have been used by it are not the subject of any
existing action, investigation or inquiry by any Governmental Authority under
any Environmental Laws.

 

(v) no Hazardous Materials have been disposed of or otherwise Released by any
Breitburn Party or any Restricted Subsidiary thereof on or to any Property of
such Breitburn Party or Restricted Subsidiary except in compliance with
Environmental Laws.

 

(vi) no Breitburn Party has any known pending assessment, investigation,
monitoring, removal or remedial obligations under applicable Environmental Laws
in connection with any Release or threatened Release of any Hazardous Materials
into the environment by any Breitburn Party or any Restricted Subsidiary
thereof.

 

(p) Regulated Entities. No Breitburn Party is an “investment company” or is a
company “controlled by” an “investment company” (or a company required to be
registered as an “investment company”) within the meaning of the Investment
Company Act of 1940. None of the Breitburn Parties, or any Person controlling
any Breitburn Party, is subject to regulation under the Federal Power Act, the
Interstate Commerce Act, any state public utilities code, or any other Federal
or state statute or regulation limiting its ability to incur Indebtedness.

 

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(q) No Burdensome Restrictions. No Breitburn Party nor any of its Restricted
Subsidiaries is a party to or bound by any Contractual Obligation, or subject to
any restriction in any Organization Document, or any Requirement of Law, which
would reasonably be expected to have a Material Adverse Effect.

 

(r) Copyrights, Patents, Trademarks and Licenses, Etc. Except to the extent that
any failure, individually or in the aggregate, would not reasonably be expected
to have a Material Adverse Effect, each Breitburn Party and each of its
Restricted Subsidiaries owns or is licensed or otherwise has the right to use
all of the material patents, trademarks, service marks, trade names, copyrights,
contractual franchises, authorizations and other rights that are reasonably
necessary for the operation of its business, without material conflict with the
rights of any other Person. To the knowledge of any Breitburn Party, no slogan
or other advertising device, product, process, method, substance, part or other
material now employed, or now contemplated to be employed, by any Breitburn
Party or any Restricted Subsidiary thereof infringes in a material respect upon
any rights held by any other Person. No claim or litigation regarding any of the
foregoing is pending or threatened, and no patent, invention, device,
application, principle or any statute, law, rule, regulation, standard or code
is pending or, to the knowledge of any Breitburn Party, proposed, which, in
either case, could reasonably be expected to have a Material Adverse Effect.

 

(s) Subsidiaries and Other Equity Interests. No Breitburn Party has any
Restricted Subsidiary, Unrestricted Subsidiary or other equity investment other
than those specifically disclosed in Schedule  1(s) hereto. Each Breitburn Party
owns the percentage interest of all issued and outstanding Equity Interests in
each Restricted Subsidiary, Unrestricted Subsidiary or other material equity
investment described on Schedule  1(s). Partnership owns one hundred percent
(100%) of the issued and outstanding equity in each of Operating LP and
Breitburn Finance. The Issuers may update and replace Schedule  1(s) from time
to time to reflect changes resulting from transactions or other events permitted
under the Indenture.

 

(t) Insurance. The Properties of each Breitburn Party and its respective
Restricted Subsidiaries are insured with financially sound and reputable
insurance companies that are not Affiliates of any Breitburn Party, in such
amounts, with such deductibles and covering such risks as are customarily
carried by companies engaged in similar businesses and owning similar properties
in localities where such Breitburn Party or Restricted Subsidiary operates.

 

(u) Hedging Contracts. As of the date hereof, Schedule  1(u) sets forth, a true
and complete list of all Hedging Contracts of the Breitburn Parties and their
Restricted Subsidiaries in effect as of the Closing Date, 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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(v) Full Disclosure. None of the representations or warranties made by any
Breitburn Party in the Note Documents as of the date such representations and
warranties are made or deemed made, and none of the statements contained in any
exhibit, report, written statement or certificate (other than any financial
projections, forecasts or estimates) furnished by or on behalf of any Breitburn
Party in connection with the Note Documents, taken as whole, contains any untrue
statement of a material fact known to any Breitburn Party, or omits any material
fact known to any Breitburn Party, required to be stated therein or necessary to
make the statements made therein, in light of the circumstances under which they
are made, not misleading as of the time when made or delivered. The financial
projections, forecasts, estimates and other forward looking statements furnished
by or on behalf of any Breitburn Party or made available to any Secured Party
were (and, to the extent provided after the date hereof, will be) prepared in
good faith based upon assumptions that are reasonable at the time made and at
the time of delivery thereof; provided that with respect to any such
information, it is agreed and understood that xvi) such information (1) is based
upon a number of estimates and is subject to business, economic and competitive
uncertainties and contingencies and (2) is as to future events and is not to be
viewed as facts, xvii) whether or not the results or other projections described
therein are achieved will depend on future events, many of which are not within
the control of the Breitburn Parties and xviii) the actual results or other
projections during the period or periods covered by such information may differ
from the projected results and other projections and such differences may be
material.

 

(w) Solvency. Each of the Partnership and the Operating LP is Solvent and the
Breitburn Parties and their Subsidiaries, on a consolidated basis, are Solvent.

 

(x) Improved Real Estate. To the knowledge of each Breitburn Party, the Oil and
Gas Properties that are not Mortgaged Properties do not include any “buildings”
(as defined under Section 4000 et. seq. of the National Flood Insurance Reform
Act of 1994, as amended) that are critical to operating any Mortgaged Properties
for the exploration and production of oil and gas.

 

(y) Anti-Corruption Laws and Sanctions. The Partnership has implemented and
maintains in effect policies and procedures designed to ensure compliance by the
Partnership, its subsidiaries and their respective directors, officers,
employees and agents with Anti-Terrorism and Money Laundering Law, OFAC Laws,
Anti-Corruption Laws and applicable Sanctions. The Partnership, its subsidiaries
and their respective officers and employees and, to the knowledge of the
Partnership, its directors, agents and other persons acting on behalf of them,
are in compliance with Anti-Terrorism and Money Laundering Law, OFAC Laws,
Anti-Corruption Laws and applicable Sanctions in all material respects. None of
xix) the Partnership, any of its Subsidiaries or, to the knowledge of the
Partnership, any of their respective directors, officers or employees, is a
Sanctioned Person, or xx) to the knowledge of the Partnership, any agent of the
Partnership or any subsidiary that will act in any capacity in connection with
or benefit from the note purchase facility established hereby, is a Sanctioned
Person. No Note purchase contemplated hereunder, the use of proceeds thereof or
other Transaction contemplated by this Agreement will violate any Anti-Terrorism
and Money Laundering Law, OFAC Laws, Anti-Corruption Laws or applicable
Sanctions.

 

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(z) Collateral.

 

(i) Upon making of the filings and taking of the other actions set forth on
Schedule  1(z), all filings and other actions necessary to perfect the security
interests in the Collateral created under the Collateral Documents shall have
been duly made or taken to the extent the Security interest in such Collateral
may be perfected by filing and taking the other actions set forth on Schedule 
1(z). Each Breitburn Party has properly delivered or caused to be delivered to
Collateral Agent (or, subject to the Intercreditor Agreement, the Priority Lien
Agent) all Collateral that requires perfection of the Liens and security
interests described above by possession.

 

(ii) The Collateral Documents create in favor of Collateral Agent for the
benefit of the Secured Parties a valid and, upon making of the filings and
taking of the other actions set forth on Schedule  1(z), perfected
Second-Priority Lien and security interest in the Collateral securing the
payment of the Obligations to the extent the Security interest in such
Collateral may be perfected by filing and taking the other actions set forth on
Schedule  1(z).

 

(iii) Each of Breitburn Party is the legal and beneficial owner of the
Collateral to be pledged by it free and clear of any Lien, other than Permitted
Liens.

 

(iv) The mortgages and deeds of trust set forth on Schedule 5 represent all of
the mortgages and deeds of trust granted by a Breitburn Party to the Priority
Lien Collateral Agent (other than any such mortgages and deeds of trust that
have been released prior to the Closing Date); provided it is agreed and
understood that the Partnership may update this Schedule 5 by providing written
notice to the Purchasers at any time between the date hereof and the Closing
Date.

 

(aa) No General Solicitation.

 

(i) No Breitburn Party, Affiliate thereof or any person acting on its or any of
their behalf has engaged, or will engage, in any form of general solicitation or
general advertising (within the meaning of Rule 502(c) under the Securities Act)
in connection with the offering of the Notes.

 

(ii) Other than this Agreement and the Note Documents expressly contemplated
hereunder, none of the Breitburn Parties or any Affiliate thereof has entered
into any agreement or arrangement with any person in relation to the sale of the
Notes.

 

9

 

 

(iii) Neither any Breitburn Party nor any of their respective Affiliates nor any
person acting on its or their behalf, directly or indirectly, has made or will
make any offers or sales of any security, or has solicited or will solicit
offers to buy, or otherwise has negotiated or will negotiate in respect of, any
security, under circumstances that would require the registration of the Notes
under the Securities Act.

 

(bb) [Reserved].

 

(cc) Indebtedness. All Indebtedness constituting Existing Indebtedness for
purposes of the Note Documents is set forth on Schedule  1(aa).

 

(dd) Liens. All Liens constituting Liens in existence as of the Closing Date (to
the extent not constituting Liens that are Permitted Liens other than by the
fact that they are in existence on the Closing Date) for purposes of the Note
Documents are set forth on Schedule  1(bb).

 

(ee) Investments. All Investments constituting Investments in existence as of
the Closing Date (to the extent not constituting Permitted Investments other
than by the fact that they are in existence on the Closing Date) for purposes of
the Note Documents are set forth on Schedule  1(dd).

 

2. Purchase of the Notes by the Purchasers. On the basis of the representations,
warranties and agreements contained in, and subject to the terms and conditions
of, this Agreement, the Issuers agree, severally and jointly, to issue and sell
to the several Purchasers, and each of the Purchasers agrees, severally and not
jointly, to purchase from the Issuers, the Notes, at a purchase price of 97.00%
of the principal amount thereof. The Breitburn Parties shall not be obligated to
deliver any of the securities to be delivered hereunder, except upon payment for
all of the securities to be purchased as provided herein.

 

3. Delivery of the Notes and Payment Therefor. The closing of the sale of the
Notes pursuant to this Agreement (the “Closing”) will be at the office of Vinson
& Elkins L.L.P., 666 Fifth Avenue, New York, NY 10103 at 9:00 a.m., New York
City time, on April 8, 2015 (the “Scheduled Closing Date”);  provided  that if
all conditions in Section 7 to be satisfied at or prior to the closing have not
been satisfied or waived on the Scheduled Closing Date, the closing shall occur
on the first Business Day following the date on which all such conditions have
been (or, at closing, will be capable of being) satisfied or waived (subject to
all such conditions in Section 7 being satisfied or waived at the closing).  
The date the Closing actually occurs is called the “Closing Date.”

 

4. Further Agreements of the Breitburn Parties and the Purchasers. Each of the
Breitburn Parties, jointly and severally, covenants and agrees:

 

(a) To (i) complete on or prior to the Closing Date all filings and other
similar actions required in connection with the perfection of Second-Priority
security interests in the Collateral as and to the extent contemplated by the
Indenture and the Collateral Documents and xxii) take all actions necessary to
maintain such security interests and to perfect security interests in any
Collateral acquired after the Closing Date, in each case as and to the extent
contemplated by the Indenture and the Collateral Documents; provided that the
Issuers and the Guarantors may deliver, furnish and/or cause to be furnished all
of the obligations set forth on Schedule 5 hereto within the time periods set
forth therein; and

 

10

 

 

(b) To apply the net proceeds from the sale of the Securities released to the
Issuers solely to xxiii) repay loans outstanding under the Credit Facility in an
amount no less than $937,500,000 and xxiv) pay fees and expenses incurred in
connection therewith and with the (1) purchase and sale of the Securities on the
Closing Date and (2) the issuance of the Series B Perpetual Convertible
Preferred Units in an aggregate amount of $350,000,000.

 

(c) The Partnership shall pay to the Representative, from time to time, for the
account of the Holders in accordance with their respective percentage of the
aggregate principal amount of the then outstanding Notes held by such Holder,
with respect to any fee paid by any Breitburn Party to or for the account of the
lenders under any Permitted Credit Facility in respect of Indebtedness under the
Permitted Credit Facility that is not expressly required by the terms of the
Permitted Credit Facility as of the Closing Date (an “Additional First Lien
Fee”) a fee in an amount which (when aggregated with the other fees paid under
this Section 4(c) in respect of other Additional First Lien Fees made within the
one year period ending on such date) is equal to the product of (x) the Excess
Fee Percentage, if any, and (y) the total principal amount of the Notes
outstanding as of such date of payment. Any fees payable under this Section 4(c)
shall be paid to the trustee for the benefit of all Holders on a pro rata basis
and shall be due and payable on the date such Additional First Lien Fee is paid
to the lenders under Permitted Credit Facility. This covenant shall survive any
termination of this Agreement until such time as all of Notes shall have
otherwise ceased to be outstanding.

 

5. Additional Covenants. So long as any Obligation (other than Obligations in
respect of indemnification or expense reimbursement for which no claim has been
made) shall remain unpaid or unsatisfied:

 

(a) Financial Statements. The Partnership shall maintain, for itself and each of
its Consolidated Subsidiaries, on a consolidated basis, a system of accounting
established and administered in accordance with GAAP and deliver, or cause to be
delivered, to the Representative:

 

(i) no later than fifteen (15) days following the date required by applicable
SEC rules (without giving effect to any extensions available thereunder) for the
filing of such financial statements:

 

(1) the audited consolidated balance sheet and related statements of income,
partners equity and cash flows of the Partnership 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 (a) reported on by a nationally recognized independent
public accounting firm (the “Independent Auditor”) (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,
results of operations and cash flows of the Partnership and its Consolidated
Subsidiaries on a consolidated basis in accordance with GAAP consistently
applied, and (b) certified by a Proper Officer as fairly presenting in all
material respects, the financial condition, results of operations and cash flows
of the Partnership and its Consolidated Subsidiaries on a consolidated basis in
accordance with GAAP consistently applied;

 

11

 

 

(2) unaudited annual consolidating balance sheet and consolidating statement of
income for the Partnership and its Consolidated Subsidiaries as of the end of
such year, certified by a Proper Officer as fairly presenting in all material
respects, the financial condition, results of operations of the Partnership and
its Consolidated Subsidiaries on a consolidated basis in accordance with GAAP
consistently applied; and

 

(3) the unaudited consolidated balance sheet and related statements of income,
partners equity and cash flows of the Partnership as of the end of and for such
year, setting forth in each case in comparative form the figures for the
previous final year, and unaudited consolidating balance sheets and statements
of income, all certified by a Proper Officer of the Partnership as fairly
presenting in all material respects, the financial condition, results of
operations and cash flows of the Partnership and its Consolidated Subsidiaries
on a consolidated basis in accordance with GAAP consistently applied, subject to
the absence of footnotes.

 

(ii) fifteen (15) days following the date required by applicable SEC rules
(without giving effect to any extensions available thereunder) for the filing of
such financial statements after the end of each of the first three fiscal
quarters of each fiscal year of the Partnership:

 

(1) the unaudited consolidated balance sheet and related statements of income,
partners equity and cash flows of the Partnership 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 a Proper Officer of the Partnership as
fairly presenting in all material respects, the financial condition, results of
operations and cash flows of the Partnership and its Consolidated Subsidiaries
on a consolidated basis in accordance with GAAP consistently applied, subject to
the absence of footnotes; and

 

(2) the unaudited consolidated balance sheet and related statements of income,
partners equity and cash flows of the Partnership 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 a Proper Officer of the Partnership as fairly
presenting in all material respects, the financial condition, results of
operations and cash flows of the Partnership and its Consolidated Subsidiaries
on a consolidated basis in accordance with GAAP consistently applied, subject to
the absence of footnotes.

 

12

 

 

(b) Certificates; Other Production and Reserve Information. The Issuers shall
furnish to the Representative:

 

(i) As soon as available, but not later than forty-five (45) days after the
close of each fiscal quarter of the Partnership (including the fourth quarter),
a Quarterly Status Report covering each of the three months during such fiscal
quarter;

 

(ii) Concurrently with any delivery of financial statements under Sections 
5(a)(i) and 5(a)(ii), a certificate of a Proper Officer of the Partnership,
setting forth as of the last Business Day of such fiscal quarter or fiscal year,
a true and complete list of all Hedging Contracts of each Issuer, Guarantor and
Restricted Subsidiary, the material terms thereof (including the type, term,
effective date, termination date and notional amounts or volumes), the net
mark-to-market value therefor, any new credit support agreements relating
thereto not listed on Schedule  1(u), any margin required or supplied under any
credit support document, and the counterparty to each such agreement;

 

(iii) [Reserved];

 

(iv) (A) Annually commencing March 1, 2015, dated as of January 1st of such
year, a Reserve Report provided by the Reserve Engineer, and annually,
commencing September 1, 2015, dated as of July 1 of such year, a Reserve Report
prepared by personnel of the Partnership and certified by a Proper Officer of
the Partnership as to the knowledge of such Property Officer, true and correct
in all material respects. With the delivery of each Reserve Report, the Issuers
shall provide to the Representative certificate from a Proper Officer of each
Issuer certifying that in all material respects: (3) to the knowledge of such
Proper Officers, the information contained in the Reserve Report and any other
information delivered in connection therewith is true and correct in all
material respects, (4) the Breitburn Parties own 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 Permitted Liens, (5) 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  1(l) with
respect to their Oil and Gas Properties evaluated in such Reserve Report that
would require any Breitburn Party to deliver Oil and Gas either generally or
produced from such Oil and Gas Properties at some future time without then or
thereafter receiving full payment therefor, (6) none of their proved Oil and Gas
Properties have been sold since the date of the delivery of the previous Reserve
Report except as set forth on an exhibit to the certificate, which certificate
shall list all of its proved Oil and Gas Properties sold and in such detail as
reasonably required by the Representative, (7) attached to the certificate is a
list of all marketing agreements entered into subsequent to the most recently
delivered Reserve Report and (6) attached thereto is a schedule of the Oil and
Gas Properties of the Breitburn Parties evaluated by such Reserve Report that
are Mortgaged Properties and demonstrating the percentage of the present value
determined by a discount factor of 10% per annum that such Mortgaged Properties
represent and certifying that such Mortgaged Properties represent at least 80%
of the total net present value (determined by a discount factor of 10% per
annum) of the Breitburn Parties’ Oil and Gas Properties evaluated in the most
recent Reserve Report;

 

13

 

 

(v) In connection with the delivery of each Reserve Report, a listing of any
property or related properties of any Breitburn Party acquired pursuant to an
acquisition or series of related acquisitions since the date of the last Reserve
Report for which such Breitburn Party paid consideration in excess of $5.0
million, not subject to a Mortgage;

 

(vi) Promptly after the furnishing thereof, copies of any financial statement,
report or notice furnished to or by any Person pursuant to the terms of any
preferred stock designation, indenture, note purchase agreement, loan or credit
or other similar agreement other than this Agreement and not otherwise required
to be furnished to the Holders pursuant to any other provision of this Section 
5(b).

 

(vii) Concurrently with the delivery of any Reserve Report to the Representative
pursuant to Section  5(b)(iv), or after an Event of Default, upon request, a
list of all Persons purchasing Oil and Gas from any of the Issuers or
Guarantors;

 

(viii) Prompt written notice, and in any event within ten (10) Business Days (or
such longer period as the Representative may agree), of the occurrence of any
Casualty Event;

 

(ix) Prompt written notice (and in any event within thirty (30) days prior
thereto (or such shorter period as the Representative may agree) of any change
(8) in any Issuer’s or Guarantor’s organizational name or in any trade name used
to identify such Person in the conduct of its business or in the ownership of
its Properties, (9) in the location of any Issuer’s or Guarantor’s chief
executive office or principal place of business, (10) in any Issuer’s or
Guarantor’s identity or organizational structure or in the jurisdiction in which
such Person is incorporated or formed, (11) in any Issuer’s or Guarantor’s
jurisdiction of organization or such Person’s organizational identification
number in such jurisdiction of organization, and (12) in any Issuer’s or
Guarantor’s federal taxpayer identification number, if any;

 

14

 

 

(x) Promptly upon the request of the Representative, such copies of all
geological, engineering and related data contained in any of Issuer’s or
Guarantor’s files or readily accessible to the Issuer or Guarantor relating to
the Oil and Gas Properties as may reasonably be requested;

 

(xi) On request by the Representative, based upon the Representative’s good
faith belief that any Issuer’s or Guarantors’ title to the Mortgaged Properties
or the Collateral Agent’s Lien on any of the Issuers’ or Guarantors’ properties
is subject to claims of third parties (other than Permitted Liens), title and
mortgage lien evidence reasonably satisfactory to the requesting party, as the
case may be, covering such Mortgaged Property as may be designated by the
requesting party covering such Issuer’s or Guarantor’s title thereto and
evidencing that the Obligations are secured by liens and security interests as
provided in this Agreement and the Collateral Documents;

 

(xii) As soon as available, and in any event within 90 days after the end of
each fiscal year, a business and financial plan for the Partnership (in form
reasonably satisfactory to the Representative), prepared by a Proper Officer of
the Partnership, setting forth for the current fiscal year, quarterly financial
projections and budgets for the Partnership, and for three fiscal years
thereafter yearly financial projections and budgets;

 

(xiii) Promptly, such additional information regarding the properties, business,
financial or corporate affairs of the Breitburn Parties as the Representative
may from time to time reasonably request;

 

(xiv) Concurrently with the delivery to the Trustee or the Collateral Agent, as
applicable, under any Note Document, copies of each notice, opinion, certificate
or other document furnished to the Trustee or Collateral Agent, as applicable,
under any Note Document; and

 

(xv) The Breitburn Parties acknowledge and agree that (i) the Representative has
the right to review and discuss the Reserve Report and the calculation of the
PV10, Adjusted Consolidated Net Tangible Assets, Proved Reserves Coverage Ratio,
Fixed Charge Coverage Ratio and such other component calculations as the
Representative may reasonably request with the Breitburn Parties during normal
business hours, (ii) the Reserve Report shall be in form and scope reasonably
acceptable to the Representative, and (iii) the Breitburn Parties shall,
promptly upon the Representative’s reasonable request, provide such information
and data with respect to such Oil and Gas Properties included in the Reserve
Report and components of such calculations.

 

(c) Notices. The Issuers shall promptly notify the Representative:

 

(i) of any matter that has resulted or would reasonably be expected to result in
a Material Adverse Effect, including (13) breach or non-performance of, or any
default under, a Contractual Obligation of any Issuer or Guarantor or any
subsidiary thereof; (14) any dispute, litigation, investigation, proceeding or
suspension between any Issuer, Guarantor or any subsidiary thereof and any
Governmental Authority; (15) the commencement of, or any material development
in, any litigation, proposed legislation, ordinance or regulation of a
Governmental Authority, or proceeding affecting any Issuer, Guarantor or any
subsidiary thereof, including pursuant to any applicable Environmental Laws; or
(16) revocation, cancellation or failure to renew any license, permit or
franchise, where such breach, non-performance, default, dispute, litigation,
investigation, proceeding, suspension, proposed legislation, ordinance or
regulation, revocation, failure or loss could reasonably be expected to have a
Material Adverse Effect;

 

15

 

 

(ii) of any material change in accounting policies or financial reporting
practices by any Issuer, Guarantor or any Consolidated Subsidiary; and

 

(iii) of the formation or acquisition of any Restricted Subsidiary or
Unrestricted Subsidiary.

 

Each notice under this Section  5(c) shall be accompanied by a written statement
by a Proper Officer setting forth details of the occurrence referred to therein,
and (if applicable) stating what action such Issuer, Guarantor or subsidiary
proposes to take with respect thereto and at what time. Each notice under
Section  5(c) shall describe with particularity any and all clauses or
provisions of this Agreement or other Note Document that have been (or
foreseeably will be) breached or violated.

 

(d) Maintenance of Properties. The Issuers will, and will cause each of their
respective Restricted Subsidiaries to, maintain and preserve their respective
property which is used or useful in its business in good working order and
condition, ordinary wear and tear excepted and to use the standard of care
typical in the industry in the operation and maintenance of its facilities
except where failure to do so would not reasonably be expected to have a
Material Adverse Effect; provided, however, that nothing in this Section  5(d)
shall prevent any of the Issuers or any of their Restricted Subsidiaries from
abandoning any well or forfeiting, surrendering, releasing or defaulting under
any lease in the ordinary course of business which is not materially
disadvantageous in any way to the Holders and which, in its opinion, is in the
best interest of such Issuer or Restricted Subsidiary.

 

(e) Title Information. On or before the delivery to the Representative of each
Reserve Report required by Section  5(b)(iv), the Partnership will deliver title
information in form and substance acceptable to the Representative 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
Representative shall have received together with title information previously
delivered to the Representative, satisfactory title information on at least 80%
of the total net present value (determined by a discount factor of 10%) of the
proved Oil and Gas Properties evaluated by such Reserve Report.

 

(f) Payment of Obligations. The Partnership will, and will cause each of its
Restricted Subsidiaries to, pay and discharge prior to delinquency, all their
respective obligations and liabilities, including: xxv) all tax liabilities,
assessments and governmental charges or levies upon it or its properties or
assets, unless the same are being contested in good faith by appropriate
proceedings and adequate reserves in accordance with GAAP are being maintained
by the Partnership or any of its Restricted Subsidiaries; xxvi) all lawful
claims which, if unpaid, would by law become a Lien upon its property; and
xxvii) all Indebtedness, as and when due and payable, but subject to any
subordination provisions contained in any instrument or agreement evidencing
such Indebtedness; except in each of (a), (b) and (c), where the failure to do
so would not reasonably be expected to have a Material Adverse Effect.

 

16

 

 

(g) Compliance with Laws. The Partnership will, and will cause each of its
Restricted Subsidiaries to, comply with all Requirements of Law of any
Governmental Authority having jurisdiction over it or its business (including
Environmental Laws, the Federal Fair Labor Standards Act and any California
Requirement of Law promulgated with respect to earthquakes), except xxviii) such
as may be contested in good faith or as to which a bona fide dispute may exist
or xxix) where the failure to do so would not reasonably be expected to have a
Material Adverse Effect. The Partnership will, and will cause its Subsidiaries
to, maintain in effect and enforce policies and procedures designed to ensure
compliance by the Partnership and its subsidiaries and their respective
directors, officers, employees and agents with the applicable Anti-Terrorism and
Money Laundering Laws, OFAC Laws, Anti-Corruption Laws and applicable Sanctions.

 

(h) Inspection of Books and Records. The Partnership will, and will cause each
of its Restricted Subsidiaries to, maintain proper books of record and account,
in which full, true and correct entries in conformity with GAAP consistently
applied shall be made of all financial transactions and matters involving the
assets and business of such Issuer, Guarantor or Restricted Subsidiary, as
applicable. The Partnership will, and will cause each of its Restricted
Subsidiaries to, permit representatives and independent contractors of the
Representative to visit and inspect any of their respective properties, to
examine their respective company, financial and operating records, and make
copies thereof or abstracts therefrom, and to discuss their respective affairs,
finances and accounts with their respective managers, directors, officers, and
independent public accountants, all at the expense of the Partnership and at
such reasonable times during normal business hours and as often as may be
reasonably desired, upon reasonable advance notice to the Partnership; provided,
however, when an Event of Default has occurred and is continuing, the
Representative may do any of the foregoing at any time during normal business
hours and without advance notice.

 

(i) Environmental Laws.

 

(i) The Partnership will, and will cause each of its Restricted Subsidiaries to,
comply with all applicable Environmental Laws and maintain all environmental,
health and safety permits, licenses, registrations and authorizations necessary
for its operations and will maintain such in full force and effect except where
such noncompliance or the failure to maintain such permits, licenses,
registrations and authorizations would not reasonably be expected to have a
Material Adverse Effect. The Partnership will, and will cause each of its
Restricted Subsidiaries 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
under applicable Environmental Laws because of or in connection with the actual
or suspected past, present or future Release of any Hazardous Material on,
under, about or from any of the Properties of the Partnership and its Restricted
Subsidiaries, which failure to commence and diligently prosecute to completion
could reasonably be expected to have a Material Adverse Effect.

 

17

 

 

(ii) The Partnership will, and will cause each of its Restricted Subsidiaries
to, establish and implement, such procedures as may be reasonably necessary to
continuously determine and assure that the Partnership’s obligations under this
Section  5(i)(ii) are timely and fully satisfied, which failure to establish and
implement could reasonably be expected to have a Material Adverse Effect.

 

(iii) The Partnership will, and will cause each of its Restricted Subsidiaries
to, promptly furnish to the Representative all written notices of violation,
orders, claims, citations, complaints, penalty assessments, suits or other
proceedings received by the Partnership or any of its Restricted Subsidiaries,
or of which it has notice, pending or threatened against such Issuer, Guarantor
or any of the Restricted Subsidiaries, by any Governmental Authority with
respect to any alleged violation of or non-compliance with any Environmental
Laws or any permits, licenses, registrations or authorizations related to
Environmental Laws in connection with its ownership or use of its properties or
the operation of its business, except where any such alleged violations or
incidents of non-compliance would not, individually or in the aggregate, result
in a penalty, assessment, fine or other cost or liability exceeding $2.0
million.

 

(iv) The Partnership will, and will cause each of its Restricted Subsidiaries
to, promptly furnish to the Representative all requests for information, notices
of claim, demand letters, and other notifications, received by the Partnership
or any of its Restricted Subsidiaries in connection with its ownership or use of
its properties or the conduct of its business, relating to potential
responsibility with respect to any investigation or clean-up of Hazardous
Materials at any location, except where any such alleged responsibility would
not, individually or in the aggregate, result in a penalty, assessment, fine or
other cost or liability exceeding $2.0 million.

 

(j) Phase I Reports. In the event such is obtained in connection with the
acquisition of Oil and Gas Properties directly or indirectly through a
subsidiary or otherwise, the Partnership shall deliver to the Representative a
copy of a Phase I Report covering such Oil and Gas Properties, and in the event
such is not obtained, the Partnership will provide a Phase I Report upon request
by the Representative and no more than once per year in the absence of any Event
of Default (or as otherwise required to be obtained by the Representative of any
Governmental Authority), in connection with any future acquisition of any Oil
and Gas Properties.

 

18

 

 

(k) Margin Stock. The Partnership will not and will not permit any of its
Restricted Subsidiaries to use any portion of the proceeds from the sale of the
Notes, directly or indirectly, xxx) to purchase or carry Margin Stock in
violation of Regulation U, xxxi) to repay or otherwise refinance indebtedness of
the Partnership or any of its Restricted Subsidiaries, any Subsidiary or others
incurred to purchase or carry Margin Stock in violation of Regulation U or
xxxii) to extend credit for the purpose of purchasing or carrying any Margin
Stock. If requested by the Representative, the Issuers will furnish to the
Trustee and the Purchasers a statement to the foregoing effect in conformity
with the requirements of FR Form U-1 or such other form referred to in
Regulation U or Regulation X of the FRB, as the case may be.

 

(l) Amendments to Organization Documents. The Partnership will not and will not
permit any of its Restricted Subsidiaries to alter, amend or modify in any
manner materially adverse to the Holders any of its Organization Documents.

 

(m) Accounting Changes. Except as expressly permitted by the Representative, the
Partnership will not and will not permit any of its Restricted Subsidiaries to,
make any significant change in accounting treatment or reporting practices,
except as required by GAAP, or change the fiscal year of the Partnership or any
of its Restricted Subsidiaries.

 

(n) ERISA Compliance. Except as would not reasonably be expected to result in a
Material Adverse Effect, the Partnership will not and will not permit any of its
Restricted Subsidiaries to, at any time:

 

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

 

(ii) 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 Partnership or any of its Restricted
Subsidiaries or any ERISA Affiliate is required to pay as contributions thereto;

 

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

 

(iv) permit, or allow any ERISA Affiliate to permit, the actuarial present value
of the benefit liabilities under any Plan maintained by the Partnership or any
of its Restricted Subsidiaries or any ERISA Affiliate which is regulated under
Title IV of ERISA to exceed the current value of the assets (computed on a plan
termination basis in accordance with Title IV of ERISA) of such Plan allocable
to such benefit liabilities. The term “actuarial present value of the benefit
liabilities” shall have the meaning specified in Section 4041 of ERISA;

 

19

 

 

(v) incur, or permit any ERISA Affiliate to incur, an ERISA Event;

 

(vi) acquire, or permit any ERISA Affiliate to acquire, an interest in any
Person that causes such Person to become an ERISA Affiliate with respect to the
Partnership or any of its Restricted Subsidiaries or with respect to any ERISA
Affiliate of the Partnership or any of its Restricted Subsidiaries if such
Person sponsors, maintains or contributes to, or at any time in the six-year
period preceding such acquisition has sponsored, maintained, or contributed to,
(1) any Multiemployer Plan with respect to which such Person has an outstanding
withdrawal liability under Section 4201 or 4202 of ERISA, or (2) any other Plan
that is subject to Title IV of ERISA under which the actuarial present value of
the benefit liabilities under such Plan exceeds the current value of the assets
(computed on a plan termination basis in accordance with Title IV of ERISA) of
such Plan allocable to such benefit liabilities;

 

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

 

(viii) contribute to or assume an obligation to contribute to, or permit any
ERISA Affiliate to contribute to or assume an obligation to contribute to, any
employee welfare benefit plan, as defined in Section 3(1) of ERISA, that
provides retiree benefits to former employees of such entities (other than
coverage mandated by applicable law), that may not be terminated by such
entities in their sole discretion at any time without any material liability;
and

 

(ix) amend, or permit any ERISA Affiliate to amend, a Plan resulting in an
increase in current liability such that such the Partnership or any of its
Restricted Subsidiaries or any ERISA Affiliate is required to provide security
to such Plan under Section 401(a)(29) of the Code or establish or contribute to,
or permit an ERISA Affiliate to establish or contribute to, a Pension Plan or a
Multiemployer Plan.

 

(o) Mortgages and Opinions. Within 60 days of the Closing Date (or such later
date as the Representative may agree in its sole discretion), the Breitburn
Parties will xxxiii) execute and deliver Mortgages in form and substance
reasonably satisfactory to the Representative and the Collateral Agent in favor
of the Collateral Agent on their respective Oil and Gas Properties as required
by the Indenture, including, for the avoidance of doubt, (x) those Mortgages as
described on Schedule  5 under the heading “Mortgages” and (y) Mortgages on the
Permian Basin Properties and xxxiv) cause such Mortgages to be filed in the
proper recorders’ offices or appropriate public records and pay the mortgage
recording fees and taxes in respect thereof and otherwise comply with the formal
requirements of state law applicable to the recording of real estate mortgages
generally with respect to the Mortgages. On the date that each such Mortgage is
so filed or recorded, the Company shall cause to be delivered to the Collateral
Agent and the Representative favorable opinions of counsel for the Breitburn
Parties in form and substance reasonably satisfactory to the Representative.

 

20

 

 

(p) Control Agreements. Within 60 days of the Closing Date (or such later date
as the Representative may agree in its sole discretion), the Breitburn Parties
shall execute and deliver to the Collateral Agent the Control Agreements as
described on Schedule  5 under the heading “Control Agreements” in form and
substance reasonably satisfactory to the Representative and the Collateral
Agent.

 

(q) Insurance. Within 60 days of the Closing Date (or such later date as the
Representative may agree in its sole discretion), the Breitburn Parties shall
deliver, or cause to be delivered, to the Collateral Agent such certificates and
endorsements to insurance policies in accordance with the Indenture (or as the
Representative may otherwise agree) and as otherwise described on Schedule  5
under the heading “Insurance Certificates and Endorsements” in form and
substance reasonably satisfactory to the Representative and the Collateral
Agent.

 

6. Expenses; Indemnification. Each of the Breitburn Parties agrees, jointly and
severally, to pay and reimburse each Purchaser, Representative and their Related
Parties in full for all costs, expenses, fees (including the reasonable fees,
charges and disbursements of outside counsel and advisors for the Purchasers and
Representative and any fees and expenses incurred exercising their rights under
any Transaction Document) (provided that if the transactions contemplated by
this Agreement are not consummated, the Breitburn Parties shall not be liable
for amounts in excess of $750,000 (the “Dead Deal Reimbursement Amount”) unless
the condition set forth in either Section 7(h) or Section 7(i) has not been
satisfied by the Drop Dead Date (a “Bank Condition Failure”) the and taxes
incident to and in connection with b) the authorization, issuance, sale and
delivery of the Securities and any taxes payable in that connection; c) the
production and distribution of this Agreement, any supplemental agreement among
Purchasers, and any other related documents in connection with the offering,
purchase, sale and delivery of the Notes; d) the preparation, negotiation,
execution, delivery and administration of this Agreement and the other
Transaction Documents or any amendments, modifications or waivers of the
provisions hereof or thereof (in the case of amendments, modifications or
waivers, whether or not the transactions contemplated thereby shall be
consummated) and creating, documenting and perfecting the security interests in
the Collateral as contemplated by the Collateral Documents (including the
reasonable related fees and out-of-pocket expenses of counsel for the Purchasers
for all periods prior to and after the Closing Date); e) the performance by the
Breitburn Parties of their other obligations under this Agreement; and f) the
enforcement or protection of its rights in connection with this Agreement and
the other Transaction Documents, including its rights under this Section  6 and
all expenses incurred during any workout, restructuring or negotiations in
respect of such Notes. Each of the Breitburn Parties agrees, jointly and
severally, to indemnify the Purchasers, Representative and each Related Party of
any of the foregoing Persons (each such Person being called an “Indemnitee”)
against, and hold each Indemnitee harmless from, any and all losses, claims,
damages, liabilities and related expenses (including the fees, charges and
disbursements of any counsel for any Indemnitee) incurred by any Indemnitee or
asserted against any Indemnitee by any third party or by any Breitburn Party
arising out of, in connection with, or as a result of, any actual, threatened or
prospective claim, litigation, investigation or proceeding relating to i) the
execution or delivery of this Agreement, any other Transaction Document or any
agreement or instrument contemplated hereby or thereby, the performance by the
parties hereto of their respective obligations hereunder or thereunder or the
consummation of the transactions contemplated hereby or thereby, ii) any Note
(or the use or proposed use of the proceeds therefrom), or iii) any actual or
alleged presence or Release of Hazardous Materials on or from any property owned
or operated by any Breitburn Entity, or any Environmental Liability related in
any way to any Breitburn Entity, whether based on contract, tort or any other
theory, whether brought by a third party or by any Breitburn Party, and
regardless of whether any Indemnitee is a party thereto, provided that such
indemnity shall not, as to any Indemnitee, be available to the extent that such
losses, claims, damages, liabilities or related expenses (x) are determined by a
court of competent jurisdiction by final and nonappealable judgment to have
resulted from the gross negligence or willful misconduct of such Indemnitee or
(y) result from a claim brought by a Breitburn Party against an Indemnitee for
breach in bad faith of such Indemnitee’s material obligations hereunder or under
any other Transaction Document, if the Breitburn Party has obtained a final and
nonappealable judgment in its favor on such claim as determined by a court of
competent jurisdiction. “Related Parties” means, with respect to any Person,
such Person’s Affiliates and the partners, directors, officers, employees,
agents and advisors of such Person and of such Person’s Affiliates. This
covenant shall survive any termination of this Agreement.

 

21

 

 

7. Conditions of Purchasers’ Obligations to Purchase the Notes. The several and
not joint obligations of the Purchasers hereunder to purchase the Notes in
accordance with the provisions herein are subject to the accuracy, when made on
the Closing Date, of the representations and warranties of the Breitburn Parties
contained herein and each other Transaction Document, to the performance by the
Breitburn Parties of their respective obligations hereunder and each other
Transaction Document, and to each of the following additional terms and
conditions:

 

(a) All corporate, partnership and limited liability company proceedings and
other legal matters incident to the authorization, form and validity of this
Agreement, the Transaction Documents, the Notes, and all other legal matters
relating to this Agreement, the Transaction Documents and the transactions
contemplated hereby and thereby shall be reasonably satisfactory to counsel to
the Purchasers, and the Breitburn Parties shall have furnished to such counsel
all documents and information that they may reasonably request to enable them to
pass upon such matters.

 

(b) The Purchasers shall have received a certificate of the secretary, assistant
secretary or a Proper Officer with similar responsibilities of each Breitburn
Party, or in the event that such Breitburn Party is a limited partnership, of
such Person’s general partner, certifying that as of the Closing Date: (i)
resolutions of its board of directors or members (or equivalent governing body),
authorizing the transactions contemplated hereby; (ii) the names and genuine
signatures of the Proper Officers of such Person, authorized to execute, deliver
and perform, as applicable, the Indenture, the Notes, the Collateral Documents,
and all other Note Documents to be delivered by such Person; (iii) the
Organization Documents of such Person as in effect as of the Closing Date; (iv)
the good standing certificate for such Person, from its state of incorporation,
formation or organization, as applicable, dated as of a recent date; (v) as may
be reasonably required by the Purchasers, certificate(s) of authority for such
Person from states wherein such Person is required to be qualified to conduct
business, evidencing such Person’s qualification to do business in such state,
dated as of a recent date and (vi) since December 31, 2014, no change, event,
development, circumstance, condition, occurrence or effect that has had or would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.

 

22

 

 

(c) Vinson & Elkins L.L.P. shall have furnished to the Purchasers its written
opinion, as counsel to the Issuers and Guarantors, addressed to the Purchasers
and dated the Closing Date, in form and substance reasonably satisfactory to the
Purchasers.

 

(d) Mike, Meyers, Beckett & Jones PLLC shall have furnished to the Purchasers
its written opinion, as Michigan local counsel to Beaver Creek Pipeline, L.L.C.,
a Michigan limited liability company, Mercury Michigan Company, LLC, a Michigan
limited liability company, Terra Energy Company LLC, a Michigan limited
liability company, and Terra Pipeline Company, a Michigan limited liability
company, addressed to the Purchasers and dated the Closing Date, in form and
substance reasonably satisfactory to the Purchasers.

 

(e) The Partnership shall have furnished or caused to be furnished to the
Purchasers, a certificate, dated as of the Closing Date, signed on its behalf by
the Chief Executive Officer and the Chief Financial Officer of the General
Partner, or other officers satisfactory to the Representative, as to such
matters as the Representative may reasonably request, including, without
limitation, statements that (i) the representations, warranties and agreements
of the Breitburn Parties in Section  1 are true and correct on and as of the
Closing Date, and the Breitburn Parties have complied with all their agreements
contained herein and satisfied all the conditions on their part to be performed
or satisfied hereunder at or prior to the Closing Date and (ii) each of the
Partnership and the Operating LP is Solvent and the Breitburn Parties and their
Subsidiaries, on a consolidated basis, are Solvent.

 

(f) Each of the Breitburn Parties shall have furnished to counsel for the
Purchasers a duly executed copy of each Note, the Indenture, each other
Transaction Document and the Preferred Equity Series B Documentation, in each
case, in form and substance reasonably acceptable to the Purchasers; provided
that the Indenture shall be substantially identical to that certain Indenture,
dated as of January 13, 2012, by and among the Partnership, Breitburn Finance,
the guarantors named therein and U.S. Bank National Association, as trustee,
with changes and modifications to reflect the terms agreed to in the Description
of Notes, to otherwise reflect the second lien nature of the financing
contemplated hereunder and thereunder and to otherwise reflect any matters
mutually agreed to by the parties thereto. “Preferred Equity Series B
Documentation” means the Partnership Limited Partnership Agreement, the Series B
Preferred Unit Purchase Agreement, the Registration Rights Agreement and the
Board Representation Agreement, each dated as of the Closing Date.

 

(g) The Preferred Series B Issuance shall have occurred, or substantially
simultaneously with the purchase of the Notes hereunder, shall occur, in
accordance with the terms of the Preferred Equity Series B Documentation.
“Preferred Equity Series B Issuance” means the issuance by Partnership of its
Series B Perpetual Convertible Preferred Units in an aggregate amount of
$350,000,000, which such issuance is to occur on the terms set forth in the
Preferred Equity Series B Documentation.

 

23

 

 

(h) The Purchasers shall have received a duly executed copy of that certain
First Amendment to Credit Agreement, in form and substance reasonably
satisfactory to the Purchasers (it being understood and agreed that the draft of
the First Amendment to Credit Agreement circulated by counsel to Wells Fargo
Bank, National Association at approximately 2:00 p.m., New York City time, on
March 26, 2015, is deemed to be satisfactory to the Purchasers), which such
First Amendment to Credit Agreement shall, substantially contemporaneous
herewith, be fully effective.

 

(i) The Purchasers shall have received a duly executed copy of that certain
Intercreditor Agreement, in form and substance reasonably satisfactory to the
Purchasers (it being understood and agreed that the draft of the Intercreditor
Agreement circulated by counsel to Wells Fargo Bank, National Association at
approximately 2:32 p.m., New York City time, on March 26, 2015, is deemed to be
satisfactory to the Purchasers).

 

(j) The Issuers shall repay, substantially simultaneously with the sale and
purchase of the Notes, the principal amount of loans outstanding under the
Credit Facility in an amount no less than $937,500,000 funded with the proceeds
from the sale and purchase of the Notes and the Preferred Equity Series B
Issuance.

 

(k) Since December 31, 2014, there shall not have been any change, event,
development, circumstance, condition, occurrence or effect that has had or would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.

 

(l) Upon giving effect to the Transactions contemplated to occur hereunder, no
Default or Event of Default will exist under iv) any indenture to which any
Breitburn Party is a party or under any notes issued pursuant thereto or v) the
Credit Facility or ancillary document to which any Breitburn Party is a party or
under any notes issued pursuant thereto.

 

(m) Except for those items described on Schedule  5 under the headings
“Mortgages” and “Control Agreements”, which are required to be delivered within
60 days of the Closing Date (or such later date as the Representative may agree
in its sole discretion), all documents and instruments required to perfect the
Collateral Agent’s security interest in the Collateral shall have been executed
and delivered and, if applicable, be in the proper form for filing, including,
without limitation, UCC-1 financing statements as described on Schedule 1(z).

 

(n) The Issuers shall have paid the fees and expenses of the Collateral Agent,
Trustee, the Purchasers and the Representative required to be paid under the
terms hereof or any other Transaction Document, the Preferred Equity Series B
Documentation or fee letter, including reasonable fees and out-of-pocket
expenses of counsel thereof to the extent a written estimate has been delivered
to the Partnership at least three (3) Business Day prior to the Closing Date.

 

24

 

 

(o) On or prior to the Closing Date, the Breitburn Parties shall have furnished
to the Purchasers such further documents, instruments and certificates as the
Purchasers may reasonably request, including, without limitation, those set
forth on the closing checklist delivered in connection herewith.

 

All opinions, letters, evidence and certificates mentioned above or elsewhere in
this Agreement shall be deemed to be in compliance with the provisions hereof
only if they are in form and substance reasonably satisfactory to counsel for
the Purchasers.

 

8. Notices. All statements, requests, notices and agreements hereunder shall be
in writing, and:

 

(a) if to the Purchasers, shall be delivered or sent by mail, overnight courier
or facsimile transmission to (i) EIG Redwood Debt Aggregator, LP c/o EIG
Management Company, LLC, Three Allen Center, 333 Clay Street, Suite 3500,
Houston, TX 77002, Attention: Clayton Taylor, along with copies (which shall not
constitute notice) to Richard Aftanas, Kirkland & Ellis LLP, 601 Lexington
Avenue, New York, NY 10022 (Fax: 212-446-4900) and John Pitts, Kirkland & Ellis
LLP, 600 Travis Street, Suite 3300, Houston, TX 77002 (Fax: 713-835-3601) and
(ii) Anchorage Capital Partners, L.P. c/o Anchorage Capital Group, L.L.C., 610
Broadway, 6th Floor, New York, New York, 10012, Attn: Legal, (Fax: 212-426-4601)
with a copy to Ken Ziman, Skadden, Arps, Slate, Meagher & Flom LLP, 4 Times
Square, New York, NY 10036, (Fax: (917) 777-3310) and Michelle Gasaway, Skadden,
Arps, Slate, Meagher & Flom LLP, 300 South Grand Avenue, Suite 3400, Los
Angeles, CA 90071 (Fax: (213) 621-5122);

 

(b) if to the Representative, shall be delivered or sent by mail, overnight
courier or facsimile transmission to EIG Redwood Debt Aggregator, LP c/o EIG
Management Company, LLC, Three Allen Center, 333 Clay Street, Suite 3500,
Houston, TX 77002, Attention: Clayton Taylor, along with copies (which shall not
constitute notice) to Richard Aftanas, Kirkland & Ellis LLP, 601 Lexington
Avenue, New York, NY 10022 (Fax: 212-446-4900) and John Pitts, Kirkland & Ellis
LLP, 600 Travis Street, Suite 3300, Houston, TX 77002 (Fax: 713-835-3601); and

 

(c) if to any of the Breitburn Parties, shall be delivered or sent by mail,
overnight courier or facsimile transmission to Breitburn Energy Partners LP, 515
South Flower Street, Suite 4800, Los Angeles, CA 90071, Attention: Gregory C.
Brown (Fax: 213-225-5916), with a copy (which shall not constitute notice) to
Vinson & Elkins L.L.P., 666 Fifth Avenue, 26th Floor, New York, New York 10103,
Attention: Shelley A. Barber (Fax: 917-849-5353). Any such statements, requests,
notices or agreements shall take effect at the time of receipt thereof. The
Breitburn Parties each shall be entitled to act and rely upon any request,
consent, notice or agreement given or made on behalf of the Purchasers by the
Representative.

 

25

 

 

9. Persons Entitled to Benefit of Agreement. This Agreement shall inure to the
benefit of and be binding upon the Purchasers, the Breitburn Parties and their
respective successors. This Agreement and the terms and provisions hereof are
for the sole benefit of only those persons, except that g) the representations,
warranties, indemnities and agreements of the Breitburn Parties contained in
this Agreement shall also be deemed to be for the benefit of the directors,
officers and employees of the Purchasers and each person or persons, if any,
controlling any Purchaser within the meaning of Section 15 of the Securities
Act, h) the expense reimbursement and indemnities contained in this Agreement
shall also be deemed to be for the benefit of the Related Parties of the
Purchasers and Representative and (c) the payment provision of Section 4(c)
shall also be deemed to be for the benefit of the Holders. Nothing in this
Agreement is intended or shall be construed to give any person, other than the
persons referred to in this Section  11, any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision contained herein;
provided, however, it is agreed that any inaccuracy of a representation or
warranty and any failure of a covenant shall result in a Default or Event of
Default, as the case may be, under the Indenture in accordance with the terms
thereof.

 

10. Survival. The respective representations, warranties and agreements of the
Breitburn Parties and the Purchasers contained in this Agreement or made by or
on behalf of them, respectively, pursuant to this Agreement, shall survive the
delivery of and payment for the Notes and shall remain in full force and effect,
unless and until this agreement is terminated in accordance with Section 18,
except for the provisions set for in this Section 10 and Section 4(c), Section
6, Section 11, Section 12 and Section 19 of this Agreement, which shall survive
termination.

 

11. Governing Law. This Agreement and any claim, controversy or dispute arising
under or related to this Agreement shall be governed by and construed in
accordance with the laws of the State of New York. Each party hereto hereby
irrevocably and unconditionally submits, for itself and its property, to the
exclusive jurisdiction of the federal and state courts located in New York
County, New York, including the United States District Court for the Southern
District of New York, in connection with any claim brought with respect to this
Agreement or related matter and waives any right to claim such forum would be
inappropriate, including concepts of forum non conveniens. Time is of the
essence in this Agreement.

 

12. Waiver of Jury Trial. Each of the Breitburn Parties and each of the
Purchasers hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Agreement or the transactions contemplated
hereby.

 

13. Patriot Act. In accordance with the requirements of the USA Patriot Act
(Title III of Pub. L. 107-56 (signed into law October 26, 2001)), the Purchasers
are required to obtain, verify and record information that identifies their
respective clients, including the Breitburn Parties, which information may
include the name and address of their respective clients, as well as other
information that will allow the Purchasers to properly identify their respective
clients.

 

26

 

 

14. Counterparts. This Agreement may be executed in one or more counterparts
and, if executed in more than one counterpart, the executed counterparts shall
each be deemed to be an original but all such counterparts shall together
constitute one and the same instrument.

 

15. Headings. The headings herein are inserted for convenience of reference only
and are not intended to be part of, or to affect the meaning or interpretation
of, this Agreement.

 

16. Successors and Assigns.

 

(a) This Agreement shall be binding upon the Purchasers and the Breitburn
Parties and their successors and permitted assigns and any successor or assign
of any substantial portion of the Breitburn Parties and any of the Purchasers’
respective businesses and/or assets; provided, however, no party hereto may
assign any of its rights or obligations under this Agreement without the prior
written consent of each of the other parties hereto; provided, however, that,
except as otherwise set forth below in Section 16(b), nothing in this Section
16(a) shall restrict the ability or the right of the Purchasers to transfer or
assign the Notes.

 

(b) Notwithstanding anything to the contrary set forth herein or in any other
Note Document (including the Indenture), EIG shall at all times own and hold at
least 50.1% of the outstanding principal amount of the Notes (the “Minimum
Holding Requirement”); provided that upon a bankruptcy or insolvency Event of
Default, EIG may assign or transfer all or any portion of its Notes without
regard to the Minimum Holding Requirement and without the consent of the
Partnership or any other person.

 

(c) Any assignment or transfer in violation of this Section shall be null and
void ab initio.

 

17. Confidentiality. No Purchaser shall, directly or indirectly, disclose to any
person any Confidential Information received from the Breitburn Parties, their
Affiliates or their representatives in any form, whether acquired prior to or
after the Closing Date, relating to the Breitburn Parties; provided, however,
that Confidential Information does not include information that (i) is or
becomes generally available to the public other than (a) as a result of a
disclosure by the Purchaser in violation of this Agreement or (b) in violation
of a confidentiality obligation to the Breitburn Parties known to the Purchaser,
(ii) is or becomes available to the Purchaser on a non-confidential basis from a
source not known to have an obligation of confidentiality to the Breitburn
Parties, (iii) was already known to the Purchaser at the time of disclosure, or
(iv) is independently developed by the Purchaser. Notwithstanding the foregoing,
a Purchaser may disclose any information relating to the business and operations
of the Breitburn Parties (i) to its Affiliates and to its and its Affiliates’
directors, officers, employees, advisory committee members, investment committee
members, limited partners, investors and legal counsel (the “Permitted
Recipients”) to whom such disclosure is necessary and who in each case either
(1) acknowledge that they are bound by the confidentiality provisions of this
Agreement and the Confidentiality Agreements or (2) are bound by confidentiality
obligations to the Purchaser or its Affiliates that are at least as stringent as
the confidentiality provisions of this Agreement and the Confidentiality
Agreements, and in each case the Purchasers shall use reasonable best efforts to
cause such Permitted Recipients to keep any such information confidential, (ii)
as required by applicable law or any securities exchange or market rule; (iv) as
may be requested or required by any Governmental Authority (provided that such
Purchaser first notifies the Partnership and gives the Partnership the
opportunity to contest such request or requirement, in each case as permitted by
applicable law; or (v) except with prior notice of such request for disclosure
to, and consent of, the Partnership (which consent may be withheld in the
Partnership’s sole discretion). “Confidential Information” means all information
received from the Partnership or any of its Subsidiaries relating to Partnership
or any of its Subsidiaries or any of their respective businesses, other than any
such information that is available to the Representative or any Purchaser on a
non-confidential basis prior to disclosure by the Purchaser or any of its
Subsidiaries. Any Person required to maintain the confidentiality of Information
as provided in this Section 17 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. “Confidentiality Agreements” means that
certain letter agreement by and between EIG Management Company, LLC and the
General Partner, dated as of January 26, 2015, and that certain letter agreement
by and between Anchorage Capital Group, L.L.C. and the General Partner, dated as
of March 3, 2015.

 

27

 

 

18. Termination.

 

(a) In the event the Closing Date does not occur by 11:59 p.m. on April 30, 2015
Houston, Texas time (the “Drop Dead Date”), this Agreement shall automatically
terminate and be of no further force and effect, except Section 6, Section 10,
Section 11, Section 12 and Section 19 which shall survive termination.

 

(b) In the event that the Closing Date occurs and EIG at any time holds less
than 50.1% of the outstanding principal amount of the Notes, this agreement
shall terminate and be of no further force and effect except as set forth in
Section 10 above.

 

19. Valuation of Notes.  The Partnership shall enter into or have put into
effect, on or prior to the Closing Date, and shall maintain in effect at all
times an agreement with an investment bank (the “Valuation Firm”) pursuant to
which such Valuation Firm shall value the Notes, in accordance with customary
market practices, on a monthly basis.  This covenant shall survive any
termination of this Agreement until such time as all of Notes shall have
otherwise ceased to be outstanding.

 

20. Several and Not Joint; No Fiduciary. The parties hereto hereby agree and
understand that the obligations of the Purchasers hereunder are several and not
joint. The Representative has no duties or obligations except those expressly
set forth herein and shall not be subject to any fiduciary or other implied
duties and shall not be liable for any action taken or not taken by it.

 

21. Dead Deal Reimbursement Amount. In the event the transactions contemplated
by this Agreement are not consummated (other than on account of a Bank Condition
Failure), the Purchasers agree that the Dead Deal Reimbursement Amount will be
allocated (i) 75.00% to EIG Redwood Debt Aggregator, LP and (ii) 25.00% to
Anchorage Capital Partners, L.P. and ACMO BBEP, L.P.

 

28

 

 

If the foregoing correctly sets forth the agreement among the Breitburn Parties
and the Purchasers, please indicate your acceptance in the space provided for
that purpose below.

 

Very truly yours,

 

 

29

 

 

  ISSUERS         BREITBURN ENERGY PARTNERS LP         By: Breitburn GP LLC,    
its general partner           /s/ James G. Jackson   Name:   James G. Jackson  
Title: Executive Vice President and     Chief Financial Officer              
BREITBURN OPERATING LP         By: Breitburn Operating GP LLC,     its general
partner           /s/ James G. Jackson   Name:   James G. Jackson   Title:
Executive Vice President and     Chief Financial Officer               BREITBURN
FINANCE CORPORATION           /s/ James G. Jackson   Name:   James G. Jackson  
Title: Chief Financial Officer

 

[Signature Page to Purchase Agreement]

 

 

 

 

  GUARANTORS           ALAMITOS COMPANY   BEAVER CREEK PIPELINE, L.L.C.   GTG
PIPELINE LLC   MERCURY MICHIGAN COMPANY, LLC   PHOENIX PRODUCTION COMPANY   QRE
GP, LLC   TERRA ENERGY COMPANY LLC   TERRA PIPELINE COMPANY LLC                
  By:     /s/ James G. Jackson     Name: James G. Jackson     Title: Chief
Financial Officer                   BREITBURN OPERATING GP LLC   BREITBURN GP
LLC   BREITBURN MANAGEMENT COMPANY LLC                   By:   /s/ James G.
Jackson     Name:   James G. Jackson     Title: Executive Vice President and
Chief Financial Officer                 BREITBURN FLORIDA LLC   BREITBURN
OKLAHOMA LLC   BREITBURN SAWTELLE   BREITBURN TRANSPETCO GP LLC   BREITBURN
TRANSPETCO LP LLC           By: Breitburn Operating LP,     its sole member    
      By: Breitburn Operating GP LLC,     its general partner                  
By:     /s/ James G. Jackson     Name:   James G. Jackson     Title: Executive
Vice President and Chief Financial Officer

 

[Signature Page to Purchase Agreement]

 

 

 

 

 

  QR ENERGY, LP       By: QRE GP, LLC,     its general partner                  
By:      /s/ James G. Jackson     Name: James G. Jackson     Title: Chief
Financial Officer           QRE OPERATING, LLC       By: QR Energy, LP,     its
sole member           By: QRE GP, LLC,     its general partner                  
By:   /s/ James G. Jackson     Name: James G. Jackson     Title: Chief Financial
Officer                   TRANSPETCO PIPELINE COMPANY, L.P.           By:  
Breitburn Operating LP,     on behalf of itself and as the sole member of    
Breitburn Transpetco GP LLC, each a     general partner           By: Breitburn
Operating GP LLC,     its general partner                   By:   /s/ James G.
Jackson     Name:   James G. Jackson     Title: Executive Vice President and    
  Chief Executive Officer

 

[Signature Page to Purchase Agreement]

 

 

 

 

Accepted:   EIG REDWOOD DEBT AGGREGATOR, LP       For itself and as
Representative   of the several Purchasers named   in Schedule I hereto        
EIG REDWOOD DEBT AGGREGATOR, LP   By: EIG Redwood Aggregator GP, LLC, its
general partner   By: EIG Asset Management, LLC, its sole member         By: /s/
Clayton Taylor   Name:    Clayton Taylor   Title:   Managing Director        
By: /s/ Richard Punches   Name:  Richard Punches   Title:  Managing Director  

 

[Signature Page to Purchase Agreement]

 

 

 

 

By: Anchorage Capital Partners, L.P.         By: Anchorage Capital Group,
L.L.C., as   investment manager                     By:       /s/ Natalie A.
Birrell     Name:  Natalie A. Birrell     Title:    Chief Operating Officer    
    By: ACMO BBEP, L.P.         By:   Anchorage Capital Group, L.L.C., as  
investment manager         By:       /s/ Natalie A. Birrell     Name:  Natalie
A. Birrell     Title:    Chief Operating Officer  

 

[Signature Page to Purchase Agreement]

 

 

 

 

Schedule I

  

Purchasers  Principal Amount of Notes  EIG Redwood Debt Aggregator, LP 
$487,500,000  ACMO BBEP, L.P.  $99,807,500  Anchorage Capital Partners, L.P. 
$62,692,500  Total  $650,000,000 

 

I-1

 

 

Schedule II

 

GUARANTORS

 

Alamitos Company

 

Beaver Creek Pipeline, L.L.C.

 

Breitburn Finance Corporation

 

Breitburn Florida LLC

 

Breitburn GP LLC

 

Breitburn Management Company LLC

 

Breitburn Oklahoma LLC

 

Breitburn Operating GP LLC

 

Breitburn Sawtelle LLC

 

Breitburn Transpetco GP LLC

 

Breitburn Transpetco LP LLC

 

GTG Pipeline LLC

 

Mercury Michigan Company, LLC

 

Phoenix Production Company

 

QR Energy, LP

 

QRE GP, LLC

 

QRE Operating, LLC

 

Terra Energy Company LLC

 

Terra Pipeline Company LLC

 

Transpetco Pipeline Company, L.P.

 

II-1

 

 

Schedule III

 

BREITBURN ENTITIES

 

Alamitos Company

 

Beaver Creek Pipeline, L.L.C.

 

Breitburn Energy Partners LP

 

Breitburn Florida LLC

 

Breitburn GP LLC

 

Breitburn Management Company LLC

 

Breitburn Oklahoma LLC

 

Breitburn Operating GP LLC

 

Breitburn Operating LP

 

Breitburn Sawtelle LLC

 

Breitburn Transpetco GP LLC

 

Breitburn Transpetco LP LLC

 

GTG Pipeline LLC

 

Mercury Michigan Company, LLC

 

Phoenix Production Company

 

QR Energy, LP

 

QRE GP, LLC

 

QRE Operating, LLC

 

Terra Energy Company LLC

 

Terra Pipeline Company LLC

 

Transpetco Pipeline Company, L.P.

 

III-1

 

 

Schedule IV

 

CERTAIN DEFINED TERMS

 

Terms used herein but not otherwise defined shall have the meanings as set forth
below:

 

“Affiliate” shall have the meaning assigned to such term in the Description of
Notes.

 

“Anti-Corruption Laws” means all laws, rules, and regulations of any
jurisdiction applicable to the Partnership or any of its respective subsidiaries
from time to time concerning or relating to bribery or corruption.

 

“Anti-Terrorism and Money Laundering Laws” means any of the following
i) Section 1 of Executive Order 13224 of September 24, 2001, Blocking Property
and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or
Support Terrorism and the associated Global Terrorism Sanctions Regulation
(Title 31, Part 594 of the US Code of Federal Regulations), ii) the Terrorism
Sanctions Regulations (Title 31 Part 595 of the US Code of Federal Regulations),
iii) the Terrorism List Governments Sanctions Regulations (Title 31 Part 596 of
the US Code of Federal Regulations), iv) the Foreign Terrorist Organizations
Sanctions Regulations (Title 31 Part 597 of the US Code of Federal Regulations),
v) the PATRIOT Act, vi) the US Money Laundering Control Act of 1986, vii) the
Bank Secrecy Act, 31 U.S.C. sections 5301 et seq., viii) Laundering of Monetary
Instruments, 18 U.S.C. Section 1956, ix) engaging in Monetary Transactions in
Property Derived from Specified Unlawful Activity, 18 U.S.C. Section 1957,
x) the Financial Recordkeeping and Reporting of Currency and Foreign
Transactions Regulations (Title 31 Part 103 of the US Code of Federal
Regulations), xi) any other similar federal Requirement of Law having the force
of law and relating to money laundering, terrorist acts or acts of war and
xii) any regulations promulgated under any of the foregoing.

 

“Board of Directors” shall have the meaning assigned to such term in the
Description of Notes.

 

“Board Representation Agreement” means the Board Representation and Standstill
Agreement, dated as of the Closing Date, among the Partnership, Breitburn GP
LLC, and the purchasers of the Series B Perpetual Convertible Preferred Units
party thereto.

 

“Business Day” shall have the meaning assigned to such term in the Description
of Notes.

 

“Casualty Event” means any loss, casualty or other insured damage to, or any
nationalization, taking under power of eminent domain or by condemnation or
similar proceeding of, any Property of any Issuer, Guarantor or any of their
respective Restricted Subsidiaries with a fair market value in excess of
$20,000,000.

 

“Code” means the Internal Revenue Code of 1986, as amended, and regulations
promulgated thereunder.

 

“Consolidated Subsidiaries” of the Partnership means all Restricted Subsidiaries
and Unrestricted Subsidiaries that are consolidated in accordance with GAAP.

 

IV-1

 

 

“Contractual Obligation” means, as to any Person, any provision of any security
issued by such Person or of any agreement, undertaking, contract, indenture,
mortgage, deed of trust or other instrument, document or agreement to which such
Person is a party or by which it or any of its property is bound.

 

“Credit Facility” means the Third Amended and Restated Credit Agreement, dated
November 19, 2014, by and among the Operating LP, as borrower, the Partnership,
as parent guarantor, the subsidiary guarantors, each of the financial
institutions from time to time party thereto and Wells Fargo Bank, N.A., as
administrative agent (as amended, amended and restated, supplemented or
otherwise modified).

 

“Default” shall have the meaning assigned to such term in the Description of
Notes.

 

“Description of Notes” shall mean the Description of Notes attached hereto as
Exhibit A.

 

“EIG” means one or more funds managed or advised by EIG Management Company, LLC
or its controlled Affiliates and Subsidiaries.

 

“Environmental Laws” means all material federal, state or local laws, statutes,
common law duties, rules, regulations, ordinances and codes, together with all
material administrative orders, requests, licenses, authorizations and permits
of, and agreements with, any Governmental Authorities, in each case having the
force and effect of law and relating to environmental, health, and safety
matters.

 

“Equity Interests” shall have the meaning assigned to such term in the
Description of Notes.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
and regulations promulgated thereunder.

 

“ERISA Affiliate” means any trade or business (whether or not incorporated)
under common control with any Issuer within the meaning of Section 414(b) or (c)
of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions
relating to Section 412 of the Code).

 

“ERISA Event” means xiii) a Reportable Event with respect to a Pension Plan;
xiv) a withdrawal by Breitburn Party or any ERISA Affiliate from a Pension Plan
subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation
of operations which is treated as such a withdrawal under Section 4062(e) of
ERISA; xv) a complete or partial withdrawal by the Breitburn Party or any ERISA
Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is
in reorganization; xvi) the filing of a notice of intent to terminate (other
than pursuant to Section 4041(b) of ERISA), the treatment of a Plan amendment as
a termination under Section 4041(c) or 4041A of ERISA, or the commencement of
proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan;
xvii) an event or condition which might reasonably be expected to constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Pension Plan or Multiemployer Plan; or
xviii) the imposition of any liability under Title IV of ERISA, other than PBGC
premiums due but not delinquent under Section 4007 of ERISA, upon the
Partnership or any ERISA Affiliate.

 

IV-2

 

 

“Event of Default” shall have the meaning assigned to such term in the
Description of Notes.

 

“Excess Fee Percentage” shall mean, as of any date on which a payment of an
Additional First Lien Fee is made, the excess, if any of (x) the aggregate Fee
Percentage in respect of all such Additional First Lien Fee payments made during
the one-year period ending on such date less (y) 2.00%.

 

“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.

 

“Existing Indebtedness” shall have the meaning assigned to such term in the
Description of Notes.

 

“Fee Percentage” means, in the context of an Additional First Lien Fee payment,
a percentage determined by dividing (x) the amount of such payment by (y) the
outstanding principal amount of Indebtedness incurred (and Commitments
outstanding) under the Permitted Credit Facility as of the date of such payment
and multiplying the result by 100% and (ii) in the context of an aggregation of
such payments, the aggregate of the Fee Percentages for each Additional First
Lien Fee payment made during the one-year period ending on such date.

 

“First Amendment to Credit Agreement” means the First Amendment to the Third
Amended and Restated Credit Agreement, dated as of the Closing Date, by and
among the Operating LP, the Partnership, the subsidiary guarantors, each of the
financial institutions required to be a party thereto and Wells Fargo Bank,
N.A., as administrative agent.

 

“Foreign” means organized under the laws of a jurisdiction other than the United
States or a political subdivision thereof.

 

“FRB” means the Board of Governors of the Federal Reserve System, and any
Governmental Authority succeeding to any of its principal functions.

 

“GAAP” shall have the meaning assigned to such term in the Description of Notes.

 

“General Partner” means Breitburn GP LLC.

 

“Governmental Authority” means any nation or government, any state or other
political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing and including the
European Union and the European Central Bank.

 

“Hazardous Materials” means any substance regulated or as to which liability
might arise under any applicable Environmental Law, including as a “hazardous
substance,” “hazardous material,” “hazardous waste,” “solid waste,” “toxic
waste,” “extremely hazardous substance,” “toxic substance,” “contaminant,”
“pollutant,” or words of similar meaning or import, and including:
xix) petroleum hydrocarbons, petroleum products, petroleum substances, natural
gas, oil, oil and gas waste, crude oil, and any components, fractions, or
derivatives thereof; and xx) radioactive materials, asbestos containing
materials in a friable condition or polychlorinated biphenyls.

 

IV-3

 

 

“Hedging Contracts” means, with respect to any specified Person:

 

(1) interest rate swap agreements, interest rate cap agreements and interest
rate collar agreements entered into with one or more financial institutions and
designed to protect the Person or any of its Restricted Subsidiaries entering
into the agreement against fluctuations in interest rates with respect to
Indebtedness incurred;

 

(2) foreign exchange contracts and currency protection agreements entered into
with one or more financial institutions and designed to protect the Person or
any of its Restricted Subsidiaries entering into the agreement against
fluctuations in currency exchanges rates with respect to Indebtedness incurred;

 

(3) any commodity futures contract, commodity option or other similar agreement
or arrangement designed to protect against fluctuations in the price of
hydrocarbons used, produced, processed or sold by that Person or any of its
Restricted Subsidiaries at the time; and

 

(4) other agreements or arrangements designed to protect such Person or any of
its Restricted Subsidiaries against fluctuations in interest rates, commodity
prices or currency exchange rates,

 

and in each case are entered into only in the normal course of business and not
for speculative purposes.

 

“Holder” shall have the meaning assigned to such term in the Description of
Notes.

 

“Indebtedness” shall have the meaning assigned to such term in the Description
of Notes.

 

“IRS” means the Internal Revenue Service, and any Governmental Authority
succeeding to any of its principal functions under the Code.

 

“Lien” shall have the meaning assigned to such term in the Description of Notes.

 

“Margin Stock” means “margin stock” as such term is defined in Regulation U or X
of the FRB.

 

“Material Adverse Effect” means (i) for purposes of the Closing Date (including,
without limitation, for making representations and warranties on the Closing
Date), any change, event or effect that, individually or in the aggregate, could
reasonably be expected to have a material adverse effect on the condition
(financial or otherwise), liabilities, results of operations, properties or
business of the Breitburn Parties, taken as a whole, provided, however, that a
Material Adverse Effect shall exclude any change, event or effect resulting
from, arising out of or relating to (a) changes in the financial or securities
markets or general economic or political conditions in the United States or
elsewhere in the world; (b) changes or conditions generally affecting the oil
and gas exploration, development and/or production industry or industries
(including changes in oil, gas or other commodity prices); (c) the negotiation,
execution, announcement or consummation of the transactions contemplated by this
Agreement, including any adverse change in customer, distributor, supplier or
similar relationships resulting therefrom; (d) the existence or occurrence of
war, acts of war, terrorism or similar hostilities; (e) compliance with the
terms of, or the taking of any action required by, this Agreement and the Series
B Preferred Unit Purchase Agreement;  (f) changes in accounting requirements or
principles imposed upon any Breitburn Party or their respective businesses or
any changes in applicable law, or the interpretation thereof, other than a
change that would result in the Partnership being treated as a corporation for
federal tax purposes; and (g) changes in the market price of the Common Units
(as defined in the Series B Preferred Unit Purchase Agreement);  except to the
extent such changes, events or effects in the cases of clauses (a), (b), and (d)
above materially and disproportionately affect the Breitburn Parties relative to
other participants in the industry or industries in which the Breitburn Parties
operate (in which event the extent of such material and disproportionate effect
may be taken into account in determining whether a Material Adverse Effect has
occurred) and (ii) for all purposes after the Closing Date, xxi) a material
adverse change in, or a material adverse effect upon, the operations, business,
properties or financial condition of the Breitburn Parties taken as a whole,
including any material adverse change in reserve estimates of the Oil and Gas
Properties of the Breitburn Parties taken as a whole; xxii) a material
impairment of the ability of any Breitburn Party to perform its material
obligations under the Transaction Documents; or xxiii) a material adverse effect
upon the legality, validity, binding effect or enforceability against any
Breitburn Party (or, in the case of the Intercreditor Agreement, against any
party thereto other than the trustee or collateral agent) of any material
Transaction Document.

 

IV-4

 

 

“Mortgaged Property” shall have the meaning assigned to such term in the
Description of Notes without giving effect to the proviso thereto.

 

“Multiemployer Plan” means a “multiemployer plan”, within the meaning of
Section 4001(a)(3) of ERISA, to which a Breitburn Party or any ERISA Affiliate
makes, is making, or is obligated to make contributions or, during the preceding
three calendar years, has made, or been obligated to make, contributions.

 

“Note Document” shall have the meaning assigned to such term in the Description
of Notes.

 

“Obligations” shall have the meaning assigned to such term in the Description of
Notes.

 

“OFAC Laws” means any laws, regulations, and executive orders relating to the
economic sanctions programs administered by OFAC, including the International
Emergency Economic Powers Act, 50 U.S.C. sections 1701 et seq.; the Trading with
the Enemy Act, 50 App. U.S.C. sections 1 et seq.; and the Office of Foreign
Assets Control, Department of the Treasury Regulations, 31 C.F.R. Parts 500 et
seq. (implementing the economic sanctions programs administered by OFAC).

 

“Oil and Gas” means petroleum, natural gas and other related hydrocarbons or
minerals or any of them and all other substances produced or extracted in
association therewith.

 

“Oil and Gas Properties” shall have the meaning assigned to such term in the
Description of Notes.

 

IV-5

 

 

“Organization Documents” means xxiv) for any corporation: the articles of
incorporation, the bylaws, any certificate of determination or instrument
relating to the rights of the shareholders of such corporation, any shareholder
rights agreement, and all applicable resolutions of the board of directors (or
any committee thereof) of such corporation; xxv) for any limited liability
company: the articles of organization, the regulations or operating agreement,
certificate of organization and all applicable resolutions of the members of
such company; and xxvi) for any limited partnership: the limited partnership
agreement and all Organization Documents for its general partner, as any of the
foregoing have been amended or supplemented from time to time.

 

“Partnership Limited Partnership Agreement” means the Third Amended and Restated
Agreement of Limited Partnership Agreement of the Partnership dated as of the
Closing Date.

 

“PBGC” means the Pension Benefit Guaranty Corporation, or any Governmental
Authority succeeding to any of its principal functions under ERISA.

 

“Pension Plan” means a pension plan (as defined in Section 3(2) of ERISA)
subject to Title IV of ERISA, other than a Multiemployer Plan, which a Breitburn
Party or any of its Subsidiaries sponsors, maintains, or to which it makes, is
making, or is obligated to make contributions, or in the case of a multiple
employer plan (as described in Section 4064(a) of ERISA) has made contributions
at any time during the immediately preceding five (5) plan years.

 

“Permian Basin Properties” shall have the meaning assigned to such term in the
Description of Notes.

 

“Permitted Credit Facility” shall have the meaning assigned to such term in the
Description of Notes.

 

“Permitted Liens” shall have the meaning assigned to such term in the
Description of Notes.

 

“Person” shall have the meaning assigned to such term in the Description of
Notes.

 

“Phase I Report” means a report detailing the findings of an environmental site
assessment conducted by a qualified third party that satisfies the standards set
forth in the current American Standards and Testing Materials designated
protocol for Phase I Environmental Site Assessments, E1527-13, or any subsequent
edition thereof.

 

“Plan” means an employee benefit plan (as defined in Section 3(3) of ERISA)
which is subject to ERISA, other than a Multiemployer Plan, which any Breitburn
Party sponsors, maintains, or to which it makes, is making, or is obligated to
make contributions, or in the case of a multiple employer plan (as described in
Section 4064(a) of ERISA) has made contributions at any time during the
immediately preceding five (5) plan years.

 

“Priority Lien Collateral Agent” shall have the meaning assigned to such term in
the Description of Notes.

 

“Priority Lien Document” shall have the meaning assigned to such term in the
Description of Notes.

 

IV-6

 

 

“Priority Lien Debt” shall have the meaning assigned to such term in the
Description of Notes.

 

“Proper Officer” of a Person means any chief executive officer or co-chief
executive officer, president, vice president with responsibility for financial
matters, chief financial officer or treasurer of xxvii) such Person, if such
Person is a corporation or limited liability company, or xxviii) the general
partner of such Person, if such Person is a partnership.

 

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

 

“Quarterly Status Report” for a fiscal quarter means a status report prepared
quarterly by the Issuers in form reasonably acceptable to the Representative,
setting forth as of the last day of each month during such quarter
xxix) detailing production from the Oil and Gas Properties, the volumes of Oil
and Gas produced and saved, the volumes of Oil and Gas sold, gross revenue, net
income, related leasehold operating expenses, severance taxes, other taxes,
capital costs and any production imbalances incurred during such period,
xxx) information concerning any Hedge Contracts entered into by any Issuer,
Guarantor or their respective Restricted Subsidiaries, and xxxi) such additional
information with respect to any of the Oil and Gas Properties as may be
reasonably requested by the Representative.

 

“Registration Rights Agreement” means the Registration Rights Agreement, dated
as of the Closing Date, between the Partnership and the purchasers of the Series
B Perpetual Convertible Preferred Units party thereto.

 

“Regulation U” and “Regulation X” means Regulation U and Regulation X,
respectively, of the FRB from time to time in effect and shall include any
successor or other regulations or official interpretations of the FRB relating
to the subject matter addressed therein.

 

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

 

“Reportable Event” means, any of the events set forth in Section 4043(b) of
ERISA or the regulations thereunder.

 

“Requirement of Law” means, as to any Person, any law (statutory or common),
treaty, rule or regulation or determination of a Governmental Authority, in each
case applicable to or binding upon the Person or any of its property or to which
the Person or any of its property is subject.

 

“Reserve Engineer” means each of xxxii) Netherland, Sewell and Associates, Inc.,
xxxiii) Cawley Gillespie and Associates, Inc., xxxiv) Schlumberger Limited,
xxxv) Miller and Lents, LTD and xxxvi) any other independent oil and natural gas
reserve engineers selected by the Issuers in accordance with the Credit
Facility.

 

“Reserve Report” shall have the meaning assigned to such term in the Description
of Notes.

 

IV-7

 

 

“Restricted Subsidiary” shall have the meaning assigned to such term in the
Description of Notes.

 

“Sanctioned Country” means, at any time, a country or territory which itself is
the subject or target of any Sanctions.

 

“Sanctioned Person” means, at any time, xxxvii) any Person listed in any
Sanctions-related list of designated Persons maintained by the Office of Foreign
Assets Control of the U.S. Department of the Treasury, the U.S. Department of
State, or by the United Nations Security Council, the European Union or any
European Union member state, xxxviii) any Person operating, organized or
resident in a Sanctioned Country or xxxix) any Person owned or controlled by any
such Person or the Persons described in the foregoing clauses (a) or (b).

 

“Sanctions” means economic or financial sanctions or trade embargoes imposed,
administered or enforced from time to time by xl) the U.S. government, including
those administered by the Office of Foreign Assets Control of the U.S.
Department of the Treasury, the U.S. Department of Commerce or the U.S.
Department of State, or xli) the United Nations Security Council, the European
Union, any European Union member state or Her Majesty’s Treasury of the United
Kingdom.

 

“SEC” means the Securities and Exchange Commission, or any Governmental
Authority succeeding to any of its principal functions.

 

“Secured Parties” means each Purchaser, the Collateral Agent, the Trustee and
each other Person constituting a “secured party” pursuant to any Collateral
Document.

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Series B Preferred Unit Purchase Agreement” means the Series B Preferred Unit
Purchase Agreement, dated as of the Closing Date, by and among the Partnership
and the purchasers of the Series B Perpetual Convertible Preferred Units party
thereto.

 

“Solvent” means, as to any Person at any time, that xlii) the fair value of all
of the property of such Person is greater than the amount of such Person’s
liabilities (including disputed, contingent and unliquidated liabilities) as
such value is established and liabilities evaluated for purposes of
Section 101(32) of the Bankruptcy Code; xliii) the present fair salable value of
all of the property of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured; xliv) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person’s ability to
pay as such debts and liabilities mature; and xlv) such Person is not engaged in
business or a transaction, and is not about to engage in business or a
transaction, for which such Person’s property would constitute unreasonably
small capital.

 

“Subsidiary” shall have the meaning assigned to such term in the Description of
Notes.

 

“Transaction Documents” means this Agreement, the Indenture, the Notes, the
Guarantees, the Collateral Documents, the Intercreditor Agreement and each other
agreement, document and instrument delivered in connection therewith.

 

“Unrestricted Subsidiary” shall have the meaning assigned to such term in the
Description of Notes.

 

IV-8

 

 

SCHEDULE 1(g)

 

ERISA

 

None.

 

 

Schedule 1(g)

 

 

SCHEDULE 1(i)

 

TITLE TO PROPERTIES

 

1.Outstanding Consents

 

a.Oil and Gas Lease: Midland County, TX: Instrument #2013-9598; Lessor: Bank of
America, N.A. and Jeffrey W. Foltz as Co-Trustees for the Allie Gayle Davison
Trust #2; Property Description S/120 acres of NW/4, Section 32, Block 36, T-1-S

 

b.Oil and Gas Lease: Midland County, TX: Instrument #2013-9599; Lessor: Bank of
America, N.A., Jeffrey W. Foltz and William C. Bynum, Co-Trustees under the will
of Leland Donald Davison, deceased; Property Description S/120 acres of NW/4,
Section 32, Block 36, T-1-S

 

c.Oil and Gas Lease: Midland County, TX: Volume 232, Page 214; Lessor: Bank of
America, N.A., Trustee of Florence Marie Hall Trust, Property Description S/2
NW/4, NE/4 and 20.5 acres in the SW/4 of Section 17, Block 35, T-1-S, T&P Ry.Co.
Survey

 

d.Walter D. Proffitt and Charlotte V. Paxton executed in favor of Magnolia Pipe
Line Company an easement for one pipeline and other purposes through the
Southwest Quarter of Section 17, Township 5 North, Range 15 East. Texas County,
Oklahoma. Said easement was recorded in Volume 352, at Page 93, Deed Records of
Texas County, Oklahoma

 

e.H. Virginia Roose executed in favor of Magnolia Pipe Line Company an easement
for one pipeline and other purposes through the Southeast Quarter of Section 17,
Township 5 North, Range 15 East. Texas County, Oklahoma. Said easement was
recorded in Volume 352, at Page 93, Deed Records of Texas County, Oklahoma

 

Schedule 1(i)

 

 

SCHEDULE 1(m)

 

TAXES

 

None.

 

 

Schedule 1(m)

 

 

SCHEDULE 1(o)

 

ENVIRONMENTAL MATTERS

 

 

None.

 

 

Schedule 1(o)

 

 

SCHEDULE 1(s)

 

SUBSIDIARIES AND UNRESTRICTED SUBSIDIARIES

 

Direct Subsidiaries of the Parent

Total Percentage

Breitburn GP LLC, a Delaware limited liability company

100%

Breitburn Finance Corporation, a Delaware corporation

100%

Breitburn Operating LP, a Delaware limited partnership

100%

Breitburn Operating GP LLC, a Delaware limited liability company

100%

Breitburn Management Company LLC, a Delaware limited liability company

100%

 

Subsidiaries of the Company

Total Percentage

Alamitos Company, a California corporation

100%

Beaver Creek Pipeline, L.L.C., a Michigan limited liability company

100%

Breitburn Florida LLC, a Delaware limited liability company

100%

Breitburn Oklahoma LLC, a Delaware limited liability

company

100%

Breitburn Sawtelle LLC, a Delaware limited liability

company, formally Breitburn Fulton LLC

100%

Breitburn Transpetco GP LLC, a Delaware limited liability company

100%

Breitburn Transpetco LP LLC, a Delaware limited liability company

100%

GTG Pipeline LLC, a Virginia limited liability company

100%

Mercury Michigan Company, LLC, a Michigan limited

liability company

100%

Phoenix Production Company, a Wyoming corporation

100%

Terra Energy Company LLC, a Michigan limited liability company

100%

 

Schedule 1(s)

 

 

Terra Pipeline Company LLC, a Michigan limited liability company

100%

Transpetco Pipeline Company, LP, a Delaware limited partnership

Breitburn Operating LP 1

39% limited partnership interest

1% general partnership interest

QR Energy, LP, a Delaware limited partnership

100%

QRE Operating, LLC, a Delaware limited liability company

100%

QRE GP, LLC, a Delaware limited liability company

100%

 

 

Unrestricted Subsidiaries

Total Percentage

Breitburn Collingwood Utica LLC, a Delaware limited liability company

89%2

East Texas Salt Water Disposal Company, a Texas corporation

59%

 

 

Restricted Subsidiaries that are not Guarantors and Other Equity Investments

 

Total Percentage

Saginaw Bay Lateral Michigan Limited Partnership, a Michigan limited partnership

54%

Seal Beach Gas Processing Venture, a California joint venture

50%

Terra-Westside Processing Company, a Michigan general partnership

15%

Wilderness Energy Services Limited Partnership, a Michigan limited partnership

24.5%

Wilderness Energy, L.C., a Michigan limited liability

company

50%

Wilderness-Chester Gas Processing Limited Partnership, a Michigan limited
partnership

5.6385% limited partnership interests

0.10% general partnership interests

Wilderness-Chester LLC, a Michigan limited liability company

50%

 

(Please see attached organization charts)

 

 

 

1 Breitburn Transpetco LP LLC and Breitburn Transpetco GP LLC, each wholly owned
subsidiaries of Breitburn

Operating LP, own a 59% limited partnership interest and 1% general partnership
interest, respectively, in

Transpetco Pipeline Company, LP.

2 Remaining 11% is owned by Terra Energy Company, a wholly owned subsidiary of
Breitburn Operating LP.

 

2

 

 

SCHEDULE 1(u)

 

HEDGING CONTRACTS

 

 

 

(Please see attached)

 

Schedule 1(u)

 

 

SCHEDULE 1(z)

 

PERFECTION REQUIREMENTS

 

A.The filing of the following financing statements:

 

1.UCC-1 Financing Statement naming Breitburn Energy Partners L.P., as debtor,
and U.S. Bank, National Association, as secured party, to be filed in the Office
of the Secretary of State of the State of Delaware.

 

2.UCC-1 Financing Statement naming Breitburn Finance Corporation, as debtor, and
U.S. Bank, National Association, as secured party, to be filed in the Office of
the Secretary of State of the State of Delaware.

 

3.UCC-1 Financing Statement naming Breitburn Operating LP, as debtor, and U.S.
Bank, National Association, as secured party, to be filed in the Office of the
Secretary of State of the State of Delaware.

 

4.UCC-1 Financing Statement naming Breitburn Operating GP LLC, as debtor, and
U.S. Bank, National Association, as secured party, to be filed in the Office of
the Secretary of State of the State of Delaware.

 

5.UCC-1 Financing Statement naming Breitburn GP LLC, as debtor, and U.S. Bank,
National Association, as secured party, to be filed in the Office of the
Secretary of State of the State of Delaware.

 

6.UCC-1 Financing Statement naming Breitburn Management Company LLC, as debtor,
and U.S. Bank, National Association, as secured party, to be filed in the Office
of the Secretary of State of the State of Delaware.

 

7.UCC-1 Financing Statement naming Breitburn Florida LLC, as debtor, and U.S.
Bank, National Association, as secured party, to be filed in the Office of the
Secretary of State of the State of Delaware.

 

8.UCC-1 Financing Statement naming Breitburn Oklahoma LLC, as debtor, and U.S.
Bank, National Association, as secured party, to be filed in the Office of the
Secretary of State of the State of Delaware.

 

9.UCC-1 Financing Statement naming Breitburn Sawtelle LLC, as debtor, and U.S.
Bank, National Association, as secured party, to be filed in the Office of the
Secretary of State of the State of Delaware.

 

10.UCC-1 Financing Statement naming Breitburn Transpetco GP LLC, as debtor, and
U.S. Bank, National Association, as secured party, to be filed in the Office of
the Secretary of State of the State of Delaware.

 

Schedule 1(z)

 

 

11.UCC-1 Financing Statement naming Breitburn Transpetco LP LLC, as debtor, and
U.S. Bank, National Association, as secured party, to be filed in the Office of
the Secretary of State of the State of Delaware.

 

12.UCC-1 Financing Statement naming Transpetco Pipeline Company, L.P., as
debtor, and U.S. Bank, National Association, as secured party, to be filed in
the Office of the Secretary of State of the State of Delaware.

 

13.UCC-1 Financing Statement naming QR Energy, LP, as debtor, and U.S. Bank,
National Association, as secured party, to be filed in the Office of the
Secretary of State of the State of Delaware.

 

14.UCC-1 Financing Statement naming QRE GP, LLC, as debtor, and U.S. Bank,
National Association, as secured party, to be filed in the Office of the
Secretary of State of the State of Delaware.

 

15.UCC-1 Financing Statement naming QRE Operating, LLC, as debtor, and U.S.
Bank, National Association, as secured party, to be filed in the Office of the
Secretary of State of the State of Delaware.

 

16.UCC-1 Financing Statement naming Beaver Creek Pipeline, L.L.C., as debtor,
and U.S. Bank, National Association, as secured party, to be filed in the Office
of the Secretary of State of the State of Michigan.

 

17.UCC-1 Financing Statement naming Mercury Michigan Company, LLC, as debtor,
and U.S. Bank, National Association, as secured party, to be filed in the Office
of the Secretary of State of the State of Michigan.

 

18.UCC-1 Financing Statement naming Terra Energy Company LLC, as debtor, and
U.S. Bank, National Association, as secured party, to be filed in the Office of
the Secretary of State of the State of Michigan.

 

19.UCC-1 Financing Statement naming Terra Pipeline Company LLC, as debtor, and
U.S. Bank, National Association, as secured party, to be filed in the Office of
the Secretary of State of the State of Michigan.

 

20.UCC-1 Financing Statement naming Phoenix Production Company, as debtor, and
U.S. Bank, National Association, as secured party, to be filed in the Office of
the Secretary of State of the State of Wyoming.

 

21.UCC-1 Financing Statement naming Alamitos Company, as debtor, and U.S. Bank,
National Association, as secured party, to be filed in the Office of the
Secretary of State of the State of California.

 

22.UCC-1 Financing Statement naming GTG Pipeline LLC, as debtor, and U.S. Bank,
National Association, as secured party, to be filed in the Office of the Clerk
of the State Corporation Commission of Virginia.

 

Schedule 1(z)

 

 

B.The recordation of mortgages for each property listed in Schedule 5 hereto.

 

C.The execution of the account control agreements listed in Schedule 5 hereto.

 

D.Equity Interests and instruments will be perfected by the filing and/or
delivery of such Equity Interest and instruments to the Priority Lien Collateral
Agent in accordance with the Security Agreement and Intercreditor Agreement.

 

Schedule 1(z)

 

 

SCHEDULE 1(aa)

 

INDEBTEDNESS

 

8.625% Senior Notes due 2020, $305 million

 

7.875% Senior Notes due 2022, $850 million

 

Schedule 1(aa)

 

 

SCHEDULE 1(bb)

 

LIENS

 

None.

 

Schedule 1(bb)

 

 

SCHEDULE 1(dd)

 

INVESTMENTS

 

None.

 

Schedule 1(dd)

 

 

SCHEDULE 5

 

POST-CLOSING DELIVERABLES

 

Mortgages

 

Mortgage (Alabama) (QRE Operating, LLC)

County: Escambia

Mortgage (Arkansas) (QRE Operating, LLC)

Counties: Columbia and Lafayette

Mortgage (Florida) (QRE Operating, LLC)

Counties: Escambia and Santa Rosa

Mortgage (Louisiana) (QRE Operating, LLC)

Parishes: Caddo, Claiborne, and Webster

Mortgage (Michigan) (QRE Operating, LLC)

County: Lapeer

Mortgage (Oklahoma) (QRE Operating, LLC) (Oil & Gas Properties)

Counties: Beaver, Beckham, Blaine, Caddo, Canadian, Carter, Custer, Dewey,
Ellis, Garfield, Garvin, Grady, Harper, Haskell, Kingfisher, Major, Murray,
Pittsburg, Roger Mills, Woods, and Woodward

Mortgage (Oklahoma) (QRE Operating, LLC) (Surface Interests)

Counties: Caddo, Canadian, Ellis, Garfield, Grady, Major, Murray, Pittsburg,
Roger Mills and Woods

Deed of Trust (Texas) (QRE Operating, LLC)

Counties: Anderson, Andrews, Cass, Cherokee, Cochran, Coke, Crane, Ector,
Freestone, Gaines, Glasscock, Gregg, Hansford, Harris, Harrison, Henderson,
Howard, Hutchinson, Irion, Leon, Lipscomb, Live Oak, Marion, McMullen, Midland,
Mitchell, Nolan, Ochiltree, Panola, Rusk, Schleicher, Smith, Sterling, Terrell,
Terry, Upshur, Upton, Ward, Wheeler, Winkler and Yoakum

Deed of Trust (California) (Breitburn Operating LP)

Counties: Kern, Los Angeles and Orange

Mortgage (Florida) (Breitburn Florida LLC)

Counties: Collier, Hendry and Lee

Mortgage (Indiana) (Breitburn Operating LP)

Counties: Bartholomew, Clark, Crawford, Floyd, Greene, Harrison, Jackson,
Johnson,    Lawrence, Morgan, Orange and Washington

Mortgage (Kentucky) (Breitburn Operating LP)

Counties: Breckinridge, Grayson, Meade and Ohio

Mortgage (Michigan) (Breitburn Operating LP and Terra Energy Company, LLC)

Counties: Alcona, Alpena, Antrim, Bay, Benzie, Calhoun, Charlevoix, Cheboygan,
Clare, Crawford, Eaton, Grand Traverse, Ingham, Iosco, Kalkaska, Lake, Lenawee,
Manistee, Mecosta, Midland, Montcalm, Montmorency, Newaygo, Oakland, Oceana,
Ogemaw, Osceola, Oscoda, Ostego, Presque Isle and St. Clair

 

1

 

 

Deed of Trust (New Mexico) (Breitburn Operating LP)

Counties: Harding and Union

Deed of Trust (New Mexico) (Transpetco Pipeline Company, L.P.)

County: Union

Mortgage (Oklahoma) (Breitburn Operating LP) (Oil & Gas Properties)

County: Texas

Mortgage (Oklahoma) (Breitburn Operating LP) (Surface Interests)

County: Beaver and Texas

Mortgage (Oklahoma) (Breitburn Oklahoma LLC) (Oil & Gas Properties)

County: Texas

Mortgage (Oklahoma) (Transpetco Pipeline Company, L.P.) (Surface Interests)

Counties: Cimarron and Texas

Deed of Trust (Texas) (Breitburn Operating LP)

Counties: Dallam, Garza, Glasscock, Howard, Martin and Midland

Deed of Trust (Texas) (Transpetco Pipeline Company, L.P.)

County: Dallam

Deed of Trust (Wyoming) (Breitburn Operating LP)

Counties: Big Horn, Campbell, Carbon, Converse, Crook, Fremont, Hot Springs,
Lincoln, Natrona, Niobrara, Park, Sublette, Sweetwater, Uinta, and Washakie

Deed of Trust (Wyoming) (Phoenix Production Company)

Counties: Fremont and Park

 

together with UCC-1 financing statements as reasonably requested by the Majority
Holders in the county filing offices above, where applicable.

 

Control Agreements

 

1.Control Agreement(s) with respect to the accounts held by Breitburn entities
at Wells Fargo Bank, N.A.

 

2.Control Agreement(s) with respect to the accounts held by Breitburn entities
at Union Bank

 

Insurance Certificates and Endorsements

 

Endorsements to reflect (i) the Trustee as additional insured, loss payee or
mortgagee with respect to the insurance policies required under the Indenture
and (ii) other matters required by the Indenture.

 

2

 

 

EXHIBIT A

 

DESCRIPTION OF NOTES

 

You can find the definitions of certain terms used in this description under the
subheading “—Certain Definitions.” In this description, the term “Company,”
“us,” “our” or “we” refers only to Breitburn Energy Partners LP and not to any
of its subsidiaries, the term “Operating Partnership” refers to Breitburn
Operating LP and not any of its subsidiaries, the term “Finance Corp.” refers to
Breitburn Finance Corporation, and the term “Issuers” refers, collectively, to
the Company, the Operating Partnership and Finance Corp. The term “notes” refers
to the Issuers’ notes being offered hereby.

 

The Issuers will issue the notes under an indenture among themselves, the
Guarantors and U.S. Bank National Association, as trustee, in a private
transaction that is not subject to the registration requirements of the
Securities Act. See “Transfer Restrictions.”

 

The following description is a summary of the material provisions of the
indenture. It does not restate the indenture in its entirety. We urge you to
read the indenture because it, and not this description, will define the rights
of Holders of the notes. Certain defined terms used in this description but not
defined below under “—Certain Definitions” have the meanings assigned to them in
the indenture.

 

The registered Holder of a note will be treated as the owner of it for all
purposes. Only registered Holders will have rights under the indenture.

 

Brief Description of the Notes and the Subsidiary Guarantees

 

The Notes. The notes offered hereby will:

 

·be general senior obligations of the Issuers;

 

·be secured on a Second-Priority Basis by a Lien on the Collateral described
below under “—Security for the Notes,” subject in priority to the Liens securing
the Operating Partnership’s obligations under, and the Company’s and Finance
Corp.’s guarantees of, the Credit Agreement and any other Priority Lien Debt;

 

·be effectively subordinated, pursuant to the terms of the Intercreditor
Agreement described below under “—The Intercreditor Agreement,” to the extent of
the value of the Collateral, to the Operating Partnership’s obligations under,
and the Company’s and Finance Corp.’s guarantees of, the Credit Agreement and
any other Priority Lien Debt, which will be secured on a first-priority basis by
the same assets of the Issuers that secure the notes;

 

·be equal in right of payment (without giving effect to any collateral
arrangements) with all existing and future Senior Debt of any of the Issuers,
including the Company’s and Finance Corp.’s outstanding obligations under, and
Operating Partnership’s guarantee of, the 2020 Senior Notes and 2022 Senior
Notes and the Operating Partnership’s obligations under, and the Company’s and
Finance Corp.’s guarantees of, the Credit Agreement;

 

·be effectively senior to any existing and future unsecured Indebtedness of any
of the Issuers, to the extent of the value of the Collateral;

 

·rank senior in right of payment to any future subordinated Indebtedness of any
of the Issuers; and

 

·be fully and unconditionally guaranteed by the Guarantors on a senior secured
basis, which such guarantees shall be secured by a Lien on the Collateral
described below under “—Security for the Notes,” on a Second-Priority Basis.

 

The Subsidiary Guarantees. Initially, the notes will be guaranteed by all of the
Company’s Subsidiaries (other than the Operating Partnership and Finance Corp.)
that guarantee borrowings under the Credit Agreement, which provides the
Operating Partnership with a senior secured revolving credit facility.

 

 

 

 

Each guarantee of the notes will:

 

·be a general senior obligation of the Guarantor;

 

·be secured on a Second-Priority Basis by a Lien on the Collateral described
below under “—Security for the Notes,” subject in priority to the Liens securing
that Guarantor’s guarantee of, or obligations under, the Credit Agreement and
any other Priority Lien Debt;

 

·be effectively subordinated, pursuant to the terms of the Intercreditor
Agreement described below under “— The Intercreditor Agreement,” to the extent
of the value of the Collateral, to that Guarantor’s guarantee of the Credit
Agreement and any other Priority Lien Debt, which will be secured on a
first-priority basis by the same assets of the Guarantors that secure the notes;

 

·be equal in right of payment (without giving effect to any collateral
arrangements) with all existing and future Senior Debt of that Guarantor,
including its guarantees of the 2020 Senior Notes, the 2022 Senior Notes and the
Credit Agreement;

 

·be effectively senior to any existing and future unsecured Indebtedness of that
Guarantor, to the extent of the value of the Collateral; and

 

·rank senior in right of payment to any future subordinated Indebtedness of that
Guarantor.

 

·As of December 31, 2014, on an as further adjusted basis to reflect this
offering, our use of proceeds therefrom and the other transactions described
under “Capitalization,” the Issuers and the Guarantors would have had:

 

·total Priority Lien Debt (excluding obligations under letters of credit and
hedges) of approximately $ billion, consisting of Priority Lien Debt outstanding
under the Credit Agreement;

 

·total Senior Debt (excluding obligations under letters of credit and hedges) of
approximately $ billion, consisting of the notes, the 2020 Senior Notes and the
2022 Senior Notes and approximately $ billion of revolving credit Senior Debt
outstanding under the Credit Agreement; and

 

·no Indebtedness contractually subordinated to the notes or the guarantees, as
applicable.

 

Initially, all of our existing Subsidiaries (other than the Operating
Partnership, Finance Corp., Utica and East Texas Salt Water Disposal Company)
will guarantee the Obligations. Under the circumstances described below under
the subheading “—Certain Covenants—Additional Subsidiary Guarantees,” in the
future one or more of our newly created or acquired Subsidiaries may not
guarantee the notes. In the event of a bankruptcy, liquidation or reorganization
of any of these non-guarantor Subsidiaries, the non-guarantor Subsidiaries will
pay current outstanding obligations to the holders of their debt and their trade
creditors before they will be able to distribute any of their assets to us.

 

Utica does not guarantee our Credit Agreement and will not guarantee our notes.
Utica owns interests in certain Michigan oil and gas leases that, as of December
31, 2014, had no associated production or proved reserves. Currently, Utica has
no Indebtedness and no revenues. We may seek to monetize Utica’s assets or its
Equity Interests or to develop these assets either on our own or jointly with
one or more other companies. East Texas Salt Water Disposal Company does not
guarantee our Credit Agreement and will not guarantee the notes. As of December
3], 2014, the book value of our 59% interest in East Texas Salt Water Disposal
Company was approximately $ million. Currently, East Texas Salt Water Disposal
Company has approximately $ million of outstanding indebtedness and $ million in
revenues.

 

Initially, all of our Subsidiaries will be “Restricted Subsidiaries,” except for
Utica and East Texas Salt Water Disposal Company. However, under the
circumstances described below under the subheading “—Certain
Covenants—Designation of Restricted and Unrestricted Subsidiaries,” we may
designate certain of our other Subsidiaries as “Unrestricted Subsidiaries.” Our
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants in the indenture. Our Unrestricted Subsidiaries will not guarantee the
notes.

 

2

 

 

Principal, Maturity and Interest

 

The Issuers will issue the notes in an aggregate principal amount of $650
million. The Issuers may issue additional notes from time to time after this
offering to the extent permitted hereunder. Any offering of additional notes
will be subject to the covenants described below under the captions “—Certain
Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock” and the
Certain “—Certain Covenants—Liens”. The notes and any additional notes
subsequently issued under the indenture will be treated as a single class for
all purposes under the indenture, including, without limitation, for waivers,
amendments, redemptions and offers to purchase. The notes will be issued in
denominations of $2,000 and integral multiples of $1,000 in excess of $2,000.
The notes will mature on May 18, 2020 (the “Maturity Date”). As of the Issue
Date, an offering of additional notes is not permitted under the indenture.

 

Interest on the notes will accrue at the rate of 9.25% per annum, and will be
payable quarterly in arrears on March 31, June 30, September 30 and December 31,
beginning on June 30, 2015. The Issuers will make each interest payment to the
Holders of record on the March 15, June 15, September 15 and December 15
immediately preceding each interest payment date. Upon the occurrence and during
the continuance of an Event of Default, additional interest will accrue on the
principal amount of all notes and, to the extent permitted by applicable law,
other Obligations outstanding (including post-petition interest in any
proceeding (including any Insolvency Proceeding) under applicable bankruptcy,
insolvency or similar laws, whether or not allowed in such a proceeding),
payable in cash on demand by the trustee at a rate that is two percent (2.00%)
per annum in excess of the interest rate otherwise payable on the notes (the
“Default Rate”). Payment or acceptance of the Default Rate will not be a
permitted alternative to timely payment and will not constitute a waiver of any
Event of Default or otherwise prejudice or limit any rights or remedies of the
trustee or any Holder.

 

Interest on the notes will accrue from __________________, 20151 or, if interest
has already been paid, from the date it was most recently paid. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months. The
obligations of the Issuers hereunder will be joint and several.

 

Methods of Receiving Payments on the Notes

 

If a Holder has given wire transfer instructions to the Issuers, the Issuers
will pay all principal, interest and premium, if any, on that Holder’s notes in
accordance with those instructions. All other payments on the notes will be made
at the office or agency of the paying agent and registrar within the City and
State of New York unless the Issuers elect to make interest payments by check
mailed to the Holders at their addresses set forth in the register of Holders.

 

Paying Agent and Registrar for the Notes

 

The trustee will act as the initial paying agent and registrar. The Issuers may
change the paying agent or registrar without prior notice to the Holders of the
notes, and the Company or any of its Subsidiaries may act as paying agent or
registrar.

 

Transfer and Exchange

 

A Holder may transfer or exchange notes in accordance with the indenture. The
registrar and the trustee may require a Holder to furnish appropriate
endorsements and transfer documents in connection with a transfer of notes. No
service charge will be imposed by the Issuers, the trustee or the registrar for
any registration of transfer or exchange of notes, but Holders will be required
to pay all taxes due on transfer. The Issuers will not be required to transfer
or exchange any note selected for redemption. Also, the Issuers will not be
required to transfer or exchange any note for a period of 15 days before a
selection of notes to be redeemed.

 

 

1 The closing date.

 

3

 

 

Subsidiary Guarantees

 

Initially, all of our existing Subsidiaries, excluding the Operating
Partnership, Finance Corp., Utica and East Texas Salt Water Disposal Company,
will guarantee the notes, in each case on a senior secured basis, subject to the
Intercreditor Agreement. In the future, the Restricted Subsidiaries of the
Company will be required to guarantee the notes on a senior secured basis under
the circumstances described under “—Certain Covenants—Additional Subsidiary
Guarantees.” These Subsidiary Guarantees will be full and unconditional, joint
and several obligations of the Guarantors. The obligations of each Guarantor
under its Subsidiary Guarantee will be limited as necessary to prevent that
Subsidiary Guarantee from constituting a fraudulent conveyance under applicable
law, although this limitation may not be effective to prevent the Subsidiary
Guarantees from being voided in bankruptcy.

 

A Guarantor may not sell or otherwise dispose of all or substantially all of its
properties or assets to, or consolidate with or merge with or into (whether or
not such Guarantor is the surviving Person), another Person, other than, subject
to the Collateral Requirements, an Issuer or another Guarantor, unless:

 

(1)immediately after giving effect to such transaction, no Default or Event of
Default exists; and

 

(2)either:

 

(a)(i) the Person acquiring the properties or assets in any such sale or other
disposition or the Person formed by or surviving any such consolidation or
merger (if other than the Guarantor) unconditionally assumes, pursuant to a
supplemental indenture substantially in the form specified in the indenture and
pursuant to such other agreements as are reasonably satisfactory to the trustee
and the collateral agent, as applicable, the Subsidiary Guarantee and all other
obligations of such Guarantor under the notes and the other Note Documents on
terms set forth therein, (ii) any Collateral owned by or transferred to the
Person acquiring the properties or assets in any such sale or other disposition
or the Person formed by or surviving any such consolidation or merger (if other
than the Guarantor) shall continue to constitute Collateral under the Note
Documents subject to the Collateral Requirements, (iii) the property and assets
of the Person which is consolidated or merged with or into such Guarantor, to
the extent that they are property or assets of the types which would constitute
Collateral under the Note Documents, shall be treated as after-acquired property
and such Guarantor shall take such action (or agree to take such action) as may
be reasonably necessary to cause such property and assets to be made Collateral,
in the manner, and to the extent required under the Note Documents, (iv) the
Person formed by or surviving any such consolidation or merger (if other than
the Guarantor) shall be engaged in the Oil & Gas Business, except to the extent
permitted by the covenant set forth under the caption “—Business Activities”,
(v) the Person formed by, continuing or surviving any such merger is a Person
organized and existing under the laws of the United States, any State of the
United States or the District of Columbia and, after giving effect to such
transaction, shall be a wholly-owned Subsidiary of the Company, (vi) all Issuers
and other Guarantors shall confirm and reaffirm all their obligations under the
notes and other Note Documents to which such Issuer or Guarantor is a party
pursuant to a supplemental indenture and (vii) (x) the Company will, on the date
of such consolidation or merger after giving pro forma effect thereto and any
related financing transactions as if the same had occurred at the beginning of
the applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described above under the caption
“—Incurrence of Indebtedness and Issuance of Preferred Stock” or (y) immediately
after giving effect to such consolidation or merger and any related financing
transactions on a pro forma basis as if the same had occurred at the beginning
of the applicable four-quarter period, the Fixed Charge Coverage Ratio of the
Company will be equal to or greater than the Fixed Charge Coverage Ratio of the
Company immediately before such consolidation or merger; or

 

(b)such transaction complies with the “Asset Sales” provisions of the indenture;

 

provided, however, in the case of a transaction pursuant to clause (2)(a), such
Issuer has delivered to the trustee an officers’ certificate stating that such
consolidation, merger or disposition and such supplemental indenture and other
Note Documents (if any) comply with the indenture and Note Documents.

 

4

 

 

The Subsidiary Guarantee of a Guarantor will be released:

 

(1)in connection with any sale or other disposition of all or substantially all
of the properties or assets of that Guarantor (including by way of merger or
consolidation) to a Person that is not (either before or after giving effect to
such transaction) the Company or a Restricted Subsidiary of the Company, if the
sale or other disposition complies with the “Asset Sales” provisions of the
indenture;

 

(2)in connection with any sale or other disposition of Capital Stock of that
Guarantor to a Person that is not (either before or after giving effect to such
transaction) the Company or a Restricted Subsidiary of the Company, if the sale
or other disposition complies with the “Asset Sales” provisions of the indenture
and the Guarantor ceases to be a Restricted Subsidiary of the Company as a
result of the sale or other disposition;

 

(3)[reserved];

 

(4)upon Legal Defeasance or Covenant Defeasance as described below under the
caption “—Legal Defeasance and Covenant Defeasance” or upon satisfaction and
discharge of the indenture as described below under the caption “—Satisfaction
and Discharge”; or

 

(5)upon the liquidation or dissolution of such Guarantor provided no Default or
Event of Default has occurred that is continuing and provided that the assets of
such Guarantor are transferred to a Guarantor or Issuer subject to the
Collateral Requirements upon such liquidation or dissolution or are otherwise
disposed of as permitted by the indenture.

 

See “—Repurchase at the Option of Holders—Asset Sales.”

 

Security for the Notes

 

The obligations of Issuers with respect to the notes, the obligations of the
Guarantors under the Subsidiary Guarantees, all other Obligations, and the
performance of all Obligations of the Issuers and the Guarantors under the Note
Documents will be secured by Second-Priority Liens in the Collateral granted to
the collateral agent for the benefit of the holders of the Obligations. These
Liens will be junior in priority only to the Liens securing Priority Lien
Obligations, to the extent permitted to be incurred or to exist under the
Intercreditor Agreement, and to certain other Permitted Liens.

 

Except as otherwise provided below or in the Intercreditor Agreement, the
indenture will provide that the Collateral will consist of the Issuers’ and the
Guarantors’ Oil and Gas Properties and substantially all other assets of the
Issuers and the Guarantors to the extent such properties and assets are subject
to Liens securing any of the Priority Lien Obligations, provided that the
indenture shall require the Company to deliver to the trustee semi-annually on
or before March 31 and September 30 in each calendar year, beginning September
30, 2015, an officers’ certificate providing a good faith estimate, as of the
date of such certificate, of the percentage of the total discounted future net
revenue (determined by a discount factor of 10% per annum) of the Issuers’ and
the Guarantors’ Oil and Gas Properties evaluated in the Company’s most recent
Reserve Report that the Collateral represents (which, in any case, shall not be
less than 80% of the total discounted future net revenue (determined by a
discount factor of 10% per annum) of the Issuers’ and the Guarantors’ Oil and
Gas Properties evaluated in the Company’s most recent Reserve Report (the
“Collateral Certification”).

 

Notwithstanding the forgoing, the indenture will provide the collateral agent
and Majority Holders with the Additional Collateral Right.

 

The Collateral will not include the following (the following excluded assets
collectively referred in the offering circular as the “Excluded Assets”):

 

(1)any permit, lease, license, contract, property right or agreement to which
any Issuer or Guarantor is a party and any of its rights or interests thereunder
if, and only for so long as, the grant of a security interest under the security
documents (a) is prohibited by or a violation of any law, rule or regulation
applicable to such Issuer or Guarantor or requires the consent of an applicable
governmental authority or a third party which has not been obtained or (b) shall
constitute or result in a breach of a term or provision of or termination or
default under any such permit, lease, license, contract, property right or
agreement (other than to the extent that any such law, rule, regulation, consent
requirement, violation, term or provision would be rendered ineffective pursuant
to Section 9-406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code of any
relevant jurisdiction or any other applicable law);

 

5

 

 

(2)property owned by any Issuer or Guarantor that is subject to a purchase money
Lien or capital lease permitted under the indenture if the agreement pursuant to
which such Lien is granted (or the document providing for such capital lease)
prohibits, or requires the consent of any Person other than any Issuer or
Guarantor which has not been obtained as a condition to, the creation of any
other Lien on such property;

 

(3)any “intent-to-use” application for registration of a Trademark filed
pursuant to Section 1(b) of the Lanham Act, 15 U.S.C. § 1051, prior to the
filing of a “Statement of Use” pursuant to Section 1(d) of the Lanham Act or an
“Amendment to Allege Use” pursuant to Section 1(c) of the Lanham Act with
respect thereto, solely to the extent, if any, that, and solely during the
period, if any, in which, the grant of a security interest therein would impair
the validity or enforceability of any registration that issues from such
intent-to-use application under applicable federal law;

 

(4)any deposit account exclusively used for trust, payroll, payroll taxes and
other employee wage and benefit payments to or for the benefit of any Issuer’s
or Guarantor’s employees; and

 

(5)certain Equity Interests, as set forth in the security documents.

 

provided, however, “Excluded Assets” shall not include any proceeds, products,
substitutions or replacements of any Excluded Assets (unless such proceeds,
products, substitutions or replacements would constitute Excluded Assets).

 

Release of Liens in Respect of Notes

 

The indenture will provide that the collateral agent’s Parity Liens upon the
Collateral will no longer secure the notes outstanding under the indenture or
any other Obligations under the Note Documents, and the right of the Holders and
such Obligations to the benefits and proceeds of the collateral agent’s Parity
Liens on the Collateral will terminate and be discharged:

 

(1)upon satisfaction and discharge of the indenture as set forth under the
caption “—Satisfaction and Discharge”;

 

(2)upon a Legal Defeasance or Covenant Defeasance of the notes as set forth
under the caption “—Legal Defeasance and Covenant Defeasance”;

 

(3)upon payment in full and discharge of all notes outstanding under the
indenture and all other Obligations that are outstanding, due and payable under
the indenture and the other Note Documents at the time the notes are paid in
full and discharged;

 

(4)as to any Collateral that is sold, transferred or otherwise disposed of by
any Issuer or any Guarantor to a Person that is not (either before or after such
sale, transfer or disposition) the Company or a Restricted Subsidiary of the
Company in a transaction or other circumstance that complies with the provisions
described under the caption “—Repurchase at the Option of Holders—Asset Sales”
below (other than the obligation to apply proceeds of such Asset Sale as
provided in such provision), at the time of such sale, transfer or other
disposition or to the extent of the interest sold, transferred or otherwise
disposed of; provided that the collateral agent’s Liens upon the Collateral will
not be released if the sale or disposition is subject to the covenant described
below under the caption “—Certain Covenants—Merger, Consolidation or Sale of
Assets”; provided, further, that the proceeds of such sale, transfer or other
disposition shall remain subject to the Parity Lien to the extent required by
the Note Documents;

 

(5)in whole or in part, with the consent of the Holders of the requisite
percentage of notes in accordance with the provisions described below under the
caption “—Amendment, Supplement and Waiver”;

 

6

 

 

(6)with respect to the assets of any Guarantor, at the time that such Guarantor
is released from its Subsidiary Guarantee as described above under the caption
“—Subsidiary Guarantees”; or

 

(7)if and to the extent required by the provisions of the Intercreditor
Agreement described under the caption “—The Intercreditor Agreement—Release of
Liens; Automatic Release of Second Liens; Supplemental Liens.”

 

Further Assurances; Collateral; Liens on Additional Property

 

The indenture and the security documents establishing the Parity Liens will
provide that the Issuers and each of the Guarantors will do or cause to be done
all acts and things that may be required, or that the collateral agent from time
to time may reasonably request, to assure and confirm that the collateral agent
holds, for the benefit of the holders of the Obligations, duly created and
enforceable and perfected Liens upon the Collateral (including any property or
assets that are acquired or otherwise become, or are required by any Note
Document to become, Collateral after the notes are issued), in each case, as
contemplated by, and with the Second-Priority Lien required under, the Note
Documents.

 

In addition, from and after the date of the indenture, if any Issuer or any
Guarantor acquires any property or asset that constitutes (or becomes)
collateral for the Priority Lien Debt, if and to the extent that any Priority
Lien Document requires any supplemental security document for such collateral or
other actions to achieve a perfected second-priority security interest in such
collateral or if any Issuer or Guarantor otherwise provides or agrees to provide
any of the foregoing to the Priority Lien Agent or any holder of Priority Lien
Debt, the Company shall, or shall cause the Operating Partnership, Finance Corp.
or the applicable Guarantor to, promptly (but not in any event later than the
date that is 10 Business Days after which such supplemental security documents
are executed and delivered (or other action taken) under such Priority Lien
Documents), to the extent permitted by applicable law, execute and deliver to
the collateral agent appropriate security documents (or amendments thereto) in
such form as shall be necessary to grant the collateral agent a perfected
Second-Priority Lien on such collateral or take such other actions in favor of
the collateral agent as shall be necessary to grant a perfected Second Priority
Lien on such collateral to the collateral agent, subject to the terms of the
Intercreditor Agreement and the other Note Documents. Additionally, subject to
the Intercreditor Agreement and the other Note Documents, if any Issuer or any
Guarantor creates any additional security interest upon any property or asset
that would constitute Collateral, or takes any additional actions to perfect any
existing security interest in Collateral, in each case for the benefit of any of
the holders of the Priority Lien Debt after the date of the indenture, such
Issuer or such Guarantor, as applicable, must, to the extent permitted by
applicable law, within ten (10) Business Days after such security interest is
granted or other action taken, grant a Second-Priority security interest upon
such property or asset, and take such additional perfection actions, as
applicable, for the benefit of the Holders and obtain all related deliverables
as those delivered to the Priority Lien Representative in each case as security
for the obligations of Issuers with respect to the notes, the obligations of the
Guarantors under the Subsidiary Guarantees and the performance of all other
obligations of the Issuers and the Guarantors under the Note Documents.
Notwithstanding the foregoing, to the extent that any Lien on any Collateral is
perfected by the possession or control of such Collateral or of any account in
which such Collateral is held, and if such Collateral or any such account is in
fact in the possession or under the control of the Priority Lien Representative,
or of agents or bailees of the Priority Lien Representative, the perfection
actions and related deliverables described in this paragraph shall not be
required; provided, however, notwithstanding anything to the contrary set forth
in foregoing, the Issuers and Guarantors shall be required to deliver duly
executed control agreements with respect to deposit accounts, securities
accounts and commodity accounts to the extent required under the Note Documents.

 

7

 

 

Notwithstanding the foregoing, the collateral trustee, at the request of the
Majority Holders, will (and the Majority Holders will) have the right to require
that the Issuers and Guarantors place Mortgages on any properties of any Issuer
or Guarantor acquired after the Issue Date (including, for the avoidance of
doubt, Oil and Gas Properties whether consisting of proved or unproved crude oil
or natural gas reserves or developed or undeveloped acreage or otherwise) that
are not already subject to a Mortgage (the “Additional Collateral Right”). The
indenture will provide that the collateral trustee, at the direction of the
Majority Holders, or the Majority Holders, may exercise such Additional
Collateral Right by delivering notice to the Priority Lien Agent with a copy to
the Company (the “Election Notice”) of its intent to require a Mortgage or
Mortgages over the property specified in such notice (the “Required Mortgages”).
Upon the earlier of (i) the expiration of the 60th day after delivery of such
notice to the Priority Lien Agent and (ii) the date the Priority Lien Agent
informs the collateral trustee or Majority Holders, as applicable, that it does
not intend to seek such Required Mortgages, the collateral trustee, at the
direction of the Majority Holders, or the Majority Holders may deliver written
notice to the Company informing the Company that it is exercising its Additional
Collateral Right with respect to the Required Mortgages. The indenture will
provide that the applicable Issuer or Guarantor will then have 60 days from the
date of receipt of such notice (or such later date as the Majority Holders may
agree to in their reasonable discretion) to deliver the duly executed and
recorded Second-Priority Required Mortgages, accompanied by title information in
form and substance reasonably acceptable to the Majority Holders, customary
legal opinions and deliverables consistent with the legal opinions and
deliverables delivered in connection with the Mortgaged Properties under the
Note Purchase Agreement; provided, however, to the extent any such property is
subject to title defects that prevent the Issuers and Guarantors from placing a
Mortgage thereon, the Issuers and Guarantors shall use commercially reasonable
efforts to cure or overcome such title defects so that Mortgages may be placed
on such properties as promptly as practicable (and the Majority Holders will
extend such delivery dates as reasonably determined in their discretion to
accommodate the same). Notwithstanding the foregoing, the indenture will provide
that with respect to any such Second-Priority Mortgage granted to the collateral
agent for the benefit of the collateral agent, trustee, Holders and indemnitees,
the applicable Issuer or Guarantor shall also, immediately prior to or
contemporaneously therewith, deliver a first-priority Mortgage securing the
Priority Lien Obligations over such property to the Priority Lien Agent for the
benefit of the secured parties under the Priority Lien Documents.

 

Furthermore, upon the reasonable request of the collateral agent or the Majority
Holders at any time and from time to time, each Issuer and each of the
Guarantors will promptly execute, acknowledge and deliver such security
documents, instruments, certificates, notices and other documents, and take such
other actions as shall be reasonably required, or that the collateral agent or
Majority Holders may reasonably request, to create, perfect, protect, assure or
enforce the Liens and benefits intended to be conferred, in each case as
contemplated by the Note Documents for the benefit of the holders of the
Obligations; provided, that no such security document, instrument or other
document shall be materially more burdensome upon the Issuers and the Guarantors
than the Note Documents executed and delivered by the Issuers and the Guarantors
in connection with the issuance of the notes on or about the date of the
indenture.

 

Optional Redemption

 

On and after April       , 20182, the Issuers may redeem all or a part of the
notes (and, following acceleration of the maturity thereof, in connection with
an Event of Default and/or in or in connection with a voluntary or involuntary
Insolvency Proceeding or otherwise, shall redeem all of the notes) at the
redemption prices (expressed as percentages of principal amount) set forth
below, plus accrued and unpaid interest, if any, on the notes to be redeemed to
the applicable redemption date (subject to the right of Holders of record on the
relevant record date to receive interest due on an interest payment date that is
on or prior to the redemption date), if redeemed during the twelve-month period
beginning on April of the years indicated below:

 

Year  Percentages  2018    106.000% 2019    100.000%

 

Prior to April , 20183, the Issuers may redeem all or part of the notes, at a
redemption price equal to the sum of:

 

(1)the principal amount thereof, plus

 

(2)the Make-Whole Amount,

 

plus accrued and unpaid interest, if any, to the redemption date (subject to the
right of Holders of record on the relevant record date to receive interest due
on an interest payment date that is on or prior to the redemption date).

 

 

2 Third anniversary of the Closing Date

3 Third anniversary of the Closing Date

 

8

 

 

Selection and Notice

 

If less than all of the notes are to be redeemed at any time, the trustee will
select notes for redemption as follows:

 

(1)if the notes are listed on any national securities exchange, in compliance
with the requirements of the principal national securities exchange on which the
notes are listed; or

 

(2)if the notes are not listed on any national securities exchange, on a pro
rata basis (or in the case of global notes, on as nearly a pro rata basis as is
practicable, subject to the procedures of The Depository Trust Company (“DTC”)).

 

No notes of $2,000 or less can be redeemed in part. Notices of optional
redemption will be sent at least 30 but not more than 60 days before the
redemption date to each Holder of notes to be redeemed at its registered
address, except that optional redemption notices may be sent more than 60 days
prior to a redemption date if the notice is issued in connection with a
defeasance of the notes or a satisfaction and discharge of the indenture.

 

Any such redemption may, at the Company’s discretion, be subject to one or more
conditions precedent, including any related equity offering. If such redemption
is subject to the satisfaction of one or more conditions precedent, the related
notice shall describe each such condition, and if applicable, shall state that,
in the Company’s discretion, the date of redemption may be delayed until such
time as any or all such conditions shall be satisfied or waived (provided that
in no event shall such date of redemption be delayed to a date later than 10
Business Days after the date initially designated for redemption in such
notice), or such redemption may not occur and such notice may be rescinded in
the event that any or all such conditions shall not have been satisfied or
waived by the date of redemption, or by the date of redemption as so delayed
(the “Delayed Redemption Date”).

 

If any note is to be redeemed in part only, the notice of redemption that
relates to that note will state the portion of the principal amount of that note
that is to be redeemed. A new note in principal amount equal to the unredeemed
portion of the original note will be issued in the name of the Holder of notes
upon cancellation of the original note.

 

Notes called for redemption without any condition precedent will become due on
the date fixed for redemption, and at the redemption price described above.
Notes called for redemption subject to conditions precedent will be become due
on the date such conditions precedent are satisfied; provided such conditions
precedent are satisfied prior to the Delayed Redemption Date. On and after the
redemption date, interest will cease to accrue on notes or portions of them
called for redemption, unless the Issuers default in the payment of the
redemption price.

 

Special Mandatory Redemption

 

Invalid Debt Incurrence

 

If the Company or any Restricted Subsidiary incurs Indebtedness that is not
permitted to be incurred by the covenant set forth under the heading
“—Incurrence of Indebtedness and Issuance of Preferred Stock” (an “Invalid Debt
Incurrence”), the Company will make an offer to all holders of Notes to purchase
the maximum principal amount of notes that may be purchased out of the portion
of the net proceeds received from such Invalid Debt Incurrence incurred in
violation of such covenant. Such offer shall be made within 15 business days
after receipt of notice of such Invalid Debt Incurrence by the trustee or
holders of at least 50.1% of the aggregate principal amount of the notes. The
offer price in any such offer will be equal to the price at which the notes
could have been redeemed at the time of the Invalid Debt Incurrence pursuant to
the provisions set forth under the heading “—Optional Redemption” (including at
the Make-Whole Amount or Prepayment Premium, if applicable), plus accrued and
unpaid interest, if any, on the notes repurchased to the date of settlement (the
“Invalid Debt Incurrence Settlement Date”), subject to the right of Holders of
record on the relevant record date to receive interest due on an interest
payment date that is on or prior to the Invalid Debt Incurrence Settlement Date.
Notwithstanding the foregoing, the Invalid Debt Incurrence Offer and any
redemption or repurchase of notes pursuant thereto will not be a permitted
alternative to complying with the provisions of the indenture and will not
constitute a waiver of any Default or Event of Default or otherwise prejudice or
limit any rights or remedies of the trustee, collateral agent or any Holder.

 

9

 

 

The Issuers will comply with the requirements of Rule 14e-1 under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”) and any other securities
laws and regulations thereunder to the extent those laws and regulations are
applicable in connection with the repurchase of the notes as a result of an
Invalid Debt Incurrence. To the extent that the provisions of any securities
laws or regulations conflict with the Invalid Debt Incurrence provisions of the
indenture, the Issuers will comply with the applicable securities laws and
regulations and will not be deemed to have breached their obligations under the
Invalid Debt Incurrence provisions of the indenture by virtue of such conflict.

 

Repurchase at the Option of Holders

 

Change of Control

 

If a Change of Control occurs, each Holder of notes will have the right, except
as provided below, to require the Company to repurchase all or any part (equal
to $2,000 or an integral multiple of $1,000 in excess of $2,000) of that
Holder’s notes pursuant to a cash tender offer (the “Change of Control Offer”)
on the terms set forth in the indenture. In the Change of Control Offer, the
Company will offer a payment in cash (“Change of Control Payment”) equal to 101%
of the aggregate principal amount of notes repurchased plus accrued and unpaid
interest, if any, on the notes repurchased, to the date of settlement (the
“Change of Control Settlement Date”), subject to the right of Holders of record
on the relevant record date to receive interest due on an interest payment date
that is on or prior to the Change of Control Settlement Date.

 

Within 30 days following any Change of Control, unless the Issuers have
previously or concurrently exercised their right to redeem all of the notes as
described under “—Optional Redemption” or one of the other two exceptions
described below applies, the Company will send a notice to each Holder and the
trustee describing the transaction or transactions that constitute the Change of
Control and offering to repurchase notes on the Change of Control Settlement
Date specified in the notice, which date will be no later than 30 days from the
date such notice is sent, pursuant to the procedures required by the indenture
and described in such notice.

 

The Company will comply with the requirements of Rule 14e-1 under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”) and any other securities
laws and regulations thereunder to the extent those laws and regulations are
applicable in connection with the repurchase of the notes as a result of a
Change of Control. To the extent that the provisions of any securities laws or
regulations conflict with the Change of Control provisions of the indenture, the
Company will comply with the applicable securities laws and regulations and will
not be deemed to have breached its obligations under the Change of Control
provisions of the indenture by virtue of such conflict.

 

On or before the Change of Control Settlement Date, the Company will, to the
extent lawful, accept for payment all notes or portions of notes properly
tendered pursuant to the Change of Control Offer. Promptly after such
acceptance, on the Change of Control Settlement Date the Company will:

 

(1)deposit with the paying agent an amount equal to the Change of Control
Payment in respect of all notes or portions of notes properly tendered; and

 

(2)deliver or cause to be delivered to the trustee the notes properly accepted
together with an officers’ certificate stating the aggregate principal amount of
notes or portions of notes being purchased by the Company.

 

On the Change of Control Settlement Date, the paying agent will mail to each
Holder of notes properly tendered the Change of Control Payment for such notes
(or, if all the notes are then in global form, make such payment through the
facilities of DTC), and the trustee will authenticate and mail (or cause to be
transferred by book entry) to each Holder a new note equal in principal amount
to any unpurchased portion of the notes surrendered, if any; provided, however,
that each new note will be in a principal amount of $2,000 or an integral
multiple of $1,000 in excess of $2,000. The Company will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Settlement Date.

 

10

 

 

The Credit Agreement provides that certain change of control events with respect
to the Company would constitute an event of default thereunder, entitling the
lenders, among other things, to accelerate the maturity of all Indebtedness
outstanding thereunder. Any future credit agreements or other agreements
relating to Indebtedness to which any Issuer or Guarantor becomes a party may
contain similar restrictions and provisions. The indenture will provide that,
prior to complying with any of the provisions of this “Change of Control”
covenant, but in any event no later than the Change of Control Settlement Date,
any Issuer or any Guarantor must either repay all of its other outstanding
Senior Debt or obtain the requisite consents, if any, under all agreements
governing such Senior Debt to permit the repurchase of notes required by this
covenant (it being agreed that making such payments and obtaining such consents
is not a condition precedent to complying with the provisions of this “Change of
Control” covenant).

 

The provisions described above that require the Company to make a Change of
Control Offer following a Change of Control will be applicable whether or not
any other provisions of the indenture are applicable. Except as described above
with respect to a Change of Control, the indenture does not contain provisions
that permit the Holders of the notes to require that the Company repurchase or
redeem the notes in the event of a takeover, recapitalization or similar
transaction.

 

The Company will not be required to make a Change of Control Offer upon a Change
of Control if (1) a third party makes the Change of Control Offer in the manner,
at the time and otherwise in compliance with the requirements set forth in the
indenture applicable to a Change of Control Offer made by the Company and
purchases all notes properly tendered and not withdrawn under the Change of
Control Offer, (2) notice of redemption of all outstanding notes has been given
pursuant to the indenture as described above under “—Optional Redemption,” or
(3) in connection with or in contemplation of any Change of Control, the Company
has made an offer to purchase (an “Alternate Offer”) any and all notes validly
tendered at a cash price equal to or higher than the Change of Control Payment
and has purchased all notes properly tendered in accordance with the terms of
such Alternate Offer.

 

A Change of Control Offer may be made in advance of a Change of Control, and
conditioned upon the occurrence of the Change of Control, if a definitive
agreement is in place for the Change of Control at the time of making the Change
of Control Offer.

 

The definition of Change of Control includes a phrase relating to the direct or
indirect sale, lease, transfer, conveyance or other disposition of “all or
substantially all” of the properties or assets of the Company and its Restricted
Subsidiaries taken as a whole. Although there is a limited body of case law
interpreting the phrase “substantially all,” there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder of notes to require the Company to repurchase its notes as a result of a
sale, lease, transfer, conveyance or other disposition of less than all of the
properties or assets of the Company and its Subsidiaries taken as a whole to
another Person or group may be uncertain.

 

In the event that Holders of not less than 90% of the aggregate principal amount
of the outstanding notes accept a Change of Control Offer or Alternate Offer,
and the Company (or the third party making the Change of Control Offer in lieu
of the Company as described above) purchase all of the notes validly tendered by
such Holders, the Company will have the right, upon not less than 30 nor more
than 60 days’ prior notice, given not more than 30 days following the purchase
pursuant to the Change of Control Offer or Alternate Offer, as applicable, to
redeem all of the notes that remain outstanding following such purchase at a
redemption price equal to the Change of Control Payment plus, to the extent not
included in the Change of Control Payment, accrued and unpaid interest on the
notes that remain outstanding, to the date of redemption (subject to the right
of Holders of record on the relevant record date to receive interest due on an
interest payment date that is on or prior to the redemption date).

 

Asset Sales

 

The Company will not, and will not permit any of its Restricted Subsidiaries to,
consummate an Asset Sale unless:

 

(1)the Company (or a Restricted Subsidiary, as the case may be) receives
consideration at the time of the Asset Sale at least equal to the fair market
value of the assets or Equity Interests issued or sold or otherwise disposed of,

 

11

 

 

(2)the fair market value is determined by (a) an executive officer of the
General Partner if the value is less than $20 million and evidenced by an
officers’ certificate delivered to the trustee, or (b) the Company’s Board of
Directors if the value is $20 million or more and evidenced by a resolution of
the Board of Directors set forth in an officers’ certificate delivered to the
trustee;

 

(3)at least 75% of the aggregate consideration received by the Company and its
Restricted Subsidiaries in such Asset Sale is in the form of cash; provided,
however, consideration in respect of an Asset Sale of Permian Basin Properties
or Mortgaged Properties from an Issuer or Guarantor to a Restricted Subsidiary
that is not an Issuer or a Guarantor, an Unrestricted Subsidiary or Joint
Venture shall be 100% in cash. For purposes of this provision, each of the
following will be deemed to be cash:

 

(a)any liabilities, as shown on the Company’s or any Restricted Subsidiary’s
most recent balance sheet, of the Company or such Restricted Subsidiary (other
than contingent liabilities and liabilities that are by their terms subordinated
to the notes or any Subsidiary Guarantee) that are assumed by the transferee of
any such assets pursuant to a customary novation agreement that releases the
Company or such Restricted Subsidiary, respectively, from further liability; and

 

(b)any securities, notes or other obligations received by the Company or any
Restricted Subsidiary from such transferee that are, within 90 days after the
Asset Sale, converted by the Company or such Restricted Subsidiary into cash, to
the extent of the cash received in that conversion;

 

(4)no Event of Default has occurred and is continuing or would result therefrom;
and

 

(5)in the case of Production Payments and Reserve Sales, any such Production
Payments and Reserve Sales will have been created, incurred, issued, assumed or
guaranteed in connection with the financing of, and within 60 days after the
acquisition of, the property that is subject thereto;

 

provided that no Issuer or Guarantor shall sell, transfer, assign or otherwise
dispose of the Equity Interests it owns in any Issuer or Guarantor (other than
to an Issuer or Guarantor) if after giving effect to such sale, transfer,
assignment or disposition, such Issuer would be a Restricted Subsidiary of the
Company that is not wholly-owned by the Issuers and Guarantors.

 

Within 180 days after the receipt of any Net Proceeds from an Asset Sale, the
Company or any Restricted Subsidiary may apply those Net Proceeds at its option
to any combination of the following:

 

(1)(A) to repay, redeem or repurchase Priority Lien Debt or (B) to make an offer
to all Holders to repay, redeem or repurchase the notes;

 

(2)to invest in Additional Assets; or

 

(3)to make capital expenditures in respect of the Company’s or its Restricted
Subsidiaries’ Oil and Gas Business;

 

provided, however, to the extent the assets disposed of pursuant to an Asset
Sale (or casualty or condemnation event) constitute Collateral, the Additional
Assets and capital expenditures to which such Net Proceeds are applied will be
treated as after acquired property and will become Collateral in accordance with
and to the extent required by the Note Documents.

 

Pending the final application of any Net Proceeds, the Company or any Restricted
Subsidiary may invest the Net Proceeds in any manner that is not prohibited by
the indenture. Any Net Proceeds from Asset Sales that are not applied or
invested as provided in the preceding paragraph will constitute “Excess
Proceeds.”

 

On the 181st day after an Asset Sale (or, at the Company’s option, any earlier
date), if the aggregate amount of Excess Proceeds then exceeds $10.0 million,
the Company will make an offer (an “Asset Sale Offer”) to all Holders of notes
to purchase the maximum principal amount of notes that may be purchased out of
the Excess Proceeds; provided that, if an Event of Default has occurred and is
continuing, the Company shall promptly (and, in any event, within 15 Business
Days after the first date of such Event of Default) make an Asset Sale Offer
with respect to all Net Proceeds from Asset Sales not yet applied pursuant to
clauses (1)-(3) above as of the first date of such Event of Default, except to
the extent that such Excess Proceeds are otherwise committed to be used for an
Investment as of the first date of such Event of Default pursuant to a binding
contract.

 

12

 

 

Notwithstanding anything to the contrary set forth in the foregoing, to the
extent that consideration for Asset Sales together with consideration in the
form of cash or Cash Equivalents for Asset Swaps under clause (14) of the
definition of “Asset Sales” and consideration received in the form of cash or
Cash Equivalents for joint ventures, farm-outs and farm-ins under the definition
of “Permitted Business Investments” less any amounts previously applied to
prepay the notes in accordance with this provision under “Repurchase at the
Option of Holders—Asset Sales” since the date of the indenture exceeds $500
million in the aggregate, the Company or any Restricted Subsidiary shall
promptly (and, in any event, within 15 Business Days of receipt thereof) apply
75% of the Net Proceeds resulting thereafter (without the right of reinvestment)
to cause the Issuers to make an Asset Sale Offer to purchase the maximum
principal amount of notes that may be purchased out of such Net Proceeds. The
remaining 25% of such Net Proceeds shall be applied pursuant to clauses (1)-(3)
above.

 

The offer price in any Asset Sale Offer (or an offer pursuant to clause (1)(B)
in the second paragraph under the heading of “Asset Sales”) will be equal to
100% of principal amount plus accrued and unpaid interest, if any, to the date
of settlement, subject to the right of Holders of record on the relevant record
date to receive interest due on an interest payment date that is on or prior to
the date of settlement, and will be payable in cash. If any Excess Proceeds
remain after consummation of an Asset Sale Offer to Holders of notes, the
Company may use those Excess Proceeds for any purpose not otherwise prohibited
by the indenture. If the aggregate principal amount of notes tendered into such
Asset Sale Offer (or offer pursuant to clause (1)(B) in the second paragraph
under the heading of “Asset Sales”) exceeds the amount of Excess Proceeds, the
trustee will select the notes to be purchased on a pro rata basis. Upon
completion of each Asset Sale Offer, the amount of Excess Proceeds will be reset
at zero.

 

The Issuers will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent those
laws and regulations are applicable in connection with each repurchase of notes
pursuant to an Asset Sale Offer. To the extent that the provisions of any
securities laws or regulations conflict with the “Asset Sales” provisions of the
indenture, the Issuers will comply with the applicable securities laws and
regulations and will not be deemed to have breached their obligations under the
“Asset Sales” provisions of the indenture by virtue of such conflict.

 

Certain Covenants

 

Restricted Payments

 

The Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly:

 

(1)declare or pay any dividend or make any other payment or distribution on
account of the Company’s or any of its Restricted Subsidiaries’ Equity Interests
(including, without limitation, any payment in connection with any merger or
consolidation involving the Company or any of its Restricted Subsidiaries) or to
the direct or indirect holders of the Company’s or any of its Restricted
Subsidiaries’ Equity Interests in their capacity as such (other than dividends
or distributions payable in Equity Interests (other than Disqualified Stock) of
the Company or payable to the Company or a Restricted Subsidiary of the
Company);

 

(2)purchase, redeem or otherwise acquire or retire for value (including, without
limitation, in connection with any merger or consolidation involving the
Company) any Equity Interests of the Company;

 

(3)make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is subordinated to
the notes or the Subsidiary Guarantees (excluding any intercompany Indebtedness
between or among the Company and any of its Restricted Subsidiaries) or
constitutes Unsecured Notes (including Existing Indebtedness in the form of
Unsecured Notes), except a payment of interest or principal at the Stated
Maturity thereof; or

 

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(4)make any Restricted Investment (all such payments and other actions set forth
in these clauses (1) through (4) above being collectively referred to as
“Restricted Payments”),

 

unless, in the case of clauses (3) and (4) only, (A) at the time of and after
giving effect to such Restricted Payment, no Default (except a Reporting
Default) or Event of Default has occurred and is continuing or would occur as a
consequence of such Restricted Payment, (B) the Fixed Charge Coverage Ratio for
the Company’s most recently ended four full fiscal quarters for which internal
financial statements are available at the time of such Restricted Payment is not
less than 2.25 to 1.0, and (C) such Restricted Payment, together with the
aggregate amount of all other Restricted Payments made by the Company and its
Restricted Subsidiaries (excluding “Permitted Investments” and Restricted
Payments permitted by the next succeeding paragraph) since the Issue Date, is
less than the sum, without duplication, of:

 

(a)100% of the aggregate net cash proceeds received by the Company after the
Issue Date as a contribution to its common equity capital or from the issue or
sale of Equity Interests of the Company (other than Disqualified Stock) or from
the issue or sale after the Issue Date of convertible or exchangeable
Disqualified Stock or convertible or exchangeable debt securities of the Company
that have been converted into or exchanged for such Equity Interests (other than
Equity Interests (or Disqualified Stock or debt securities) sold to a Restricted
Subsidiary of the Company) to the extent Not Otherwise Applied; provided,
however, that the amount of any such net cash proceeds that are utilized for any
such Restricted Payment will be excluded (or deducted, if included) from the
calculation of Available Cash, plus

 

(b)to the extent that any Restricted Investment that was made after the Issue
Date pursuant to this first paragraph under the heading “—Restricted Payments”
is sold for cash or otherwise liquidated or repaid for cash, the cash return of
capital with respect to such Restricted Investment (less the cost of
disposition, if any); provided, that, Issuers and Guarantors may only make
Restricted Payments with such cash return of capital to the extent an Issuer or
Guarantor was the recipient of such cash return of capital, plus

 

(c)the net reduction in Restricted Investments made pursuant to this first
paragraph under the heading “—Restricted Payments” resulting from cash
dividends, repayments of loans or advances in cash, or other transfers of cash
(together, the “cash returns”) in each case to the Company or any of its
Restricted Subsidiaries from any Person (including, without limitation,
Unrestricted Subsidiaries); provided, that, Issuers and Guarantors may only make
Restricted Payments with such cash returns to the extent an Issuer or Guarantor
was the recipient of such cash returns; plus

 

(d)(d) the fair market value of Unrestricted Subsidiaries redesignated as
Restricted Subsidiaries to the extent the investment in such Unrestricted
Subsidiaries was made pursuant to this first paragraph under the heading
“—Restricted Payments” as long as such redesignated Restricted Subsidiary
becomes a Guarantor (items (a), (b), (c) and (d) being referred to as
“Incremental Funds).

 

So long as no Default (except Reporting Default) or Event of Default has
occurred and is continuing or would be caused thereby (except with respect to
clause (1) below under which the payment of a distribution or dividend is
permitted notwithstanding that any such Default or Event of Default has occurred
and is continuing as long as there was no Default (except Reporting Default) or
Event of Default occurring or continuing on the date of declaration of any such
Restricted Payment)), the preceding provisions will not prohibit:

 

(1)the payment of any dividend or distribution within 90 days after the date of
its declaration, if at the date of declaration the payment would have complied
with the provisions of the indenture;

 

14

 

 

(2)without duplication of any Restricted Payments made pursuant to the preceding
paragraph, any Restricted Payment (other than a Restricted Payment of the type
specified in clause (1) or (2) of the first paragraph above) in exchange for, or
out of (or of, in the case of a contribution of assets that were acquired in
exchange for Equity Interests of the Company or with net cash proceeds of a
contribution described in the following clause (a)) the net cash proceeds of
(or, in the case of any such contribution of assets, in the form of the assets
so contributed) the substantially concurrent (a) contribution (other than from a
Restricted Subsidiary of the Company) to the equity capital of the Company
(other than in respect of Disqualified Stock, but including a contribution of
assets) or (b) sale (other than to a Restricted Subsidiary of the Company) of,
Equity Interests of the Company (other than Disqualified Stock), with such
contribution or sale being deemed substantially concurrent if such Restricted
Payments occurs not more than 60 days after such contribution or sale and the
proceeds of such contribution or sale (or assets contributed) are designated for
such purpose pursuant to an officer’s certificate by an executive officer of the
Company delivered to the trustee no later than 5 Business Days after the
occurrence of such contribution or sale and are Not Otherwise Applied; provided,
however, that (i) the amount of any such net cash proceeds that are utilized for
any such Restricted Payment will be excluded (or deducted, if included) from the
calculation of Available Cash and Incremental Funds and (ii) any such
contributed assets shall not be required to become Collateral if such Restricted
Payment if made not more than 60 days after such contribution;

 

(3)the purchase, redemption, defeasance or other acquisition or retirement of
Unsecured Notes or subordinated Indebtedness of any Issuer or Guarantor with the
net cash proceeds from an incurrence of, or in exchange for, Permitted
Refinancing Indebtedness;

 

(4)the payment of any dividend or distribution by a Restricted Subsidiary of the
Company to the holders of its Equity Interests on a pro rata basis;

 

(5)the purchase, redemption or other acquisition or retirement for value of any
Equity Interests of (i) the Company or any Restricted Subsidiary of the Company
pursuant to any director or employee equity subscription agreement or equity
option agreement or other employee benefit plan or to satisfy obligations under
any Equity Interests appreciation rights or option plan or similar arrangement;
provided, however, that the aggregate price paid for all such purchased,
redeemed, acquired or retired Equity Interests may not exceed $5 million in any
calendar year, with any portion of such $5 million amount that is unused in any
calendar year to be carried forward to successive calendar years and added to
such amount and (ii) the Company from former officers, directors or employees
(or spouses, ex-spouses or trustees thereof) in the ordinary course of business;

 

(6)the purchase, repurchase, redemption or other acquisition or retirement for
value of Equity Interests deemed to occur upon the exercise, exchange or
conversion of unit options, warrants, incentives, rights to acquire Equity
Interests or other convertible securities if such Equity Interests represent a
portion of the exercise, exchange or conversion price thereof, and any purchase,
repurchase, redemption or other acquisition or retirement for value of Equity
Interests made in lieu of withholding taxes in connection with any exercise,
exchange or conversion of unit options, warrants, incentives or rights to
acquire Equity Interests, and any cash payment in lieu of the issuance of
fractional Equity Interests upon exercise, exchange or conversion;

 

(7)[Reserved];

 

(8)the purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value of any Unsecured Notes of any Issuer or Guarantor (other
than Unsecured Notes that are subordinated in right of payment to the
Obligations) (a) at a purchase price not greater than 101% of the principal
amount of such Unsecured Notes in the event of a change of control in accordance
with mandatory offer provisions similar to those set forth under the heading
“Repurchase at the Option of Holders—Change of Control” or (b) at a purchase
price not greater than 100% of the principal amount thereof in accordance with
mandatory offer provisions similar to those set forth under the heading
“Repurchase at the Option of Holders—Asset Sales”; provided that, prior to or
simultaneously with such purchase, repurchase, redemption, defeasance or other
acquisition or retirement, the Company has made the Change of Control Offer or
Asset Sale Offer, as applicable, and has completed the repurchase or redemption
of all notes validly tendered for payment in connection with such Change of
Control Offer or Asset Sale Offer; or

 

15

 

 

(9)the declaration and payment of (i) Permitted Distributions on Common Units
and (ii) Permitted Distributions on Preferred Units by the Company.

 

The amount of all Restricted Payments (other than cash) will be the fair market
value, on the date of the Restricted Payment, of the Restricted Investment
proposed to be made or the asset(s) or securities proposed to be transferred or
issued by the Company or such Restricted Subsidiary, as the case may be,
pursuant to the Restricted Payment, except that the fair market value of any
non-cash dividend or distribution paid within 60 days after the date of its
declaration shall be determined as of such date. The fair market value of any
Restricted Investment, assets or securities that are required to be valued by
this covenant will be determined, in the case of amounts under $20 million, by
an officer of the General Partner and, in the case of amounts over $20 million,
by the Board of Directors of the Company, whose determination shall be evidenced
by a Board Resolution. Not later than the date of making any Restricted Payment
(excluding any Restricted Payment described in the preceding clause (2), (3),
(4), (5), (6) or (7)) the Company will deliver to the trustee an officers’
certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this “Restricted Payments”
covenant were computed.

 

Notwithstanding the foregoing, clauses (a) through (d) of the first paragraph of
this covenant and clauses (2), (4), or (9) of the second paragraph of this
covenant may not be used by any Issuer or Guarantor to make any Restricted
Payment to another Person (other than an Issuer or Guarantor) with, in the form
of or in respect of the Permian Basin Properties or Mortgaged Properties (or
Equity Interests of any Person that owns any Permian Basin Properties or
Mortgaged Property).

 

Incurrence of Indebtedness and Issuance of Preferred Stock

 

The Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, “incur”) any Indebtedness (including Acquired Debt); the Company
will not, and will not permit any of its Restricted Subsidiaries to, issue any
Disqualified Stock; and the Company will not permit any of its Restricted
Subsidiaries to issue any other preferred securities; provided, however, that
any Issuer and any Guarantor may incur unsecured Indebtedness (including
Acquired Debt) or the Company may issue Disqualified Stock, if, for the
Company’s most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock or other
preferred securities are issued, the Fixed Charge Coverage Ratio of the Company
would have been at least 2.25 to 1.0, determined on a pro forma basis (including
a pro forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred or Disqualified Stock o had been issued, as the
case may be, at the beginning of such four-quarter period; provided, however,
any such Indebtedness in the form of Unsecured Notes shall (i) have a scheduled
maturity date that is no earlier than ninety-one (91) days after the Maturity
Date and (ii) not have any amortization in excess of 1% per annum of the
original principal amount thereof.

 

The first paragraph of this covenant will not prohibit the incurrence of any of
the following items of Indebtedness or the issuance of any Disqualified Stock
described in clause (13) below (collectively, “Permitted Debt”) or the issuance
of any preferred securities described in clause (11) below:

 

(1)the incurrence by any Issuer or Guarantor of Indebtedness under Permitted
Credit Facilities, subject to the Intercreditor Agreement;

 

(2)the incurrence by the Company or its Restricted Subsidiaries of the Existing
Indebtedness;

 

(3)the incurrence by the Issuers and the Guarantors of Indebtedness represented
by the notes and the related Subsidiary Guarantees issued on the date of the
indenture;

 

(4)the incurrence by the Company or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings or
purchase money obligations, in each case, incurred for the purpose of financing
all or any part of the purchase price or cost of construction or improvement of
property, plant or equipment used in the business of the Company or such
Restricted Subsidiary, including all Permitted Refinancing Indebtedness incurred
to extend, refinance, renew, replace, defease or refund any Indebtedness
incurred pursuant to this clause (4), provided that after giving effect to any
such incurrence, the principal amount of all Indebtedness incurred pursuant to
this clause (4) and then outstanding does not exceed the greater of (a) $30
million or (b) .8% of the Company’s Adjusted Consolidated Net Tangible Assets at
such time;

 

16

 

 

(5)the incurrence by the Company or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which
are used to, extend, refinance, renew, replace, defease or refund Indebtedness
that was permitted by the indenture to be incurred under the first paragraph of
this covenant or clause (2) or (3) of this paragraph or this clause (5);

 

(6)the incurrence by the Company or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among the Company and any of its Restricted
Subsidiaries; provided, however, that:

 

(a)if an Issuer is the obligor on such Indebtedness and an Issuer or a Guarantor
is not the obligee, such Indebtedness must be expressly subordinated to the
prior payment in full in cash of all Obligations, or if a Guarantor is the
obligor on such Indebtedness and neither any Issuer nor another Guarantor is the
obligee, such Indebtedness must be expressly subordinated to the prior payment
in full in cash of all Obligations; and

 

(b)(i) any subsequent issuance or transfer of Equity Interests that results in
any such Indebtedness being held by a Person other than the Company or a
Restricted Subsidiary of the Company and (ii) any sale or other transfer of any
such Indebtedness to a Person that is neither the Company nor a Restricted
Subsidiary of the Company will be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as
the case may be, that was not permitted by this clause (6);

 

(7)the incurrence by the Company or any of its Restricted Subsidiaries of
obligations under Hedging Contracts;

 

(8)the guarantee by the Company or any of its Restricted Subsidiaries of
Indebtedness of the Company or any of its Restricted Subsidiaries that was
permitted to be incurred by another provision of this covenant;

 

(9)the incurrence by the Company or any of its Restricted Subsidiaries of
obligations relating to net Hydrocarbon balancing positions arising in the
ordinary course of business and consistent with past practice;

 

(10)the incurrence by the Company or any of its Restricted Subsidiaries of
Indebtedness in respect of bid, performance, surety and similar bonds issued for
the account of the Company and any of its Restricted Subsidiaries in the
ordinary course of business, including guarantees and obligations of the Company
or any of its Restricted Subsidiaries with respect to letters of credit
supporting such obligations (in each case other than an obligation for money
borrowed);

 

(11)the issuance by any of the Company’s Restricted Subsidiaries to the Company
or to any of its Restricted Subsidiaries of any preferred securities; provided,
however, that:

 

(a)any subsequent issuance or transfer of Equity Interests that results in any
such preferred securities being held by a Person other than the Company or a
Restricted Subsidiary of the Company; and

 

(b)any sale or other transfer of any such preferred securities to a Person that
is not either the Company or a Restricted Subsidiary of the Company shall be
deemed, in each case, to constitute an issuance of such preferred securities by
such Restricted Subsidiary that was not permitted by this clause (11);

 

(12)the incurrence by the Company or any of its Restricted Subsidiaries of
liability in respect of the Indebtedness of any Unrestricted Subsidiary of the
Company or any Joint Venture but only to the extent that such liability is the
result of the Company’s or any such Restricted Subsidiary’s being a general
partner of such Unrestricted Subsidiary or Joint Venture and not as guarantor of
such Indebtedness and provided that, after giving effect to any such incurrence,
the aggregate principal amount of all Indebtedness incurred under this clause
(12) and then outstanding does not exceed $25 million;

 

17

 

 

(13)Permitted Acquisition Indebtedness; and

 

(14)the incurrence by the Company or any of its Restricted Subsidiaries of
additional Indebtedness, provided that, after giving effect to any such
incurrence, the aggregate principal amount of all Indebtedness incurred under
this clause (14) and then outstanding does not exceed the greater of (a) $60
million or (b) 1.6% of the Company’s Adjusted Consolidated Net Tangible Assets.

 

For purposes of determining compliance with this “Incurrence of Indebtedness and
Issuance of Preferred Stock” covenant, in the event that an item of Indebtedness
(including Acquired Debt) meets the criteria of more than one of the categories
of Permitted Debt described in clauses (1) through (14) above, or is entitled to
be incurred pursuant to the first paragraph of this covenant, the Company will
be permitted to classify (or later classify or reclassify in whole or in part in
its sole discretion) such item of Indebtedness in any manner that complies with
this covenant; provided that any Indebtedness under any Permitted Credit
Facility on the date of the indenture shall be considered incurred under clause
(1) of the definition of “Permitted Debt” and may not later be reclassified.

 

The accrual of interest, the accretion or amortization of original issue
discount, the payment of interest on any Indebtedness in the form of additional
Indebtedness with the same terms, and the payment of dividends on Disqualified
Stock in the form of additional shares of the same class of Disqualified Stock
will not be deemed to be an incurrence of Indebtedness or an issuance of
Disqualified Stock for purposes of this covenant, provided, in each such case,
that the amount thereof is included in Fixed Charges of the Company as accrued.
Further, the accounting reclassification of any obligation of the Company or any
of its Restricted Subsidiaries as Indebtedness will not be deemed an incurrence
of Indebtedness for purposes of this covenant.

 

Liens

 

The Company will not and will not permit any of its Restricted Subsidiaries to,
create, incur, assume or otherwise cause or suffer to exist or become effective
any Lien of any kind (other than Permitted Liens) securing Indebtedness
(including Attributable Debt) upon any of their property or assets, now owned or
hereafter acquired.

 

Restrictive Agreements

 

The Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create or permit to exist or become effective any
consensual encumbrance or restriction on the ability of (a) any Issuer or
Guarantor to create, incur, assume or suffer to exist any Lien in favor of the
Holders in respect of the notes and the Subsidiary Guarantees upon any of its
property, assets or revenues constituting Collateral as and to the extent
contemplated by the Notes Documents or (b) any Restricted Subsidiary to:

 

(1)pay dividends or make any other distributions on its Capital Stock to the
Company or any of its Restricted Subsidiaries, or pay any Indebtedness or other
obligations owed to the Company or any of its Restricted Subsidiaries;

 

(2)make loans or advances to the Company or any of its Restricted Subsidiaries;
or

 

(3)transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries.

 

However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:

 

(1)agreements as in effect on the date of the indenture and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings of those agreements or the Indebtedness to which
they relate, provided that the amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings are
no more restrictive, taken as a whole, with respect to such dividend,
distribution and other payment restrictions than those contained in those
agreements on the date of the indenture, as long as, in each case, no such
agreement or amendment, modification, restatement, renewal, increase,
supplement, refunding, replacement or refinancing thereof would reasonably be
expected to result in a material adverse effect on the Company and its
Restricted Subsidiaries;

 

18

 

 

(2)the Note Documents;

 

(3)applicable law;

 

(4)any instrument governing Indebtedness or Capital Stock of a Person or other
agreement acquired by the Company or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such Indebtedness
or Capital Stock or agreement was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired, provided that,
in the case of Indebtedness, such Indebtedness was otherwise permitted by the
terms of the indenture to be incurred;

 

(5)customary non-assignment provisions in Hydrocarbon purchase and sale or
exchange agreements or similar operational agreements or in licenses, easements
or leases, in each case entered into in the ordinary course of business and
consistent with past practices;

 

(6)Capital Lease Obligations, mortgage financings or purchase money obligations,
in each case for property acquired in the ordinary course of business that
impose restrictions on that property of the nature described in clause (3) of
the preceding paragraph;

 

(7)any agreement for the sale or other disposition of a Restricted Subsidiary of
the Company that restricts distributions by that Restricted Subsidiary pending
its sale or other disposition;

 

(8)Permitted Refinancing Indebtedness, provided that the restrictions contained
in the agreements governing such Permitted Refinancing Indebtedness are no more
restrictive, taken as a whole, than those contained in the agreements governing
the Indebtedness being refinanced;

 

(9)Liens securing Indebtedness otherwise permitted to be incurred under the
provisions of the covenant described above under the caption “—Liens” that limit
the right of the debtor to dispose of the assets subject to such Liens;

 

(10)provisions with respect to the disposition or distribution of assets or
property in joint venture agreements, asset sale agreements, stock sale
agreements and other agreements described in the definition of “Permitted
Business Investments,” entered into in the ordinary course of business;

 

(11)any agreement or instrument relating to any property or assets acquired
after the date of the indenture, so long as such encumbrance or restriction
relates only to the property or assets so acquired and is not and was not
created in anticipation of such acquisitions;

 

(12)restrictions on cash or other deposits or net worth imposed by customers
under contracts entered into in the ordinary course of business;

 

(13)the issuance of preferred securities by a Restricted Subsidiary of the
Company or the payment of dividends thereon in accordance with the terms
thereof; provided that issuance of such preferred securities is permitted
pursuant to the covenant described above under the caption “—Incurrence of
Indebtedness and Issuance of Preferred Stock” and the terms of such preferred
securities do not expressly restrict the ability of such Restricted Subsidiary
to pay dividends or make any other distributions on its Capital Stock (other
than requirements to pay dividends or liquidation preferences on such preferred
securities prior to paying any dividends or making any other distributions on
such other Capital Stock);

 

19

 

 

(14)with respect to any Foreign Subsidiary, any encumbrance or restriction
contained in the terms of any Indebtedness or any agreement pursuant to which
such Indebtedness was incurred if either (a) the encumbrance or restriction
applies only in the event of a payment default or a default with respect to a
financial covenant in such Indebtedness or agreement or (b) the Company
determines that any such encumbrance or restriction will not materially affect
the Company’s ability to make principal or interest payments on the notes, as
determined in good faith by the Board of Directors of the Company, whose
determination shall be conclusive;

 

(15)arise pursuant to agreements entered into with respect to any Asset Sale
permitted or not prohibited by covenant under the caption “—Asset Sales” and
applicable solely to the assets under such Asset Sale;

 

(16)negative pledges and restrictions on Liens in favor of any holder of
Indebtedness permitted by the covenant under the caption “—Liens”, but solely to
the extent any negative pledge relates to the property financed by such
Indebtedness; and

 

(17)any other agreement governing Indebtedness of any Issuer or Guarantor that
is permitted to be incurred by the covenant described under “—Incurrence of
Indebtedness and Issuance of Preferred Stock”; provided, however, that such
encumbrances or restrictions are not materially more restrictive, taken as a
whole, than those contained in the indenture or the Credit Agreement as it
exists on the date of the indenture.

 

Merger, Consolidation or Sale of Assets

 

None of the Issuers may, directly or indirectly: (1) consolidate or merge with
or into another Person (whether or not such Issuer is the survivor); or (2)
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions, to another Person, unless:

 

(1)either: (a) such Issuer is the survivor; or (b) the Person formed by or
surviving any such consolidation or merger (if other than such Issuer) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
has been made is a Person organized or existing under the laws of the United
States, any state of the United States or the District of Columbia; provided,
however, that Finance Corp. may not consolidate or merge with or into any Person
other than a corporation satisfying such requirement; provided, however, the
Company shall not convert (by merger, sale, contribution or exchange of assets
or otherwise) into a corporation;

 

(2)the Person formed by or surviving any such consolidation or merger (if other
than such Issuer) or the Person to which such sale, assignment, transfer, lease,
conveyance or other disposition has been made assumes all the obligations of
such Issuer under the notes and the other Note Documents to which such Issuer is
a party, as applicable, and all other Issuers and Guarantors confirm and
reaffirm all their obligations under the notes and other Note Documents to which
such Issuer or Guarantor is a party pursuant to a supplemental indenture;

 

(3)immediately after such transaction no Default or Event of Default exists;

 

(4)(a) the Company or the Person formed by or surviving any such consolidation
or merger (if other than the Company), or to which such sale, assignment,
transfer, lease, conveyance or other disposition has been made will, on the date
of such transaction after giving pro forma effect thereto and any related
financing transactions as if the same had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described above under the caption
“—Incurrence of Indebtedness and Issuance of Preferred Stock”; or

 

(b)immediately after giving effect to such transaction and any related financing
transactions on a pro forma basis as if the same had occurred at the beginning
of the applicable four-quarter period, the Fixed Charge Coverage Ratio of the
Company (or the Person formed by or surviving any such consolidation or merger
(if other than the Company), or to which such sale, assignment, transfer, lease,
conveyance or other disposition has been made), will be equal to or greater than
the Fixed Charge Coverage Ratio of the Company immediately before such
transactions;

 

20

 

 

(5)any Collateral owned by or transferred to the Person formed by or surviving
any such consolidation or merger (if other than such Issuer) or the Person to
which such sale, assignment, transfer, lease, conveyance or other disposition
has been made continues to constitute Collateral under the Note Documents,
subject to the Collateral Requirements;

 

(6)the property and assets of the Person which is consolidated or merged with or
into such Issuer, to the extent that they are property or assets of the types
which would constitute Collateral under the security documents, shall be treated
as after-acquired property and such Issuer shall take such action (or agree to
take such action) as may be reasonably necessary to cause such property and
assets to be made subject to the perfected Liens, in the manner and to the
extent required under the Note Documents;

 

(7)the Person formed by or surviving any such consolidation or merger (if other
than such Issuer) or to which such sale, assignment, transfer, lease, conveyance
or other disposition has been made is engaged in the Oil and Gas Business,
except to the extent permitted by the covenant, under the caption “—Business
Activities”; and

 

(8)such Issuer has delivered to the trustee an officers’ certificate and an
opinion of counsel, each stating that such consolidation, merger or disposition
and such supplemental indenture and other Note Documents (if any) comply with
the indenture and Note Documents.

 

Notwithstanding the restrictions described in the foregoing clause (4), any
Restricted Subsidiary (other than the Operating Partnership or Finance Corp.)
may consolidate with, merge into or dispose of all or part of its properties and
assets to the Company without complying with the preceding clause (4) in
connection with any such consolidation, merger or disposition.

 

Notwithstanding the second preceding paragraph, the Company is permitted to
reorganize as any other form of entity in accordance with the following
procedures provided that:

 

(1)the reorganization involves the conversion (by merger, sale, contribution or
exchange of assets or otherwise) of the Company into a form of entity other than
a limited partnership formed under Delaware law; provided, however, the Company
shall not convert (by merger, sale, contribution or exchange of assets or
otherwise) into a corporation;

 

(2)the entity so formed by or resulting from such reorganization is an entity
organized or existing under the laws of the United States, any state thereof or
the District of Columbia;

 

(3)the entity so formed by or resulting from such reorganization assumes all the
obligations of the Company under the notes and other Note Documents pursuant to
agreements reasonably satisfactory to the trustee and the collateral agent, as
applicable, and all other Issuers and Guarantors confirm and reaffirm all their
obligations under the notes and other Note Documents to which such Issuer or
Guarantor is a party pursuant to agreements reasonably satisfactory to the
trustee and the collateral agent, as applicable;

 

(4)any Collateral owned by or transferred to the Person formed by or surviving
any such consolidation or merger (if other than such Issuer) or the Person to
which such sale, assignment, transfer, lease, conveyance or other disposition
has been made continues to constitute Collateral under the Note Documents,
subject to the Collateral Requirements;

 

(5)immediately after such reorganization no Default or Event of Default exists;
and

 

(6)such reorganization is not materially adverse to the Holders or Beneficial
Owners of the notes (for purposes of this clause (6) a reorganization will not
be considered materially adverse to the Holders or Beneficial Owners of the
notes solely because the successor or survivor of such reorganization (a) is
subject to federal or state income taxation as an entity or (b) is considered to
be an “includible corporation” of an affiliated group of corporations within the
meaning of Section 1504(b) of the Code or any similar state or local law);

 

21

 

 

For the avoidance of doubt, the transactions described under “Merger,
Consolidation or Sale of Assets” will be subject to the prior notice
requirements set forth in the security documentation and Note Documents (if
any).

 

Although there is a limited body of case law interpreting the phrase
“substantially all,” there is no precise established definition of the phrase
under applicable law. Accordingly, in certain circumstances there may be a
degree of uncertainty as to whether a particular transaction would involve “all
or substantially all” of the properties or assets of a Person.

 

Transactions with Affiliates

 

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

 

(1)the Affiliate Transaction is on terms that are no less favorable to the
Company or the relevant Restricted Subsidiary (or, in a transaction between an
Issuer or Guarantor, on the one hand, and a Restricted Subsidiary that is not an
Issuer or Guarantor, on the other hand, to such Issuer or Guarantor) than those
that would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person; and

 

(2)the Company delivers to the trustee, with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $20 million, a resolution of the Board of Directors
of the Company set forth in an officers’ certificate certifying that such
Affiliate Transaction or series of Affiliate Transactions complies with this
covenant and that such Affiliate Transaction or series of related Affiliate
Transactions has been approved by a majority of the disinterested members of the
Board of Directors of the Company.

 

The following items will not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:

 

(1)any employment, equity award, equity option or equity appreciation agreement
or plan entered into by the Company or any of its Restricted Subsidiaries in the
ordinary course of business;

 

(2)transactions between or among any of the Issuers and Guarantors;

 

(3)transactions by and among the Company and any of its Restricted Subsidiaries,
on the one hand, and the Holders of the notes as of the Issue Date and their
Affiliates, on the other hand;

 

(4)transactions effected in accordance with the terms of agreements that are
identified in the indenture, in each case as such agreements are in effect on
the date of the indenture, and any amendment or replacement of any of such
agreements so long as such amendment or replacement agreement is no less
advantageous to the Company in any material respect than the agreement so
amended or replaced;

 

(5)customary compensation, indemnification and other benefits made available to
officers, directors or employees of the Company or a Restricted Subsidiary or
Affiliate of the Company, including reimbursement or advancement of
out-of-pocket expenses and provisions of officers’ and directors’ liability
insurance;

 

(6)sales of Equity Interests (other than Disqualified Stock) to, or receipt of
capital contributions from, Affiliates of the Company;

 

(7)Permitted Investments (other than Permitted Investments under clause (7) or
(8) of the definition thereof) or Restricted Payments that are permitted by the
provisions of the indenture described above under the caption “—Restricted
Payments”;

 

(8)in the case of contracts for buying and selling Hydrocarbons or other
operational contracts, any such contracts are entered into in the ordinary
course of business on terms substantially similar to those contained in similar
contracts entered into by the Company or any of its Restricted Subsidiaries and
unrelated third parties; and

 

22

 

 

(9)transactions between or among any of the Issuers and Guarantors, on the one
hand, and any Restricted Subsidiary that is not an Issuer or Guarantor, on the
other hand; provided, that (a) such transaction is for the provision of goods,
sales or services in the nature of overhead at no less than cost in the ordinary
course of business or (b) the aggregate consideration paid for all such
transactions not otherwise covered by clause (a) does not exceed $10 million in
any fiscal year.

 

Designation of Restricted and Unrestricted Subsidiaries

 

As long as no Default (other than a Reporting Default) or Event of Default has
occurred and is continuing, the Board of Directors of the Company may designate
any newly-formed Subsidiary of the Company or any Subsidiary of the Company
acquired after the date of the indenture pursuant to an Acquisition permitted
under the provisions governing Restricted Payments and Permitted Investments to
be an Unrestricted Subsidiary if, in either case, that designation would not
cause a Default. Any such designation shall be made on or promptly after the
date such Subsidiary becomes a Subsidiary of the Company (and, in any case,
within 30 days of the formation or acquisition thereof). If a Restricted
Subsidiary of the Company is designated as an Unrestricted Subsidiary, the
aggregate fair market value of all outstanding Investments owned by the Company
and its Restricted Subsidiaries in the Subsidiary properly designated as an
Unrestricted Subsidiary will be deemed to be either an Investment made as of the
time of the designation that will reduce the amount available for Restricted
Payments under the first paragraph of the covenant described above under the
caption “Restricted Payments” or represent (and will reduce the amount available
for) Permitted Investments under clause (10) of the definition thereof as
determined by the Company. That designation will only be permitted if the
Investment would be permitted at that time and if the Subsidiary so designated
otherwise meets the definition of an Unrestricted Subsidiary.

 

The Board of Directors of the Company may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary, provided that such designation will be
deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the
Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation will only be permitted if (1) such Indebtedness is permitted under
the covenant described above under the caption “—Incurrence of Indebtedness and
Issuance of Preferred Stock,” calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter reference period,
and (2) no Default or Event of Default would be in existence following such
designation.

 

Additional Subsidiary Guarantees

 

If, after the date of the indenture, any Restricted Subsidiary of the Company
that is not already a Guarantor or an Issuer guarantees (or is a co-borrower,
co-issuer or co-direct obligor of) any other Indebtedness of any Issuer or
Guarantor, then in either case that Subsidiary will become a Guarantor by
executing a supplemental indenture and delivering it to the trustee within 10
Business Days of the date on which it guaranteed or incurred such Indebtedness,
as the case may be; provided, however, that the preceding shall not apply to
Subsidiaries of the Company that have properly been designated as Unrestricted
Subsidiaries in accordance with the indenture for so long as they continue to
constitute Unrestricted Subsidiaries.

 

In the event (a) the Priority Lien Debt is paid-off or otherwise discharged or
the guaranty-related provisions thereunder are otherwise made materially less
restrictive on the Issuers and Guarantors than the Priority Lien Documents as in
effect on the date of the indenture, the indenture shall provide for customary
guaranty-related provisions substantially consistent with those in effect under
the Priority Lien Debt on the date of the indenture or (b) the Priority Lien
Collateral Agent or holders of the Priority Lien Debt fail to require, fail to
take any action to obtain or otherwise waive the right to receive a guaranty
from a Restricted Subsidiary to the extent such guaranty would be required (or
could be required upon reasonable request or otherwise) under the Priority Lien
Documentation as in effect on the Issue Date, the collateral trustee, at the
request of the Majority Holders, or the Majority Holders, will have the right to
require the Issuers and Guarantors to take reasonable actions to cause such
Restricted Subsidiary to execute a supplemental indenture (if any) within 60
days of the date of such request (or such later date as the Majority Holders may
reasonably determine).

 

23

 

 

Business Activities

 

The Company will not, and will not permit any Restricted Subsidiary (including
the Operating Partnership) to, engage in any business other than the Oil and Gas
Business, except to such extent as would not be material to the Company and its
Restricted Subsidiaries taken as a whole.

 

Finance Corp. may not incur Indebtedness unless (1) the Company is a co-obligor
or guarantor of such Indebtedness or (2) the net proceeds of such Indebtedness
are loaned to the Company, used to acquire outstanding debt securities issued by
the Company or used to repay Indebtedness of the Company as permitted under the
covenant described about under the caption “—Incurrence of Indebtedness and
Issuance of Preferred Stock.” Finance Corp. may not engage in any business not
related directly or indirectly to obtaining money or arranging financing for the
Company or its Restricted Subsidiaries.

 

Anti-Layering

 

No Issuer or Guarantor will incur or suffer to exist any (i) Indebtedness
(including Indebtedness that is otherwise permitted hereunder) that is
contractually subordinated in right of payment to any other Indebtedness of such
Issuer or Guarantor unless such Indebtedness is also contractually subordinated
in right of payment to the notes and the Subsidiary Guarantees on substantially
identical terms or (ii) Indebtedness that is secured by Liens that are
contractually subordinated or junior to other Liens securing such Indebtedness
(or contractually subordinated or junior to Liens securing other Indebtedness)
of any Issuer, or Guarantor unless such Liens are also contractually
subordinated or junior to the Liens securing the notes and the Subsidiary
Guarantees on substantially identical terms.

 

Reports

 

Whether or not required by the Commission, so long as any notes are outstanding,
the Company will file with the Commission for public availability within the
time periods specified in the Commission’s rules and regulations (unless the
Commission will not accept such a filing), and the Company will furnish to the
trustee and, upon its prior request, to any of the Holders or Beneficial Owners
of notes, within five Business Days of filing, or attempting to file, the same
with the Commission:

 

(1)all quarterly and annual financial and other information with respect to the
Company and its Subsidiaries that would be required to be contained in a filing
with the Commission on Forms 10-Q and 10-K if the Company were required to file
such Forms, including a “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and, with respect to the annual information
only, a report on the annual financial statements by the Company’s certified
independent accountants; and

 

(2)all current reports that would be required to be filed with the Commission on
Form 8-K if the Company were required to file such reports.

 

The availability of the foregoing information or reports on the SEC’s website
will be deemed to satisfy the foregoing delivery requirements.

 

If the Company has designated any of its Subsidiaries as Unrestricted
Subsidiaries, then, to the extent material, the quarterly and annual financial
information required by the preceding paragraph will include a reasonably
detailed presentation, either on the face of the financial statements or in the
footnotes thereto, and in Management’s Discussion and Analysis of Financial
Condition and Results of Operations, of the financial condition and results of
operations of the Company and its Restricted Subsidiaries separate from the
financial condition and results of operations of the Unrestricted Subsidiaries
of the Company.

 

In addition, the Company and the Guarantors have agreed that, for so long as any
notes remain outstanding, they will furnish to the Holders and Beneficial Owners
of the notes and to securities analysts and prospective investors in the notes,
upon their request the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.

 

24

 

 

Corporate Existence

 

Subject to “—Subsidiary Guarantees” and “—Merger, Consolidation or Sale of
Assets”, the Company shall do or cause to be done all things necessary to
preserve and keep in full force and effect:

 

(1)its limited partnership, limited liability company or corporate existence,
and the corporate, partnership or other existence of each of the Restricted
Subsidiaries, in accordance with the respective organizational documents (as the
same may be amended from time to time) of the Company or any such Restricted
Subsidiary; and

 

(2)the rights (charter and statutory), licenses and franchises of the Company
and its Restricted Subsidiaries; provided, however, that the Company shall not
be required to preserve any such right, license or franchise, or the corporate,
partnership or other existence of any of its Restricted Subsidiaries (other than
the existence of the Issuers), if the Company shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Company and its Restricted Subsidiaries, taken as a whole, and that the loss
thereof is not adverse in any material respect to the Holders of the notes.

 

Insurance

 

The Company will, and will cause each Restricted Subsidiary to, maintain, with
financially sound and reputable insurance companies, insurance in such amounts
and against such risks as is customarily maintained by companies engaged in the
same or similar businesses operating in the same or similar locations. Subject
to the Intercreditor Agreement, the Company shall cause the lender loss payable,
mortgagee or additional insured clauses or provisions in said insurance policy
or policies, insuring any of the Collateral or providing for general liability
insurance (and any other policies with respect to which the Priority Lien Agent
has received or will receive an endorsement or “lender loss payee”, “mortgagee”
or “additional insured” status), as applicable, to be endorsed in favor of the
collateral agent as its interests may appear and such policies shall name the
collateral agent as a “lender loss payee”, “mortgagee” or “additional insured”
and provide that the insurer will endeavor to give at least 30 days prior notice
of any cancellation to the collateral agent (or 10 days prior notice of any
cancellation in the event of non-payment). Such insurance policies or
endorsements thereto will provide, and the Company and each of its Restricted
Subsidiaries will agree in the indenture, that the insurer will waive any right
of subrogation against the collateral agent, the trustee and each Holder of the
notes.

 

Amendments to Priority Lien Debt

 

The Issuers and Guarantors shall not amend, waive, modify or supplement and
shall not consent to any amendment, waiver, modification or supplement to the
Priority Lien Debt if the effect thereof would be to (i) prohibit or restrict
any payment of principal, interest or otherwise with respect to the Obligations
in a manner that is more restrictive than as of the Issue Date, (ii) subordinate
in right of payment any Priority Lien Debt to any other Indebtedness or
subordinate the Liens securing Priority Lien Debt to any other Lien or (iii) add
any restrictions on amendments, waivers, modifications or supplements to the
Note Documents that are materially more restrictive than the restrictions set
forth in the Credit Agreement as in effect on the date of the indenture.

 

Events of Default and Remedies

 

Each of the following is an Event of Default:

 

(1)default for 5 Business Days in the payment when due of interest on the notes;

 

(2)default in payment when due of the principal of, or premium (including the
Make-Whole Amount or Prepayment Premium), if any, on the notes;

 

(3)failure by the Company to comply with the provisions described under the
captions “—Repurchase at the Option of Holders—Invalid Debt Incurrence,”
“—Repurchase at the Option of Holders—Asset Sales,” “—Repurchase at the Option
of Holders—Change of Control” or “—Certain Covenants—Merger, Consolidation or
Sale of Assets”;

 

25

 

 

(4)failure by the Company for 120 days after notice to comply with the
provisions described under “—Certain Covenants—Reports” (provided that if
beginning on the 61st day the Company is not in compliance with such covenant,
additional interest at a rate of 0.25% per annum shall accrue and be payable (in
the same manner and at the same time as regular interest payments));

 

(5)any representation or warranty by the Company or any of its Restricted
Subsidiaries made in any Note Document, or which is contained in any certificate
furnished at any time under any Note Document, is incorrect in any material
respect on or as of the date made or deemed made;

 

(6)failure by the Company or any Guarantor for 30 days after the earlier of
(i) knowledge by an executive officer of the Company or any Restricted
Subsidiary or (ii) receipt of notice by the trustee or holders of 50.1% of the
principal amount of notes to comply with any of its other agreements in the
indenture or any other Note Document;

 

(7)default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Company or any of its Restricted Subsidiaries (or the payment of
which is guaranteed by the Company or any of its Restricted Subsidiaries),
whether such Indebtedness or guarantee now exists, or is created after the date
of the indenture, if that default:

 

(a)is caused by a failure to make any payment on such Indebtedness prior to the
expiration of the grace period provided in such Indebtedness (a “Payment
Default”); or

 

(b)results in the acceleration of such Indebtedness prior to its Stated
Maturity,

 

and, in each case, the principal amount of any such Indebtedness, together with
the principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates $40
million or more; provided, however, that if any such Payment Default is cured or
waived or any such acceleration rescinded, or such indebtedness is repaid,
within a period of 30 days from the continuation of such Payment Default beyond
the applicable grace period or the occurrence of such acceleration, as the case
may be, such Event of Default and any consequential acceleration of the notes
shall be automatically rescinded, so long as such rescission does not conflict
with any judgment or decree; provided, further, in the event any Permitted
Refinancing Indebtedness with respect to the Unsecured Notes outstanding as of
the Issue Date has terms that are materially more burdensome or restrictive on
the Issuers and Guarantors, taken as a whole, than those in the Unsecured Notes
being extended, refinanced, renewed or replaced (it being agreed that the
existence of a financial maintenance covenant in any such Permitted Refinancing
Indebtedness will constitute terms that are materially more burdensome or
restrictive on the Issuers and Guarantors, taken as a whole, than those in the
Unsecured Notes being extended, refinanced, renewed or replaced), then the
occurrence of any default under any indenture or instrument under which such
Permitted Refinancing Indebtedness may be issued or evidenced which gives the
agent, trustee, collateral agent or any holder or holders thereunder the right
to accelerate will constitute an Event of Default under the indenture;

 

(8)failure by the Company or any of its Restricted Subsidiaries to pay final
judgments aggregating in excess of $40 million (to the extent not covered by
insurance by a reputable and creditworthy insurer as to which the insurer has
not disclaimed coverage), which judgments are not paid, discharged or stayed for
a period of 60 days;

 

(9)except as permitted by the indenture, any Subsidiary Guarantee shall be held
in any judicial proceeding to be unenforceable or invalid or shall cease for any
reason to be in full force and effect or any Guarantor, or any Person acting on
behalf of any Guarantor, shall deny or disaffirm its obligations under its
Subsidiary Guarantee;

 

26

 

 

(10)the occurrence of any of the following:

 

(a)except as permitted by the Note Documents, any security document establishing
the Parity Liens ceases for any reason to be enforceable; provided that it will
not be an Event of Default under this clause (10)(a) if the sole result of the
failure of one or more security documents to be fully enforceable is that any
Lien purported to be granted under such security documents on any Collateral,
individually or in the aggregate, having a Fair Market Value of not more than
$10 million, ceases to be an enforceable and perfected Second-Priority Lien,
subject only to Permitted Liens; provided further that if such failure is
susceptible to cure, no Event of Default shall arise with respect thereto until
30 days after any officer of the General Partner, the Company or any Restricted
Subsidiary becomes aware of such failure (including by notice thereof sent by
trustee, collateral agent or any Holder), which failure has not been cured
during such time period;

 

(b)except as permitted by the Note Documents, any Parity Liens purported to be
granted under any security document on Collateral, individually or in the
aggregate, having a Fair Market Value in excess of $10 million, ceases to be an
enforceable and perfected Second-Priority Lien, subject only to Permitted Liens;
provided that if such failure is susceptible to cure, no Event of Default shall
arise with respect thereto until 30 days after any officer of the General
Partner, the Company or any Restricted Subsidiary becomes aware of such failure
(including by notice thereof sent by trustee, collateral agent or any Holder),
which failure has not been cured during such time period;

 

(c)any Issuer or any Guarantor, or any Person acting on behalf of any of them,
denies or disaffirms, in writing, any obligation of any Issuer or any Guarantor
set forth in or arising under any Security Document establishing Parity Liens;

 

(d)Any other Note Document is partially or wholly revoked or invalidated, or
otherwise ceases to be in full force and effect other than in accordance with
its terms or the terms of the indenture, or a Guarantor or any other Person on
behalf of a Guarantor contests in any manner the validity or enforceability
thereof or any Issuer or Guarantor denies that it has any further liability or
obligation thereunder or purports to revoke, terminate or rescind any such Note
Document; or

 

(11)certain events of bankruptcy, insolvency or reorganization described in the
indenture with respect to the Operating Partnership, Finance Corp., the Company
or any of the Company’s Restricted Subsidiaries that is a Significant Subsidiary
or any group of its Restricted Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary of the Company.

 

In the case of an Event of Default arising from certain events of bankruptcy,
insolvency or reorganization, with respect to the Operating Partnership, Finance
Corp., the Company, any Restricted Subsidiary of the Company that is a
Significant Subsidiary or any group of its Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary of the Company, all
outstanding notes and Obligations, including accrued and unpaid interest thereon
and the Make-Whole Amount or Prepayment Premium, if applicable. If the maturity
of the notes is accelerated (under any provision of this “Events of Default and
Remedies” or otherwise) a premium equal to the Make-Whole Amount or Prepayment
Premium (in each case, determined as if the notes were redeemed at the time of
such acceleration at the option of the Issuers pursuant to the terms of
“Optional Redemptions” hereunder) will, if applicable, become due and payable
immediately without further action or notice, and the Issuers will pay such
premium, as compensation to the Holders for the loss of their investment
opportunity and not as a penalty, whether or not an Insolvency Proceeding has
commenced, and (if an Insolvency Proceeding has commenced) without regard to
whether such Insolvency Proceeding is voluntary or involuntary, or whether
payment occurs pursuant to a motion, plan of reorganization, or otherwise, and
without regard to whether the notes and other Obligations are satisfied or
released by foreclosure (whether or not by power of judicial proceeding), deed
in lieu of foreclosure or by any other means. Without limiting the foregoing,
any redemption of the notes in or in connection with an Insolvency Proceeding
shall constitute an optional redemption thereof under the terms of “Optional
Redemptions” and, if applicable, require the immediate payment of the Make-Whole
Amount and Prepayment Premium.

 

If any other Event of Default occurs and is continuing, the trustee or the
Holders of at least 50.1% in principal amount of the then outstanding notes may
declare all the notes and Obligations, including accrued and unpaid interest
thereon and the Make-Whole Amount and/or Prepayment Premium, as applicable, to
be due and payable immediately (and such amounts shall become immediately due
and payable).

 

27

 

 

Holders of the notes may not enforce the indenture, the notes or any other Note
Documents except as provided in the indenture and the Note Documents. Subject to
certain limitations, Holders of a majority in principal amount of the then
outstanding notes may direct the collateral agent or trustee in its exercise of
any trust or power, including any powers arising under the indenture and any
other Note Document. The trustee may withhold notice of any continuing Default
or Event of Default from Holders of the notes (other than any Holder or
affiliated Holders holding notes in an amount equal to or in excess of 50.1% of
the principal amount of the Notes) if it determines that withholding notice is
in their interest, except a Default or Event of Default relating to the payment
of principal of, or interest or premium, if any, on, the notes.

 

The Holders of a majority in principal amount of the notes then outstanding by
notice to the trustee may on behalf of the Holders of all of the notes waive any
existing Default or Event of Default and its consequences under the indenture
except a continuing Default or Event of Default in the payment of principal of,
or interest or premium (including the Make-Whole Amount and Prepayment Premium),
if any, on, the notes.

 

The Issuers will be required to deliver prompt notice to the trustee and
collateral agent upon an executive officer’s knowledge of any Default or Event
of Default hereunder (and, in any case, no later than five Business Days after
notice thereof), which notice shall specify such Default or Event of Default.
The Issuers will be required to deliver to the trustee annually a statement
regarding compliance with the indenture.

 

No Personal Liability of Directors, Officers, Employees and Unitholders

 

No director, officer, partner, employee, incorporator, manager or unitholder or
other owner of Capital Stock of the Issuers or any Guarantor, as such, will have
any liability for any obligations of the Issuers or any Guarantor under the
notes, the indenture, any other Note Document or the Subsidiary Guarantees, or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder of notes by accepting a note waives and releases all
such liability. The waiver and release are part of the consideration for
issuance of the notes. The waiver may not be effective to waive liabilities
under the federal securities laws.

 

Legal Defeasance and Covenant Defeasance

 

The Issuers may, at their option and at any time, elect to have all of their
obligations discharged with respect to the outstanding notes and all obligations
of the Guarantors discharged with respect to their Subsidiary Guarantees (“Legal
Defeasance”), except for:

 

(1)the rights of Holders of outstanding notes to receive payments in respect of
the principal of, and interest or premium, if any, on, such notes when such
payments are due from the trust referred to below;

 

(2)the Issuers’ obligations with respect to the notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost or stolen
notes and the maintenance of an office or agency for payment and money for
security payments held in trust;

 

(3)the rights, powers, trusts, duties and immunities of the trustee, and the
Issuers’ obligations in connection therewith; and

 

(4)the Legal Defeasance provisions of the indenture.

 

In addition, the Issuers may, at their option and at any time, elect to have
their obligations released with respect to certain covenants that are described
in the indenture and the other Note Documents (“Covenant Defeasance”) and
thereafter any omission to comply with those covenants will not constitute a
Default or Event of Default with respect to the notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
insolvency or reorganization events) described under “—Events of Default and
Remedies” will no longer constitute an Event of Default with respect to the
notes. If the Issuers exercise either their Legal Defeasance or Covenant
Defeasance option, each Guarantor will be released and relieved of any
obligations under its Subsidiary Guarantee and all Collateral (other than the
trust) will be released.

 

28

 

 

In order to exercise either Legal Defeasance or Covenant Defeasance:

 

(1)the Issuers must irrevocably deposit with the trustee, in trust, for the
benefit of the Holders of the notes, cash in U.S. dollars, non-callable
Government Securities, or a combination of cash in U.S. dollars and non-callable
Government Securities, in amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, and interest and premium, if any, on, the outstanding notes on the
date of fixed maturity or on the applicable redemption date, as the case may be,
and the Issuers must specify whether the notes are being defeased to the date of
fixed maturity or to a particular redemption date;

 

(2)in the case of Legal Defeasance, the Issuers must deliver to the trustee an
opinion of counsel reasonably acceptable to the trustee confirming that:

 

(a)the Issuers have received from, or there has been published by, the Internal
Revenue Service a ruling; or

 

(b)since the date of the indenture, there has been a change in the applicable
federal income tax law,

 

in either case to the effect that, and based thereon such opinion of counsel
will confirm that, the Holders of the outstanding notes will not recognize
income, gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;

 

(3)in the case of Covenant Defeasance, the Issuers must deliver to the trustee
an opinion of counsel reasonably acceptable to the trustee confirming that the
Holders of the outstanding notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Covenant Defeasance had not
occurred;

 

(4)no Default or Event of Default has occurred and is continuing on the date of
such deposit (other than a Default or Event of Default resulting from the
borrowing of funds to be applied to such deposit (and any similar concurrent
deposit relating to other Indebtedness) and the granting of Liens to secure such
borrowings);

 

(5)such Legal Defeasance or Covenant Defeasance will not result in a breach or
violation of, or constitute a default under, any material agreement or
instrument (other than the indenture and the agreements governing any other
Indebtedness being defeased, discharged or replaced) to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;

 

(6)the Issuers must deliver to the trustee an officers’ certificate stating that
the deposit was not made by the Issuers with the intent of preferring the
Holders of notes over the other creditors of the Issuers with the intent of
defeating, hindering, delaying or defrauding creditors of the Issuers or others;
and

 

(7)the Issuers must deliver to the trustee an officers’ certificate and an
opinion of counsel, each stating that all conditions precedent relating to the
Legal Defeasance or the Covenant Defeasance have been complied with.

 

Amendment, Supplement and Waiver

 

Except as provided in the next three succeeding paragraphs, the Note Documents
may be amended or supplemented with the consent of the Holders of a majority in
principal amount of the then outstanding notes (including, without limitation,
consents obtained in connection with a purchase of, or tender offer or exchange
offer for, notes), and any existing default or compliance with any provision of
the Note Documents may be waived with the consent of the Holders of a majority
in principal amount of the then outstanding notes (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, notes).

 

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Without the consent of each Holder affected, an amendment, supplement or waiver
may not (with respect to any notes held by a non-consenting Holder):

 

(1)reduce the principal amount of notes whose Holders must consent to an
amendment, supplement or waiver;

 

(2)reduce the principal of or change the fixed maturity of any note or alter the
provisions with respect to the redemption or repurchase of the notes (other than
provisions relating to minimum required notice of optional redemption or those
provisions relating to the covenants described above under the caption
“—Repurchase at the Option of Holders”);

 

(3)reduce the rate of or change the time for payment of interest on any note;

 

(4)waive a Default or Event of Default in the payment of principal of, or
interest or premium, if any, on the notes (except a rescission of acceleration
of the notes by the Holders of a majority in principal amount of the notes and a
waiver of the payment default that resulted from such acceleration);

 

(5)make any note payable in currency other than that stated in the notes;

 

(6)make any change in the provisions of the indenture relating to waivers of
past Defaults or the rights of Holders of notes to receive payments of principal
of, or interest or premium, if any, on the notes (other than as permitted in
clause (7) below);

 

(7)waive a redemption or repurchase payment with respect to any note (other than
a payment required by one of the covenants described above under the caption
“—Repurchase at the Option of Holders”);

 

(8)release any Guarantor from any of its obligations under its Subsidiary
Guarantee or the indenture, except in accordance with the terms of “Subsidiary
Guarantees” as set forth in the indenture, or amend any provision or term of
“Subsidiary Guarantees” as set forth in the indenture affecting the release of
any Guarantor from any of its obligations under its Subsidiary Guarantee or the
indenture; or

 

(9)make any change in the preceding amendment, supplement and waiver provisions
or the other provisions of this “Amendment, Supplement and Waiver”.

 

In addition, any amendment or supplement to, or waiver of, the provisions of the
indenture or any Note Document establishing the Parity Liens that has the effect
of releasing or subordinating all or substantially all of the Collateral from
the Liens securing the notes will require the consent of Holders of at least
50.1% in aggregate principal amount of the notes then outstanding.

 

Notwithstanding the preceding, without the consent of any Holder of notes, the
Issuers, the Guarantors, the trustee and the collateral agent may amend or
supplement any of the Note Documents:

 

(1)to cure any ambiguity, defect or inconsistency;

 

(2)to provide for uncertificated notes in addition to or in place of
certificated notes;

 

(3)to provide for the assumption of an Issuer’s or Guarantor’s obligations to
Holders of notes in the case of a merger or consolidation or sale of all or
substantially all of such Issuer’s or Guarantor’s properties or assets permitted
under the indenture;

 

(4)to make any change that would provide any additional rights or benefits to
the Holders of notes or that does not adversely affect the legal rights under
the Note Documents of any such Holder;

 

(5)with respect to the security documents establishing Parity Liens, as provided
in the Intercreditor Agreement;

 

(6)to provide for the issuance of additional notes in accordance with the
limitations set forth in the indenture;

 

30

 

 

(7)to add any additional Guarantor or Collateral or to evidence the release of
any Guarantor from its Subsidiary Guarantee or the release of any Liens, in each
case as provided in the indenture or the other Note Documents, as applicable;

 

(8)to make, complete or confirm any grant of Collateral permitted or required by
the indenture or any of the security documents establishing Parity Liens;

 

(9)to comply with requirements of the Commission in order to effect or maintain
the qualification of the indenture under the Trust Indenture Act; or

 

(10)to evidence or provide for the acceptance of appointment under the indenture
of a successor trustee.

 

In addition, the trustee and collateral agent, as applicable, may enter into
additional intercreditor and subordination agreements or amend, supplement or
waive the Intercreditor Agreement or any such additional intercreditor or
subordination agreements with the consent of Holders of 50% of the principal
amount of the notes; provided, however, the trustee and collateral agent, as
applicable, may, without the consent of any Holder, execute or countersign
joinders and other acknowledgements in connection with the Intercreditor
Agreement to give effect to the joinder of any Priority Lien Debt to the
Intercreditor Agreement in accordance with the terms of the Intercreditor
Agreement and to the extent permitted under the indenture.

 

Satisfaction and Discharge

 

The indenture and the other Note Documents will be discharged and will cease to
be of further effect as to all notes issued thereunder (except as to surviving
rights of registration of transfer or exchange of the notes and as otherwise
specified in the indenture), when:

 

(1)either:

 

(a)all notes that have been authenticated, except lost, stolen or destroyed
notes that have been replaced or paid and notes for whose payment money has been
deposited in trust and thereafter repaid to the Issuers, have been delivered to
the trustee for cancellation; or

 

(b)all notes that have not been delivered to the trustee for cancellation have
become due and payable or will become due and payable within one year by reason
of the giving of a notice of redemption or otherwise and the Issuers or any
Guarantor has irrevocably deposited or caused to be deposited with the trustee
as trust funds in trust solely for the benefit of the Holders, cash in U.S.
dollars, non-callable Government Securities, or a combination of cash in U.S.
dollars and non-callable Government Securities, in amounts as will be sufficient
without consideration of any reinvestment of interest, to pay and discharge the
entire indebtedness on the notes not delivered to the trustee for cancellation
for principal, premium, if any, and accrued interest to the date of fixed
maturity or redemption;

 

(2)in respect of clause (1)(b) above, no Default or Event of Default has
occurred and is continuing on the date of the deposit or will occur as a result
of the deposit (other than a Default or Event of Default resulting from the
borrowing or securing of funds to be applied to such deposit) and the deposit
will not result in a breach or violation of, or constitute a default under, any
other material agreement or instrument (other than the agreements or instruments
governing any other Indebtedness being defeased, discharged or replaced) to
which the Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries is bound;

 

(3)the Issuers or any Guarantor has paid or caused to be paid all sums payable
by it under the indenture; and

 

(4)the Issuers have delivered irrevocable instructions to the trustee to apply
the deposited money toward the payment of the notes at fixed maturity or the
redemption date, as the case may be.

 

In addition, the Issuers must deliver an officers’ certificate and an opinion of
counsel to the trustee stating that all conditions precedent to satisfaction and
discharge have been satisfied.

 

31

 

 

Concerning the Trustee

 

The trustee under the indenture, U.S. Bank National Association, also serves as
trustee under the indenture for the 2020 Senior Notes and the 2022 Senior Notes
and is a lender under our bank credit facility.

 

If the trustee becomes a creditor of an Issuer or any Guarantor, the indenture
will limit its right to obtain payment of claims in certain cases, or to realize
on certain property received in respect of any such claim as security or
otherwise. The trustee may engage in other transactions; however, if it acquires
any conflicting interest (as defined in the Trust Indenture Act) after a Default
has occurred and is continuing, it must eliminate such conflict within 90 days,
apply to the Commission for permission to continue as trustee or resign.

 

The Holders of a majority in principal amount of the then outstanding notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the trustee, subject to certain
exceptions. If an Event of Default occurs and is continuing, the trustee will be
required, in the exercise of its powers, to use the degree of care of a prudent
man in the conduct of his own affairs. Subject to such provisions, the trustee
will be under no obligation to exercise any of its rights or powers under the
indenture at the request of any Holder of notes, unless such Holder has offered
to the trustee security or indemnity satisfactory to it against any loss,
liability or expense.

 

The indenture will provide that the trustee can be replaced and a new trustee
appointed at the direction of the Majority Holders without the consent of any
Issuer or Guarantor.

 

Governing Law

 

The indenture, the notes, the Subsidiary Guarantees and the Intercreditor
Agreement will be governed by, and construed in accordance with, the laws of the
State of New York.

 

Book-Entry, Delivery and Form

 

The notes are being offered and sold to qualified institutional buyers (“QIBs”)
in reliance on Rule 144A (“Rule 144A Notes”). Notes also may be offered and sold
in offshore transactions in reliance on Regulation S (“Regulation S Notes”).
Except as set forth below, notes will be issued in registered, global form.
Notes will be issued at the closing of this offering only against payment in
immediately available funds.

 

Rule 144A Notes initially will be represented by one or more permanent global
notes in registered form without interest coupons (collectively, the “Rule 144A
Global Notes”). Regulation S Notes initially will be represented by one or more
permanent global notes in registered form without interest coupons
(collectively, the “Regulation S Global Notes”). The Rule 144A Global Notes and
the Regulation S Global Notes are collectively referred to herein as the “Global
Notes.”

 

The Global Notes will be deposited upon issuance with the trustee as custodian
for The Depository Trust Company (“DTC”), , and registered in the name of DTC’s
nominee, Cede & Co., in each case for credit to an account of a direct or
indirect participant in DTC as described below. Beneficial interests in the
Global Notes may be held through the Euroclear System (“Euroclear”) and the
Clearstream System(“Clearstream”) (as indirect participants in DTC). Beneficial
interests in the Rule 144A Global Notes may not be exchanged for beneficial
interests in the Regulation S Global Notes or vice versa at any time except in
the limited circumstances described below. See “—Exchanges Between Regulation S
Notes and Rule 144A Notes.”

 

The Global Notes may be transferred, in whole but not in part, only to another
nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in
the Global Notes may not be exchanged for notes in registered, certificated form
(“Certificated Notes”) except in the limited circumstances described below. See
“—Exchange of Global Notes for Certificated Notes.”

 

Global Notes (including beneficial interests in the Global Notes) will be
subject to certain restrictions on transfer and will bear a restrictive legend
as described under “Transfer Restrictions.” In addition, transfers of beneficial
interests in the Global Notes will be subject to the applicable rules and
procedures of DTC and its direct or indirect participants (including, if
applicable, those of Euroclear and Clearstream), which may change from time to
time.

 

32

 

 

Depository Procedures

 

The following description of the operations and procedures of DTC, Euroclear and
Clearstream are provided solely as a matter of convenience. These operations and
procedures are solely within the control of the respective settlement systems
and are subject to changes by them. We take no responsibility for these
operations and procedures and urge investors to contact the system or their
participants directly to discuss these matters.

 

DTC has advised us that DTC is a limited-purpose trust company created to hold
securities for its participating organizations (collectively, the
“Participants”) and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book-entry changes
in accounts of its Participants. The Participants include securities brokers and
dealers (including the initial purchasers), banks, trust companies, clearing
corporations and certain other organizations. Access to DTC’s system is also
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly (collectively, the “Indirect Participants”).
Persons who are not Participants may beneficially own securities held by or on
behalf of DTC only through the Participants or the Indirect Participants. The
ownership interests in, and transfers of ownership interests in, each security
held by or on behalf of DTC are recorded on the records of the Participants and
Indirect Participants.

 

DTC has also advised us that, pursuant to procedures established by it:

 

(1)upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the initial purchasers with portions of the principal
amount of the Global Notes; and

 

(2)ownership of these interests in the Global Notes will be shown on, and the
transfer of ownership of these interests will be effected only through, records
maintained by DTC (with respect to the Participants) or by the Participants and
the Indirect Participants (with respect to other owners of beneficial interests
in the Global Notes).

 

Investors in the Global Notes who are Participants in DTC’s system may hold
their interests therein directly through DTC. Investors in the Global Notes who
are not Participants may hold their interests therein indirectly through
organizations (including Euroclear and Clearstream) which are Participants in
such system. Euroclear and Clearstream may hold interests in the Global Notes on
behalf of their participants through customers’ securities accounts in their
respective names on the books of their depositories, which are Euroclear Bank
S.A./N.V, as operator of Euroclear, and Clearstream Banking, S.A., as operator
of Clearstream. All interests in a Global Note, including those held through
Euroclear or Clearstream, may be subject to the procedures and requirements of
DTC. Those interests held through Euroclear or Clearstream may also be subject
to the procedures and requirements of such systems.

 

The laws of some jurisdictions may require that certain Persons take physical
delivery in definitive form of securities that they own. Consequently, the
ability to transfer beneficial interests in a Global Note to such Persons will
be limited to that extent. Because DTC can act only on behalf of Participants,
which in turn act on behalf of Indirect Participants, the ability of a Person
having beneficial interests in a Global Note to pledge such interests to Persons
that do not participate in the DTC system, or otherwise take actions in respect
of such interests, may be affected by the lack of a physical certificate
evidencing such interests.

 

Except as described below, owners of beneficial interests in the Global Notes
will not have notes registered in their names, will not receive physical
delivery of Certificated Notes and will not be considered the registered owners
or “Holders” thereof under the indenture for any purpose.

 

Payments in respect of the principal of, and interest and premium, if any, on, a
Global Note registered in the name of DTC or its nominee will be payable to DTC
in its capacity as the registered Holder under the indenture. Under the terms of
the indenture, the Issuers, the Guarantors and the trustee will treat the
Persons in whose names the notes, including the Global Notes, are registered as
the owners of the notes for the purpose of receiving payments and for all other
purposes. Consequently, neither the Issuers, the Guarantors, the trustee nor any
agent of an Issuer or the trustee has or will have any responsibility or
liability for:

 

33

 

 

(1)any aspect of DTC’s records or any Participant’s or Indirect Participant’s
records relating to or payments made on account of beneficial ownership
interests in the Global Notes or for maintaining, supervising or reviewing any
of DTC’s records or any Participant’s or Indirect Participant’s records relating
to the beneficial ownership interests in the Global Notes; or

 

(2)any other matter relating to the actions and practices of DTC or any of its
Participants or Indirect Participants.

 

DTC has advised us that its current practice, at the due date of any payment in
respect of securities such as the notes, is to credit the accounts of the
relevant Participants with the payment due on the payment date unless DTC has
reason to believe it will not receive payment on such payment date. Each
relevant Participant is credited with an amount proportionate to its beneficial
ownership of an interest in the principal amount of the notes as shown on the
records of DTC. Payments by the Participants and the Indirect Participants to
the beneficial owners of notes will be governed by standing instructions and
customary practices and will be the responsibility of the Participants or the
Indirect Participants and will not be the responsibility of DTC, the trustee or
the Issuers. Neither the Issuers nor the trustee will be liable for any delay by
DTC or any of its Participants in identifying the beneficial owners of the
notes, and the Issuers and the trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee for all purposes.

 

Subject to the transfer restrictions set forth under “Transfer Restrictions,”
transfers between Participants in DTC will be effected in accordance with DTC’s
procedures, and will be settled in same-day funds, and transfers between
participants in Euroclear and Clearstream will be effected in accordance with
their respective rules and operating procedures.

 

Subject to compliance with the transfer restrictions applicable to the notes
described herein, crossmarket transfers between the Participants in DTC, on the
one hand, and Euroclear or Clearstream participants, on the other hand, will be
effected through DTC in accordance with DTC’s rules on behalf of Euroclear or
Clearstream, as the case may be, by its depository; however, such cross-market
transactions will require delivery of instructions to Euroclear or Clearstream,
as the case may be, by the counterparty in such system in accordance with the
rules and procedures and within the established deadlines (Brussels time) of
such system. Euroclear or Clearstream, as the case may be, will, if the
transaction meets its settlement requirements, deliver instructions to its
respective depository to take action to effect final settlement on its behalf by
delivering or receiving interests in the relevant Global Note in DTC, and making
or receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Euroclear participants and Clearstream
participants may not deliver instructions directly to the depositories for
Euroclear or Clearstream.

 

DTC has advised us that it will take any action permitted to be taken by a
Holder of notes only at the direction of one or more Participants to whose
account DTC has credited the interests in the Global Notes and only in respect
of such portion of the aggregate principal amount of the notes as to which such
Participant or Participants has or have given such direction. However, if there
is an Event of Default under the notes, DTC reserves the right to exchange the
Global Notes for Certificated Notes, and to distribute such notes to its
Participants.

 

Although DTC, Euroclear and Clearstream have agreed to the foregoing procedures
to facilitate transfers of beneficial interests in the Rule 144A Global Notes
and the Regulation S Global Notes among participants in DTC, Euroclear and
Clearstream, they are under no obligation to perform or to continue to perform
such procedures, and may discontinue such procedures at any time. None of the
Issuers, the trustee or any of their respective agents will have any
responsibility for the performance by DTC, Euroclear or Clearstream or their
respective participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.

 

Exchange of Global Notes for Certificated Notes

 

A Global Note is exchangeable for Certificated Notes in minimum denominations of
$2,000 and in integral multiples of $1,000 in excess of $2,000, if:

 

34

 

 

(1)DTC (a) notifies the Issuers that it is unwilling or unable to continue as
depositary for the Global Note or (b) has ceased to be a clearing agency
registered under the Exchange Act and in either event the Issuers fail to
appoint a successor depositary within 90 days; or

 

(2)there has occurred and is continuing an Event of Default and DTC notifies the
trustee of its decision to exchange the Global Note for Certificated Notes.

 

Beneficial interests in a Global Note may also be exchanged for Certificated
Notes in the other limited circumstances permitted by the indenture, including
if an affiliate of ours acquires such interests. In all cases, Certificated
Notes delivered in exchange for any Global Note or beneficial interests in
Global Notes will be registered in the names, and issued in any approved
denominations, requested by or on behalf of the depositary (in accordance with
its customary procedures) and will bear the restrictive legend referred to in
“Transfer Restrictions,” unless that legend is not required by the indenture.

 

Exchange of Certificated Notes for Global Notes

 

Certificated Notes may not be exchanged for beneficial interests in any Global
Note, except in the limited circumstances provided in the indenture.

 

Exchanges Between Regulation S Notes and Rule 144A Notes

 

Until the 40th day after the later of the commencement of the offering of the
notes and the original issue date of the notes (such period, the “Distribution
Compliance Period”), a beneficial interest in a Regulation S Global Note may be
transferred to a Person who takes delivery in the form of an interest in a Rule
144A Global Note only if the transferor first delivers to the trustee a written
certificate (in the form provided in the indenture) to the effect that such
transfer is being made to a Person who the transferor reasonably believes is
purchasing for its own account or accounts as to which it exercises sole
investment discretion and that such Person is a QIB, in each case in a
transaction meeting the requirements of Rule 144A and in accordance with any
applicable securities laws of any state of the United States or any other
jurisdiction. After the expiration of the Distribution Compliance Period, such
certification requirements will not apply to such transfers of beneficial
interests in the Regulation S Global Notes.

 

Beneficial interests in a Rule 144A Global Note may be transferred to a Person
who takes delivery in the form of an interest in a Regulation S Global Note,
whether before or after the expiration of the Distribution Compliance Period,
only if the transferor first delivers to the trustee a written certificate (in
the form provided in the indenture) to the effect that such transfer is being
made in accordance with Rule 904 of Regulation S or Rule 144 (if available).

 

Transfers involving exchanges of beneficial interests between the Regulation S
Global Notes and the Rule 144A Global Notes will be effected in DTC by means of
an instruction originated by the trustee through the DTC Deposit/Withdraw at
Custodian system. Accordingly, in connection with any such transfer, appropriate
adjustments will be made to reflect a decrease in the principal amount of a
Regulation S Global Note and a corresponding increase in the principal amount of
a Rule 144A Global Note or vice versa, as applicable. Any beneficial interest in
one of the Global Notes that is transferred to a Person who takes delivery in
the form of an interest in another Global Note will, upon transfer, cease to be
an interest in such Global Note and will become an interest in another Global
Note and, accordingly, will thereafter be subject to all transfer restrictions
and other procedures applicable to beneficial interests in such other Global
Note for so long as it remains such an interest.

 

Same-Day Settlement and Payment

 

The Issuers will make payments in respect of the notes represented by the Global
Notes (including principal, premium, if any, and interest) by wire transfer of
immediately available funds to the accounts specified by the Global Note Holder.
The Issuers will make all payments of principal, interest and premium, if any,
with respect to Certificated Notes in the manner described under “—Methods of
Receiving Payments on the Notes.” The notes represented by the Global Notes are
eligible to trade in DTC’s Same-Day Funds Settlement System, and any permitted
secondary market trading activity in such notes will, therefore, be required by
DTC to be settled in immediately available funds. We expect that secondary
trading in any Certificated Notes will also be settled in immediately available
funds.

 

35

 

 

Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing an interest in a Global Note from a
Participant in DTC will be credited, and any such crediting will be reported to
the relevant Euroclear or Clearstream participant, during the securities
settlement processing day (which must be a business day for Euroclear and
Clearstream) immediately following the settlement date of DTC. DTC has advised
us that cash received in Euroclear or Clearstream as a result of sales of
interests in a Global Note by or through a Euroclear or Clearstream participant
to a Participant in DTC will be received with value on the settlement date of
DTC but will be available in the relevant Euroclear or Clearstream cash account
only as of the business day for Euroclear or Clearstream following DTC’s
settlement date.

 

Certain Definitions

 

Set forth below are certain defined terms used in the indenture. Reference is
made to the indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.

 

“Acquired Debt” means, with respect to any specified Person:

 

(1)Indebtedness of any other Person existing at the time such other Person was
merged with or into or became a Subsidiary of such specified Person, whether or
not such Indebtedness is incurred in connection with, or in contemplation of,
such other Person merging with or into, or becoming a Subsidiary of, such
specified Person, but excluding Indebtedness which is extinguished, retired or
repaid in connection with such Person merging with or into or becoming a
Subsidiary of such specified Person; and

 

(2)Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.

 

“Acquisition” means any transaction or series of related transactions for the
purpose of or resulting, directly or indirectly, in (a) the acquisition of all
or substantially all of the assets of a Person, or of any business unit or
division of a Person or (b) the acquisition of in excess of 50% of the capital
stock of a corporation (or similar entity), which stock has ordinary voting
power for the election of the members of such entity’s board of directors or
persons exercising similar functions (other than stock having such power only by
reason of the happening of a contingency), or the acquisition of in excess of
50% of the partnership interests or equity of any Person not a corporation which
acquisition gives the acquiring Person the power to direct or cause the
direction of the management and policies of such Person.

 

“Additional Assets” means:

 

(1)any assets used or useful in the Oil and Gas Business, other than
Indebtedness or Capital Stock;

 

(2)the Capital Stock of a Person that becomes a Guarantor as a result of the
acquisition of such Capital Stock by any Issuer or Guarantor; or

 

(3)Capital Stock constituting a minority interest in any Person that at such
time is a Restricted Subsidiary to the extent such Person becomes a Guarantor;

 

provided, however, that any such Restricted Subsidiary described in clause (2)
or (3) is primarily engaged in the Oil and Gas Business.

 

“Adjusted Consolidated Net Tangible Assets” of a specified Person means (without
duplication), as of the date of determination:

 

(1)the sum of:

 

(a)discounted future net revenue from proved crude oil and natural gas reserves
of such Person and its Restricted Subsidiaries calculated in accordance with SEC
guidelines before any state or federal or other income taxes, as estimated by
such Person in the latest Reserve Report with an effective date of January 1 or
July 1 based on the Strip Price as of the effective date of the Reserve Report,
as increased by, as of the date of determination, the estimated discounted
future net revenue from:

 

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(i)estimated proved crude oil and natural gas reserves of such Person and its
Restricted Subsidiaries attributable to acquisitions consummated since the date
of such Reserve Report, which reserves were not reflected in such Reserve
Report, and

 

(ii)estimated crude oil and natural gas reserves of such Person and its
Restricted Subsidiaries attributable to extensions, discoveries and other
additions and upward revisions of estimates of proved crude oil and natural gas
reserves (including previously estimated development costs incurred during the
period and the accretion of discount since the prior period end) due to
exploration, development or exploitation, production or other activities which
would, in accordance with standard industry practice, cause such revisions, in
the case of clauses (i) and (ii) calculated in accordance with SEC guidelines
(utilizing the prices utilized in the semi-annual Reserve Report most recently
delivered under the Note Purchase Agreement),

 

and decreased by, as of the date of determination, the estimated discounted
future net revenue attributable to:

 

(A)estimated proved crude oil and natural gas reserves of such Person and its
Restricted Subsidiaries reflected in such Reserve Report produced or disposed of
since the date of such Reserve Report, and

 

(B)reductions in the estimated crude oil and natural gas reserves of such Person
and its Restricted Subsidiaries reflected in such Reserve Report since the date
of such Reserve Report due to changes in geological conditions or other factors
which would, in accordance with standard industry practice, cause such
revisions, in the case of clauses (A) and (B) calculated in accordance with SEC
guidelines (utilizing the prices utilized in the semi-annual Reserve Report most
recently delivered under the Note Purchase Agreement); provided, however, that,
in the case of each of the determinations made pursuant to clauses (i), (ii),
(A) and (B) above, such increases and decreases shall be estimated in good faith
by the Company’s petroleum engineers based upon assumptions believed in good
faith to be reasonable at the time made;

 

(b)the capitalized costs that are attributable to crude oil and natural gas
properties of such Person and its Restricted Subsidiaries to which no proved
crude oil and natural gas reserves are attributable, based on such Person’s
books and records as of a date no earlier than the date of such Person’s latest
available annual or quarterly financial statements (whichever is more recent);

 

(c)the Net Working Capital of such Person as of a date no earlier than the date
of such Person’s latest available annual or quarterly financial statements
(whichever is more recent); and

 

(d)the greater of:

 

(i)the net book value of other tangible assets of such Person and its Restricted
Subsidiaries as of a date no earlier than the date of such Person’s latest
available annual or quarterly financial statements (whichever is more recent),
and

 

(ii)the appraised value, as estimated by independent appraisers, of other
tangible assets of such Person and its Restricted Subsidiaries as of a date no
earlier than the date of such Person’s latest available annual or quarterly
financial statements (provided that such Person shall not be required to obtain
such an appraisal of such assets if no such appraisal has been performed);

 

minus

 

37

 

 

(e)the sum of:

 

(i)Minority Interests;

 

(ii)to the extent not otherwise taken into account in determining Adjusted
Consolidated Net Tangible Assets, any net natural gas balancing liabilities of
such Person and its Restricted Subsidiaries reflected in such Person’s latest
audited financial statements;

 

(iii)to the extent included in clause (1)(a) above, the discounted future net
revenue, calculated in accordance with SEC guidelines (utilizing the prices
utilized in the semi-annual Reserve Report most recently delivered under the
Note Purchase Agreement), attributable to reserves subject to participation
interests, overriding royalty interests or other interests of third parties,
pursuant to participation, partnership, vendor financing or other agreements
then in effect, or which otherwise are required to be delivered to third
parties;

 

(iv)to the extent included in clause (1)(a) above, the discounted future net
revenue calculated in accordance with SEC guidelines (utilizing the prices
utilized in the semi-annual Reserve Report most recently delivered under the
Note Purchase Agreement), attributable to reserves that are required to be
delivered to third parties to fully satisfy the obligations of such Person and
its Restricted Subsidiaries with respect to Volumetric Production Payments on
the schedules specified with respect thereto; and

 

(v)the discounted future net revenue, calculated in accordance with SEC
guidelines, attributable to reserves subject to Dollar-Denominated Production
Payments that, based on the estimates of production and price assumptions
included in determining the discounted future net revenue specified in clause
(1)(a) above, would be necessary to satisfy fully the obligations of such Person
and its Restricted Subsidiaries with respect to Dollar-Denominated Production
Payments on the schedules specified with respect thereto.

 

“Affiliate” of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, “control,”
as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided, however, that beneficial ownership of 10% or
more of the Voting Stock of a Person will be deemed to be control by the other
Person. For purposes of this definition, the terms “controlling,” “controlled
by” and “under common control with” have correlative meanings.

 

“Asset Sale” means:

 

(1)the sale, lease, conveyance or other disposition of any properties or assets
(including by way of a Production Payment or a sale and leaseback transaction);
provided, however, that the disposition of all or substantially all of the
properties or assets of the Company and its Restricted Subsidiaries taken as a
whole will be governed by the provisions of the indenture described above under
the caption “—Repurchase at the Option of Holders—Change of Control” and/or the
provisions described above under the caption “—Certain Covenants—Merger,
Consolidation or Sale of Assets” and not by the provisions of the Asset Sales
covenant; and

 

(2)the issuance of Equity Interests in any of the Company’s Restricted
Subsidiaries that are Guarantors or the sale of Equity Interests in any of its
Restricted Subsidiaries:

 

Notwithstanding the preceding, the following items will not be deemed to be
Asset Sales:

 

(1)the sale, lease, conveyance or other disposition of properties or assets to
the extent the aggregate fair market value of all such transactions in any
fiscal year does not exceed $10 million;

 

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(2)a transfer of properties or assets between or among (i) any of the Company
and its Restricted Subsidiaries that are Issuers or Guarantors (ii) between
Restricted Subsidiaries that are not Issuers or Guarantors and (iii) by any
Restricted Subsidiary to any Issuer or Guarantor.;

 

(3)an issuance or sale of Equity Interests by a (i) Restricted Subsidiary that
is not a Guarantor or Issuer to the Company or to another Restricted Subsidiary
and (ii) Guarantor or Issuer (other than the Company) to any other Guarantor or
Issuer;

 

(4)the sale, lease or other disposition of (i) inventory, (ii) products,
(iii) accounts receivable or (iv) equipment and other properties or assets
(other than Oil and Gas Properties and acreage) in the ordinary course of
business;

 

(5)the sale or other disposition of cash or Cash Equivalents, Hedging Contracts
or other financial instruments in the ordinary course of business;

 

(6)a disposition of properties or assets that constitutes (or results in by
virtue of the consideration received for such disposition) either a Restricted
Payment that is permitted by the covenant described above under the caption
“—Certain Covenants—Restricted Payments” or a Permitted Investment;

 

(7)a disposition of Hydrocarbons or mineral products inventory in the ordinary
course of business;

 

(8)[reserved];

 

(9)the farm-out, lease or sublease of developed or undeveloped crude oil or
natural gas properties owned or held by the Company or any Restricted Subsidiary
in exchange for crude oil and natural gas properties owned or held by another
Person in the ordinary course of business; provided, that, this clause (9) may
not be used by any Issuer or Guarantor to make a sale, transfer, assignment,
conveyance or other disposition of Permian Basin Properties or Mortgaged
Property to any Restricted Subsidiary that is not an Issuer or Guarantor,
Unrestricted Subsidiary or Joint Venture.

 

(10)the creation or perfection of a Lien that is permitted by the covenant
described above under the caption “—Certain Covenants—Liens”;

 

(11)disposition in connection with Permitted Liens (other than a disposition of
property with a fair market value in excess of $25 million in the aggregate);

 

(12)surrender or waiver of contract rights or the settlement, release or
surrender of contract, tort or other claims of any kind in the ordinary course
of business;

 

(13)the grant in the ordinary course of business of any non-exclusive license of
patents, trademarks, registrations therefor and other similar intellectual
property;

 

(14)an Asset Swap; provided, that, this clause (14) may not be used by any
Issuer or Guarantor to make a sale, transfer, assignment, conveyance or other
disposition of Permian Basin Properties or Mortgaged Property to any Restricted
Subsidiary that is not an Issuer or Guarantor, Unrestricted Subsidiary or Joint
Venture; and

 

(15)transfers of property subject to casualty or condemnation proceedings
(including in lieu thereof) upon the receipt of the net cash proceeds therefor;
provided such net cash proceeds are deemed to be Net Proceeds (calculated in
accordance with the definition thereof) and are applied in accordance with the
second paragraph under “—Repurchase at the Option of Holders—Asset Sales”.

 

“Asset Swap” means any substantially contemporaneous (and in any event occurring
within 60 days of each other) purchase and sale or exchange of any Oil and Gas
Properties customary in the Oil & Gas Business between the Company or any of its
Restricted Subsidiaries and another Person in the ordinary course of business;
provided that any cash received must be applied in accordance with the covenant
described above under the caption “—Repurchase at the Option of Holders—Asset
Sales” as if the Asset Swap were an Asset Sale.

 

39

 

 

“Attributable Debt” in respect of a sale and leaseback transaction means, at the
time of determination, the present value of the obligation of the lessee for net
rental payments during the remaining term of the lease included in such sale and
leaseback transaction including any period for which such lease has been
extended or may, at the option of the lessor, be extended. Such present value
shall be calculated using a discount rate equal to the rate of interest implicit
in such transaction, determined in accordance with GAAP. As used in the
preceding sentence, the “net rental payments” under any lease for any such
period shall mean the sum of rental and other payments required to be paid with
respect to such period by the lessee thereunder, excluding any amounts required
to be paid by such lessee on account of maintenance and repairs, insurance,
taxes, assessments, water rates or similar charges. In the case of any lease
that is terminable by the lessee upon payment of penalty, such net rental
payment shall also include the amount of such penalty, but no rent shall be
considered as required to be paid under such lease subsequent to the first date
upon which it may be so terminated.

 

“Available Cash” has the meaning assigned to such term in the Partnership
Agreement, as in effect on the date of the indenture.

 

“Banking Services” means each and any of the following bank services provided to
any Issuer or Guarantor by any holder of Priority Lien Debt or any Affiliate
thereof: (a) commercial credit cards, (b) stored value cards and (c) treasury
management services (including controlled disbursement, automated clearinghouse
transactions, return items, overdrafts and interstate depository network
services).

 

“Banking Services Obligations” means any and all obligations of any Issuer or
Guarantor, whether absolute or contingent and howsoever and whensoever created,
arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor) in connection with Banking
Services.

 

“Bankruptcy Code” means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C.
§101, et seq.), as amended, and regulations promulgated thereunder.

 

“Beneficial Owner” has the meaning assigned to such term in Rule 13d-3 and Rule
13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular “person” (as that term is used in Section 13(d)(3)
of the Exchange Act), such “person” will be deemed to have beneficial ownership
of all securities that such “person” has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition. The terms
“Beneficially Owns” and “Beneficially Owned” have correlative meanings. For
purposes of this definition, a Person shall be deemed not to Beneficially Own
securities that are the subject of a stock purchase agreement, merger agreement
or similar agreement until consummation of the transaction or, as applicable,
series of related transactions contemplated thereby.

 

“Board of Directors” means:

 

(1)with respect to Finance Corp., its board of directors;

 

(2)with respect to the Company, the board of directors of the General Partner or
any authorized committee thereof;

 

(3)with respect to the Operating Partnership, the board of directors of the
Operating General Partner or any authorized committee thereof; and

 

(4)with respect to any other Person, the board or committee of such Person
serving a similar function.

 

“Board Resolution” means a copy of a resolution certified by the Secretary or an
Assistant Secretary of the applicable Person to have been duly adopted by the
Board of Directors of such Person and to be in full force and effect on the date
of such certification, and delivered to the trustee.

 

40

 

 

“Business Day” means each day that is not a Saturday, Sunday or other day on
which banking institutions in New York, New York or another place of payment are
authorized or required by law to close.

 

“Capital Lease Obligation” means, at the time any determination is to be made,
the amount of the liability in respect of a capital lease that would at that
time be required to be capitalized on a balance sheet in accordance with GAAP.

 

“Capital Stock” means:

 

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

 

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

 

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

 

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

 

“Cash Equivalents” means:

 

(1)United States dollars;

 

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

 

(3)marketable general obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition thereof, having a credit rating of “A-”
or better from S&P or A3 or better from Moody’s;

 

(4)certificates of deposit, demand deposits and eurodollar time deposits with
maturities of one year or less from the date of acquisition, bankers’
acceptances with maturities not exceeding one year and overnight bank deposits,
in each case, with any lender party to the Credit Agreement or with any domestic
commercial bank having capital and surplus in excess of $500 million and a
Thomson Bank Watch Rating of “B” or better;

 

(5)repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (2), (3) and (4) above entered into
with any financial institution meeting the qualifications specified in clause
(4) above;

 

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

 

(7)money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (1) through (6) of this
definition.

 

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

 

(1)the direct or indirect sale, lease, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the properties or assets (including
Capital Stock of the Restricted Subsidiaries) of the Company and its Restricted
Subsidiaries taken as a whole, to any “person” (as that term is used in Section
13(d)(3) of the Exchange Act);

 

41

 

 

(2)(i) the liquidation or dissolution of the Company or the adoption of a plan
relating to the liquidation or dissolution of the Company, the removal of the
General Partner by the limited partners of the Company; or (ii) the failure of
the Company to own, directly or indirectly, 100% of the Equity Interests in
Finance Corp., the Operating Partnership, the Operating General Partner or the
General Partner;

 

(3)the consummation of any transaction (including, without limitation, any
merger or consolidation), the result of which is that any “person” (as that term
is used in Section 13(d)(3) of the Exchange Act), (excluding the Qualifying
Owners), becomes the Beneficial Owner, directly or indirectly, of more than 50%
of the Voting Stock of the General Partner, measured by voting power rather than
number of shares, units or the like;

 

(4)the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any “person” (as that term
is used in Section 13(d)(3) of the Exchange Act) becomes the Beneficial Owner,
directly or indirectly, of more than 50% of the Voting Stock of the Company,
measured by voting power rather than number of shares, units or the like;

 

(5)the first day on which a majority of the members of the Board of Directors of
the General Partner are not Continuing Directors; or

 

(6)a “change of control” (or similar defined term) under any Permitted Credit
Facility or Indebtedness with an aggregate principal amount in excess of $70
million.

 

Notwithstanding the preceding, a conversion of the Company or any of its
Restricted Subsidiaries from a limited partnership, corporation, limited
liability company or other form of entity to a limited liability company,
corporation, limited partnership or other form of entity or an exchange of all
of the outstanding Equity Interests in one form of entity for Equity Interests
in another form of entity shall not constitute a Change of Control, so long as
following such conversion or exchange the “persons” (as that term is used in
Section 13(d)(3) of the Exchange Act) who Beneficially Owned the Capital Stock
of the Company immediately prior to such transactions continue to Beneficially
Own in the aggregate more than 50% of the Voting Stock of such entity, or
continue to Beneficially Own sufficient Equity Interests in such entity to elect
a majority of its directors, managers, trustees or other persons serving in a
similar capacity for such entity or its general partner, as applicable, and, in
either case no “person” Beneficially Owns more than 50% of the Voting Stock of
such entity or its general partner, as applicable. For the avoidance of doubt, a
Change of Control under clause (6) shall be determined by reference to the
Permitted Credit Facility or Indebtedness with an aggregate principal amount in
excess of $70 million without giving effect to operation of this paragraph.

 

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

 

“Collateral” means all property wherever located and whether now owned or at any
time acquired after the date of the indenture by any Issuer or any Guarantor as
to which a Lien is granted under the security documents to secure the notes or
any Subsidiary Guarantee, but excluding any Excluded Assets.

 

“Collateral Requirements” means, in connection with any transaction or event
between or amongst Issuers and Guarantors, the requirement that the Issuer or
Guarantor receiving (by way of Asset Sale, Investment, merger, consolidation,
reorganization, dividend, distribution, assignment, sale, lease, transfer or
other disposition) Collateral from an Issuer or Guarantor shall substantially
concurrent with such transaction or event execute and deliver such documentation
(including, without limitation, mortgages, deeds of trust, control agreements,
other supplemental security documentation, supplemental indentures and any other
agreements, documents or other instruments) to provide for the grant of a Parity
Lien thereon and perfection thereof in accordance with and to the extent
required by the Note Documents.

 

“Commission” or “SEC” means the Securities and Exchange Commission.

 

42

 

 

“Common Unit” means “Common Unit” as such term is defined in the Partnership
Agreement as in effect on the date of the indenture.

 

“Consolidated Cash Flow” means, with respect to any specified Person for any
period, the Consolidated Net Income of such Person for such period plus:

 

(1)an amount equal to any net loss realized by such Person or any of its
Restricted Subsidiaries in connection with an Asset Sale, to the extent such
losses were deducted in computing such Consolidated Net Income; plus

 

(2)provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such provision for
taxes was deducted in computing such Consolidated Net Income; plus

 

(3)consolidated interest expense of such Person and its Restricted Subsidiaries
for such period, whether paid or accrued and whether or not capitalized
(excluding any interest attributable to Dollar-Denominated Production Payments
but including, without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers’ acceptance financings), and net of the
effect of all payments made or received pursuant to interest rate Hedging
Contracts, to the extent that any such expense was deducted in computing such
Consolidated Net Income; plus

 

(4)depreciation, depletion and amortization (including amortization of
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period), impairment, non-cash equity based compensation expense and
other non-cash items (excluding any such non-cash item to the extent that it
represents an accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Restricted Subsidiaries for such period to the extent that such
depreciation, depletion and amortization, impairment and other non-cash items
that were deducted in computing such Consolidated Net Income; plus

 

(5)unrealized non-cash losses resulting from foreign currency balance sheet
adjustments required by GAAP to the extent such losses were deducted in
computing such Consolidated Net Income; plus

 

(6)all extraordinary, unusual or non-recurring items of gain or loss, or revenue
or expense; minus

 

(7)non-cash items increasing such Consolidated Net Income for such period, other
than items that were accrued in the ordinary course of business; and minus

 

(8)to the extent increasing such Consolidated Net Income for such period, the
sum of (a) the amount of deferred revenues that are amortized during such period
and are attributable to reserves that are subject to Volumetric Production
Payments and (b) amounts recorded in accordance with GAAP as repayments of
principal and interest pursuant to Dollar-Denominated Production Payments,

 

in each case, on a consolidated basis and determined in accordance with GAAP.

 

“Consolidated Net Income” means, with respect to any specified Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP, provided that:

 

(1)the Net Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting will be
included, but only to the extent of the amount of dividends or distributions
paid in cash to the specified Person or a Restricted Subsidiary of the Person;

 

43

 

 

(2)the Net Income of any Restricted Subsidiary will be excluded to the extent
that the declaration or payment of dividends or similar distributions by that
Restricted Subsidiary of that Net Income is not at the date of determination
permitted without any prior governmental approval (that has not been obtained)
or, directly or indirectly, by operation of the terms of its charter or any
judgment, decree, order, statute, rule or governmental regulation applicable to
that Restricted Subsidiary or its stockholders, partners or members;

 

(3)the cumulative effect of a change in accounting principles will be excluded;

 

(4)any gain (loss) realized upon the sale or other disposition of any property,
plant or equipment of such Person or its consolidated Restricted Subsidiaries
(including pursuant to any sale and leaseback transaction) which is not sold or
otherwise disposed of in the ordinary course of business and any gain (loss)
realized upon the sale or other disposition of any Capital Stock of any Person
will be excluded;

 

(5)any asset impairment writedowns on oil and gas properties under GAAP or SEC
guidelines will be excluded;

 

(6)unrealized losses and gains under Hedging Contracts included in the
determination of Consolidated Net Income, including, without limitation those
resulting from the application of the Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC) 815, will be excluded; and

 

(7)any nonrecurring charges relating to any premium or penalty paid, write off
of deferred finance costs or other charges in connection with redeeming or
retiring any Indebtedness prior to its Stated Maturity will be excluded.

 

“Consolidated Senior Secured Debt” means all Indebtedness for borrowed money
secured by a Lien on the assets of any Issuer or Guarantor (other than
(i) property or assets held in a defeasance or similar trust or arrangement for
the benefit of the Indebtedness secured thereby and (ii) such Indebtedness that
is subordinated in right of payment to the notes and Subsidiary Guarantees),
minus unrestricted cash and Cash Equivalents of the Issuers and Guarantors
subject to a perfected Second-Priority Lien in favor of the collateral agent for
the benefit of the Holders pursuant to a control agreement delivered in
accordance with the indenture and the other Note Documents.

 

“Continuing Directors” means, as of any date of determination, any member of the
Board of Directors of the General Partner, who:

 

(1)was a member of such Board of Directors on the date of the indenture; or

 

(2)was nominated for election or elected to such Board of Directors with the
approval of a majority of the Continuing Directors who were members of such
Board at the time of such nomination or election.

 

“Credit Agreement” means that certain Third Amended and Restated Credit
Agreement, dated as of November 19, 2014, by and among the Operating
Partnership, as borrower, the Company, as parent guarantor, and Wells Fargo
Bank, National Association, as administrative agent, and the other lenders party
thereto (the “Existing Credit Agreement”), including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, restated, modified, renewed,
refunded, replaced or refinanced from time to time, in each case, subject to the
Intercreditor Agreement; provided, that, the Credit Agreement and any amendment,
restated, modification, renewal, refund, replacement or refinancing thereof must
satisfy the Credit Facility Criteria (as such term is defined in the
Intercreditor Agreement as in effect on the date hereof) and the terms thereof
must satisfy the requirements under the heading “Amendments to Priority Lien
Debt” as if such amendment, restatement, modification, renewal, refund,
replacement or refinancing were an amendment to the Existing Credit Agreement.

 

44

 

 

“Default” means any event that is, or with the passage of time or the giving of
notice or both would be, an Event of Default.

 

“Default Rate” has the meaning set forth under the heading “Principal, Maturity
and Interest”.

 

“Disqualified Stock” means any Capital Stock that, by its terms (or by the terms
of any security into which it is convertible, or for which it is exchangeable,
in each case at the option of the holder of the Capital Stock), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
of the Capital Stock, in whole or in part, on or prior to the date that is 91
days after the date on which the notes mature. Notwithstanding the preceding
sentence, any Capital Stock that would constitute Disqualified Stock solely
because the holders of the Capital Stock have the right to require the Company
to repurchase or redeem such Capital Stock upon the occurrence of a change of
control or an asset sale will not constitute Disqualified Stock if the terms of
such Capital Stock provide that the Company may not repurchase or redeem any
such Capital Stock pursuant to such provisions unless such repurchase or
redemption complies with the covenant described above under the caption
“—Certain Covenants—Restricted Payments.”

 

“Dollar-Denominated Production Payments” means production payment obligations
recorded as liabilities in accordance with GAAP, together with all undertakings
and obligations in connection therewith.

 

“Domestic Subsidiary” means any Restricted Subsidiary of the Company that was
formed under the laws of the United States or any state of the United States or
the District of Columbia and all of whose outstanding Capital Stock is
Beneficially Owned by the Company.

 

“East Salt Water Texas Disposal Company” means East Salt Water Texas Disposal
Company, a Texas corporation.

 

“Equity Interests” means Capital Stock and all warrants, options or other rights
to acquire Capital Stock (but excluding any debt security that is convertible
into, or exchangeable for, Capital Stock until so converted).

 

“Excluded Assets” has the meaning set forth under the heading “—Security for the
Notes.”

 

“Existing Indebtedness” means the aggregate principal amount of Indebtedness of
the Company and its Restricted Subsidiaries (other than Indebtedness under the
Credit Agreement, which is considered incurred under clause (1) of the
definition of “Permitted Debt,” Indebtedness represented by the notes under the
indenture, which is considered incurred under clause (3) of the definition of
“Permitted Debt” and other than intercompany Indebtedness) in existence on the
date of the indenture, until such amounts are repaid.

 

The term “fair market value” means the value that would be paid by a willing
buyer to an unaffiliated willing seller in a transaction not involving distress
or necessity of either party, determined in good faith by the Board of Directors
of the Company in the case of amounts of $20 million or more and otherwise by an
officer of the General Partner.

 

“Fixed Charge Coverage Ratio” means with respect to any specified Person for any
four-quarter reference period, the ratio of the Consolidated Cash Flow of such
Person for such period to the Fixed Charges of such Person for such period. In
the event that the specified Person or any of its Restricted Subsidiaries
incurs, assumes, guarantees, repays, repurchases or redeems any Indebtedness
(other than ordinary working capital borrowings) or issues, repurchases or
redeems preferred stock subsequent to the commencement of the applicable
four-quarter reference period and on or prior to the date on which the event for
which the calculation of the Fixed Charge Coverage Ratio is made (the
“Calculation Date”), then the Fixed Charge Coverage Ratio will be calculated
giving pro forma effect to such incurrence, assumption, guarantee, repayment,
repurchase or redemption of Indebtedness, or such issuance, repurchase or
redemption of preferred stock, and the use of the proceeds therefrom as if the
same had occurred at the beginning of such period. If any Indebtedness bears a
floating rate of interest and is being given pro forma effect, the interest
expense on such Indebtedness will be calculated as if the average rate in effect
from the beginning of such period to the Calculation Date had been the
applicable rate for the entire period (taking into account any interest Hedging
Contract applicable to such Indebtedness, but if the remaining term of such
interest Hedging Contract is less than 12 months, then such interest Hedging
Contract shall only be taken into account for that portion of the period equal
to the remaining term thereof). If any Indebtedness that is being given pro
forma effect bears an interest rate at the option of such Person, the interest
rate shall be calculated by applying such optional rate chosen by such Person.
Interest on Indebtedness that may optionally be determined at an interest rate
based upon a factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rate, shall be deemed to have been based upon the rate actually
chosen, or, if none, then based upon such optional rate chosen as such Person
may designate.

 

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In addition, for purposes of calculating the Fixed Charge Coverage Ratio:

 

(1)acquisitions that have been made by the specified Person or any of its
Restricted Subsidiaries, including through mergers, consolidations or otherwise
(including acquisitions of assets used in the Oil and Gas Business), and
including in each case any related financing transactions (including repayment
of Indebtedness) during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date, will be given pro
forma effect as if they had occurred on the first day of the four-quarter
reference period, including any Consolidated Cash Flow and any pro forma expense
and cost reductions that have occurred or are reasonably expected to occur
within the next 12 months, in the reasonable judgment of the chief financial or
accounting officer of the General Partner (regardless of whether those cost
savings or operating improvements could then be reflected in pro forma financial
statements in accordance with Regulation S-X promulgated under the Securities
Act or any other regulation or policy of the Commission related thereto);

 

(2)the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses (and ownership
interests therein) disposed of prior to the Calculation Date, will be excluded;

 

(3)the Fixed Charges attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses (and ownership interests
therein) disposed of prior to the Calculation Date, will be excluded, but only
to the extent that the obligations giving rise to such Fixed Charges will not be
obligations of the specified Person or any of its Restricted Subsidiaries
following the Calculation Date;

 

(4)any Person that is a Restricted Subsidiary of the specified Person on the
Calculation Date will be deemed to have been a Restricted Subsidiary of the
specified Person at all times during such four-quarter period;

 

(5)any Person that is not a Restricted Subsidiary of the specified Person on the
Calculation Date will be deemed not to have been a Restricted Subsidiary of the
specified Person at any time during such four-quarter period; and

 

(6)interest income reasonably anticipated by such Person to be received during
the applicable four-quarter period from cash or Cash Equivalents held by such
Person or any Restricted Subsidiary of such Person, which cash or Cash
Equivalents exist on the Calculation Date or will exist as a result of the
transaction giving rise to the need to calculate the Fixed Charge Coverage
Ratio, will be included.

 

“Fixed Charges” means, with respect to any specified Person for any period, the
sum, without duplication, of:

 

(1)the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued (excluding any interest
attributable to Dollar-Denominated Production Payments but including, without
limitation, amortization of debt issuance costs and original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers’ acceptance financings), and net of the effect of all
payments made or received pursuant to interest rate Hedging Contracts; plus

 

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(2)the consolidated interest expense of such Person and its Restricted
Subsidiaries that was capitalized during such period; plus

 

(3)any interest expense on Indebtedness of another Person that is guaranteed by
such Person or one of its Restricted Subsidiaries or secured by a Lien on assets
of such Person or one of its Restricted Subsidiaries, whether or not such
guarantee or Lien is called upon; plus

 

(4)all dividends, whether paid or accrued and whether or not in cash, on any
series of Disqualified Stock of such Person or on any series of preferred
securities of its Restricted Subsidiaries, other than dividends payable solely
in Equity Interests of the payor (other than Disqualified Stock) or to such
Person or a Restricted Subsidiary of such Person,

 

in each case, on a consolidated basis and determined in accordance with GAAP.

 

“Foreign Subsidiary” means any Restricted Subsidiary of the Company that (a) is
not a Domestic Subsidiary and (b) has 50% or more of its consolidated assets
located outside the United States or any territory thereof.

 

“GAAP” means generally accepted accounting principles in the United States,
which are in effect from time to time.

 

“General Partner” means Breitburn GP LLC, a Delaware limited liability company,
and its successors and permitted assigns as general partner of the Company or as
the business entity with the ultimate authority to manage the business and
operations of the Company.

 

The term “guarantee” means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets, acting as co-obligor or through letters of credit or reimbursement
agreements in respect thereof, of all or any part of any Indebtedness. When used
as a verb, “guarantee” has a correlative meaning.

 

“Guarantors” means each of:

 

(1)the Subsidiaries of the Company, other than the Operating Partnership and
Finance Corp., executing the indenture as initial Guarantors; and

 

(2)any other Restricted Subsidiary of the Company that becomes a Guarantor in
accordance with the provisions of the indenture.

 

and their respective permitted successors and assigns.

 

“Hedging Contracts” means, with respect to any specified Person:

 

(1)interest rate swap agreements, interest rate cap agreements and interest rate
collar agreements entered into with one or more financial institutions and
designed to protect the Person or any of its Restricted Subsidiaries entering
into the agreement against fluctuations in interest rates with respect to
Indebtedness incurred;

 

(2)foreign exchange contracts and currency protection agreements entered into
with one or more financial institutions and designed to protect the Person or
any of its Restricted Subsidiaries entering into the agreement against
fluctuations in currency exchanges rates with respect to Indebtedness incurred;

 

(3)any commodity futures contract, commodity option or other similar agreement
or arrangement designed to protect against fluctuations in the price of
Hydrocarbons used, produced, processed or sold by that Person or any of its
Restricted Subsidiaries at the time; and

 

(4)other agreements or arrangements designed to protect such Person or any of
its Restricted Subsidiaries against fluctuations in interest rates, commodity
prices or currency exchange rates;

 

47

 

 

and in each case are entered into only in the normal course of business and not
for speculative purposes.

 

“Holder” means a Person in whose name a Note is registered.

 

“Hydrocarbon Interests” means leasehold and other interests in or under oil, gas
and other liquid or gaseous hydrocarbon leases wherever located, mineral fee
interests, overriding royalty and royalty interests, net profit interests, and
production payment interests relating to oil, gas or other liquid or gaseous
hydrocarbons wherever located, including any reserved or residual interest of
whatever nature.

 

“Hydrocarbons” means crude oil, natural gas, casinghead gas, drip gasoline,
natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous
hydrocarbons and all constituents, elements or compounds thereof and products
refined or processed therefrom.

 

“Indebtedness” means, with respect to any specified Person, any indebtedness of
such Person, whether or not contingent:

 

(1)in respect of borrowed money;

 

(2)evidenced by bonds, notes, debentures or similar instruments;

 

(3)in respect of all outstanding letters of credit issued for the account of
such Person that support obligations that constitute Indebtedness (provided that
the amount of such letters of credit included in Indebtedness shall not exceed
the amount of the Indebtedness being supported) and, without duplication, the
unreimbursed amount of all drafts drawn under letters of credit issued for the
account of such Person;

 

(4)in respect of bankers’ acceptances;

 

(5)representing Capital Lease Obligations or Attributable Debt in respect of
sale and leaseback transactions;

 

(6)representing the balance deferred and unpaid of the purchase price of any
property, except any such balance that constitutes an accrued expense or trade
payable; or

 

(7)representing any obligations under Hedging Contracts,

 

(8)representing deferred purchase price of property or services (including,
without limitation, holdbacks, earn-outs and other contingency payment
obligations based on the performance of the acquired or disposed assets or
similar obligations) (other than trade payables on ordinary and customary terms
and customary indemnities); provided, that, earn-outs and other contingency
payment obligations based on the performance of the acquired or disposed assets
and similar obligations shall constitute Indebtedness only to the extent no
longer contingent,

 

in each case, if and to the extent any of the preceding items (other than
letters of credit and obligations under Hedging Contracts) would appear as a
liability upon a balance sheet of the specified Person prepared in accordance
with GAAP.

 

In addition, the term “Indebtedness” includes all Indebtedness of other Persons
secured by a Lien on any asset of the specified Person (whether or not such
Indebtedness is assumed by the specified Person) and, to the extent not
otherwise included, the guarantee by the specified Person of any Indebtedness of
any other Person (including, with respect to any Production Payment, any
warranties or guarantees of production or payment by such Person with respect to
such Production Payment, but excluding other contractual obligations of such
Person with respect to such Production Payment).

 

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The amount of any Indebtedness outstanding as of any date will be:

 

(1)the accreted value of the Indebtedness, in the case of any Indebtedness
issued with original issue discount;

 

(2)in the case of obligations under any Hedging Contracts, the termination value
of the agreement or arrangement giving rise to such obligations that would be
payable by such Person at such date; and

 

(3)the principal amount of the Indebtedness, together with any interest on the
Indebtedness that is more than 30 days past due, in the case of any other
Indebtedness.

 

“Insolvency Proceeding” means (a) any case, action or proceeding relating to
bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution,
winding-up or relief of debtors, or (b) any general assignment for the benefit
of creditors, composition, marshaling of assets for creditors, or other, similar
arrangement in respect of its creditors generally or any substantial portion of
its creditors, undertaken under U.S. federal, state or foreign law, including
the Bankruptcy Code.

 

“Intercreditor Agreement” means the Intercreditor Agreement among the collateral
agent, the trustee, the Priority Lien Collateral Agent, the Issuers, the
Guarantors and the other parties from time to time party thereto, to be entered
into on the date of the indenture, as it may be amended, restated, replaced,
supplemented or otherwise modified from time to time in accordance with the
indenture and the terms thereof.

 

“Investments” means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including guarantees or other obligations), advances or capital
contributions (excluding (1) commission, travel and similar advances to officers
and employees made in the ordinary course of business and (2) advances to
customers in the ordinary course of business that are recorded as accounts
receivable on the balance sheet of the lender), purchases or other acquisitions
for consideration of Indebtedness, Equity Interests or other securities,
Acquisitions together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If the Company
or any Restricted Subsidiary of the Company sells or otherwise disposes of any
Equity Interests of any direct or indirect Restricted Subsidiary of the Company
such that, after giving effect to any such sale or disposition, such Person is
no longer a Restricted Subsidiary of the Company, the Company will be deemed to
have made an Investment on the date of any such sale or disposition in an amount
equal to the fair market value of the Equity Interests of such Restricted
Subsidiary not sold or disposed of in an amount determined as provided in the
final paragraph of the covenant described above under the caption “—Certain
Covenants—Restricted Payments.” The acquisition by the Company or any Subsidiary
of the Company of a Person that holds an Investment in a third Person will be
deemed to be an Investment made by the Company or such Subsidiary in such third
Person in an amount equal to the fair market value of the Investment held by the
acquired Person in such third Person on the date of any such acquisition in an
amount determined as provided in the final paragraph of the covenant described
above under the caption “—Certain Covenants—Restricted Payments.” It is agreed
and understood that any transfer, sale, assignment, conveyance or other
disposition of properties or assets for less than fair market value shall be
deemed an “Investment”.

 

“Issue Date” means the first date upon which the notes are issued under the
indenture.

 

“Joint Venture” means any Person that is not a direct or indirect Subsidiary of
the Company in which the Company or any of its Restricted Subsidiaries makes any
Investment.

 

“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law, including
any conditional sale or other title retention agreement, any lease in the nature
thereof or any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statute) of any jurisdiction other than a
precautionary financing statement respecting a lease not intended as a security
agreement.

 

“Majority Holders” means the Holders of at least 50.1% in principal amount of
the then outstanding notes.

 

49

 

 

“Make-Whole Amount” means, with respect to a note at the time of computation,
the excess, if any, of (a) the present value at such time of (i) the redemption
price of such note at April       , 2018 plus (ii) any required interest
payments due on such note through April       , 2018 (except for currently
accrued and unpaid interest), computed using a discount rate equal to the
Treasury Rate as of such time plus 50 basis points, discounted to the redemption
date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day
months), over (b) the principal amount of such note.

 

“Minority Interest” means the percentage interest represented by any Capital
Stock of a Restricted Subsidiary of the Company that is not owned by the Company
or a Restricted Subsidiary of the Company.

 

“Mortgaged Property” means any property owned by any Issuer or any Guarantor
that is subject to the Liens existing and to exist under the terms of the
Mortgages; provided, however, “Mortgaged Property” also includes any property
that is required to become subject to a Mortgage after the Issue Date in
accordance with the Note Purchase Agreement and any property acquired after the
Issue Date for which the Additional Collateral Right may be exercised unless
such exercise has not occurred within 60 days after notice of such acquisition
has been provided pursuant to the Note Purchase Agreement. For the avoidance of
doubt, the foregoing shall not impact the Majority Holders Additional Collateral
Right in any manner.  

 

“Mortgages” means all mortgages, deeds of trust and similar documents,
instruments and agreements (and all amendments, modifications and supplements
thereof) creating, evidencing, perfecting or otherwise establishing the Liens on
Oil and Gas Properties and other related assets to secure payment of the notes
and the Subsidiary Guarantees or any part thereof.

 

“Net Income” means, with respect to any specified Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however:

 

(1)any gain (but not loss), together with any related provision for taxes on
such gain (but not loss), realized in connection with: (a) any Asset Sale; or
(b) the disposition of any securities by such Person or the extinguishment of
any Indebtedness of such Person; and

 

(2)any extraordinary gain (but not loss), together with any related provision
for taxes on such extraordinary gain (but not loss).

 

“Net Proceeds” means the aggregate cash proceeds received by the Company or any
of its Restricted Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of:

 

(1)the direct costs relating to such Asset Sale, including, without limitation,
legal, accounting and investment banking fees and sales commissions, severance
costs and any relocation expenses incurred as a result of the Asset Sale;

 

(2)taxes paid or payable as a result of the Asset Sale, in each case, after
taking into account any available tax credits or deductions and any tax sharing
arrangements;

 

(3)amounts required to be applied to the repayment of Indebtedness secured by a
Permitted Lien on the properties or assets that were the subject of such Asset
Sale; and

 

(4)any amounts to be set aside in any reserve established in accordance with
GAAP or any amount placed in escrow, in either case for adjustment in respect of
the sale price of such properties or assets or for liabilities associated with
such Asset Sale and retained by the Company or any of its Restricted
Subsidiaries until such time as such reserve is reversed or such escrow
arrangement is terminated, in which case Net Proceeds shall include only the
amount of the reserve so reversed or the amount returned to the Company or its
Restricted Subsidiaries from such escrow arrangement, as the case may be.

 

50

 

 

“Net Working Capital” means, with respect to any specified Person, (a) all
current assets of such Person and its Restricted Subsidiaries, except current
assets from commodity price risk management activities arising in the ordinary
course of business, less (b) all current liabilities of such Person and its
Restricted Subsidiaries, except (i) current liabilities included in
Indebtedness, (ii) current liabilities associated with asset retirement
obligations relating to oil and gas properties and (iii) any current liabilities
from commodity price risk management activities arising in the ordinary course
of business, in each case as set forth in the consolidated financial statements
of such Person prepared in accordance with GAAP (excluding any adjustments made
pursuant to Financial Accounting Standards Board (FASB) Accounting Standards
Codification (ASC) 815).

 

“Non-Recourse Debt” means Indebtedness:

 

(1)as to which neither the Company nor any of its Restricted Subsidiaries
(a) provides credit support of any kind (including any undertaking, agreement or
instrument that would constitute Indebtedness), (b) is directly or indirectly
liable as a guarantor or otherwise, or (c) is the lender;

 

(2)no default with respect to which (including any rights that the holders of
the Indebtedness may have to take enforcement action against an Unrestricted
Subsidiary) would permit upon notice, lapse of time or both any holder of any
other Indebtedness (other than the notes) of the Company or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or cause
the payment of the Indebtedness to be accelerated or payable prior to its Stated
Maturity; and

 

(3)as to which the lenders have been notified in writing that they will not have
any recourse to the Capital Stock or assets of the Company or any of its
Restricted Subsidiaries except as contemplated by clause (9) of the definition
of Permitted Liens.

 

For purposes of determining compliance with the covenant described under
“—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock”
above, in the event that any Non-Recourse Debt of any of the Company’s
Unrestricted Subsidiaries ceases to be Non-Recourse Debt of such Unrestricted
Subsidiary, such event will be deemed to constitute an incurrence of
Indebtedness by a Restricted Subsidiary of the Company.

 

“Note Documents” means the indenture, the notes, the Note Purchase Agreement,
the security documents and mortgages establishing Parity Liens and the
Intercreditor Agreement.

 

“Note Purchase Agreement” means that certain Note Purchase Agreement dated as of
March 27, 2015 by and among the Issuers, Guarantors and initial Holders of the
notes, as amended, amended and restated, supplemented or modified from time to
time in accordance with the indenture and the terms thereof.

 

“Not Otherwise Applied” means, with reference to any amount of proceeds of any
transaction or event, that such amount was not previously applied to (a) make
Restricted Payments or Permitted Investments, (b) purchase, redeem, defease,
acquire or retire any subordinated Indebtedness or Unsecured Notes of any Issuer
or Guarantor or of any Equity Interests of the Company and (c) make any
Permitted Distributions on Preferred Units.

 

“Obligations” means any principal, premium, if any, interest (including interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization, whether or not a claim for post-filing interest is allowed in
such proceeding), any make-whole payment (including, without limitation, the
Make-Whole Amount), repayment premium (including the Prepayment Premium), change
of control premium, other premiums, penalties, fees, charges, expenses,
indemnifications, reimbursement obligations, damages, guarantees, and other
liabilities or amounts payable under the Note Documents or in respect thereto.

 

“Oil and Gas Business” means:

 

(1)the acquisition, exploration, development, production, operation and
disposition of interests in oil, gas and other Hydrocarbon properties;

 

(2)the gathering, marketing, treating, processing (but not refining), storing,
distributing, selling and transporting of any production from such interests or
properties;

 

51

 

 

(3)any business relating to exploration for or development, production,
treatment, processing (but not refining), storage, transportation or marketing
of, oil, gas and other minerals and products produced in association therewith;

 

(4)any other business that generates gross income that constitutes “qualifying
income” under Section 7704(d) of the Code; and

 

(5)any activity that is ancillary, complementary or incidental to or necessary
or appropriate for the activities described in clauses (1) through (4) of this
definition.

 

“Oil and Gas Properties” means Hydrocarbon Interests and contracts executed in
connection therewith and all tenements, hereditaments, appurtenances, and
properties belonging, affixed or incidental to such Hydrocarbon Interests,
including any and all property, real or personal, and situated upon or to be
situated upon, and used, built for use, or useful in connection with the
operating, working or developing of such Hydrocarbon Interests, including any
and all petroleum and/or natural gas wells, buildings, structures, field
separators, liquid extractors, plant compressors, pumps, pumping units, field
gathering systems, pipelines, tank and tank batteries, fixtures, valves,
fittings, machinery and parts, engines, boilers, liters, apparatus, equipment,
appliances, tools, implements, cables, wires, towers, taping, tubing and rods,
surface leases, rights-of-way, easements and servitudes, and all additions,
substitutions, replacements for, and fixtures and attachments thereto.

 

“Operating General Partner” means Breitburn Operating GP LLC, a Delaware limited
liability company, and its successors and permitted assigns as general partner
of the Operating Partnership or as the business entity with the ultimate
authority to manage the business and operations of the Operating Partnership.

 

“Operating Partnership” means Breitburn Operating LP, a Delaware limited
partnership and any successor thereto.

 

“Parity Lien” means a Lien granted by a security document to the collateral
agent, at any time, upon any property of any Issuer or any Guarantor to secure
the Obligations for the benefit of the collateral agent, trustee, the holders of
the notes and indemnitees.

 

“Partnership Agreement” means the Third Amended and Restated Agreement of
Limited Partnership of the Company dated as of the Issue Date, as amended and in
effect on the date of the indenture and as such may be further amended, modified
or supplemented from time to time.

 

“Permian Basin Properties” means Oil and Gas Properties and undeveloped acreage
owned by any Issuer or Guarantor located in the Permian Basin of Texas and New
Mexico.

 

“Permitted Acquisition Indebtedness” means Indebtedness or Disqualified Stock of
the Company or any of its Restricted Subsidiaries to the extent such
Indebtedness or Disqualified Stock was Indebtedness or Disqualified Stock of any
other Person existing at the time (a) such Person became a Restricted Subsidiary
of the Company or (b) such Person was merged or consolidated with or into the
Company or any of its Restricted Subsidiaries, provided that on the date such
Person became a Restricted Subsidiary of the Company or the date such Person was
merged or consolidated with or into the Company or any of its Restricted
Subsidiaries, as applicable, either

 

(2)immediately after giving effect to such transaction on a pro forma basis as
if the same had occurred at the beginning of the applicable four-quarter period,
the Company or such Restricted Subsidiary, as applicable, would be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant described
above under the caption “—Certain Covenants—Incurrence of Indebtedness and
Issuance of Preferred Stock,” or

 

(3)immediately after giving effect to such transaction on a pro forma basis as
if the same had occurred at the beginning of the applicable four-quarter period,
the Fixed Charge Coverage Ratio of the Company would be equal to or greater than
the Fixed Charge Coverage Ratio of the Company immediately prior to such
transaction.

 

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“Permitted Business Investments” means Investments made in the ordinary course
of, and of a nature that is or shall have become customary in, the Oil and Gas
Business, including investments or expenditures for actively exploring for,
acquiring, developing, producing, processing, gathering, marketing or
transporting Hydrocarbons through agreements, transactions, interests or
arrangements that permit one to share risk or costs, comply with regulatory
requirements regarding local ownership or satisfy other objectives customarily
achieved through the conduct of the Oil and Gas Business jointly with third
parties, including without limitation:

 

(1)direct or indirect ownership of crude oil, natural gas, other Hydrocarbon
properties or any interest therein, gathering, transportation, processing,
storage or related systems, or ancillary real property interests and interests
therein; and

 

(2)the entry into operating agreements, joint ventures, processing agreements,
working interests, royalty interests, mineral leases, farm-in agreements,
farm-out agreements, development agreements, production sharing agreements, area
of mutual interest agreements, contracts for the sale, transportation or
exchange of crude oil and natural gas and related Hydrocarbons and minerals,
unitization agreements, pooling arrangements, joint bidding agreements, service
contracts, partnership agreements (whether general or limited), or other similar
or customary agreements, transactions, properties, interests or arrangements,
and Investments and expenditures in connection therewith or pursuant thereto, in
each case made or entered into in the ordinary course of the Oil and Gas
Business;

 

provided that, (i) the foregoing may not be used by any Issuer or Guarantor to
make any Investment in another Person (other than any Issuer or Guarantor) with
or in the form of Permian Basin Properties or Mortgaged Properties (or Equity
Interests of any Person that owns any Permian Basin Properties or Mortgaged
Property); (ii) in the case of a joint venture, farm-in agreement or farm-out
agreement involving the conveyance or other disposition of assets with a fair
market value in excess of $10 million in the aggregate in any fiscal year, the
consideration therefor shall be (a)(x) for fair market value and (y) 100% in the
form of cash or carry, and (b) the net cash proceeds thereof (but excluding, for
the avoidance of doubt, carried amounts) shall be deemed to be Net Proceeds and
subject to the provisions of “Repurchase at the Option of Holders—Asset Sales”,
other than the first paragraph thereof; and (iii) that “Permitted Business
Investments” shall exclude Investments in corporations and publicly traded
Persons.

 

“Permitted Credit Facility” means one or more credit facilities (including,
without limitation, the Credit Agreement) providing for loans and letters of
credit secured by Oil and Gas Properties and other customary Property of the
Issuers and the Guarantors, as amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time, at all times
subject to the Intercreditor Agreement and satisfying the Credit Facility
Criteria (as such term is defined in the Intercreditor Agreement as in effect on
the date hereof).

 

“Permitted Distributions on Common Units” means, to the extent permitted under
Delaware State Law and the organizational documents of the Company, and subject
to the covenant under the caption “—Restricted Payments,” (x) dividends,
distributions or other payments (other than on account of a redemption,
repurchase, or other acquisition or retirement for value) by the Company on
account of its Common Units or to the direct or indirect holders of the
Company’s Common Units in their capacity as such and (y) beginning with the 18th
month anniversary of the Issue Date, any purchase, redemption or other
acquisition or retirement for value of any Common Units of the Company, up to
the following aggregate amounts:

 

(i)until the 18th month anniversary of the Issue Date, in an aggregate amount
not to exceed $0.50 per Common Unit on an annualized basis; and

 

(ii)thereafter, in an unlimited amount so long as the Proved Reserves Coverage
Ratio is equal to or greater than 1.50 to 1.00 as of the date of such
calculation measured on a pro forma basis to give effect to any dividend,
distribution or other payment by the Company on account of its Common Units and
any purchase, redemption, acquisition or retirement of the Company’s Common
Units as if such dividend, distribution or such other payment and such purchase,
redemption, acquisition or retirement had occurred on the date of calculation of
such ratio. Such Proved Reserves Coverage Ratio will be tested semi-annually on
the Proved Reserves Coverage Ratio Date and will govern the Permitted
Distributions on Common Units for the succeeding 6 months following the Proved
Reserves Coverage Ratio Date.

 

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“Permitted Distributions on Preferred Units” means, to the extent permitted
under Delaware State Law and the organizational documents of the Company, and
subject to the covenant under the caption “—Restricted Payments,” dividends,
distributions, other payments (other than on account of a redemption,
repurchase, or other acquisition or retirement for value) and any Preferred
Change of Control Redemption by the Company on account of its Preferred Units or
to the direct or indirect holders of the Company’s Preferred Units in their
capacity as such, up to the following aggregate amounts:

 

(i)if immediately after giving effect thereto on a pro forma basis as if the
same had occurred at the beginning of the applicable four-quarter period, the
Company would be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described above under the caption “—Certain
Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock,” the sum
of Available Cash with respect to the Company’s preceding fiscal quarter, plus
100% of the aggregate net cash proceeds received by the Company after the Issue
Date as a contribution to its common equity capital or from the issue or sale
after the Issue Date of Equity Interests of the Company (other than Disqualified
Stock) or from the issue or sale after the Issue Date of convertible or
exchangeable Disqualified Stock or convertible or exchangeable debt securities
of the Company that have been converted into or exchanged for such Equity
Interests (other than Equity Interests (or Disqualified Stock or debt
securities) sold to a Restricted Subsidiary of the Company), in each case, to
the extent so designated for such dividend, distribution or other payment in an
officer’s certificate delivered to the trustee by an executive officer of the
Company within 10 Business Days after such contribution, issuance, sale,
conversion or exchange and to the extent Not Otherwise Applied, minus without
duplication, Permitted Distributions on Common Units that have occurred during
such fiscal quarter; or

 

(ii)if immediately after giving effect thereto on a pro forma basis as if the
same had occurred at the beginning of the applicable four-quarter period, the
Company would not be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant described above under the caption “—Certain
Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock,” an amount
equal to Available Cash with respect to the Company’s preceding fiscal quarter
minus, without duplication, Permitted Distributions on Common Units that have
occurred during such fiscal quarter, but in no event shall the amount of any
dividends, distributions or other payments made by the Company on account of its
Preferred Units pursuant to this clause (ii) exceed $70 million in any fiscal
year; provided that such amounts must be paid to the holders of the Series A
Convertible Preferred Units and Series B Convertible Preferred Units on a pro
rata basis based on the amount of dividend or distribution obligations
(including accrued but unpaid obligations) thereon at such time.

 

“Permitted Investments” means:

 

(1)any Investment (a) by any Issuer or any Guarantor in any Issuer or any
Guarantor, subject to the Collateral Requirements, (b) by any Restricted
Subsidiary that is not an Issuer or a Guarantor in any other Restricted
Subsidiary that is not an Issuer or a Guarantor, (c) by any Restricted
Subsidiary that is not an Issuer or a Guarantor in any Issuer or any Guarantor
(so long as no Capital Stock of any Issuer or Guarantor is transferred to a
Restricted Subsidiary that is not an Issuer or a Guarantor in connection with
such Investment) or (d) by any Issuer or any Guarantor in any Restricted
Subsidiary that is not an Issuer or a Guarantor in an amount not to exceed the
greater of (a) $25 million or (b) 0.65% of the Company’s Adjusted Consolidated
Net Tangible Assets at such time;

 

(2)any Investment in Cash Equivalents;

 

54

 

 

(3)(a) as long as no Event of Default has occurred and is continuing, any
Acquisition by the Company or any Restricted Subsidiary of the Company if as a
result of such Investment:

 

(i)either

 

(A)on the date of such Acquisition after giving pro forma effect thereto and any
related financing transactions as if the same had occurred at the beginning of
the applicable four-quarter period, the Company will be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant described above
under the caption “—Incurrence of Indebtedness and Issuance of Preferred Stock”;
or

 

(B)immediately after giving effect to such Acquisition and any related financing
transactions on a pro forma basis as if the same had occurred at the beginning
of the applicable four-quarter period, the Fixed Charge Coverage Ratio of the
Company will be equal to or greater than the Fixed Charge Coverage Ratio of the
Company immediately before such transactions;

 

(ii)such Person and its Subsidiaries becomes Restricted Subsidiaries of the
Company (or, in the case of such Person, such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
properties or assets to, or is liquidated into, the Company or a Restricted
Subsidiary of the Company) and all of the Equity of such Person is acquired;

 

(iii)other than as set forth in the proviso below, such Person and its
Subsidiaries become Guarantors and grant a Lien on their assets in accordance
with and to the extent required by the provisions under the heading “Further
Assurances; Collateral; Liens on Additional Property”; and

 

(iv)such Person and its Subsidiaries are, taken as a whole, principally engaged
in the same business as the Issuers and Guarantors; and

 

(b)any Investment held by such Person; provided, that such Investment was not
acquired by such Person in contemplation of such acquisition, merger,
consolidation or transfer;

 

provided that with respect to any Acquisition the amount of consideration paid
or provided by any Issuer or any Guarantor (including the aggregate principal
amount of all Indebtedness assumed in connection with such Acquisition and the
fair market value of non-cash consideration) with respect to any Person or
Persons that shall not be or, after giving effect to such Acquisition, shall not
become a Guarantor or shall not transfer all or substantially all of its assets
to any Issuer or a Guarantor, shall not exceed 10% of the aggregate
consideration paid in connection with such Acquisition at such time;

 

(4)any Investment made as a result of the receipt of non-cash consideration from
an Asset Sale that was made pursuant to and in compliance with the covenant
described above under the caption “—Repurchase at the Option of Holders—Asset
Sales,” including pursuant to clause (9) or (14) of the items deemed not to be
Asset Sales under the definition of “Asset Sale”;

 

(5)any Investment in any Person solely in exchange for the issuance of Equity
Interests (other than Disqualified Stock) of the Company;

 

(6)any Investments received in compromise of obligations of trade creditors or
customers in the ordinary course of business, including pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy or insolvency of any
trade creditor or customer, or as a result of a foreclosure by the Company or
any of its Restricted Subsidiaries with respect to any secured Investment in
default;

 

(7)Hedging Contracts;

 

55

 

 

(8)Permitted Business Investments;

 

(9)Investments in Utica having an aggregate fair market value (measured on the
date each such Investment was made and without giving effect to subsequent
changes in value), when taken together with all other Investments made pursuant
to this clause (9) that are at the time outstanding, do not exceed the greater
of $25 million or 0.65% of the Company’s Adjusted Consolidated Net Tangible
Assets; and

 

(10)other Investments in any Person having an aggregate fair market value
(measured on the date each such Investment was made and without giving effect to
subsequent changes in value), when taken together with all other Investments
made pursuant to this clause (10) that are at the time outstanding, do not
exceed the greater of $50 million or 1.30% of the Company’s Adjusted
Consolidated Net Tangible Assets; provided, however, that if any Investment
pursuant to this clause (10) is made in any Person that is not a Guarantor at
the date of the making of such Investment and such Person becomes a Guarantor
after such date, such Investment shall thereafter be deemed to have been made
pursuant to clause (1) above and shall cease to have been made pursuant to this
clause (10) for so long as such Person continues to be a Guarantor;

 

 

Notwithstanding the foregoing, clauses (1), (3), (9) and (10) may not be used by
any Issuer or Guarantor to make any contribution to any Person (other than an
Issuer or a Guarantor) with (or Investment in the form of) the Permian Basin
Properties or other Mortgaged Properties (or Equity Interests of any Person that
owns any Permian Basin Properties or Mortgaged Property).

 

“Permitted Liens” means:

 

(1)any Priority Lien with respect to any Permitted Credit Facility incurred
under clause (1) of the definition of “Permitted Debt”;

 

(2)Liens in favor of the Company or the Guarantors securing claims in which the
collateral agent has a perfected Second-Priority Lien and that are junior in
priority to the Parity Liens; provided, however, such Liens must be immediately
released upon assignment or transfer to a Person that is not an Issuer or
Guarantor;

 

(3)Liens on property of a Person existing at the time such Person is merged with
or into or consolidated with the Company or any Restricted Subsidiary of the
Company, provided that such Liens were in existence prior to the contemplation
of such merger or consolidation and do not extend to any assets (other than
improvements thereon, accessions thereto and proceeds thereof) other than the
property of such Person that secured such Lien at the time such Person merged
into or consolidated with the Company or the Restricted Subsidiary;

 

(4)Liens on property existing at the time of acquisition of the property by the
Company or any Restricted Subsidiary of the Company, provided that such Liens
were in existence prior to the contemplation of such acquisition and do not
extend to any other assets (other than improvements thereon, accessions thereto
and proceeds thereof);

 

(5)any interest or title of a lessor to the property subject to a Capital Lease
Obligation; provided, that the principal amount of such Capital Lease Obligation
is otherwise permitted to be incurred under the indenture;

 

(6)Liens for the purpose of securing the payment of all or a part of the
purchase price of, or Capital Lease Obligations, purchase money obligations or
other payments incurred to finance the acquisition, lease, improvement or
construction of or repairs or additions to, assets or property acquired or
constructed in the ordinary course of business, in each case, to the extent
permitted under clause (4) of the definition of “Permitted Debt”; provided that:

 

56

 

 

(a)the aggregate principal amount of Indebtedness secured by such Liens is
otherwise permitted to be incurred under clause (4) under the heading
“Incurrence of Indebtedness and Issuance of Preferred Stock” indenture and does
not exceed the cost of the assets or property so acquired or constructed; and

 

(b)such Liens are created within 180 days of the later of the acquisition,
lease, completion of improvements, construction, repairs or additions or
commencement of full operation of the assets or property subject to such Lien
and do not encumber any other assets or property of the Company or any
Restricted Subsidiary other than such assets or property and assets affixed or
appurtenant thereto;

 

(7)Liens existing on the date of the indenture (other than Liens permitted under
clause (1) and clause (17));

 

(8)customary Liens to secure the performance of tenders, bids, statutory
obligations, surety or appeal bonds, trade contracts, government contracts,
operating leases, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;

 

(9)Liens on and pledges of the Equity Interests of any Unrestricted Subsidiary
or any Joint Venture owned by the Company or any Restricted Subsidiary of the
Company to the extent securing Non-Recourse Debt or other Indebtedness of such
Unrestricted Subsidiary or Joint Venture;

 

(10)customary Liens in respect of Production Payments and Reserve Sales, which
Liens shall be limited to the property that is the subject of such Production
Payments and Reserve Sales;

 

(11)Liens on pipelines or pipeline facilities that arise by operation of law;

 

(12)Liens arising under operating agreements, joint venture agreements,
partnership agreements, oil and gas leases, farm-out agreements, farm-in
agreements, division orders, contracts for the sale, transportation or exchange
of crude oil and natural gas and related Hydrocarbons and minerals, unitization
and pooling declarations and agreements, area of mutual interest agreements and
other agreements arising in the ordinary course of business of the Company and
its Restricted Subsidiaries that are customary in the Oil and Gas Business;

 

(13)customary Liens reserved in oil and gas mineral leases for bonus or rental
payments and for compliance with the terms of such leases;

 

(14)Liens upon specific items of inventory, receivables or other goods or
proceeds of the Company or any of its Restricted Subsidiaries securing such
Person’s obligations in respect of bankers’ acceptances or receivables
securitizations issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory, receivables or other goods
or proceeds and permitted by the covenant “—Certain Covenants—Incurrence of
Indebtedness and Issuance of Preferred Stock”;

 

(15)Liens securing Obligations of the Issuers or any Guarantor under the notes
or the Subsidiary Guarantees issued as of the Issue Date;

 

(16)Liens to secure performance of Hedging Contracts of the Company or any of
its Restricted Subsidiaries to the extent subject to the Intercreditor
Agreement;

 

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

 

57

 

 

(18)Liens arising from royalties, overriding royalties, revenue interests, net
revenue interests, net profit interests, reversionary interests, production
payments, preferential rights of purchase, working interests and other similar
interests, all as ordinarily exist with respect to properties and assets of the
Company and its Restricted Subsidiaries or otherwise as are customary in the Oil
and Gas Business;

 

(19)other Liens incurred by the Company or any Restricted Subsidiary of the
Company (other than Liens securing Indebtedness for borrowed money) not
exceeding at any time, in the aggregate, the greater of $30 million or .8% of
the Company’s Adjusted Consolidated Net Tangible Assets; and

 

(20)any Lien securing Permitted Refinancing Indebtedness, provided that (a) the
principal amount of the Indebtedness secured by such Lien is not increased
except by an amount equal to accrued interest on the Indebtedness and the amount
of all expenses and premiums incurred in connection therewith and (b) no assets
encumbered by any such Lien other than the assets permitted to be encumbered
immediately prior to such renewal, extension, refinance or refund are encumbered
thereby (other than improvements thereon, accessions thereto and proceeds
thereof).

 

“Permitted Refinancing Indebtedness” means any Indebtedness of the Company or
any of its Restricted Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Restricted Subsidiaries (other than
intercompany Indebtedness), provided that:

 

(1)the principal amount of such Permitted Refinancing Indebtedness does not
exceed the principal amount of the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded (plus all accrued interest on the
Indebtedness and the amount of all expenses and premiums incurred in connection
therewith);

 

(2)such Permitted Refinancing Indebtedness has a final maturity date later than
the final maturity date of, and has a Weighted Average Life to Maturity equal to
or greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded and, in the case
of any extension, refinancing, renewal, replacement, defeasance or refunding of
the notes and Subsidiary Guarantees, such Permitted Refinancing Indebtedness has
a final maturity date at least ninety-one (91) days after the Maturity Date and
amortization of no more than 1.00% per annum of the original principal amount
thereof;

 

(3)if the Indebtedness being extended, refinanced, renewed, replaced, defeased
or refunded is subordinated in right of payment to the notes or the Subsidiary
Guarantees, such Permitted Refinancing Indebtedness is subordinated in right of
payment to the notes or the Subsidiary Guarantees on terms at least as favorable
to the Holders of notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded;

 

(4)such Indebtedness is not incurred (other than by way of a guarantee) by a
Restricted Subsidiary of the Company (other than the Operating Partnership or
Finance Corp.) if the Company is the issuer or other primary obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded;

 

(5)such Indebtedness is not secured by a Lien on any assets other than the
collateral securing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded or with a priority that is senior to the Lien
securing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded (provided any extension, refinancing, renewal, replacement,
defeasance or refunding of the notes and Subsidiary Guarantees shall be on an
unsecured basis); and

 

(6)such Indebtedness is not recourse to any Person that is liable on account of
such Indebtedness immediately after giving effect to such incurrence other than
those Persons which were obligated on the Indebtedness being extended,
refinanced, renewed, replaced or refunded.

 

58

 

 

“Person” means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.

 

“Preferred Change of Control Redemption” means the purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value of the
Series B Preferred Units (as such term is defined in the Parent’s Third Amended
and Restated Agreement of Limited Partnership as in effect on the Issue Date) in
accordance with Section 17.4 of Parent’s Third Amended and Restated Agreement of
Limited Partnership as in effect on the Issue Date; provided, however, such
purchase, repurchase, redemption, defeasance or other acquisition or retirement
for value shall only constitute a “Preferred Change of Control Redemption” as
long as prior to or simultaneously with such purchase, repurchase, redemption,
defeasance or other acquisition or retirement for value, the Company has made
the Change of Control Offer and has completed the repurchase or redemption of
all notes validly tendered for payment in connection with such Change of Control
Offer.

 

“Prepayment Premium” means, with respect to the principal amount of any note,
the extent to which the redemption price for such note is in excess of 100.000%
of the principal amount of such note, as set forth under the heading “Optional
Redemption”.

 

“Priority Lien” means a Lien granted by an Issuer or any Guarantor in favor of
the Priority Lien Collateral Agent, at any time, upon any property of any Issuer
or any Guarantor to secure Priority Lien Obligations.

 

“Priority Lien Collateral Agent” means Wells Fargo Bank, N.A., as agent under
the Credit Agreement and any successor thereof in such capacity under the Credit
Agreement, or if the Credit Agreement ceases to exist, the collateral agent or
other representative of lenders or holders of Priority Lien Obligations
designated pursuant to the terms of the Priority Lien Documents and the
Intercreditor Agreement.

 

“Priority Lien Debt” has the meaning given such term in the Intercreditor
Agreement as in effect on the date hereof; provided, that the terms of Priority
Lien Debt must satisfy the requirements of the provision under the heading
“Amendments to Priority Lien Debt” as if the Priority Lien Debt were an
amendment to the Existing Credit Agreement.

 

“Priority Lien Documents” has the meaning given such term in the Intercreditor
Agreement as in effect on the date hereof.

 

“Priority Lien Obligations” has the meaning given such term in the Intercreditor
Agreement as in effect on the date hereof.

 

“Production Payments” means, collectively, Dollar-Denominated Production
Payments and Volumetric Production Payments.

 

“Production Payments and Reserve Sales” means the grant or transfer by the
Company or a Restricted Subsidiary of the Company to any Person of a royalty,
overriding royalty, net profits interest, production payment (whether volumetric
or dollar denominated), partnership or other interest in oil and gas properties,
reserves or the right to receive all or a portion of the production or the
proceeds from the sale of production attributable to such properties, including
any such grants or transfers pursuant to incentive compensation programs on
terms that are reasonably customary in the oil and gas business for geologists,
geophysicists and other providers of technical services to the Company or a
Subsidiary of the Company.

 

“Proved Developed Producing Reserves” means Proved Reserves which are
categorized as both “Developed” and “Producing” in the Reserve Definitions.

 

59

 

 

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

 

“Proved Reserves Coverage Ratio” means the ratio of the (i) PV10 of the Proved
Reserves of the Issuers’ and Guarantors’ Oil and Gas Properties as of the latest
Reserve Report to (ii) the Consolidated Senior Secured Debt as of the date such
ratio is calculated. The Proved Reserves Coverage Ratio will be tested
semi-annually on April 1 and October 1 of each year (the “Proved Reserves
Coverage Ratio Date”) and will govern the distribution for the succeeding 6
months following the Proved Reserves Coverage Ratio Date. For the avoidance of
doubt, the April 1 Proved Reserves Coverage Ratio will be tested based on the
January 1 Reserve Report with Strip Pricing as of March 15 and the Consolidated
Senior Secured Debt as of April 1. In addition, the October 1 Proved Reserves
Coverage Ratio will be tested based on the July 1 Reserve Report with Strip
Pricing as of September 15 and the Consolidated Senior Secured Debt as of
October 1.

 

“Proved Reserves Coverage Ratio Date” has the meaning specified in the
definition of “Proved Reserves Coverage Ratio”.

 

“PV10” means, in respect of the Proved Reserves of any Issuer’s or any
Guarantor’s Oil and Gas Properties, the net present value of future cash flows
(discounted at a rate of ten percent per annum) on a pre-income tax basis
calculated by the Company based on the information from the most recent Reserve
Report that is available and taking into account all other factors which are
reasonably deemed by the Company to be material, but provided that each
calculation of such expected future cash flow shall be made in accordance with
the then existing standards of the Society of Petroleum Engineers, provided that
in any event (i) reasonable adjustments as determined in good faith by
management shall be made for management’s projections of (a) operating,
gathering, transportation and marketing costs required for the production and
sale of such reserves, (b) capital expenditures required to maintain and develop
such reserves and (c) basis differentials, (ii) reasonable adjustments as
determined in good faith by management shall be made for the acquisition and
sale of reserves since the date of such Reserve Report (with such adjustments
being based on the Strip Price as of March 15 or September 15, as applicable, or
a date that is mutually agreed by the Company and the Majority Holders) and
(iii) the pricing assumptions used in determining PV10 for any particular
reserves shall be based upon the Strip Price as of March 15 or September 15, as
applicable, or a date that is mutually agreed by the Company and the Majority
Holders; provided that, for purposes of calculating PV10 for purposes of the
Proved Reserves Coverage Ratio for all purposes hereunder, no more than 40% of
such amount may be attributable to Proved Reserves described in the applicable
Reserve Report other than Proved Developed Producing Reserves. PV10 shall be
adjusted to give effect to Hedging Contracts as in effect on the date of
determination.

 

“Qualifying Owners” means, collectively, the Company and its Restricted
Subsidiaries.

 

“Reporting Default” means a Default described in clause (4) under “—Events of
Default and Remedies.”

 

“Reserve Definitions” has the meaning set forth for such term in the definition
of “Proved Reserves” herein.

 

“Reserve Report” means a report as of January 1 or July 1 of each year covering
proved developed and proved undeveloped oil and gas reserves attributable to the
Oil and Gas Properties owned by the Company and its Restricted Subsidiaries and
setting forth with respect thereto (a) the total quantity of proved developed
and proved undeveloped reserves (separately classified as to producing,
non-producing, shut-in, behind pipe, and undeveloped), (b) the estimated future
net revenues and cumulative estimated future net revenues and (c) the present
discounted value of future net revenues; provided, however, that the January 1
reserve report is provided by a nationally recognized third party reserve
engineer and any succeeding reserve report for the same year is prepared by the
Company.

 

“Restricted Investment” means an Investment other than a Permitted Investment.

 

“Restricted Subsidiary” of a Person means any Subsidiary of the referent Person
that is not an Unrestricted Subsidiary. Notwithstanding anything in the
indenture to the contrary, the Operating Partnership and Finance Corp. shall be
Restricted Subsidiaries of the Company.

 

“S&P” refers to Standard & Poor’s Ratings Services, a division of The
McGraw-Hill Companies, Inc., or any successor to the rating agency business
thereof.

 

60

 

 

“Second-Priority” or “Second-Priority Basis” means, with respect to any Lien, a
Lien that is second priority to Priority Lien Debt, in each instance, subject to
the Intercreditor Agreement and Permitted Liens.

 

“Senior Debt” means:

 

(1)all Indebtedness of the Company or any of its Restricted Subsidiaries
outstanding under any Permitted Credit Facility and all obligations under
Hedging Contracts with respect thereto;

 

(2)any other Indebtedness of the Company or any of its Restricted Subsidiaries
permitted to be incurred under the terms of the indenture, unless the instrument
under which such Indebtedness is incurred expressly provides that it is
subordinated in right of payment to the notes or any Subsidiary Guarantee; and

 

(3)all Obligations with respect to the items listed in the preceding clauses (1)
and (2).

 

Notwithstanding anything to the contrary in the preceding sentence, Senior Debt
will not include:

 

(a)any intercompany Indebtedness of the Company or any of its Restricted
Subsidiaries to the Company or any of its Affiliates; or

 

(b)any Indebtedness that is incurred in violation of the indenture.

 

For the avoidance of doubt, “Senior Debt” will not include any trade payables or
taxes owed or owing by the Company or any of its Restricted Subsidiaries.

 

“Series A Convertible Preferred Units” has the meaning assigned to such term in
the Partnership Agreement, as in effect on the date of the indenture.

 

“Series B Convertible Preferred Units” has the meaning assigned to such term in
the Partnership Agreement, as in effect on the date of the indenture.

 

“Significant Subsidiary” means any Subsidiary that would be a “significant
subsidiary” as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date of
the indenture.

 

“Stated Maturity” means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which the payment of
interest or principal was scheduled (including interest payments to be paid in
accordance with applicable interest periods) to be paid in the original
documentation governing such Indebtedness, and will not include any contingent
obligations to repay, redeem or repurchase any such interest or principal prior
to the date originally scheduled for the payment thereof.

 

“Strip Price” means, as of any date of the determination thereof with respect to
the Oil and Gas Properties included in the then most recent Reserve Report,
(a) the average of the closing midpoint contract prices on a monthly basis for
each month through the eighth anniversary of the then most recent Reserve Report
(the “Initial Strip”) and (b) thereafter, the average of such midpoint contract
prices for the last twelve (12) months of such Initial Strip period escalated at
2.0% per annum for five years, in each case as quoted on the New York Mercantile
Exchange (the “NYMEX”) for WTI oil and Henry Hub gas prices and the ICE Futures
Europe (“ICE”) for Brent oil prices; provided, however, that lease operating
costs will be escalated at 1% per annum for the same period that WTI oil prices
are escalated. If NYMEX and/or ICE no longer provides such futures midpoint
contract quotes or has ceased to operate, the Company shall designate another
nationally recognized commodities exchange to replace the NYMEX and/or ICE for
purposes of the references to the NYMEX and ICE herein.

 

“Subsidiary” means, with respect to any specified Person:

 

(1)any corporation, association or other business entity (other than a
partnership or limited liability company) of which more than 50% of the total
voting power of Voting Stock of such Person is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other subsidiaries
of that Person (or a combination thereof); and

 

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(2)any partnership (whether general or limited) or limited liability company
(a) the sole general partner or member of which is such Person or a subsidiary
of such Person, or (b) if there is more than a single general partner or member,
either (x) the only managing general partners or managing members of which are
such Person or one or more subsidiaries of such Person (or any combination
thereof) or (y) such Person owns or controls, directly or indirectly, a majority
of the outstanding general partner interests, member interests or other Voting
Stock of such partnership or limited liability company, respectively.

 

“Subsidiary Guarantee” means any guarantee by a Guarantor of the Issuers’
Obligations under the indenture and on the notes.

 

“Treasury Rate” means, in respect of any redemption date, the yield to maturity
at the time of computation of United States Treasury securities with a constant
maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H.15(519) which has become publicly available at least two
Business Days prior to such time (or, if such Statistical Release is no longer
published, any publicly available source of similar market data)) most nearly
equal to the period from the redemption date to March       , 2018; provided,
however, that if such period is not equal to the constant maturity of a United
States Treasury security for which a weekly average yield is given, the Company
shall obtain the Treasury Rate by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given, except that if the period
from the redemption date to March          , 2018 is less than one year, the
weekly average yield on actually traded United States Treasury securities
adjusted to a constant maturity of one year shall be used. The Company will
(a) calculate the Treasury Rate no later than the second Business Day (and no
earlier than the fourth Business Day) preceding the applicable redemption date
(or, in the case of any redemption in connection with a defeasance of the notes
or a satisfaction and discharge of the indenture, on the business day preceding
such event) and (b) prior to such redemption date file with the trustee a
statement setting forth the Make-Whole Amount and the Treasury Rate and showing
the calculation of each in reasonable detail.

 

“Unrestricted Subsidiary” means (a) Utica, (b) East Texas Salt Water Disposal
Company and (c) any Subsidiary of the Company (other than Finance Corp., the
Operating Partnership or the General Partner) that is designated (and permitted
to be designated under the indenture) by the Board of Directors of the Company
as an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the
extent that Utica, East Texas Salt Water Disposal Company or such Subsidiary:

 

(2)has no Indebtedness other than Non-Recourse Debt owing to any Person other
than the Company or any of its Restricted Subsidiaries;

 

(3)is not party to any agreement, contract, arrangement or understanding with
the Company or any Restricted Subsidiary of the Company unless the terms of any
such agreement, contract, arrangement or understanding are no less favorable to
the Company or such Restricted Subsidiary than those that would be obtained at
the time from Persons who are not Affiliates of the Company;

 

(4)is a Person with respect to which neither the Company nor any of its
Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe
for additional Equity Interests or (b) to maintain or preserve such Person’s
financial condition or to cause such Person to achieve any specified levels of
operating results; and

 

(5)has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of the Company or any of its Restricted
Subsidiaries.

 

All Subsidiaries of an Unrestricted Subsidiary shall also be Unrestricted
Subsidiaries.

 

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Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary
will be evidenced to the trustee by filing with the trustee a Board Resolution
giving effect to such designation and an officers’ certificate certifying that
such designation complied with the preceding conditions and was permitted by the
covenant described above under the caption “—Certain Covenants—Restricted
Payments.” If, at any time, any Unrestricted Subsidiary would fail to meet the
preceding requirements as an Unrestricted Subsidiary, it will thereafter cease
to be an Unrestricted Subsidiary for purposes of the indenture and any
Indebtedness or Liens of such Subsidiary will be deemed to be incurred by a
Restricted Subsidiary of the Company as of such date and, if such Indebtedness
is not permitted to be incurred as of such date under the covenant described
under the caption “—Certain Covenants—Incurrence of Indebtedness and Issuance of
Preferred Stock,” or such Liens are not permitted to be incurred as of such date
under the covenant described under “—Certain Covenants—Liens” the Company will
be in default of such covenant.

 

“Unsecured Notes” means unsecured notes, loans or other instruments evidencing
Indebtedness for borrowed money issued by any Issuer or Restricted Subsidiary in
a capital markets, bank or syndicated loan financing or similar financing prior
to or after the Issue Date.

 

“Utica” means Breitburn Collingwood Utica LLC, a Delaware limited liability
company indirectly wholly-owned by the Company on the date of the indenture.

 

“Volumetric Production Payments” means production payment obligations recorded
as deferred revenue in accordance with GAAP, together with all related
undertakings and obligations.

 

“Voting Stock” of any Person as of any date means the Capital Stock of such
Person that is at the time entitled (without regard to the occurrence of any
contingency) to vote in the election of the Board of Directors of such Person.

 

“Weighted Average Life to Maturity” means, when applied to any Indebtedness at
any date, the number of years obtained by dividing:

 

(1)the sum of the products obtained by multiplying (a) the amount of each then
remaining installment, sinking fund, serial maturity or other required payments
of principal, including payment at final maturity, in respect of the
Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth)
that will elapse between such date and the making of such payment; by

 

(2)the then outstanding principal amount of such Indebtedness.

 

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