exv10w1



 







Exhibit 10.1




 

 






AMENDED AND RESTATED CREDIT AGREEMENT




DATED AS OF




AUGUST 9, 2007




AMONG




TETON ENERGY CORPORATION,




AS BORROWER,




JPMORGAN CHASE BANK, N.A.,




AS ADMINISTRATIVE AGENT,




AND




THE LENDERS PARTY HERETO




SOLE LEAD ARRANGER AND SOLE BOOKRUNNER




J.P. MORGAN SECURITIES INC.




 

 






 









 












TABLE OF CONTENTS




	 	 	 	 	 
	 	 	Page No.
	ARTICLE I

DEFINITIONS AND ACCOUNTING MATTERS
	 	 	 	 
	Section 1.01 Terms Defined Above
	 	 	2	 
	Section 1.02 Certain Defined Terms
	 	 	2	 
	Section 1.03 Types of Loans and Borrowings
	 	 	20	 
	Section 1.04 Terms Generally; Rules of Construction
	 	 	20	 
	Section 1.05 Accounting Terms and Determinations; GAAP
	 	 	21	 
	 
	 	 	 	 
	ARTICLE II

THE CREDITS
	 	 	 	 
	Section 2.01 Commitments
	 	 	21	 
	Section 2.02 Loans and Borrowings
	 	 	21	 
	Section 2.03 Requests for Borrowings
	 	 	22	 
	Section 2.04 Interest Elections
	 	 	23	 
	Section 2.05 Funding of Borrowings
	 	 	25	 
	Section 2.06 Termination and Reduction of Aggregate Maximum Credit Amounts
	 	 	25	 
	Section 2.07 Borrowing Base and Conforming Borrowing Base
	 	 	26	 
	Section 2.08 Letters of Credit
	 	 	29	 
	 
	 	 	 	 
	ARTICLE III

PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES
	 	 	 	 
	Section 3.01 Repayment of Loans
	 	 	34	 
	Section 3.02 Interest
	 	 	34	 
	Section 3.03 Alternate Rate of Interest
	 	 	35	 
	Section 3.04 Prepayments
	 	 	35	 
	Section 3.05 Fees
	 	 	37	 
	Section 3.06 Extension of Maturity Date
	 	 	38	 
	 
	 	 	 	 
	ARTICLE IV

PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS
	 	 	 	 
	Section 4.01 Payments Generally; Pro Rata Treatment; Sharing of Set-offs
	 	 	39	 
	Section 4.02 Presumption of Payment by the Borrower
	 	 	40	 
	Section 4.03 Certain Deductions by the Administrative Agent
	 	 	40	 
	Section 4.04 Disposition of Proceeds
	 	 	40	 
	 
	 	 	 	 
	ARTICLE V

INCREASED COSTS; BREAK FUNDING PAYMENTS; TAXES; ILLEGALITY
	 	 	 	 
	Section 5.01 Increased Costs
	 	 	41	 
	Section 5.02 Break Funding Payments
	 	 	42	 
	Section 5.03 Taxes
	 	 	42	 
	Section 5.04 Mitigation Obligations
	 	 	43	 
	Section 5.05 Illegality
	 	 	44	 
	 
	 	 	 	 
	ARTICLE VI

CONDITIONS PRECEDENT
	 	 	 	 
	Section 6.01 Effective Date
	 	 	44	 
	 
	 	 	 	 
	i







 









 






	 	 	 	 	 
	 	 	Page No.
	Section 6.02 Each Credit Event
	 	 	46	 
	 
	 	 	 	 
	ARTICLE VII

REPRESENTATIONS AND WARRANTIES
	 	 	 	 
	Section 7.01 Organization; Powers
	 	 	47	 
	Section 7.02 Authority; Enforceability
	 	 	47	 
	Section 7.03 Approvals; No Conflicts
	 	 	48	 
	Section 7.04 Financial Condition; No Material Adverse Change
	 	 	48	 
	Section 7.05 Litigation
	 	 	48	 
	Section 7.06 Environmental Matters
	 	 	49	 
	Section 7.07 Compliance with the Laws and Agreements; No Defaults
	 	 	50	 
	Section 7.08 Investment Company Act
	 	 	50	 
	Section 7.09 Taxes
	 	 	50	 
	Section 7.10 ERISA
	 	 	50	 
	Section 7.11 Disclosure; No Material Misstatements
	 	 	51	 
	Section 7.12 Insurance
	 	 	52	 
	Section 7.13 Restriction on Liens
	 	 	52	 
	Section 7.14 Subsidiaries
	 	 	52	 
	Section 7.15 Location of Business and Offices
	 	 	52	 
	Section 7.16 Properties; Titles, Etc.
	 	 	52	 
	Section 7.17 Maintenance of Properties
	 	 	53	 
	Section 7.18 Gas Imbalances, Prepayments
	 	 	54	 
	Section 7.19 Marketing of Production
	 	 	54	 
	Section 7.20 Swap Agreements
	 	 	54	 
	Section 7.21 Use of Loans and Letters of Credit
	 	 	54	 
	Section 7.22 Solvency
	 	 	55	 
	Section 7.23 Senior Indebtedness
	 	 	55	 
	 
	 	 	 	 
	ARTICLE VIII

AFFIRMATIVE COVENANTS
	 	 	 	 
	Section 8.01 Financial Statements; Other Information
	 	 	55	 
	Section 8.02 Notices of Material Events
	 	 	58	 
	Section 8.03 Existence; Conduct of Business
	 	 	58	 
	Section 8.04 Payment of Obligations
	 	 	58	 
	Section 8.05 Performance of Obligations under Loan Documents
	 	 	59	 
	Section 8.06 Operation and Maintenance of Properties
	 	 	59	 
	Section 8.07 Insurance
	 	 	60	 
	Section 8.08 Books and Records; Inspection Rights
	 	 	60	 
	Section 8.09 Compliance with Laws
	 	 	60	 
	Section 8.10 Environmental Matters
	 	 	60	 
	Section 8.11 Further Assurances
	 	 	61	 
	Section 8.12 Reserve Reports
	 	 	62	 
	Section 8.13 Title Information
	 	 	62	 
	Section 8.14 Additional Collateral; Additional Guarantors
	 	 	63	 
	Section 8.15 ERISA Compliance
	 	 	65	 
	Section 8.16 Marketing Activities
	 	 	65	 
	Section 8.17 Payment of Interest in Kind
	 	 	65	 
	 
	 	 	 	 
	ii







 









 






	 	 	 	 	 
	 	 	Page No.
	ARTICLE IX

NEGATIVE COVENANTS
	 	 	 	 
	Section 9.01 Financial Covenants
	 	 	66	 
	Section 9.02 Debt
	 	 	66	 
	Section 9.03 Liens
	 	 	67	 
	Section 9.04 Dividends, Distributions and Redemptions
	 	 	68	 
	Section 9.05 Investments, Loans and Advances
	 	 	68	 
	Section 9.06 Nature of Business; International Operations
	 	 	69	 
	Section 9.07 Proceeds of Notes
	 	 	70	 
	Section 9.08 ERISA Compliance
	 	 	70	 
	Section 9.09 Sale or Discount of Receivables
	 	 	71	 
	Section 9.10 Mergers, Etc
	 	 	71	 
	Section 9.11 Sale of Properties
	 	 	71	 
	Section 9.12 Environmental Matters
	 	 	72	 
	Section 9.13 Transactions with Affiliates
	 	 	72	 
	Section 9.14 Subsidiaries
	 	 	72	 
	Section 9.15 Negative Pledge Agreements; Dividend Restrictions
	 	 	73	 
	Section 9.16 Gas Imbalances, Take-or-Pay or Other Prepayments
	 	 	73	 
	Section 9.17 Swap Agreements
	 	 	73	 
	 
	 	 	 	 
	ARTICLE X

EVENTS OF DEFAULT; REMEDIES
	 	 	 	 
	Section 10.01 Events of Default
	 	 	73	 
	Section 10.02 Remedies
	 	 	75	 
	 
	 	 	 	 
	ARTICLE XI

THE AGENTS
	 	 	 	 
	Section 11.01 Appointment; Powers
	 	 	77	 
	Section 11.02 Duties and Obligations of Administrative Agent
	 	 	77	 
	Section 11.03 Action by Administrative Agent
	 	 	78	 
	Section 11.04 Reliance by Administrative Agent
	 	 	78	 
	Section 11.05 Subagents
	 	 	79	 
	Section 11.06 Resignation or Removal of Administrative Agent
	 	 	79	 
	Section 11.07 Administrative Agent as Lender
	 	 	79	 
	Section 11.08 No Reliance
	 	 	79	 
	Section 11.09 Administrative Agent May File Proofs of Claim
	 	 	80	 
	Section 11.10 Authority of Administrative Agent to Release Collateral and Liens
	 	 	80	 
	Section 11.11 The Arranger
	 	 	81	 
	 
	 	 	 	 
	ARTICLE XII

MISCELLANEOUS
	 	 	 	 
	Section 12.01 Notices
	 	 	81	 
	Section 12.02 Waivers; Amendments
	 	 	82	 
	Section 12.03 Expenses, Indemnity; Damage Waiver
	 	 	83	 
	Section 12.04 Successors and Assigns
	 	 	85	 
	Section 12.05 Survival; Revival; Reinstatement
	 	 	88	 
	Section 12.06 Counterparts; Integration; Effectiveness
	 	 	89	 
	Section 12.07 Severability
	 	 	89	 
	 
	 	 	 	 
	iii







 









 






	 	 	 	 	 
	 	 	Page No.
	Section 12.08 Right of Setoff
	 	 	89	 
	Section 12.09 GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS
	 	 	90	 
	Section 12.10 Headings
	 	 	91	 
	Section 12.11 Confidentiality
	 	 	91	 
	Section 12.12 Interest Rate Limitation
	 	 	92	 
	Section 12.13 EXCULPATION PROVISIONS
	 	 	92	 
	Section 12.14 Collateral Matters; Swap Agreements
	 	 	93	 
	Section 12.15 No Third Party Beneficiaries
	 	 	93	 
	Section 12.16 USA Patriot Act Notice
	 	 	93	 
	Section 12.17 Restatement; Existing Credit Agreement
	 	 	93	 
	 
	 	 	 	 
	iv







 









 






ANNEXES, EXHIBITS AND SCHEDULES




	 	 	 
	Annex I

	 	List of Maximum Credit Amounts
	 
	 	 
	Exhibit A

	 	Form of Note
	Exhibit B

	 	Form of Borrowing Request
	Exhibit C

	 	Form of Interest Election Request
	Exhibit D

	 	Form of Compliance Certificate
	Exhibit E-1

	 	Form of Legal Opinion of Gersten Savage LLP, special counsel
to the Borrower
	Exhibit E-2

	 	Form of Legal Opinion of Local Counsel
	Exhibit F-1

	 	Security Instruments
	Exhibit F-2

	 	Form of Guaranty and Pledge Agreement
	Exhibit G

	 	Form of Assignment and Assumption
	 
	 	 
	Schedule 7.05

	 	Litigation
	Schedule 7.14

	 	Subsidiaries and Partnerships
	Schedule 7.15

	 	Location of Business and Offices
	Schedule 7.18

	 	Gas Imbalances
	Schedule 7.19

	 	Marketing Contracts
	Schedule 7.20

	 	Swap Agreements
	Schedule 9.05

	 	Investments
	 
	 	 
	v







 









 






LIST OF DEFINED TERMS




	 	 	 	 	 
	 	 	Page No.
	$          
	 	 	7	 
	ABR
	 	 	2	 
	Administrative Agent
	 	 	1	 
	Administrative Questionnaire
	 	 	2	 
	Affected Loans
	 	 	45	 
	Affiliate
	 	 	2	 
	Aggregate Maximum Credit Amounts
	 	 	2	 
	Agreement
	 	 	2	 
	Alternate Base Rate
	 	 	3	 
	Applicable Margin
	 	 	3	 
	Applicable Percentage
	 	 	3	 
	Approved Petroleum Engineers
	 	 	3	 
	Arranger
	 	 	3	 
	Assignment and Assumption
	 	 	3	 
	Availability Period
	 	 	4	 
	Board
	 	 	4	 
	Borrower
	 	 	1	 
	Borrowing
	 	 	4	 
	Borrowing Base
	 	 	4	 
	Borrowing Base Deficiency
	 	 	4	 
	Borrowing Request
	 	 	4	 
	Business Day
	 	 	4	 
	Capital Leases
	 	 	4	 
	Casualty Event
	 	 	4	 
	CERCLA
	 	 	8	 
	Change in Control
	 	 	4	 
	Change in Law
	 	 	5	 
	Code
	 	 	5	 
	Commitment
	 	 	5	 
	Commitment Fee Rate
	 	 	5	 
	Conforming Borrowing Base
	 	 	5	 
	Conforming Borrowing Base Utilization Percentage
	 	 	5	 
	Conforming Credit Criteria
	 	 	5	 
	Consolidated Net Income
	 	 	5	 
	Consolidated Subsidiaries
	 	 	6	 
	Control
	 	 	6	 
	Controlled
	 	 	6	 
	Controlling
	 	 	6	 
	Debt
	 	 	6	 
	Default
	 	 	7	 
	disposal
	 	 	8	 
	disposed
	 	 	8	 
	Disqualified Capital Stock
	 	 	7	 
	dollars
	 	 	7	 
	 
	 	 	 	 
	vi







 









 






	 	 	 	 	 
	 	 	Page No.
	Domestic Subsidiary
	 	 	7	 
	EBITDAX
	 	 	7	 
	Effective Date
	 	 	8	 
	Election Notice
	 	 	37	 
	Engineering Reports
	 	 	28	 
	Environmental Laws
	 	 	8	 
	Equity Interests
	 	 	9	 
	ERISA
	 	 	9	 
	ERISA Affiliate
	 	 	9	 
	ERISA Event
	 	 	9	 
	Eurodollar
	 	 	9	 
	Eurodollar Borrowing
	 	 	21	 
	Eurodollar Loan
	 	 	21	 
	Event of Default
	 	 	74	 
	Excepted Liens
	 	 	9	 
	Excluded Taxes
	 	 	10	 
	Existing Administrative Agent
	 	 	1	 
	Existing Credit Agreement
	 	 	1	 
	Existing Lender
	 	 	1	 
	Existing Loan Documents
	 	 	2	 
	Extension Effective Date
	 	 	40	 
	Federal Funds Effective Rate
	 	 	11	 
	Fee Letter
	 	 	11	 
	Financial Officer
	 	 	11	 
	Financial Statements
	 	 	11	 
	Foreign Lender
	 	 	11	 
	Foreign Subsidiary
	 	 	11	 
	GAAP
	 	 	11	 
	Governmental Authority
	 	 	12	 
	Governmental Requirement
	 	 	12	 
	Guarantors
	 	 	12	 
	Guaranty Agreement
	 	 	12	 
	hazardous substance
	 	 	8	 
	Highest Lawful Rate
	 	 	12	 
	Hydrocarbon Interests
	 	 	12	 
	Hydrocarbons
	 	 	13	 
	Indebtedness
	 	 	13	 
	Indemnified Taxes
	 	 	13	 
	Indemnitee
	 	 	84	 
	Information
	 	 	92	 
	Initial Reserve Report
	 	 	13	 
	Interest Election Request
	 	 	13	 
	Interest Payment Date
	 	 	13	 
	Interest Period
	 	 	13	 
	Interim Redetermination
	 	 	27	 
	Interim Redetermination Date
	 	 	14	 
	 
	 	 	 	 
	vii







 









 






	 	 	 	 	 
	 	 	Page No.
	Investment
	 	 	14	 
	Issuing Bank
	 	 	14	 
	JPMorgan Chase
	 	 	1	 
	LC Commitment
	 	 	14	 
	LC Disbursement
	 	 	14	 
	LC Exposure
	 	 	14	 
	Lenders
	 	 	14	 
	Letter of Credit
	 	 	14	 
	Letter of Credit Agreements
	 	 	15	 
	LIBO Rate
	 	 	15	 
	Lien
	 	 	15	 
	Loan Documents
	 	 	15	 
	Loans
	 	 	15	 
	Majority Lenders
	 	 	15	 
	Mandatory Redetermination
	 	 	16	 
	Mandatory Redetermination Date
	 	 	16	 
	Material Adverse Effect
	 	 	16	 
	Material Indebtedness
	 	 	16	 
	Maturity Date
	 	 	16	 
	Maximum Credit Amount
	 	 	16	 
	Monthly Date
	 	 	16	 
	Moody’s
	 	 	16	 
	Mortgaged Property
	 	 	16	 
	Multiemployer Plan
	 	 	16	 
	New Borrowing Base Notice
	 	 	29	 
	Notes
	 	 	17	 
	oil
	 	 	8	 
	Oil and Gas Properties
	 	 	17	 
	oil and gas waste
	 	 	8	 
	OPA
	 	 	8	 
	Other Taxes
	 	 	17	 
	Participant
	 	 	88	 
	PBGC
	 	 	17	 
	Person
	 	 	17	 
	Plan
	 	 	17	 
	Prime Rate
	 	 	18	 
	Property
	 	 	18	 
	Proposed Borrowing Base
	 	 	28	 
	Proposed Borrowing Base Notice
	 	 	28	 
	Proposed Conforming Borrowing Base
	 	 	28	 
	RCRA
	 	 	8	 
	Redeem
	 	 	18	 
	Redemption
	 	 	18	 
	Redetermination Date
	 	 	18	 
	Register
	 	 	88	 
	Related Parties
	 	 	18	 
	 
	 	 	 	 
	viii







 









 






	 	 	 	 	 
	 	 	Page No.
	release
	 	 	8	 
	Remedial Work
	 	 	62	 
	Reserve Report
	 	 	18	 
	Responsible Officer
	 	 	19	 
	Restricted Payment
	 	 	19	 
	Revolving Credit Exposure
	 	 	19	 
	Rights Agreement
	 	 	19	 
	S&P
	 	 	20	 
	Scheduled Redetermination
	 	 	27	 
	Scheduled Redetermination Date
	 	 	19	 
	SEC
	 	 	19	 
	Section 91.1011
	 	 	8	 
	Security Instruments
	 	 	19	 
	Senior Subordinated Convertible Notes
	 	 	20	 
	SFAS 133
	 	 	20	 
	solid waste
	 	 	8	 
	Subsidiary
	 	 	20	 
	Swap Agreement
	 	 	20	 
	Swap Termination Value
	 	 	20	 
	Synthetic Leases
	 	 	20	 
	Taxes
	 	 	21	 
	Termination Date
	 	 	21	 
	threatened release
	 	 	8	 
	Total Debt
	 	 	21	 
	Transactions
	 	 	21	 
	Type
	 	 	21	 
	venture
	 	 	70	 
	Wholly-Owned Subsidiary
	 	 	21	 
	 
	 	 	 	 
	ix







 









 





     THIS AMENDED AND RESTATED CREDIT AGREEMENT dated as of August 9, 2007, is among: Teton Energy
Corporation, a Delaware corporation (the “Borrower”); each of the Lenders from time to time
party hereto; and JPMorgan Chase Bank, N.A. (in its individual capacity, “JPMorgan Chase”),
as administrative agent for the Lenders (in such capacity, together with its successors in such
capacity, the “Administrative Agent”).



R E C I T A L S




     A. The Borrower, BNP Paribas, as the administrative agent (“Existing Administrative
Agent”), and BNP Paribas as the sole lender thereunder (the “Existing Lender”) are
parties to that certain Credit Agreement dated as of June 15, 2006, as amended by that certain
First Amendment to Credit Agreement dated as of November 1, 2006, and as amended by that certain
Second Amendment to Credit Agreement dated as of May 14, 2007 (as renewed, extended, amended or
restated from time to time, the “Existing Credit Agreement”).



     B. The Existing Lender agreed to sell and assign, and JPMorgan Chase agreed to purchase and
assume, all of the outstanding commitments and loans under the Existing Credit Agreement and all of
the Existing Lender’s rights, titles, interests, liens, security interests, privileges, claims,
demands and equities existing in connection with or as security for the payment and performance
under the Existing Credit Agreement, and the Existing Administrative Agent agreed to assign, and
JPMorgan Chase agreed to assume, the position of administrative agent under the Existing Credit
Agreement, pursuant to that certain Master Assignment of Notes, Security Instruments and Liens
dated as of even date herewith.



     C. The Borrower has requested JPMorgan Chase, and JPMorgan Chase has agreed, to amend and
restate (but not extinguish) the Existing Credit Agreement, and the Borrower has further requested
that the Lenders provide certain loans to and extensions of credit on behalf of the Borrower, and
the Lenders have agreed to make such loans and extensions of credit subject to the terms and
conditions of this Agreement.



     D. Pursuant to Article XI of this Agreement, JPMorgan Chase Bank, N.A. has been appointed
Administrative Agent for the Lenders hereunder.



     E. It is the intention of the parties hereto that this Agreement is an amendment and
restatement of the Existing Credit Agreement, and not a new or substitute credit agreement or
novation of the Existing Credit Agreement.



     F. In consideration of the mutual covenants and agreements herein contained and of the loans,
extensions of credit and commitments hereinafter referred to, the parties hereto agree that this
Agreement supersedes and replaces the Existing Credit Agreement in its entirety; provided,
that, (i) such amendment and restatement shall operate to renew, amend and modify the
rights and obligations of the parties under the Existing Credit Agreement, as applicable, and as
provided herein, but shall not effect a novation thereof, (ii) unless otherwise provided for herein
and evidenced by a separate written agreement, amendment or release, no other Loan Document, as
defined in, and executed and/or delivered pursuant to the terms of, the Existing Credit Agreement
(collectively, the “Existing Loan Documents”) shall be amended, terminated or released in
any respect and all of such other Existing Loan Documents shall remain in full



1









 







force and effect except that the Borrower and the Lenders agree that by executing this
Agreement the definition of “Credit Agreement” contained in such Existing Loan Documents shall be
amended to include this Agreement and all future amendments hereto, and (iii) the Liens securing
the Indebtedness under and as defined in the Existing Credit Agreement and granted pursuant to the
Existing Loan Documents and the liabilities and obligations of the Borrower shall not be
extinguished, but shall be carried forward, and such Liens shall secure such Indebtedness, in each
case, as renewed, amended, restated and modified hereby. The Borrower represents and warrants
that, as of the Effective Date, there are no claims or offsets against, or defenses or
counterclaims to, its obligations (or the obligations of any Subsidiary) under the Existing Credit
Agreement or any of the other Existing Loan Documents.



ARTICLE I

DEFINITIONS AND ACCOUNTING MATTERS




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



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



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



     “Administrative Agent” has the meaning set forth in the introductory paragraph of this
Agreement.



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



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



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



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



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



     “Alternate Base Rate” means, for any day, a rate per annum equal to the greater of (a)
the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day
plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate or the
Federal Funds Effective Rate shall be effective from and including the effective date of such
change in the Prime Rate or the Federal Funds Effective Rate, respectively.



2









 





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



	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Conforming Borrowing Base Utilization Grid
	Conforming	 	 	 	 	 	 	 	 	 	 	 	 
	Borrowing Base	 	 	 	 	 	 	 	 	 	 	 	 
	Utilization	 	 	 	 	 	 	 	 	 	 	 	 
	Percentage	 	<50%	 	350% <75%	 	375% <90%	 	390%
£100%	 	>100% £112.5%	 	>112.5%
	ABR Loans
	 	 	0.000	%	 	 	0.000	%	 	 	0.250	%	 	 	0.500	%	 	 	1.000	%	 	 	1.500	%
	Eurodollar Loans
	 	 	1.250	%	 	 	1.500	%	 	 	1.750	%	 	 	2.000	%	 	 	2.500	%	 	 	3.000	%
	Commitment Fee Rate
	 	 	0.375	%	 	 	0.375	%	 	 	0.375	%	 	 	0.500	%	 	 	0.500	%	 	 	0.500	%






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



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



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



     “Arranger” means J.P. Morgan Securities Inc., in its capacities as the sole lead
arranger and sole bookrunner hereunder.



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



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



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



     “Borrower” has the meaning set forth in the introductory paragraph of this Agreement.



3









 





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



     “Borrowing Base” means at any time an amount equal to the amount determined in
accordance with Section 2.07, as the same may be adjusted from time to time pursuant to Section
8.13(c) or Section 9.11(d). From and after November 1, 2008, the Borrowing Base shall be, and
shall be in an amount equal to, the Conforming Borrowing Base.



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



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



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



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



     “Casualty Event” means any loss, casualty or other insured damage to, or any
nationalization, taking under power of eminent domain or by condemnation or similar proceeding of,
any Property of the Borrower or any of its Subsidiaries having a fair market value in excess of the
greater of $500,000 or two and one-half percent (2.5%) of the then effective Conforming Borrowing
Base.



     “Change in Control” means (a) the acquisition of ownership, directly or indirectly,
beneficially or of record, by any Person or group of Equity Interests representing more than 30% of
the aggregate ordinary voting power represented by the issued and outstanding Equity Interests of
the Borrower, (b) occupation of a majority of the seats (other than vacant seats) on the board of
directors of the Borrower by Persons who were neither (i) nominated by the board of directors of
the Borrower nor (ii) appointed by directors so nominated, (c) the acquisition of direct or
indirect Control of the Borrower by any Person or group or (d) a “Change of Control Transaction” as
defined in the Senior Subordinated Convertible Notes.



     “Change in Law” means (a) the adoption of any law, rule or regulation of general
applicability to all commercial banks (such requirement of generally applicability not to apply to
JPMorgan Chase), after the date of this Agreement and with respect to which none of the Lenders has
knowledge of as of the Effective Date, (b) any change in any law, rule or regulation or in the
interpretation or application thereof by any Governmental Authority after the date of this
Agreement or (c) compliance by any Lender or the Issuing Bank (or, for purposes of Section
5.01(b)), by any lending office of such Lender or by such Lender’s or the Issuing Bank’s holding



4









 







company, if any) with any request, guideline or directive (whether or not having the force of
law) of any Governmental Authority made or issued after the date of this Agreement.



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



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



     “Commitment Fee Rate” has the meaning, or is otherwise described as, set forth in the
definition of “Applicable Margin.”



     “Conforming Borrowing Base” means at any time an amount determined in accordance with
Section 2.07 based on the Administrative Agent’s application of Conforming Credit Criteria.



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



     “Conforming Credit Criteria” means the credit standards and other criteria customarily
applied by the Administrative Agent in the determination of the credit limitations for companies
similar to the Borrower.



     “Consolidated Net Income” means with respect to the Borrower and the Consolidated
Subsidiaries, for any period beginning after January 1, 2007, the aggregate of the net income (or
loss) of the Borrower and the Consolidated Subsidiaries after allowances for taxes for such period
determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded
from such net income (to the extent otherwise included therein) the following: (a) the net income
of any Person in which the Borrower or any Consolidated Subsidiary has an interest (which interest
does not cause the net income of such other Person to be consolidated with the net income of the
Borrower and the Consolidated Subsidiaries in accordance with GAAP), except to the extent of the
amount of dividends or distributions actually paid in cash during such period by such other Person
to the Borrower or to a Consolidated Subsidiary, as the case may be; (b) the net income (but not
loss) during such period of any Consolidated Subsidiary to the extent that the declaration or
payment of dividends or similar distributions or transfers or loans by that Consolidated Subsidiary
is not at the time permitted by operation of the terms of its charter or any agreement, instrument
or Governmental Requirement applicable to such Consolidated Subsidiary or is otherwise restricted
or prohibited, in each case determined in accordance with GAAP; (c) the net income (or loss) of any
Person acquired in a pooling-of-interests transaction



5









 







for any period prior to the date of such transaction; (d) any extraordinary non-cash gains or
losses during such period; (e) non-cash gains or losses resulting from the net change in Borrower’s
mark to market portfolio of commodity price risk management activities during that period; (f) any
non-cash gains, losses or charges on any Swap Agreement or on the Senior Subordinated Convertible
Notes and associated warrants resulting from the requirements of SFAS 133 for that period; and (g)
any gains or losses attributable to writeups, writedowns or impairments of assets, including
ceiling test writedowns; provided that if the Borrower or any Consolidated Subsidiary shall acquire
or dispose of any Property during such period, then Consolidated Net Income shall be calculated
after giving pro forma effect to such acquisition or disposition, as if such acquisition or
disposition had occurred on the first day of such period.



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



     “Control” means the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of a Person, whether through the ability to
exercise voting power, by contract or otherwise. For the purposes of this definition, and without
limiting the generality of the foregoing, any Person that owns directly or indirectly 30% or more
of the Equity Interests having ordinary voting power for the election of the directors or other
governing body of a Person (other than as a limited partner of such other Person) will be deemed to
“control” such other Person. “Controlling” and “Controlled” have meanings
correlative thereto.



     “Debt” means, for any Person, the sum of the following (without duplication),
excluding any assets retirement obligations associated with Oil & Gas Properties, any non-cash
liabilities created by SFAS 133 for Swap Agreements and the Senior Subordinated Convertible Notes
and associated warrants, whether such amounts are reflected as a liability under GAAP or not: (a)
all obligations of such Person for borrowed money or evidenced by bonds, bankers’ acceptances,
debentures, notes or other similar instruments; (b) all obligations of such Person (whether
contingent or otherwise) in respect of letters of credit, surety or other bonds and similar
instruments; (c) all accounts payable and all accrued expenses, liabilities or other obligations of
such Person to pay the deferred purchase price of Property or services; (d) all obligations under
Capital Leases; (e) all obligations under Synthetic Leases; (f) all Debt (as defined in the other
clauses of this definition) of others secured by (or for which the holder of such Debt has an
existing right, contingent or otherwise, to be secured by) a Lien on any Property of such Person,
whether or not such Debt is assumed by such Person; (g) all Debt (as defined in the other clauses
of this definition) of others guaranteed by such Person or in which such Person otherwise assures a
creditor against loss of the Debt (howsoever such assurance shall be made) to the extent of the
lesser of the amount of such Debt and the maximum stated amount of such guarantee or assurance
against loss; (h) all obligations or undertakings of such Person to maintain or cause to be
maintained the financial position or covenants of others or to purchase the Debt or Property of
others; (i) obligations to deliver commodities, goods or services, including, without limitation,
Hydrocarbons, in consideration of one or more advance payments, other than gas balancing
arrangements in the ordinary course of business; (j) obligations to pay for goods or services even
if such goods or services are not actually received or utilized by such Person; (k) any Debt of a



6









 







partnership for which such Person is liable either by agreement, by operation of law or by a
Governmental Requirement but only to the extent of such liability; (l) Disqualified Capital Stock;
and (m) the undischarged balance of any production payment created by such Person or for the
creation of which such Person directly or indirectly received payment. The Debt of any Person
shall include all obligations of such Person of the character described above to the extent such
Person remains legally liable in respect thereof notwithstanding that any such obligation is not
included as a liability of such Person under GAAP. Any Debt issued with an original issue debt
discount is deemed to be outstanding at the full face amount without regard to such original issue
debt discount.



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



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



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



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



     “EBITDAX” means, for any period, the sum of Consolidated Net Income for such period
plus the following expenses or charges to the extent deducted from Consolidated Net Income in such
period: interest, income taxes, depreciation, depletion, amortization, exploration expenses and
other similar non-cash charges (including non-cash income or losses associated with SFAS 133 for
Swap Agreements and the Senior Subordinated Convertible Notes and associated warrants), minus all
non-cash income added to Consolidated Net Income; provided that EBITDAX for the fiscal quarters
ending December 31, 2007, March 31, 2008 and June 30, 2008 shall be calculated as follows:




	 	(a)	 	for the fiscal quarter ending December 31, 2007, EBITDAX shall be EBITDAX for
such quarter multiplied by four;
	 
	 	(b)	 	for the fiscal quarter ending March 31, 2008, EBITDAX shall be EBITDAX for the
two fiscal quarter period ending March 31, 2008, multiplied by two;
	 
	 	(c)	 	for the fiscal quarter ending June 30, 2008, EBITDAX shall be EBITDAX for the
three fiscal quarter period ending June 30, 2008, multiplied by 4/3.




7









 











     Thereafter, EBITDAX shall be calculated using EBITDAX for the period of four fiscal quarters
ending on the last day of the fiscal quarter immediately preceding the date of determination for
which financial statements are available.



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



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



     “Environmental Laws” means any and all Governmental Requirements pertaining in any way
to health, safety the environment or the preservation or reclamation of natural resources, in
effect in any and all jurisdictions in which the Borrower or any Subsidiary is conducting or at any
time has conducted business, or where any Property of the Borrower or any Subsidiary is located,
including without limitation, the Oil Pollution Act of 1990 (“OPA”), as amended, the Clean
Air Act, as amended, the Comprehensive Environmental, Response, Compensation, and Liability Act of
1980 (“CERCLA”), as amended, the Federal Water Pollution Control Act, as amended, the
Occupational Safety and Health Act of 1970, as amended, the Resource Conservation and Recovery Act
of 1976 (“RCRA”), as amended, the Safe Drinking Water Act, as amended, the Toxic Substances
Control Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the
Hazardous Materials Transportation Act, as amended, and other environmental conservation or
protection Governmental Requirements. The term “oil” shall have the meaning specified in
OPA, the terms “hazardous substance” and “release” (or “threatened
release”) have the meanings specified in CERCLA, the terms “solid waste” and
“disposal” (or “disposed”) have the meanings specified in RCRA and the term
“oil and gas waste” shall have the meaning specified in Section 91.1011 of the Texas
Natural Resources Code (“Section 91.1011”); provided, however, that (a) in the event either
OPA, CERCLA, RCRA or Section 91.1011 is amended so as to broaden the meaning of any term defined
thereby, such broader meaning shall apply subsequent to the effective date of such amendment and
(b) to the extent the laws of the state or other jurisdiction in which any Property of the Borrower
or any Subsidiary is located establish a meaning for “oil,” “hazardous substance,”
“release,” “solid waste,” “disposal” or “oil and gas waste” which
is broader than that specified in either OPA, CERCLA, RCRA or Section 91.1011, such broader meaning
shall apply.



     “Equity Interests” means shares of capital stock, partnership interests, membership
interests in a limited liability company, beneficial interests in a trust or other equity ownership
interests in a Person, and any warrants, options or other rights (including, without limitation,
rights under the Rights Agreement) entitling the holder thereof to purchase or acquire any such
Equity Interest.



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



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



8









 





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



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



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



     “Excepted Liens” means: (a) Liens for Taxes, assessments or other governmental
charges or levies which are not delinquent or which are being contested in good faith by
appropriate action and for which adequate reserves have been maintained in accordance with GAAP;
(b) Liens in connection with workers’ compensation, unemployment insurance or other social
security, old age pension or public liability obligations which are not delinquent or which are
being contested in good faith by appropriate action and for which adequate reserves have been
maintained in accordance with GAAP; (c) statutory landlord’s liens, operators’, vendors’,
carriers’, warehousemen’s, repairmen’s, mechanics’, suppliers’, workers’, materialmen’s,
construction or other like Liens arising by operation of law in the ordinary course of business or
incident to the exploration, development, operation and maintenance of Oil and Gas Properties each
of which is in respect of obligations that are not delinquent or which are being contested in good
faith by appropriate action and for which adequate reserves have been maintained in accordance with
GAAP; (d) contractual Liens which arise in the ordinary course of business under operating
agreements, joint venture agreements, oil and gas partnership agreements, oil and gas leases,
farm-out agreements, division orders, contracts for the sale, transportation or exchange of oil and
natural gas, unitization and pooling declarations and agreements, area of mutual interest
agreements, overriding royalty agreements, marketing agreements, processing agreements, net profits
agreements, development agreements, gas balancing or deferred production agreements, injection,
repressuring and recycling agreements, salt water or other disposal agreements, seismic or other
geophysical permits or agreements, and other agreements which are usual and customary in the oil
and gas business and are for claims which are not delinquent or which are being contested in good
faith by appropriate action and for which adequate reserves have been maintained in accordance with
GAAP, provided that any such Lien referred to in this clause does not materially impair the use of
all of the Borrower’s or any Subsidiary’s Property; (e) Liens arising solely by virtue of any
statutory or common law provision relating to banker’s liens, rights of set-off or similar rights
and remedies and burdening only deposit accounts or other funds maintained with a creditor
depository institution, provided that no such deposit account is a dedicated cash collateral
account or is subject to restrictions against access by the depositor in excess of those set forth
by regulations promulgated by the Board and no such deposit account is intended by Borrower or any
of its Subsidiaries to provide collateral to the depository institution; (f) easements,
restrictions, servitudes, permits, conditions,



9









 







covenants, exceptions or reservations in any Property of the Borrower or any Subsidiary for
the purpose of roads, pipelines, transmission lines, transportation lines, distribution lines for
the removal of gas, oil, coal or other minerals or timber, and other like purposes, or for the
joint or common use of real estate, rights of way, facilities and equipment, that do not secure any
monetary obligations and which in the aggregate do not materially impair the use of all of the
Borrower’s or any Subsidiary’s Property; (g) Liens on cash or securities pledged to secure
performance of tenders, surety and appeal bonds, government contracts, performance and return of
money bonds, bids, trade contracts, leases, statutory obligations, regulatory obligations and other
obligations of a like nature incurred in the ordinary course of business and (h) judgment and
attachment Liens not giving rise to an Event of Default, provided that any appropriate legal
proceedings which may have been duly initiated for the review of such judgment shall not have been
finally terminated or the period within which such proceeding may be initiated shall not have
expired and no action to enforce such Lien has been commenced; provided, further that Liens
described in clauses (a) through (e) shall remain “Excepted Liens” only for so long as no action to
enforce such Lien has been commenced and no intention to subordinate the first priority Lien
granted in favor of the Administrative Agent and the Lenders is to be hereby implied or expressed
by the permitted existence of such Excepted Liens.



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



     “Existing Administrative Agent” has the meaning set forth in the Recitals hereto.



     “Existing Credit Agreement” has the meaning set forth in the Recitals hereto.



     “Existing Lender” has the meaning set forth in the Recitals hereto.



     “Existing Loan Documents” has the meaning set forth in the Recitals hereto.



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



10









 







necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions
received by the Administrative Agent from three Federal funds brokers of recognized standing
selected by it.



     “Fee Letter” means that certain letter agreement among JPMorgan Chase, the Arranger
and the Borrower dated July 31, 2007 concerning certain fees in connection with this Agreement and
any agreements or instruments executed in connection therewith, as the same may be amended or
replaced from time to time.



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



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



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



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



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



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



     “Governmental Requirement” means any law, statute, code, ordinance, enforceable order,
enforceable determination, final rule, final regulation, final judgment, final decree, injunction,
franchise, permit, certificate, license, authorization or other directive or requirement, whether
now or hereinafter in effect, including, without limitation, Environmental Laws, energy regulations
and occupational, safety and health standards or controls, of any Governmental Authority.



     “Guarantors” means:




	 	(a)	 	Teton North America LLC, a Colorado limited liability company;
	 
	 	(b)	 	Teton Piceance LLC, a Colorado limited liability company;
	 
	 	(c)	 	Teton DJ LLC, a Colorado limited liability company;




11









 






	 	(d)	 	Teton Williston LLC, a Colorado limited liability company;
	 
	 	(e)	 	Teton Big Horn LLC, a Colorado limited liability company; and
	 
	 	(f)	 	each other Subsidiary that guarantees the Indebtedness pursuant to Section
8.14(b).





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



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



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



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



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



     “Indemnified Taxes” means Taxes other than Excluded Taxes.



     “Initial Reserve Report” means the engineering information prepared by the Borrower
and delivered to the Administrative Agent, with respect to the value of the Oil and Gas Properties
of the Borrower and its Subsidiaries as of July 1, 2007.



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



     “Interest Payment Date” means (a) with respect to any ABR Loan, the last day of each
March, June, September and December and (b) with respect to any Eurodollar Loan, the last day



12









 







of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the
case of a Eurodollar Borrowing with an Interest Period of more than three months’ duration, each
day prior to the last day of such Interest Period that occurs at intervals of three months’
duration after the first day of such Interest Period.



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



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



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



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



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



13









 





     “JPMorgan Chase” has the meaning set forth in the introductory paragraph of this
Agreement.



     “LC Commitment” at any time means $5,000,000.



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



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



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



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



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



     “LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest Period,
the rate appearing on Page 3750 of the Dow Jones Market Service (or on any successor or substitute
page of such Service, or any successor to or substitute for such Service, providing rate quotations
comparable to those currently provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes of providing quotations of interest rates
applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London
time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar
deposits with a maturity comparable to such Interest Period. In the event that such rate is not
available at such time for any reason, then the “LIBO Rate” with respect to such Eurodollar
Borrowing for such Interest Period shall be the rate (rounded upwards, if necessary, to the next
1/16 of 1%) at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest
Period are offered by the principal London office of the Administrative Agent in immediately
available funds in the London interbank market at approximately 11:00 a.m., London time, two
Business Days prior to the commencement of such Interest Period.



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



14









 







conditional sale agreement, or leases under a financing lease or other arrangement pursuant to
which title to the Property has been retained by or vested in some other Person in a transaction
intended to create a financing.



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



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



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



     “Mandatory Redetermination” means the redetermination of the Borrowing Base pursuant
to Section 2.07(d).



     “Mandatory Redetermination Date” means November 1, 2008.



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



     “Material Indebtedness” means Debt (other than the Loans and Letters of Credit and
accounts payable and other current obligations incurred in the ordinary course of business that are
not in dispute and are not more than 90 days past due), or obligations in respect of one or more
Swap Agreements, of any one or more of the Borrower and its Subsidiaries in an aggregate principal
amount exceeding the greater of $500,000 or five percent (5%) of the then effective Conforming
Borrowing Base. For purposes of determining Material Indebtedness, the “principal amount” of the
obligations of the Borrower or any Subsidiary in respect of any Swap Agreement at any time shall be
the Swap Termination Value.



     “Maturity Date” means August 9, 2011, or as extended in accordance with Section 3.06.



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



     “Monthly Date” means the last day of each calendar month.



15









 





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



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



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



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



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



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



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



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



16









 





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



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



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



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



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



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



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



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



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



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



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



17









 





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



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



     “Reserve Report” means a report, in form and substance reasonably satisfactory to the
Administrative Agent, setting forth, as of each January 1st or July 1st (or such other date in the
event of an Interim Redetermination) the oil and gas reserves attributable to the Oil and Gas
Properties of the Borrower and the Subsidiaries, together with a projection of the rate of
production and future net income, taxes, operating expenses and capital expenditures with respect
thereto as of such date, based upon the economic assumptions consistent with the Administrative
Agent’s lending requirements applicable to all similarly situated borrowers operating in similar
regional geographic and geologic areas at the time.



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



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



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



     “Rights Agreement” means that certain agreement dated as of June 3, 2005, between
Teton Energy Corporation (f/k/a Teton Petroleum Company) and Computershare Investor Services LLC.



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



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



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



     “Security Instruments” means the Guaranty Agreement, mortgages, deeds of trust,
amended and restated mortgages, amended and restated deeds of trust and other agreements,
instruments or certificates described or referred to in Exhibit F-1, and any and all other
agreements, instruments, consents or certificates now or hereafter executed and delivered by the



18









 







Borrower or any other Person (other than Swap Agreements with the Lenders or any Affiliate of
a Lender or participation or similar agreements between any Lender and any other lender or creditor
with respect to any Indebtedness pursuant to this Agreement) in connection with, or as security for
the payment or performance of the Indebtedness, the Notes, this Agreement, or reimbursement
obligations under the Letters of Credit, as such agreements may be amended, modified, supplemented
or restated from time to time.



     “Senior Subordinated Convertible Notes” means the Borrower’s $9,000,000 8.00% senior
subordinated convertible notes due May 14, 2008.



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



     “SFAS 133” means the Statement of Financial Accounting Standard Number 133 entitled
“Accounting for Derivative Instruments and Hedging Activities” issued by the Financial Accounting
Standards Board in June of 1998, as amended and in effect from time to time.



     “Subsidiary” means: (a) any Person of which at least a majority of the outstanding
Equity Interests having by the terms thereof ordinary voting power to elect a majority of the board
of directors, manager or other governing body of such Person (irrespective of whether or not at the
time Equity Interests of any other class or classes of such Person shall have or might have voting
power by reason of the happening of any contingency) is at the time directly or indirectly owned or
controlled by the Borrower or one or more of its Subsidiaries or by the Borrower and one or more of
its Subsidiaries and (b) any partnership of which the Borrower or any of its Subsidiaries is a
general partner. Unless otherwise indicated herein, each reference to the term “Subsidiary” shall
mean a Subsidiary of the Borrower.



     “Swap Agreement” means any agreement with respect to any swap, forward, future or
derivative transaction or option or similar agreement, whether exchange traded, “over-the-counter”
or otherwise, involving, or settled by reference to, one or more interest rates, currencies,
commodities, equity or debt instruments or securities, or economic, financial or pricing indices or
measures of economic, financial or pricing risk or value or any similar transaction or any
combination of these transactions; provided that no phantom stock or similar plan providing for
payments only on account of services provided by current or former directors, officers, employees
or consultants of the Borrower or the Subsidiaries shall be a Swap Agreement.



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



     “Synthetic Leases” means, in respect of any Person, all leases which shall have been,
or should have been, in accordance with GAAP, treated as operating leases on the financial
statements of the Person liable (whether contingently or otherwise) for the payment of rent
thereunder and which were properly treated as indebtedness for borrowed money for purposes of



19









 







U.S. federal income taxes, if the lessee in respect thereof is obligated to either purchase
for an amount in excess of, or pay upon early termination an amount in excess of, 80% of the
residual value of the Property subject to such operating lease upon expiration or early termination
of such lease.



     “Taxes” means any and all present or future taxes, levies, imposts, duties,
deductions, charges or withholdings imposed by any Governmental Authority and as applicable to any
Lender, taxes, levies, imposts, duties, deductions, charges or withholdings generally imposed on
the commercial banking industry as a whole or on particular groups, i.e. Foreign Lenders.



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



     “Total Debt” means, at any date, all Debt of the Borrower and the Consolidated
Subsidiaries on a consolidated basis, excluding (a) non-cash obligations (including non-cash
liabilities created by SFAS 133 for Swap Agreements and the Senior Subordinated Convertible Notes
and associated warrants) and (b) accounts payable and other accrued liabilities (for the deferred
purchase price of Property or services) from time to time incurred in the ordinary course of
business which are not greater than ninety (90) days past the date of invoice or delinquent or
which are being contested in good faith by appropriate action and for which adequate reserves have
been maintained in accordance with GAAP.



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



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



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



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



     Section 1.04 Terms Generally; Rules of Construction. The definitions of terms herein
shall apply equally to the singular and plural forms of the terms defined. Whenever the



20









 







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



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



ARTICLE II

THE CREDITS




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



     Section 2.02 Loans and Borrowings.



          (a) Borrowings; Several Obligations. Each Loan shall be made as part of a Borrowing
consisting of Loans made by the Lenders ratably in accordance with their respective



21









 







Commitments. The failure of any Lender to make any Loan required to be made by it shall not
relieve any other Lender of its obligations hereunder; provided that the Commitments are several
and no Lender shall be responsible for any other Lender’s failure to make Loans as required.



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



          (c) Minimum Amounts; Limitation on Number of Borrowings. At the commencement of each
Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that
is an integral multiple of $1,000,000 and not less than $1,000,000. At the time that each ABR
Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of
$1,000,000 and not less than $1,000,000; provided that an ABR Borrowing may be in an aggregate
amount that is equal to the entire unused balance of the total Commitments or that is required to
finance the reimbursement of an LC Disbursement as contemplated by Section 2.08(e). Borrowings of
more than one Type may be outstanding at the same time, provided that there shall not at any time
be more than a total of six (6) Eurodollar Borrowings outstanding. Notwithstanding any other
provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert
or continue, any Borrowing if the Interest Period requested with respect thereto would end after
the Maturity Date.



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



     Section 2.03 Requests for Borrowings. To request a Borrowing, the Borrower shall
notify the Administrative Agent of such request by telephone (a) in the case of a Eurodollar
Borrowing, not later than 11:00 a.m., Chicago, Illinois time, three Business Days before the date
of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 11:00 a.m.,



22









 







Chicago, Illinois time, on the date of the proposed Borrowing; provided that no such notice
shall be required for any deemed request of an ABR Borrowing to finance the reimbursement of an LC
Disbursement as provided in Section 2.08(e). Each such telephonic Borrowing Request shall be
irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative
Agent of a written Borrowing Request in substantially the form of Exhibit B and signed by
the Borrower. Each such telephonic and written Borrowing Request shall specify the following
information in compliance with Section 2.02:




          (i) the aggregate amount of the requested Borrowing;




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




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




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




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




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



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



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



     Section 2.04 Interest Elections.



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



23









 







among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each
such portion shall be considered a separate Borrowing.



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



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




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




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




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




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



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



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



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



24









 







Borrowing shall be ineffective) and (ii) unless repaid, each Eurodollar Borrowing shall be
converted to an ABR Borrowing at the end of the Interest Period applicable thereto.



     Section 2.05 Funding of Borrowings.



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



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



     Section 2.06 Termination and Reduction of Aggregate Maximum Credit Amounts.



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



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




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



25









 






          (ii) The Borrower shall notify the Administrative Agent of any election to terminate or
reduce the Aggregate Maximum Credit Amounts under Section 2.06(b)(i) at least three Business
Days prior to the effective date of such termination or reduction, specifying such election
and the effective date thereof. Promptly following receipt of any notice, the
Administrative Agent shall advise the Lenders of the contents thereof. Each notice
delivered by the Borrower pursuant to this Section 2.06(b)(ii) shall be irrevocable. Any
termination or reduction of the Aggregate Maximum Credit Amounts shall be permanent and may
not be reinstated. Each reduction of the Aggregate Maximum Credit Amounts shall be made
ratably among the Lenders in accordance with each Lender’s Applicable Percentage.



     Section 2.07 Borrowing Base and Conforming Borrowing Base.



          (a) Initial Borrowing Base and Initial Conforming Borrowing Base. For the period from
and including the Effective Date to but excluding the first Redetermination Date, the amount of the
Borrowing Base shall be Fourteen Million Dollars and No/100 ($14,000,000.00). Notwithstanding the
foregoing, the Borrowing Base may be subject to further adjustments from time to time pursuant to
Section 8.13(c) or Section 9.11(d). For the period from and including the Effective Date to but
excluding the first Redetermination Date, the amount of the Conforming Borrowing Base shall be
Eleven Million Dollars and No/100 ($11,000,000.00). Notwithstanding the foregoing, the Conforming
Borrowing Base may be subject to further adjustments from time to time pursuant to Section 8.13(c)
or Section 9.11(d).



          (b) Scheduled and Interim Redeterminations. The Borrowing Base and, as applicable
prior to November 1, 2008, the Conforming Borrowing Base, shall be redetermined semi-annually in
accordance with this Section 2.07 (a “Scheduled Redetermination”), and, subject to Section
2.07(e), such redetermined Borrowing Base and, as applicable, Conforming Borrowing Base, shall
become effective and applicable to the Borrower, the Administrative Agent, the Issuing Bank and the
Lenders on May 1st and November 1st of each year, commencing November 1, 2007. In addition, the
Borrower may, by notifying the Administrative Agent thereof, and the Administrative Agent may, at
the direction of the Majority Lenders, by notifying the Borrower thereof, each elect to cause the
Borrowing Base and Conforming Borrowing Base to be redetermined one time between Scheduled
Redeterminations (together with any additional redetermination provided in the last sentence of
this Section 2.07(b), an “Interim Redetermination”) in accordance with this Section 2.07.
Further, the Borrower may, in addition to its right to cause the Borrowing Base and Conforming
Borrowing Base to be redetermined pursuant to the immediately preceding sentence, by notifying the
Administrative Agent thereof, one additional time during the calendar year ending December 31,
2008, elect to cause the Borrowing Base and Conforming Borrowing Base to be redetermined.



          (c) Scheduled and Interim Redetermination Procedure.




          (i) Each Scheduled Redetermination and each Interim Redetermination shall be
effectuated as follows: Upon receipt by the Administrative Agent of (A) the Reserve Report
and the certificate required to be delivered by the Borrower to the Administrative Agent, in
the case of a Scheduled Redetermination, pursuant to Section 8.12(a) and (c), and, in the
case of an Interim Redetermination,



26









 







pursuant to Section 8.12(b) and (c), and (B) such other reports, data and supplemental
information, including, without limitation, the information provided pursuant to Section
8.12(c), as may, from time to time, be reasonably requested by the Majority Lenders (the
Reserve Report, such certificate and such other reports, data and supplemental information
being the “Engineering Reports”), the Administrative Agent shall evaluate the
information contained in the Engineering Reports and shall, in its sole discretion, propose
(1) a new Borrowing Base (the “Proposed Borrowing Base”) based upon such information
and such other information (including, without limitation, the status of title information
with respect to the Oil and Gas Properties as described in the Engineering Reports and the
existence of any other Debt) as the Administrative Agent deems appropriate in its sole
discretion and consistent with its normal oil and gas lending criteria applicable to all
similarly situated borrowers operating in similar regional geographic and geologic areas at
the particular time, and (2) with respect to any Interim Redetermination prior to November
1, 2008, a new Conforming Borrowing Base (the “Proposed Conforming Borrowing Base”)
based upon the Administrative Agent’s application of Conforming Credit Criteria. In no
event shall the Proposed Borrowing Base or Proposed Conforming Borrowing Base exceed the
Aggregate Maximum Credit Amounts.




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




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




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




          (iii) Any Proposed Borrowing Base or Proposed Conforming Borrowing Base that would
increase the Borrowing Base or Conformed Borrowing Base, as applicable, then in effect must
be approved or deemed to have been approved by all of the Lenders as provided in this
Section 2.07(c)(iii); and any Proposed Borrowing Base or Proposed Conforming Borrowing Base
that would decrease or maintain the Borrowing Base or Conformed Borrowing Base, as
applicable, then in effect must be approved or be deemed to have been approved by the
Majority Lenders as provided in this Section 2.07(c)(iii). Upon receipt of the Proposed
Borrowing Base Notice, each Lender shall have fifteen (15) days to agree with the Proposed
Borrowing Base or disagree with the



27









 







Proposed Borrowing Base or, as applicable, agree with the Proposed Conforming Borrowing
Base or disagree with the Proposed Conforming Borrowing Base, by proposing an alternate
Borrowing Base or alternate Conforming Borrowing Base. If at the end of such fifteen (15)
days, any Lender has not communicated its approval or disapproval in writing to the
Administrative Agent, such silence shall be deemed to be an approval of the Proposed
Borrowing Base or, as applicable, the Proposed Conforming Borrowing Base. If, at the end of
such 15-day period, all of the Lenders, in the case of a Proposed Borrowing Base or Proposed
Conforming Borrowing Base that would increase the Borrowing Base or Conforming Borrowing
Base, as applicable, then in effect, or the Majority Lenders, in the case of a Proposed
Borrowing Base or Proposed Conforming Borrowing Base that would decrease or maintain the
Borrowing Base or Conforming Borrowing Base, as applicable, then in effect, have approved or
deemed to have approved, as aforesaid, then the Proposed Borrowing Base and/or Proposed
Conforming Borrowing Base, as applicable, shall become the new Borrowing Base and/or
Conforming Borrowing Base, as applicable, effective on the date specified in Section
2.07(e). If, however, at the end of such 15-day period, all of the Lenders or the Majority
Lenders, as applicable, have not approved or deemed to have approved, as aforesaid, then the
Administrative Agent shall poll the Lenders to ascertain the highest Borrowing Base and/or
Conforming Borrowing Base, as applicable, then acceptable to a number of Lenders sufficient
to constitute the Majority Lenders and, so long as such amount does not increase the
Borrowing Base or Conforming Borrowing Base, as applicable, then in effect, such amount
shall become the new Borrowing Base and/or new Conforming Borrowing Base, as applicable,
effective on the date specified in Section 2.07(e).



          (d) Mandatory Redetermination. In addition to the other redeterminations of the
Borrowing Base and Conforming Borrowing Base provided for herein, and notwithstanding anything to
the contrary contained herein, the Borrowing Base shall reduce immediately and automatically on
November 1, 2008 to the Conforming Borrowing Base as in effect on and as of such date, and from and
after such date, the Borrowing Base shall be, and shall be in an amount equal to, the Conforming
Borrowing Base.



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




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



28









 







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




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




          (iii) in the case of the Mandatory Redetermination, on November 1, 2008, regardless of
the date of delivery of any such notice.



Such amount shall then become the Borrowing Base and/or Conforming Borrowing Base, as applicable,
until the next Scheduled Redetermination Date, the next Interim Redetermination Date, the Mandatory
Redetermination Date or the next adjustment to the Borrowing Base and/or Conforming Borrowing Base,
as applicable, under Section 8.13(c) or Section 9.11(d), whichever occurs first. Notwithstanding
the foregoing, no Scheduled Redetermination or Interim Redetermination shall become effective until
the New Borrowing Base Notice related thereto is received by the Borrower.



     Section 2.08 Letters of Credit.



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



          (b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. To request
the issuance of a Letter of Credit (or the amendment, renewal or extension of an outstanding Letter
of Credit), the Borrower shall hand deliver or telecopy (or transmit by electronic communication,
if arrangements for doing so have been approved by the Issuing Bank) to the Issuing Bank and the
Administrative Agent (not less than five (5) Business Days in advance of the requested date of
issuance, amendment, renewal or extension) a notice:




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




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




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




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



29









 






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




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


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



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




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



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



          (e) Reimbursement. If the Issuing Bank shall make any LC Disbursement in respect of a
Letter of Credit, the Borrower shall reimburse such LC Disbursement by paying to the Administrative
Agent an amount equal to such LC Disbursement not later than 11:00 a.m., Chicago, Illinois time, on
the date that such LC Disbursement is made, if the Borrower shall have received notice of such LC
Disbursement prior to 10:00 a.m., Chicago, Illinois time, on



30









 







such date, or, if such notice has not been received by the Borrower prior to such time on such
date, then not later than 11:00 a.m., Chicago, Illinois time, on (i) the Business Day that the
Borrower receives such notice, if such notice is received prior to 9:00 a.m., Chicago, Illinois
time, on the day of receipt, or (ii) the Business Day immediately following the day that the
Borrower receives such notice, if such notice is not received prior to such time on the day of
receipt; provided that if such LC Disbursement is not less than $1,000,000, the Borrower shall,
subject to the conditions to Borrowing set forth herein, be deemed to have requested, and the
Borrower does hereby request under such circumstances, that such payment be financed with an ABR
Borrowing in an equivalent amount and, to the extent so financed, the Borrower’s obligation to make
such payment shall be discharged and replaced by the resulting ABR Borrowing. If the Borrower
fails to make such payment when due, the Administrative Agent shall notify each Lender of the
applicable LC Disbursement, the payment then due from the Borrower in respect thereof and such
Lender’s Applicable Percentage thereof. Promptly following receipt of such notice, each Lender
shall pay to the Administrative Agent its Applicable Percentage of the payment then due from the
Borrower, in the same manner as provided in Section 2.05 with respect to Loans made by such Lender
(and Section 2.05 shall apply, mutatis mutandis, to the payment obligations of the Lenders), and
the Administrative Agent shall promptly pay to the Issuing Bank the amounts so received by it from
the Lenders. Promptly following receipt by the Administrative Agent of any payment from the
Borrower pursuant to this Section 2.08(e), the Administrative Agent shall distribute such payment
to the Issuing Bank or, to the extent that Lenders have made payments pursuant to this Section
2.08(e) to reimburse the Issuing Bank, then to such Lenders and the Issuing Bank as their interests
may appear. Any payment made by a Lender pursuant to this Section 2.08(e) to reimburse the Issuing
Bank for any LC Disbursement (other than the funding of ABR Loans as contemplated above) shall not
constitute a Loan and shall not relieve the Borrower of its obligation to reimburse such LC
Disbursement. Any LC Disbursement not reimbursed by the Borrower or funded as a Loan on the date
of such LC Disbursement shall bear interest for such day at the ABR plus the Applicable Margin.



          (f) Obligations Absolute. The Borrower’s obligation to reimburse LC Disbursements as
provided in Section 2.08(e) shall be absolute, unconditional and irrevocable, and shall be
performed strictly in accordance with the terms of this Agreement under any and all circumstances
whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit,
any Letter of Credit Agreement or this Agreement, or any term or provision therein, (ii) any draft
or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in
any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by
the Issuing Bank under a Letter of Credit against presentation of a draft or other document that
does not comply with the terms of such Letter of Credit or any Letter of Credit Agreement, or (iv)
any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that
might, but for the provisions of this Section 2.08(f), constitute a legal or equitable discharge
of, or provide a right of setoff against, the Borrower’s obligations hereunder. Neither the
Administrative Agent, the Lenders nor the Issuing Bank, nor any of their Related Parties shall have
any liability or responsibility by reason of or in connection with the issuance or transfer of any
Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of
the circumstances referred to in the preceding sentence), or any error, omission, interruption,
loss or delay in transmission or delivery of any draft, notice or other communication under or
relating to any Letter of Credit (including any document required



31









 







to make a drawing thereunder), any error in interpretation of technical terms or any
consequence arising from causes beyond the control of the Issuing Bank; provided that the foregoing
shall not be construed to excuse the Issuing Bank from liability to the Borrower to the extent of
any direct damages (as opposed to consequential damages, claims in respect of which are hereby
waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are
caused by the Issuing Bank’s failure to exercise care when determining whether drafts and other
documents presented under a Letter of Credit comply with the terms thereof. The parties hereto
expressly agree that, in the absence of gross negligence or willful misconduct on the part of the
Issuing Bank (as finally determined by a court of competent jurisdiction), the Issuing Bank shall
be deemed to have exercised all requisite care in each such determination. In furtherance of the
foregoing and without limiting the generality thereof, the parties agree that, with respect to
documents presented which appear on their face to be in substantial compliance with the terms of a
Letter of Credit, the Issuing Bank may, in its sole discretion, either accept and make payment upon
such documents without responsibility for further investigation, regardless of any notice or
information to the contrary, or refuse to accept and make payment upon such documents if such
documents are not in strict compliance with the terms of such Letter of Credit.



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



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



          (i) Replacement of the Issuing Bank. The Issuing Bank may be replaced at any time by
written agreement among the Borrower, the Administrative Agent, the replaced Issuing Bank and the
successor Issuing Bank. The Administrative Agent shall notify the Lenders of any such replacement
of the Issuing Bank. At the time any such replacement shall become effective, the Borrower shall
pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section
3.05(b). From and after the effective date of any such replacement, (i) the successor Issuing Bank
shall have all the rights and obligations of the Issuing Bank under this Agreement with respect to
Letters of Credit to be issued thereafter and (ii) references herein to the term “Issuing Bank”
shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor
and all previous Issuing Banks, as the context shall require. After the replacement of the Issuing
Bank hereunder, the replaced Issuing Bank shall remain a party hereto and shall continue to have
all the rights and obligations of the Issuing Bank under this



32









 







Agreement with respect to Letters of Credit issued by it prior to such replacement, but shall
not be required to issue additional Letters of Credit.



          (j) Cash Collateralization. If (i) any Event of Default shall occur and be continuing
and the Borrower receives notice from the Administrative Agent or the Majority Lenders demanding
the deposit of cash collateral pursuant to this Section 2.08(j), or (ii) the Borrower is required
to pay to the Administrative Agent the excess attributable to an LC Exposure in connection with any
prepayment pursuant to Section 3.04(c), then the Borrower shall deposit, in an account with the
Administrative Agent, in the name of the Administrative Agent and for the benefit of the Lenders,
an amount in cash equal to, in the case of an Event of Default, the LC Exposure, and in the case of
a payment required by Section 3.04(c), the amount of such excess as provided in Section 3.04(c), as
of such date plus any accrued and unpaid interest thereon; provided that the obligation to deposit
such cash collateral shall become effective immediately, and such deposit shall become immediately
due and payable, without demand or other notice of any kind, upon the occurrence of any Event of
Default with respect to the Borrower or any Subsidiary described in Section 10.01(h) or Section
10.01(i). The Borrower hereby grants to the Administrative Agent, for the benefit of the Issuing
Bank and the Lenders, an exclusive first priority and continuing perfected security interest in and
Lien on such account and all cash, checks, drafts, certificates and instruments, if any, from time
to time deposited or held in such account, all deposits or wire transfers made thereto, any and all
investments purchased with funds deposited in such account, all interest, dividends, cash,
instruments, financial assets and other Property from time to time received, receivable or
otherwise payable in respect of, or in exchange for, any or all of the foregoing, and all proceeds,
products, accessions, rents, profits, income and benefits therefrom, and any substitutions and
replacements therefor. The Borrower’s obligation to deposit amounts pursuant to this Section
2.08(j) shall be absolute and unconditional, without regard to whether any beneficiary of any such
Letter of Credit has attempted to draw down all or a portion of such amount under the terms of a
Letter of Credit, and, to the fullest extent permitted by applicable law, shall not be subject to
any defense or be affected by a right of set-off, counterclaim or recoupment which the Borrower or
any of its Subsidiaries may now or hereafter have against any such beneficiary, the Issuing Bank,
the Administrative Agent, the Lenders or any other Person for any reason whatsoever. Such deposit
shall be held as collateral securing the payment and performance of the Borrower’s and the
Guarantor’s obligations under this Agreement and the other Loan Documents. The Administrative
Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over
such account in accordance with the terms of this Agreement. Other than any interest earned on the
investment of such deposits, which investments shall be made at the option and sole discretion of
the Administrative Agent and at the Borrower’s risk and expense, such deposits shall not bear
interest. Interest or profits, if any, on such investments shall accumulate in such account.
Moneys in such account shall be applied by the Administrative Agent to reimburse the Issuing Bank
for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall
be held for the satisfaction of the reimbursement obligations of the Borrower for the LC Exposure
at such time or, if the maturity of the Loans has been accelerated, be applied to satisfy other
obligations of the Borrower and the Guarantors under this Agreement or the other Loan Documents.
If the Borrower is required to provide an amount of cash collateral hereunder as a result of the
occurrence of an Event of Default, and the Borrower is not otherwise required to pay to the
Administrative Agent the excess attributable to an LC Exposure in connection with any prepayment
pursuant to Section 3.04(c), then such amount (to



33









 







the extent not applied as aforesaid) shall be returned to the Borrower within three Business
Days after all Events of Default have been cured or waived.



ARTICLE III

PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES




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



     Section 3.02 Interest.



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



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



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



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



          (e) Interest Rate Computations. All interest hereunder shall be computed on the basis
of a year of 360 days, unless such computation would exceed the Highest Lawful Rate, in which case
interest shall be computed on the basis of a year of 365 days (or 366 days in a leap year), except
that interest computed by reference to the Alternate Base Rate at times when the Alternate Base
Rate is based on the Prime Rate shall be computed on the basis of a year of



34









 




365 days (or 366 days in a leap year), and in each case shall be payable for the actual number
of days elapsed (including the first day but excluding the last day). The applicable Alternate
Base Rate or LIBO Rate shall be determined by the Administrative Agent, and such determination
shall be conclusive absent manifest error, and be binding upon the parties hereto.




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



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



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


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




     Section 3.04 Prepayments.



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



          (b) Notice and Terms of Optional Prepayment. The Borrower shall notify the
Administrative Agent by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the
case of prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., Chicago, Illinois time,
three Business Days before the date of prepayment, or (ii) in the case of prepayment of an ABR
Borrowing, not later than 11:00 a.m., Chicago, Illinois time, one Business Day before the date of
prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the
principal amount of each Borrowing or portion thereof to be prepaid. Promptly following receipt of
any such notice relating to a Borrowing, the Administrative Agent shall advise the Lenders of the
contents thereof. Each partial prepayment of any Borrowing shall be in an amount that would be
permitted in the case of an advance of a Borrowing of the same Type as provided in Section 2.02.
Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid
Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section
3.02.



          (c) Mandatory Prepayments.




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



35









 







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




          (ii) Upon any redetermination of or adjustment to the amount of the Borrowing Base in
accordance with Section 2.07 (other than Section 2.07(d)) or Section 8.13(c), if the total
Revolving Credit Exposures exceeds the redetermined or adjusted Borrowing Base, then the
Borrower shall, within 10 days following receipt of the New Borrowing Base Notice in
accordance with Section 2.07(e) or the date the adjustment occurs, provide written notice
(the “Election Notice”) to the Administrative Agent stating the action which the
Borrower proposes to take to remedy such excess, and the Borrower shall thereafter, (A)
within 30 days following the delivery of the Election Notice, prepay the Borrowings in an
aggregate principal amount equal to such excess, (B) eliminate such excess by making three
(3) consecutive mandatory prepayments of principal on the Loans, each of which shall be in
the amount of 1/3rd of the amount of such excess, commencing on the first Monthly
Date following the delivery of the Election Notice, and continuing on each Monthly Date
thereafter, (C) within 90 days following the delivery of the Election Notice, submit
additional Oil and Gas Properties owned by the Borrower or its Subsidiaries for
consideration in connection with the determination of the Borrowing Base, which the
Administrative Agent and the Lenders deem sufficient in their sole discretion to eliminate
such excess, or (D) within 90 days following the delivery of the Election Notice, eliminate
such excess through a combination of prepayments and submission of additional Oil and Gas
Properties as set forth in subclauses (A) and (C) above. If any excess remains after
prepaying all of the Borrowings as a result of an LC Exposure, then the Borrower shall pay
to the Administrative Agent on behalf of the Lenders an amount equal to such excess to be
held as cash collateral as provided in Section 2.08(j). Notwithstanding the foregoing, all
payments required to be made pursuant to this Section 3.04(c)(ii) must be made on or prior
to the Termination Date.




          (iii) Upon the Mandatory Redetermination of the Borrowing Base pursuant to Section
2.07(d), if the total Revolving Credit Exposures exceeds the Borrowing Base as redetermined,
then the Borrower shall (A) prepay the Borrowings in an aggregate principal amount equal to
such excess, and (B) if any excess remains after prepaying all of the Borrowings as a result
of an LC Exposure, pay to the Administrative Agent on behalf of the Lenders an amount equal
to such excess to be held as cash collateral as provided in Section 2.08(j). The Borrower
shall be obligated to make such prepayment and/or deposit of cash collateral on November 1,
2008; provided that all payments required to be made pursuant to this Section 3.04(c)(iii)
must be made on or prior to the Termination Date.




          (iv) Upon any adjustments to the Borrowing Base pursuant to Section 9.11(d), if the
total Revolving Credit Exposures exceeds the Borrowing Base as adjusted, then the Borrower
shall (A) prepay the Borrowings in an aggregate principal amount



36









 







equal to such excess, and (B) if any excess remains after prepaying all of the
Borrowings as a result of an LC Exposure, pay to the Administrative Agent on behalf of the
Lenders an amount equal to such excess to be held as cash collateral as provided in Section
2.08(j). The Borrower shall be obligated to make such prepayment and/or deposit of cash
collateral on the date it or any Subsidiary receives cash proceeds as a result of such
disposition; provided that all payments required to be made pursuant to this Section
3.04(c)(iv) must be made on or prior to the Termination Date.




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




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



          (d) No Premium or Penalty. Prepayments permitted or required under this Section 3.04
shall be without premium or penalty, except as required under Section 5.01(d).



     Section 3.05 Fees.



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



          (b) Letter of Credit Fees. The Borrower agrees to pay (i) to the Administrative Agent
for the account of each Lender a participation fee with respect to its participations in Letters of
Credit, which shall accrue at the same Applicable Margin used to determine the interest rate
applicable to Eurodollar Loans on the average daily amount of such Lender’s LC Exposure (excluding
any portion thereof attributable to unreimbursed LC Disbursements) during the period from and
including the date of this Agreement to but excluding the later of the date on which such Lender’s
Commitment terminates and the date on which such Lender ceases to have any LC Exposure, (ii) to the
Issuing Bank a fronting fee, which shall accrue at the rate of 0.125% per annum on the average
daily amount of the LC Exposure



37









 




(excluding any portion thereof attributable to unreimbursed LC Disbursements) during the
period from and including the date of this Agreement to but excluding the later of the Termination
Date and the date on which there ceases to be any LC Exposure, provided that in no event shall such
fee be less than $500 during any quarter, and (iii) to the Issuing Bank, for its own account, its
standard fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit
or processing of drawings thereunder. Participation fees and fronting fees accrued through and
including the last day of March, June, September and December of each year shall be payable on the
third Business Day following such last day, commencing on the first such date to occur after the
date of this Agreement; provided that all such fees shall be payable on the Termination Date and
any such fees accruing after the Termination Date shall be payable on demand. Any other fees
payable to the Issuing Bank pursuant to this Section 3.05(b) shall be payable within ten days after
demand. All participation fees and fronting fees shall be computed on the basis of a year of 360
days, unless such computation would exceed the Highest Lawful Rate, in which case interest shall be
computed on the basis of a year of 365 days (or 366 days in a leap year), and shall be payable for
the actual number of days elapsed (including the first day but excluding the last day).




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



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



     Section 3.06 Extension of Maturity Date.



          (a) On each anniversary of this Agreement, the Borrower may, upon notice to the Administrative
Agent (which shall promptly notify the Lenders), request successive one-year extension of the
Maturity Date. Within 30 days of delivery of such notice, each Lender shall notify the
Administrative Agent whether or not it consents to such extension (which consent may be given or
withheld in such Lender’s sole and absolute discretion). Any Lender not responding within the
above time period shall be deemed not to have consented to such extension. The Administrative
Agent shall promptly notify the Borrower and the Lenders of the Lenders’ responses.



          (b) The Maturity Date shall be extended only if all of the Lenders have consented thereto. If
so extended, the Maturity Date shall be extended to the same date in the following year, effective
as of the Maturity Date then in effect (such existing Maturity Date being the “Extension
Effective Date”). The Administrative Agent shall promptly confirm to the Lenders such
extension and the Extension Effective Date. As a condition precedent to such extension, the
Borrower shall deliver to the Administrative Agent a certificate of the Borrower dated as of the
Extension Effective Date (in sufficient copies for each Lender) signed by a Responsible Officer of
the Borrower (i) certifying and attaching the resolutions adopted by the



38









 







Borrower approving or consenting to such extension or confirming that those previously
delivered pursuant to Section 6.01 remain in full force and effect and have not been amended or
rescinded, as the case may be, and (ii) certifying that, (A) before and after giving effect to
such extension, the representations and warranties contained in Article VII made by it are true and
correct on and as of the Extension Effective Date, except to the extent that such representations
and warranties specifically refer to an earlier date, (B) before and after giving effect to such
extension no Event of Default exists or will exist, and (C) since (1) the most immediately
preceding June 30 and (2) prior to the date thirty (30) days preceding such Extension Effectiveness
Date, whichever shall later occur, there has not occurred an event, development or circumstance
that has had or would reasonably be expected to have, a Material Adverse Effect on the consolidated
financial position or consolidated results of operations of the Borrower and its Subsidiaries taken
as a whole.



ARTICLE IV

PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS




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



          (a) Payments by the Borrower. The Borrower shall make each payment required to be
made by it hereunder (whether of principal, interest, fees or reimbursement of LC Disbursements, or
of amounts payable under Section 5.01, Section 5.01(d), Section 5.03 or otherwise) prior to 11:00
a.m., Chicago, Illinois time, on the date when due, in immediately available funds, without
defense, deduction, recoupment, set-off or counterclaim. Fees, once paid, shall be fully earned
and shall not be refundable under any circumstances. Any amounts received after such time on any
date may, in the discretion of the Administrative Agent, be deemed to have been received on the
next succeeding Business Day for purposes of calculating interest thereon. All such payments shall
be made to the Administrative Agent at its offices specified in Section 12.01, except payments to
be made directly to the Issuing Bank as expressly provided herein and except that payments pursuant
to Section 5.01, Section 5.01(d), Section 5.03 and Section 12.03 shall be made directly to the
Persons entitled thereto. The Administrative Agent shall distribute any such payments received by
it for the account of any other Person to the appropriate recipient promptly following receipt
thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for
payment shall be extended to the next succeeding Business Day, and, in the case of any payment
accruing interest, interest thereon shall be payable for the period of such extension. All
payments hereunder shall be made in dollars.



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



39









 





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



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



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



     Section 4.04 Disposition of Proceeds. The Security Instruments contain an assignment
by the Borrower and/or the Guarantors unto and in favor of the Administrative Agent for the benefit
of the Lenders of all of the Borrower’s or each Guarantor’s interest in and to production



40









 







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



ARTICLE V



INCREASED COSTS; BREAK FUNDING PAYMENTS; TAXES; ILLEGALITY




     Section 5.01 Increased Costs.



          (a) Eurodollar Changes in Law. If any Change in Law, which is generally applicable to
all commercial banking institutions shall:




          (i) impose, modify or deem applicable any reserve (including marginal, special,
emergency or supplemental reserves), special deposit or similar requirement against assets
of, deposits with or for the account of, or credit extended by, any Lender for Eurocurrency
liabilities under Regulation D of the Board (as the same may be amended, supplemented or
replaced from time to time) or otherwise (except any such reserve requirement reflected in
the LIBO Rate); or




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


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




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



41









 







Issuing Bank or such Lender’s or the Issuing Bank’s holding company for any such reduction
suffered.



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



          (d) Effect of Failure or Delay in Requesting Compensation. Failure or delay on the
part of any Lender or the Issuing Bank to demand compensation pursuant to this Section 5.01 shall
not constitute a waiver of such Lender’s or the Issuing Bank’s right to demand such compensation.



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


A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to
receive pursuant to this Section 5.01(d) shall be delivered to the Borrower and shall be conclusive
absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such
certificate within 10 days after receipt thereof.




     Section 5.03 Taxes.



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



42









 







made, (ii) the Borrower or such Guarantor shall make such deductions and (iii) the Borrower or
such Guarantor shall pay the full amount deducted to the relevant Governmental Authority in
accordance with applicable law.



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



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



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



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



     Section 5.04 Mitigation Obligations. If any Lender requests compensation under
Article V, or if the Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Article V, then such Lender shall
use reasonable efforts to designate a different lending office for funding or booking its Loans
hereunder or to assign its rights and obligations hereunder to another of its offices, branches or
affiliates, if, in the judgment of such Lender, such designation or assignment (a) would eliminate
or reduce amounts payable pursuant to Article V, as the case may be, in the future and (b) would
not subject such Lender to any unreimbursed cost or expense and would not otherwise be
disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and
expenses incurred by any Lender in connection with any such designation or assignment.



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



ARTICLE VI



CONDITIONS PRECEDENT




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



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



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



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



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          (d) The Administrative Agent shall have received a compliance certificate which shall be
substantially in the form of Exhibit D, duly and properly executed by a Responsible Officer
and dated as of the date of Effective Date.



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



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



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




          (i) be reasonably satisfied that the Security Instruments create first priority,
perfected Liens (subject only to Excepted Liens identified in clauses (a) to (d) and (f) of
the definition thereof, but subject to the provisos at the end of such definition) on at
least 95% of the total value of the Oil and Gas Properties evaluated in the Initial Reserve
Report; and




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



          (h) The Administrative Agent shall have received an opinion of (i) Gersten Savage LLP, special
counsel to the Borrower, substantially in the form of Exhibit E 1 hereto, and (ii) local
counsel in each of the following states: Colorado and any other jurisdictions requested by the
Administrative Agent, substantially in the form of Exhibit E-2.



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



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



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



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



45









 





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



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



          (o) All Swap Agreements to which the Borrower or any of its Subsidiaries is a party as of the
date of this Agreement shall have been assigned, novated or otherwise transferred to JPMorgan
Chase.



          (p) The Administrative Agent shall have received a Master Assignment of Notes, Security
Instruments and Liens, in form and substance reasonably satisfactory to the Administrative Agent,
from the Existing Administrative Agent and Existing Lender under the Existing Credit Agreement
assigning to the Administrative Agent and the Lenders the Debt and Liens under the Existing Credit
Agreement, together with such assignments, endorsed notes, UCC-3 assignments, and other instruments
as the Administrative Agent shall reasonably request.



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



     The Administrative Agent shall notify the Borrower and the Lenders of the Effective Date, and
such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the
Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not become
effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section
12.02) at or prior to 1:00 p.m., Chicago, Illinois time, on August 31, 2007 (and, in the event such
conditions are not so satisfied or waived, the Commitments shall terminate at such time).



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



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



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



          (c) The representations and warranties of the Borrower and the Guarantors set forth in this
Agreement and in the other Loan Documents shall be true and correct on and as of



46









 







the date of such Borrowing or the date of issuance, amendment, renewal or extension of such
Letter of Credit, as applicable, except to the extent any such representations and warranties are
expressly limited to an earlier date, in which case, on and as of the date of such Borrowing or the
date of issuance, amendment, renewal or extension of such Letter of Credit, as applicable, such
representations and warranties shall continue to be true and correct as of such specified earlier
date.



          (d) The making of such Loan or the issuance, amendment, renewal or extension of such Letter of
Credit, as applicable, would not conflict with, or cause any Lender or the Issuing Bank to violate
or exceed, any applicable Governmental Requirement, and no Change in Law shall have occurred, and
no litigation shall be pending or threatened, which does or, with respect to any threatened
litigation, seeks to, enjoin, prohibit or restrain, the making or repayment of any Loan, the
issuance, amendment, renewal, extension or repayment of any Letter of Credit or any participations
therein or the consummation of the transactions contemplated by this Agreement or any other Loan
Document.



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


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




ARTICLE VII



REPRESENTATIONS AND WARRANTIES



The Borrower represents and warrants to the Lenders that:




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



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



47









 







generally and subject to general principles of equity, regardless of whether considered in a
proceeding in equity or at law.



     Section 7.03 Approvals; No Conflicts. Except as could not be reasonably expected to
have a Material Adverse Effect, the Transactions (a) do not require any consent or approval of,
registration or filing with, or any other action by, any Governmental Authority or any other third
Person (including shareholders or any class of directors, whether interested or disinterested, of
the Borrower or any other Person), nor is any such consent, approval, registration, filing or other
action necessary for the validity or enforceability of any Loan Document or the consummation of the
transactions contemplated thereby, except such as have been obtained or made and are in full force
and effect other than the recording and filing of the Security Instruments as required by this
Agreement, (b) will not violate any applicable law or regulation or the charter, by-laws or other
organizational documents of the Borrower or any Subsidiary or any order of any Governmental
Authority, (c) will not violate or result in a default under any indenture, agreement or other
instrument binding upon the Borrower or any Subsidiary or its Properties, or give rise to a right
thereunder to require any payment to be made by the Borrower or such Subsidiary and (d) will not
result in the creation or imposition of any Lien on any Property of the Borrower or any Subsidiary
(other than the Liens created by the Loan Documents).



     Section 7.04 Financial Condition; No Material Adverse Change.



          (a) The Borrower has heretofore furnished to the Lenders its consolidated balance sheet and
statements of income, stockholders’ equity and cash flows (i) as of and for the fiscal year ended
December 31, 2006, reported on by EKS&H, independent public accountants, and (ii) as of and for the
fiscal quarter and the portion of the fiscal year ended March 31, 2007, certified by its chief
financial officer. Such financial statements present fairly, in all material respects, the
financial position and results of operations and cash flows of the Borrower and its Consolidated
Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end
audit adjustments and the absence of footnotes in the case of the unaudited quarterly financial
statements.



          (b) Since December 31, 2006, (i) there has been no event, development or circumstance that has
had or could reasonably be expected to have a Material Adverse Effect and (ii) the business of the
Borrower and its Subsidiaries has been conducted only in the ordinary course consistent with past
business practices.



          (c) Neither the Borrower nor any Subsidiary has on the date hereof any material Debt
(including Disqualified Capital Stock) or any contingent liabilities, off-balance sheet liabilities
or partnerships, liabilities for taxes, except as referred to or reflected or provided for in the
Financial Statements.



     Section 7.05 Litigation.



          (a) Except as set forth on Schedule 7.05, there are no actions, suits, investigations
or proceedings by or before any arbitrator or Governmental Authority pending against or, to the
knowledge of the Borrower, threatened against or affecting the Borrower or any Subsidiary (i) not
fully covered by insurance (except for normal deductibles) as to which there is



48









 







a reasonable possibility of an adverse determination that, if adversely determined, could
reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect or
(ii) that involve any Loan Document or the Transactions.



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



     Section 7.06 Environmental Matters. Except as could not be reasonably expected to
have a Material Adverse Effect (or with respect to (c), (d) and (e) below, where the failure to
take such actions could not be reasonably expected to have a Material Adverse Effect):



          (a) neither any Property of the Borrower or any Subsidiary nor the operations conducted
thereon violate any order or requirement of any court or Governmental Authority or any
Environmental Laws.



          (b) no Property of the Borrower or any Subsidiary nor the operations currently conducted
thereon are in violation of or subject to any existing, pending or threatened action, suit,
investigation, inquiry or proceeding by or before any court or Governmental Authority or to any
remedial obligations under Environmental Laws.



          (c) all notices, permits, licenses, exemptions, approvals or similar authorizations, if any,
required to be obtained or filed in connection with the operation or use of any and all Property of
the Borrower and each Subsidiary, including, without limitation, past or present treatment,
storage, disposal or release of a hazardous substance, oil and gas waste or solid waste into the
environment, have been duly obtained or filed, and the Borrower and each Subsidiary are in
compliance with the terms and conditions of all such notices, permits, licenses and similar
authorizations.



          (d) all hazardous substances, solid waste and oil and gas waste, if any, generated at any and
all Property of the Borrower or any Subsidiary have in the past been transported, treated and
disposed of in accordance with Environmental Laws and so as not to pose an imminent and substantial
endangerment to public health or welfare or the environment, and, to the knowledge of the Borrower,
all such transport carriers and treatment and disposal facilities have been and are operating in
compliance with Environmental Laws and so as not to pose an imminent and substantial endangerment
to public health or welfare or the environment, and are not the subject of any existing, pending or
threatened action, investigation or inquiry by any Governmental Authority in connection with any
Environmental Laws.



          (e) the Borrower has taken all steps reasonably necessary to determine and has determined that
no oil, hazardous substances, solid waste or oil and gas waste, have been disposed of or otherwise
released and there has been no threatened release of any oil, hazardous substances, solid waste or
oil and gas waste on or to any Property of the Borrower or any Subsidiary except in compliance with
Environmental Laws and so as not to pose an imminent and substantial endangerment to public health
or welfare or the environment.



          (f) to the extent applicable, all Property of the Borrower and each Subsidiary currently
satisfies all design, operation, and equipment requirements imposed by the OPA, and



49









 







the Borrower does not have any reason to believe that such Property, to the extent subject to
the OPA, will not be able to maintain compliance with the OPA requirements during the term of this
Agreement.



          (g) neither the Borrower nor any Subsidiary has any known contingent liability or Remedial
Work in connection with any release or threatened release of any oil, hazardous substance, solid
waste or oil and gas waste into the environment.



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



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



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



          (c) No Default has occurred and is continuing.



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



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



     Section 7.10 ERISA.



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



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



50









 





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



          (d) No Plan (other than a defined contribution plan) or any trust created under any such Plan
has been terminated since September 2, 1974. No liability to the PBGC (other than for the payment
of current premiums which are not past due) by the Borrower, any Subsidiary or any ERISA Affiliate
has been or is expected by the Borrower, any Subsidiary or any ERISA Affiliate to be incurred with
respect to any Plan. No ERISA Event with respect to any Plan has occurred.



          (e) Full payment when due has been made of all amounts which the Borrower, the Subsidiaries or
any ERISA Affiliate is required under the terms of each Plan or applicable law to have paid as
contributions to such Plan as of the date hereof, and no accumulated funding deficiency (as defined
in section 302 of ERISA and section 412 of the Code), whether or not waived, exists with respect to
any Plan.



          (f) The actuarial present value of the benefit liabilities under each Plan which is subject to
Title IV of ERISA does not, as of the end of the Borrower’s most recently ended fiscal year, 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.



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



          (h) Neither the Borrower, the Subsidiaries nor any ERISA Affiliate sponsors, maintains or
contributes to, or has at any time in the six-year period preceding the date hereof sponsored,
maintained or contributed to, any Multiemployer Plan.



          (i) Neither the Borrower, the Subsidiaries nor any ERISA Affiliate is required to provide
security under section 401(a)(29) of the Code due to a Plan amendment that results in an increase
in current liability for the Plan.



     Section 7.11 Disclosure; No Material Misstatements. None of the other reports,
financial statements, certificates or other written information furnished by or on behalf of the
Borrower or any Subsidiary to the Administrative Agent in connection with the execution and
delivery of this Agreement or any other Loan Document (as modified or supplemented by other
information so furnished) contains any material misstatement of fact or omits to state any material
fact necessary to make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided that, with respect to projected financial



51









 







information, the Borrower represents only that such information was prepared in good faith
based upon assumptions believed to be reasonable at the time. There are no statements or
conclusions in any Reserve Report delivered hereunder which are based upon or include misleading
information or fail to take into account material information regarding the matters reported
therein.



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



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



     Section 7.14 Subsidiaries. Except as set forth on Schedule 7.14 or as
disclosed in writing to the Administrative Agent (which shall promptly furnish a copy to the
Lenders), which shall be a supplement to Schedule 7.14, the Borrower has no Subsidiaries
and the Borrower has no Foreign Subsidiaries.



     Section 7.15 Location of Business and Offices. The Borrower’s jurisdiction of
organization is Delaware; the name of the Borrower as listed in the public records of its
jurisdiction of organization is Teton Energy Corporation; and the organizational identification
number of the Borrower in its jurisdiction of organization is 2896826 (or, in each case, as set
forth in a notice delivered to the Administrative Agent pursuant to Section 8.01(l) in accordance
with Section 12.01). The Borrower’s principal place of business and chief executive offices are
located at the address specified in Section 12.01 (or as set forth in a notice delivered pursuant
to Section 8.01(l) and Section 12.01(c)). Each Subsidiary’s jurisdiction of organization, name as
listed in the public records of its jurisdiction of organization, organizational identification
number in its jurisdiction of organization, and the location of its principal place of business and
chief executive office is stated on Schedule 7.15 (or as set forth in a notice delivered
pursuant to Section 8.01(l)).



     Section 7.16 Properties; Titles, Etc.



          (a) Each of the Borrower and the Subsidiaries has (i) in all material respects, good and
defensible title to the Oil and Gas Properties evaluated in the most recently delivered Reserve
Report; and (ii) good title to all its personal Properties, in each case, free and clear of all
Liens except Liens permitted by Section 9.03, except as could not reasonably be excepted to



52









 







result in a Material Adverse Effect. After giving full effect to the Excepted Liens, the
Borrower or the Subsidiary specified as the owner owns the net interests in production attributable
to the Hydrocarbon Interests as reflected in the most recently delivered Reserve Report, and the
ownership of such Properties shall not in any material respect obligate the Borrower or such
Subsidiary to bear the costs and expenses relating to the maintenance, development and operations
of each such Property in an amount in excess of the working interest of each Property set forth in
the most recently delivered Reserve Report that is not offset by a corresponding proportionate
increase in the Borrower’s or such Subsidiary’s net revenue interest in such Property.



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



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



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



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



     Section 7.17 Maintenance of Properties. Except for such acts or failures to act as
could not be reasonably expected to have a Material Adverse Effect, the Oil and Gas Properties (and
Properties unitized therewith) of the Borrower and its Subsidiaries have been maintained, and to
the extent operated and developed, in a good and workmanlike manner and in conformity with all
Governmental Requirements and in conformity with the provisions of all leases, subleases or other
contracts comprising a part of the Hydrocarbon Interests and other contracts and agreements forming
a part of the Oil and Gas Properties of the Borrower and its Subsidiaries. Specifically in
connection with the foregoing, except for those as could not be



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



     Section 7.18 Gas Imbalances, Prepayments. Except as set forth on Schedule
7.18 or on the most recent certificate delivered pursuant to Section 8.12(c), at no time will
the net negative gas imbalances, as calculated in accordance with GAAP, exceed the greater of
$500,000 or five percent (5%) of the then effective Conforming Borrowing Base.



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



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



     Section 7.21 Use of Loans and Letters of Credit. The proceeds of the Loans and the
Letters of Credit shall be used to refinance the Debt under the Existing Credit Agreement, for
general corporate purposes, working capital, capital expenditures and acquisitions of the Borrower
and its Subsidiaries. The Borrower and its Subsidiaries are not engaged principally, or



54









 







as one of its or their important activities, in the business of extending credit for the
purpose, whether immediate, incidental or ultimate, of buying or carrying margin stock (within the
meaning of Regulation T, U or X of the Board). No part of the proceeds of any Loan or Letter of
Credit will be used for any purpose which violates the provisions of Regulations T, U or X of the
Board.



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



     Section 7.23 Senior Indebtedness. (a) The Indebtedness of the Borrower constitutes
“Senior Indebtedness,” (b) the Administrative Agent is the “Administrative Agent” and a “Senior
Indebtedness Representative,” (c) this Agreement constitutes the “Senior Revolving Credit
Agreement,” (d) this Agreement and the other Loan Documents constitute “Senior Revolving Credit
Documents,” and (e) the Lenders constitute “Senior Revolving Lenders,” in each case, under and as
defined in the Senior Subordinated Convertible Notes.



ARTICLE VIII



AFFIRMATIVE COVENANTS



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




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



          (a) Annual Financial Statements. As soon as available, but in any event in accordance
with then applicable law and not later than 90 days after the end of each fiscal year of the
Borrower, its audited consolidated balance sheet and related statements of operations,
stockholders’ equity and cash flows as of the end of and for such year, setting forth in each case
in comparative form the figures for the previous fiscal year, all reported on by EKS&H or other
independent public accountants registered with the PCAOB (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



55









 







respects the financial condition and results of operations of the Borrower and its
Consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied.



          (b) Quarterly Financial Statements. As soon as available, but in any event in
accordance with then applicable law and not later than 45 days after the end of each of the first
three fiscal quarters of each fiscal year of the Borrower, its consolidated balance sheet and
related statements of operations, stockholders’ equity and cash flows as of the end of and for such
fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in
comparative form the figures for the corresponding period or periods of (or, in the case of the
balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial
Officers as presenting fairly in all material respects the financial condition and results of
operations of the Borrower and its Consolidated Subsidiaries on a consolidated basis in accordance
with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of
footnotes.



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



          (d) Certificate of Accounting Firm — Defaults. Concurrently with any delivery of
financial statements under Section 8.01(a), a certificate of the accounting firm that reported on
such financial statements stating whether they obtained knowledge during the course of their
examination of such financial statements of any Default (which certificate may be limited to the
extent required by accounting rules or guidelines).



          (e) Certificate of Financial Officer — Swap Agreements. Concurrently with any
delivery of financial statements under Section 8.01(a) and Section 8.01(b), a certificate of a
Financial Officer, in form and substance satisfactory to the Administrative Agent, setting forth as
of the last Business Day of such fiscal quarter or fiscal year, a true and complete list of all
Swap Agreements of the Borrower and each Subsidiary, the material terms thereof (including the
type, term, effective date, termination date and notional amounts or volumes), the net
mark-to-market value therefor, any new credit support agreements relating thereto not listed on
Schedule 7.20, any margin required or supplied under any credit support document, and the
counterparty to each such agreement.



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



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          (g) Other Accounting Reports. Promptly upon receipt thereof, a copy of each other
report or letter submitted to the Borrower or any of its Subsidiaries by independent accountants in
connection with any annual, interim or special audit made by them of the books of the Borrower or
any such Subsidiary, and a copy of any response by the Borrower or any such Subsidiary, or the
board of directors or other appropriate governing body of the Borrower or any such Subsidiary, to
such letter or report.



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



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



          (j) Notice of Sales of Oil and Gas Properties. In the event the Borrower or any
Subsidiary intends to sell, transfer, assign or otherwise dispose of any Oil or Gas Properties or
any Equity Interests in any Subsidiary in accordance with Section 9.11, prior written notice of
such disposition, the price thereof and the anticipated date of closing and any other details
thereof requested by the Administrative Agent. For purposes of this Agreement, the Borrower has
notified the Administrative Agent of the potential sale of a 10% working interest in the Piceance
Basin.



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



          (l) Information Regarding Borrower and Guarantors. Prompt written notice (and in any
event at least ten (10) days prior thereto) of any change (i) in the Borrower or any Guarantor’s
corporate name or in any trade name used to identify such Person in the conduct of its business or
in the ownership of its Properties, (ii) in the location of the Borrower or any Guarantor’s chief
executive office or principal place of business, (iii) in the Borrower or any Guarantor’s identity
or corporate structure or in the jurisdiction in which such Person is incorporated or formed, (iv)
in the Borrower or any Guarantor’s jurisdiction of organization or such Person’s organizational
identification number in such jurisdiction of organization, and (v) in the Borrower or any
Guarantor’s federal taxpayer identification number.



          (m) Notices of Certain Changes. Promptly, but in any event within five (5) Business
Days after the execution thereof, copies of any amendment, modification or supplement to the
certificate or articles of incorporation, by-laws, any preferred stock designation or any other
organic document of the Borrower or any Subsidiary.



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          (n) Annual Budget. Promptly, at the request of the Administrative Agent, a budget for
the then current fiscal year, including a pro forma balance sheet and income and cash flow
projections.



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



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



          (a) the occurrence of any Default;



          (b) the filing or commencement of, or the threat in writing of, any action, suit, proceeding,
investigation or arbitration by or before any arbitrator or Governmental Authority against or
affecting the Borrower or any Affiliate thereof not previously disclosed in writing to the Lenders
or any material adverse development in any action, suit, proceeding, investigation or arbitration
(whether or not previously disclosed to the Lenders) that, in either case, if adversely determined,
could reasonably be expected to result in liability in excess of the greater of $500,000 or two and
one half percent (2.5%) of the then effective Conforming Borrowing Base, not fully covered by
insurance, subject to normal deductibles;



          (c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that
have occurred, could reasonably be expected to result in liability of the Borrower and its
Subsidiaries in an aggregate amount exceeding the greater of $500,000 or two and one half percent
of the then effective Conforming Borrowing Base; and



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


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




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



     Section 8.04 Payment of Obligations. The Borrower will, and will cause each
Subsidiary to, pay its obligations, including Tax liabilities of the Borrower and all of its



58









 







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



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



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



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



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



          (c) promptly pay and discharge, or make reasonable and customary efforts to cause to be paid
and discharged, all delay rentals, royalties, expenses and indebtedness accruing under the leases
or other agreements affecting or pertaining to its Oil and Gas Properties and will do all other
things necessary to keep unimpaired their rights with respect thereto and prevent any forfeiture
thereof or default thereunder.



          (d) promptly perform or make reasonable and customary efforts to cause to be performed, in
accordance with industry standards, the obligations required by each and all of the assignments,
deeds, leases, sub-leases, contracts and agreements affecting its interests in its Oil and Gas
Properties and other material Properties.



          (e) operate its Oil and Gas Properties and other material Properties or cause or make
reasonable and customary efforts to cause such Oil and Gas Properties and other material Properties
to be operated in accordance with the practices of the industry and in material



59









 







compliance with all applicable contracts and agreements and in compliance in all material
respects with all Governmental Requirements.



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



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



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



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



     Section 8.10 Environmental Matters.



          (a) The Borrower shall at its sole expense: (i) comply, and shall cause its Properties and
operations and each Subsidiary and each Subsidiary’s Properties and operations to comply, with all
applicable Environmental Laws, the breach of which could be reasonably expected to have a Material
Adverse Effect; (ii) not dispose of or otherwise release, and shall cause each Subsidiary not to
dispose of or otherwise release, any oil, oil and gas waste, hazardous substance, or solid waste
on, under, about or from any of the Borrower’s or its Subsidiaries’ Properties or any other
Property to the extent caused by the Borrower’s or any of its Subsidiaries’ operations except in
compliance with applicable Environmental Laws, the disposal or release of which could reasonably be
expected to have a Material Adverse Effect; (iii) timely obtain or file, and shall cause each
Subsidiary to timely obtain or file, all notices, permits, licenses, exemptions, approvals,
registrations or other authorizations, if any, required under applicable Environmental Laws to be
obtained or filed in connection with the operation or use of the Borrower’s or its Subsidiaries’
Properties, which failure to obtain or file could reasonably be expected to have a Material Adverse
Effect; (iv) promptly commence and diligently prosecute to completion, and shall cause each
Subsidiary to promptly commence and



60









 







diligently prosecute to completion, any assessment, evaluation, investigation, monitoring,
containment, cleanup, removal, repair, restoration, remediation or other remedial obligations
(collectively, the “Remedial Work”) in the event any Remedial Work is required or
reasonably necessary under applicable Environmental Laws because of or in connection with the
actual or suspected past, present or future disposal or other release of any oil, oil and gas
waste, hazardous substance or solid waste on, under, about or from any of the Borrower’s or its
Subsidiaries’ Properties, which failure to commence and diligently prosecute to completion could
reasonably be expected to have a Material Adverse Effect; and (v) establish and implement, and
shall cause each Subsidiary to establish and implement, such procedures as may be necessary to
continuously determine and assure that the Borrower’s and its Subsidiaries’ obligations under this
Section 8.10(a) are timely and fully satisfied, which failure to establish and implement could
reasonably be expected to have a Material Adverse Effect.



          (b) The Borrower will promptly, but in no event later than five days of the occurrence of a
triggering event, notify the Administrative Agent and the Lenders in writing of any threatened
action, investigation or inquiry by any Governmental Authority or any threatened demand or lawsuit
by any landowner or other third party against the Borrower or its Subsidiaries or their Properties
of which the Borrower has knowledge in connection with any Environmental Laws (excluding routine
testing and corrective action) if the Borrower reasonably anticipates that such action will result
in liability (whether individually or in the aggregate) in excess of the greater of $500,000 or two
and one half percent (2.5%) of the then effective Conforming Borrowing Base, not fully covered by
insurance, subject to normal deductibles.



          (c) The Borrower will, and will cause each of its Subsidiaries to obtain a phase I
environmental report in connection with any future acquisitions of Oil and Gas Properties or other
Properties that the Borrower requests be included in the Borrowing Base.



     Section 8.11 Further Assurances.



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



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



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     Section 8.12 Reserve Reports.



          (a) On or before April 1st and October 1st of each year, commencing October 1, 2007, the
Borrower shall furnish to the Administrative Agent and the Lenders a Reserve Report evaluating the
Oil and Gas Properties of the Borrower and its Subsidiaries as of the immediately preceding January
1 and July 1. The Reserve Report as of January 1 of each year shall be prepared by one or more
Approved Petroleum Engineers, and the July 1 Reserve Report of each year shall be prepared by or
under the supervision of the chief engineer of the Borrower who shall certify such Reserve Report
to be true and accurate and to have been prepared in accordance with the procedures used in the
immediately preceding January 1 Reserve Report.



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



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



     Section 8.13 Title Information.



          (a) On or before the delivery to the Administrative Agent and the Lenders of each Reserve
Report required by Section 8.12(a), the Borrower will deliver title information in



62









 







form and
substance acceptable to the Administrative Agent covering enough of the Oil and Gas
Properties evaluated by such Reserve Report that were not included in the immediately
preceding Reserve Report, so that the Administrative Agent shall have received together with title
information previously delivered to the Administrative Agent, satisfactory title information on at
least 80% of the total value of the Oil and Gas Properties evaluated by such Reserve Report.



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



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



     Section 8.14 Additional Collateral; Additional Guarantors.



          (a) In connection with each redetermination of the Borrowing Base and, as applicable,
Conforming Borrowing Base, the Borrower shall review the Reserve Report and the list of current
Mortgaged Properties (as described in Section 8.12(c)(vi)) to ascertain whether the Mortgaged
Properties represent at least 80% (or at least 95%, as provided below, in the event the Borrowing
Base then exceeds the Conforming Borrowing Base) of the total value of the Oil and Gas Properties
evaluated in the most recently completed Reserve Report after giving effect to exploration and
production activities, acquisitions, dispositions and production. In the event that the Mortgaged
Properties do not represent at least 80% (or at least 95%, as provided below, in the event the
Borrowing Base then exceeds the Conforming Borrowing Base) of such total value,



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then the Borrower
shall, and shall cause its Subsidiaries to, grant, within thirty (30) days of
delivery of the certificate required under Section 8.12(c), to the Administrative Agent as
security for the Indebtedness a first-priority Lien interest (provided that Excepted Liens of the
type described in clauses(a) to (d) and (f) of the definition thereof may exist, but subject to the
provisos at the end of such definition) on additional Oil and Gas Properties not already subject to
a Lien of the Security Instruments such that after giving effect thereto, the Mortgaged Properties
will represent at least 80% (or at least 95%, as provided below, in the event the Borrowing Base
then exceeds the Conforming Borrowing Base) of such total value. All such Liens will be created
and perfected by and in accordance with the provisions of deeds of trust, security agreements and
financing statements or other Security Instruments, all in form and substance reasonably
satisfactory to the Administrative Agent and in sufficient executed (and acknowledged where
necessary or appropriate) counterparts for recording purposes. In order to comply with the
foregoing, if any Subsidiary places a Lien on its Oil and Gas Properties and such Subsidiary is not
a Guarantor, then it shall become a Guarantor and comply with Section 8.14(b).


Notwithstanding the foregoing or anything to the contrary contained herein, on the Effective Date
and at all times that the Borrowing Base exceeds the Conforming Borrowing Base, the Mortgaged
Properties must represent at least 95% of the total value of the Oil and Gas Properties evaluated
in the most recently completed Reserve Report (including the Initial Reserve Report) after giving
effect to exploration and production activities, acquisitions, dispositions and production.




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



          (c) If any Event of Default shall occur and be continuing, then the Borrower shall, and shall
cause each of its Subsidiaries to, within ten (10) Business Days after notice by Administrative
Agent, grant to the Administrative Agent as security for the Indebtedness a first-priority Lien
interest (provided Excepted Liens of the type described in clauses (a) to (d) and (f) of the
definition thereof may exist, but subject to the provisos at the end of such definition) on all of
their Oil and Gas Properties not already subject to a Lien of the Security Instruments such that
after giving effect thereto, the Mortgaged Properties will represent substantially all of the Oil
and Gas Properties of the Borrower and its Subsidiaries. All such Liens will be created and
perfected by and in accordance with the provisions of deeds of trust, security agreements and
financing statements or other Security Instruments, all in form and substance reasonably
satisfactory to the Administrative Agent and in sufficiently executed (and acknowledged where
necessary or appropriate) counterparts for recording purposes.



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     Section 8.15 ERISA Compliance. The Borrower will promptly furnish and will cause the
Subsidiaries and any ERISA Affiliate to promptly furnish to the Administrative Agent (a)
promptly after the filing thereof with the United States Secretary of Labor, the Internal
Revenue Service or the PBGC, copies of each annual and other report with respect to each Plan or
any trust created thereunder, (b) immediately upon becoming aware of the occurrence of any ERISA
Event or of any “prohibited transaction,” as described in section 406 of ERISA or in section 4975
of the Code, in connection with any Plan or any trust created thereunder, a written notice signed
by the President or the principal Financial Officer, the Subsidiary or the ERISA Affiliate, as the
case may be, specifying the nature thereof, what action the Borrower, the Subsidiary or the ERISA
Affiliate is taking or proposes to take with respect thereto, and, when known, any action taken or
proposed by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto,
and (c) immediately upon receipt thereof, copies of any notice of the PBGC’s intention to terminate
or to have a trustee appointed to administer any Plan. With respect to each Plan (other than a
Multiemployer Plan), the Borrower will, and will cause each Subsidiary and ERISA Affiliate to, (i)
satisfy in full and in a timely manner, without incurring any late payment or underpayment charge
or penalty and without giving rise to any lien, all of the contribution and funding requirements of
section 412 of the Code (determined without regard to subsections (d), (e), (f) and (k) thereof)
and of section 302 of ERISA (determined without regard to sections 303, 304 and 306 of ERISA), and
(ii) pay, or cause to be paid, to the PBGC in a timely manner, without incurring any late payment
or underpayment charge or penalty, all premiums required pursuant to sections 4006 and 4007 of
ERISA.



     Section 8.16 Marketing Activities. The Borrower will not, and will not permit any of
its Subsidiaries to, engage in marketing activities for any Hydrocarbons or enter into any
contracts related thereto other than (a) contracts for the sale of Hydrocarbons scheduled or
reasonably estimated to be produced from their proved Oil and Gas Properties during the period of
such contract, (b) contracts for the sale of Hydrocarbons scheduled or reasonably estimated to be
produced from proved Oil and Gas Properties of third parties during the period of such contract
associated with the Oil and Gas Properties of the Borrower and its Subsidiaries that the Borrower
or one of its Subsidiaries has the right to market pursuant to joint operating agreements,
unitization agreements or other similar contracts that are usual and customary in the oil and gas
business and (c) other contracts for the purchase and/or sale of Hydrocarbons of third parties (i)
which have generally offsetting provisions (i.e., corresponding pricing mechanics, delivery dates
and points and volumes) such that no “position” is taken and (ii) for which appropriate credit
support has been taken to alleviate the material credit risks of the counterparty thereto.



     Section 8.17 Payment of Interest in Kind. If as of any interest payment date under
the Senior Subordinated Convertible Notes, a Borrowing Base Deficiency or Event of Default exists
or would result from the making of such payment in cash, the Borrower shall exercise its right
under the Senior Subordinated Convertible Notes to, and will pay such interest in shares of its
common Equity Interests.



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ARTICLE IX

NEGATIVE COVENANTS




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



     Section 9.01 Financial Covenants.



          (a) Ratio of Total Debt to EBITDAX. The Borrower will not, as of the last day of any
fiscal quarter, commencing with the fiscal quarter ending December 31, 2007, permit its ratio of
Total Debt as of the end of such fiscal quarter to EBITDAX for the four fiscal quarters ending on
the last day of the fiscal quarter immediately preceding the date of determination for which
financial statements are available to be greater than 3.5 to 1.0.



     Notwithstanding anything to the contrary in the definition of “EBITDAX”, for purposes of this
Section 9.01(a), EBITDAX shall be calculated as follows:




          (i) for the fiscal quarter ending December 31, 2007, EBITDAX shall be EBITDAX for such
fiscal quarter ending December 31, 2007, multiplied by four;




          (ii) for the fiscal quarter ending March 31, 2008, EBITDAX shall be EBITDAX for the two
fiscal quarter period ending March 31, 2008, multiplied by two; and




          (iii) for the fiscal quarter ending June 30, 2008, EBITDAX shall be EBITDAX for the
three fiscal quarter period ending June 30, 2008, multiplied by 4/3.



     Thereafter, EBITDAX shall be calculated using EBITDAX for the period of four fiscal quarters
ending on the last day of the fiscal quarter immediately preceding the date of determination for
which financial statements are available.



          (b) Current Ratio. The Borrower will not, as of the last day of any fiscal quarter,
commencing with the fiscal quarter ending September 30, 2007, permit its ratio of (i) consolidated
current assets (including the unused amount of the total Commitments, but excluding non-cash assets
under SFAS 133) to (ii) consolidated current liabilities (excluding non-cash obligations, SFAS 133
liabilities and current maturities under (A) this Agreement, and (B) the Senior Subordinated
Convertible Notes, whether such amounts are reflected as a liability under GAAP or not) to be less
than 1.0 to 1.0.



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



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



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



          (c) Debt under Capital Leases not to exceed the greater of $500,000 or five percent (5%) of
the then effective Conforming Borrowing Base.



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



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



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



          (g) other Debt not to exceed the greater of $500,000 or five percent (5%) of the then
effective Conforming Borrowing Base in the aggregate at any one time outstanding.



          (h) Debt under the Senior Subordinated Convertible Notes, the principal amount of which does
not exceed $9,000,000.



          (i) non-cash liabilities created by SFAS 133 for Swap Agreements and the Senior Subordinated
Convertible Notes and associated warrants.



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



          (a) Liens securing the payment of any Indebtedness.



          (b) Excepted Liens.



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



          (d) Liens on Property not constituting collateral for the Indebtedness and not otherwise
permitted by the foregoing clauses of this Section 9.03; provided that the aggregate principal or
face amount of all Debt secured under this Section 9.03(d) shall not exceed the greater of $500,000
or five percent (5%) of the then effective Conforming Borrowing Base at any time.



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     Section 9.04 Dividends, Distributions and Redemptions.



          (a) Restricted Payments. The Borrower will not, and will not permit any of its
Subsidiaries to, declare or make, or agree to pay or make, directly or indirectly, any Restricted
Payment, return any capital to its stockholders or make any distribution of its Property to its
Equity Interest holders, except (i) the Borrower may declare and pay dividends or distributions
with respect to its Equity Interests, including without limitation, distributions under the
Rights Agreement, payable solely in additional shares of its Equity Interests (other than
Disqualified Capital Stock), (ii) Subsidiaries may declare and pay dividends ratably with respect
to their Equity Interests and (iii) the Borrower may make Restricted Payments pursuant to and in
accordance with stock option plans or other benefit plans for management or employees of the
Borrower and its Subsidiaries.



          (b) Redemption of Senior Subordinated Convertible Notes; Amendment of Senior Subordinated
Convertible Notes. The Borrower will not, and will not permit any Restricted Subsidiary to:
(i) call, make or offer to make any Redemption of or otherwise Redeem (whether in whole or in part)
the Senior Subordinated Convertible Notes in respect thereof; provided, that the Borrower may
Redeem the Senior Subordinated Convertible Notes, in whole, but not in part, with the net cash
proceeds of any sale of Equity Interests (other than Disqualified Capital Stock); (ii) amend,
modify, waive or otherwise change, consent or agree to any amendment, modification, waiver or other
change to, any of the terms of the Senior Subordinated Convertible Notes; or (iii) designate any
Debt (other than obligations of the Borrower and the Subsidiaries pursuant to the Loan Documents)
as “Senior Indebtedness” (as defined in the Senior Subordinated Convertible Notes) or give any such
other Debt any other similar designation for the purposes of any Senior Subordinated Convertible
Note. The Borrower hereby agrees that all rights (including, without limitation, approval and
consent rights) of, and references to, BNP Paribas in and under the Senior Subordinated Convertible
Notes shall be the rights of, and references to, JPMorgan Chase Bank, N.A.



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



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



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



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



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



          (e) deposits maturing within one year from the date of creation thereof with, including
certificates of deposit issued by, any Lender or any office located in the United States of any
other bank or trust company which is organized under the laws of the United States or any



68









 







state
thereof, has capital, surplus and undivided profits aggregating at least $100,000,000 (as of the
date of such bank or trust company’s most recent financial reports) and has a short term deposit
rating of no lower than A2 or P2, as such rating is set forth from time to time, by S&P or Moody’s,
respectively.



          (f) deposits in money market funds investing exclusively in Investments described in Section
9.05(c), Section 9.05(d) or Section 9.05(e).



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



          (h) subject to the limits in Section 9.06, Investments (including, without limitation, capital
contributions) in general or limited partnerships or other types of entities (each a
“venture”) entered into by the Borrower or a Subsidiary with others in the ordinary course
of business; provided that (i) any such venture is engaged exclusively in oil and gas exploration,
development, production, processing and related activities, including transportation, (ii) the
interest in such venture is acquired in the ordinary course of business and on fair and reasonable
terms and (iii) such venture interests acquired and capital contributions made (valued as of the
date such interest was acquired or the contribution made) do not exceed, in the aggregate at any
time outstanding an amount equal to the greater of $500,000 or five percent (5%) of the then
effective Conforming Borrowing Base.



          (i) subject to the limits in Section 9.06, Investments in direct ownership interests in
additional Oil and Gas Properties and gas gathering systems related thereto or related to farm-out,
farm-in, joint operating, joint venture or area of mutual interest agreements, gathering systems,
pipelines or other similar arrangements which are usual and customary in the oil and gas
exploration and production business located within the geographic boundaries of the United States
of America.



          (j) loans or advances to employees, officers or directors in the ordinary course of business
of the Borrower or any of its Subsidiaries, in each case only as permitted by applicable law,
including Section 402 of the Sarbanes Oxley Act of 2002, but in any event not to exceed the greater
of $500,000 or two percent (2%) of the then effective Conforming Borrowing Base in the aggregate at
any time.



          (k) Investments in stock, obligations or securities received in settlement of debts arising
from Investments permitted under this Section 9.05 owing to the Borrower or any Subsidiary as a
result of a bankruptcy or other insolvency proceeding of the obligor in respect of such debts or
upon the enforcement of any Lien in favor of the Borrower or any of its Subsidiaries; provided that
the Borrower shall give the Administrative Agent prompt written notice in the event that the
aggregate amount of all Investments held at any one time under this Section 9.05(k) exceeds the
greater of $500,000 or two percent (2%) of the then effective Conforming Borrowing Base.



          (l) other Investments not to exceed $2,000,000 in the aggregate at any time.



     Section 9.06 Nature of Business; International Operations. The Borrower will not, and
will not permit any Subsidiary to, allow any material change to be made in the character of



69









 







its
business as an independent oil and gas exploration and production company. From and after the date
hereof, the Borrower and its Subsidiaries will not acquire or make any other expenditures (whether
such expenditure is capital, operating or otherwise) in or related to, any Oil and Gas Properties
not located within the geographical boundaries of the United States.



     Section 9.07 Proceeds of Notes. The Borrower will not permit the proceeds of the
Notes to be used for any purpose other than those permitted by Section 7.21. Neither the Borrower
nor any Person acting on behalf of the Borrower has taken or will take any action which might cause
any of the Loan Documents to violate Regulations T, U or X or any other regulation of the Board or
to violate Section 7 of the Securities Exchange Act of 1934 or any rule or regulation thereunder,
in each case as now in effect or as the same may hereinafter be in effect. If requested by the
Administrative Agent, the Borrower will furnish to the Administrative Agent and each Lender a
statement to the foregoing effect in conformity with the requirements of FR Form U-1 or such other
form referred to in Regulation U, Regulation T or Regulation X of the Board, as the case may be.



     Section 9.08 ERISA Compliance. The Borrower will not, and will not permit any
Subsidiary to, at any time:



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



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



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



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



          (e) permit, or allow any ERISA Affiliate to permit, the actuarial present value of the benefit
liabilities under any Plan maintained by the Borrower, a Subsidiary 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.



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



70









 





          (g) acquire, or permit any ERISA Affiliate to acquire, an interest in any Person that causes
such Person to become an ERISA Affiliate with respect to the Borrower or a Subsidiary or with
respect to any ERISA Affiliate of the Borrower or a Subsidiary 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, (i) any Multiemployer Plan, or (ii) 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.



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



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



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



     Section 9.09 Sale or Discount of Receivables. Except for receivables obtained by the
Borrower or any Subsidiary out of the ordinary course of business or the settlement of joint
interest billing accounts in the ordinary course of business or discounts granted to settle
collection of accounts receivable or the sale of defaulted accounts arising in the ordinary course
of business in connection with the compromise or collection thereof and not in connection with any
financing transaction, the Borrower will not, and will not permit any Subsidiary to, discount or
sell (with or without recourse) any of its notes receivable or accounts receivable.



     Section 9.10 Mergers, Etc. Neither the Borrower nor any of its Subsidiaries will
merge into or with or consolidate with any other Person, or sell, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) all or substantially all of its
Property to any other Person, except that any Wholly-Owned Subsidiary may merge with any other
Wholly-Owned Subsidiary and that the Borrower may merge with any Wholly-Owned Subsidiary so long as
the Borrower is the survivor.



     Section 9.11 Sale of Properties. The Borrower will not, and will not permit any
Subsidiary to, sell, assign, farm-out, convey or otherwise transfer any Property except for (a) the
sale of Hydrocarbons in the ordinary course of business; (b) farmouts in the ordinary course of
business of undeveloped acreage or undrilled depths and assignments in connection with such
farmouts; (c) the sale or transfer, in the ordinary course of business, of (i) equipment that is no
longer necessary for the business of the Borrower or such Subsidiary (ii) Oil and Gas Properties or
interests therein or Subsidiaries owning Oil and Gas Properties, which were not taken into account
in determining the most recent Borrowing Base or Conforming Borrowing Base or to which there were
no proved reserves attributed in the most recent Reserve Report delivered to



71









 







the Lenders; (d) the
sale or other disposition (including Casualty Events) of any Oil and Gas Property or any interest
therein or any Subsidiary owning Oil and Gas Properties; provided that (i) 100% of the
consideration received in respect of such sale or other disposition shall be cash, (ii) the
consideration received in respect of such sale or other disposition shall be equal to or greater
than the fair market value of the Oil and Gas Property, interest therein or Subsidiary
subject of such sale or other disposition (as reasonably determined by the board of directors
of the Borrower and, if requested by the Administrative Agent, the Borrower shall deliver a
certificate of a Responsible Officer of the Borrower certifying to that effect), (iii) if such sale
or other disposition of Oil and Gas Property or Subsidiary owning Oil and Gas Properties included
in the most recently delivered Reserve Report during any period between two successive Scheduled
Redetermination Dates has a fair market value in excess of five percent (5%) of the Conforming
Borrowing Base as then in effect (as determined by the Administrative Agent), individually or in
the aggregate, the Borrowing Base and Conforming Borrowing Base shall be reduced, effective
immediately upon such sale or disposition, by an amount equal to the value, if any, assigned such
Property in the most recently delivered Reserve Report and (iv) if any such sale or other
disposition is of a Subsidiary owning Oil and Gas Properties, such sale or other disposition shall
include all the Equity Interests of such Subsidiary; and (e) sales and other dispositions of
Properties not regulated by Section 9.11(a) to (d) having a fair market value not to exceed the
greater of $500,000 or five percent (5%) of the then effective Conforming Borrowing Base during any
12-month period. For purposes of this Agreement, the Borrower has notified the Administrative
Agent of the potential sale of a 10% working interest in the Piceance Basin.



     Section 9.12 Environmental Matters. The Borrower will not, and will not permit any
Subsidiary to, cause or permit any of its Property to be in violation of, or do anything or permit
anything to be done which will subject any such Property to any Remedial Work under any
Environmental Laws, assuming disclosure to the applicable Governmental Authority of all relevant
facts, conditions and circumstances, if any, pertaining to such Property where such violations or
remedial obligations could reasonably be expected to have a Material Adverse Effect.



     Section 9.13 Transactions with Affiliates. The Borrower will not, and will not permit
any Subsidiary to, enter into any transaction, including, without limitation, any purchase, sale,
lease or exchange of Property or the rendering of any service, with any Affiliate (other than the
Guarantors and Wholly-Owned Subsidiaries of the Borrower) unless such transactions are otherwise
permitted under this Agreement and are upon fair and reasonable terms no less favorable to it than
it would obtain in a comparable arm’s length transaction with a Person not an Affiliate.



     Section 9.14 Subsidiaries. The Borrower will not, and will not permit any Subsidiary
to, create or acquire any additional Subsidiaries unless the Borrower gives written notice to the
Administrative Agent of such creation or acquisition and complies with Section 8.14(b). The
Borrower shall not, and shall not permit any Subsidiary to, sell, assign or otherwise dispose of
any Equity Interests in any Subsidiary except in compliance with Section 9.11(d). The Borrower
shall have no Foreign Subsidiaries.



72









 





     Section 9.15 Negative Pledge Agreements; Dividend Restrictions. The Borrower will
not, and will not permit any Subsidiary to, create, incur, assume or suffer to exist any contract,
agreement or understanding (other than this Agreement, the Security Instruments or Capital Leases
creating Liens permitted by Section 9.03(c)) which in any way prohibits or restricts the granting,
conveying, creation or imposition of any Lien on any of its Property in favor of the Administrative
Agent and the Lenders or restricts any Subsidiary from paying
dividends or making distributions to the Borrower or any Guarantor, or which requires the
consent of or notice to other Persons in connection therewith.



     Section 9.16 Gas Imbalances, Take-or-Pay or Other Prepayments. The Borrower will not,
and will not permit any Subsidiary to, allow gas imbalances, take-or-pay or other prepayments with
respect to the Oil and Gas Properties of the Borrower or any Subsidiary that would require the
Borrower or such Subsidiary to deliver Hydrocarbons at some future time without then or thereafter
receiving full payment therefor to exceed the greater of $500,000 or five percent (5%) of the then
effective Conforming Borrowing Base in the aggregate.



     Section 9.17 Swap Agreements. The Borrower will not, and will not permit any
Subsidiary to, enter into any Swap Agreements with any Person other than (a) Swap Agreements in
respect of commodities, the notional volumes for which (when aggregated with other commodity Swap
Agreements then in effect other than basis differential swaps on volumes already hedged pursuant to
other Swap Agreements) do not exceed, as of the date such Swap Agreement is executed, 80% of the
reasonably anticipated projected production from proved, developed, producing Oil and Gas
Properties for each month during the period during which such Swap Agreement is in effect for each
of crude oil and natural gas, calculated separately; provided, that such Swap Agreements in respect
of commodities shall be permitted for a period not to exceed three (3) calendar years from the date
upon which the Minimum Production Requirements have been met, and (b) Swap Agreements in respect of
interest rates which effectively convert interest rates from floating to fixed, the notional
amounts of which (when aggregated with all other Swap Agreements of the Borrower and its
Subsidiaries then in effect effectively converting interest rates from floating to fixed) do not
exceed 100% of the then outstanding principal amount of the Borrower’s Debt for borrowed money
which bears interest at a floating rate. In no event shall any Swap Agreement contain any
requirement, agreement or covenant for the Borrower or any Subsidiary to post collateral or margin
to secure their obligations under such Swap Agreement or to cover market exposures.



ARTICLE X



EVENTS OF DEFAULT; REMEDIES




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



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



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          (b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount
(other than an amount referred to in Section 10.01(a)) payable under any Loan Document, when and as
the same shall become due and payable, and such failure shall continue unremedied for a period of
three (3) Business Days.



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



          (d) the Borrower or any Subsidiary shall fail to observe or perform any covenant, condition or
agreement contained in Section 8.01(i), Section 8.01(l), Section 8.02, Section 8.03, Section 8.14
or in Article IX.



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



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



          (g) any event or condition occurs that results in any Material Indebtedness becoming due prior
to its scheduled maturity or that enables or permits (with or without the giving of notice, the
lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or agent
on its or their behalf to cause any Material Indebtedness to become due, or to require the
Redemption thereof or any offer to Redeem to be made in respect thereof, prior to its scheduled
maturity or require the Borrower or any Subsidiary to make an offer in respect thereof.



          (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed
seeking (i) liquidation, reorganization or other relief in respect of the Borrower or any
Subsidiary or its debts, or of a substantial part of its assets, under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the
appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for
the Borrower or any Subsidiary or for a substantial part of its assets, and, in any such case, such
proceeding or petition shall continue undismissed for thirty (30) days or an order or decree
approving or ordering any of the foregoing shall be entered.



          (i) the Borrower or any Subsidiary shall (i) voluntarily commence any proceeding or file any
petition seeking liquidation, reorganization or other relief under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in



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effect, (ii) consent to the
institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition
described in Section 10.01(h), (iii) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for the Borrower or any
Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material
allegations of a petition filed against it in any such proceeding, (v) make a general assignment
for the benefit of creditors or (vi) take any action for the purpose of effecting any of the
foregoing; or any stockholder of the Borrower shall make any request or take any action for the
purpose of calling a meeting of the stockholders of the Borrower to consider a resolution to
dissolve and wind up the Borrower’s affairs.



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



          (k) (i) one or more judgments for the payment of money in an aggregate amount in excess of the
greater of $500,000 or two and one half percent (2.5%) of the then effective Conforming Borrowing
Base (to the extent not covered by independent third party insurance provided by insurers of the
highest claims paying rating or financial strength as to which the insurer does not dispute
coverage and is not subject to an insolvency proceeding) or (ii) any one or more non-monetary
judgments that have, or could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect, shall be rendered against the Borrower, any Subsidiary or any combination
thereof and the same shall remain undischarged for a period of 30 consecutive days during which
execution shall not be effectively stayed, or any action shall be legally taken by a judgment
creditor to attach or levy upon any assets of the Borrower or any Subsidiary to enforce any such
judgment.



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



          (m) an ERISA Event shall have occurred that, in the opinion of the Majority Lenders, when
taken together with all other ERISA Events that have occurred, could reasonably be expected to
result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding the
greater of $500,000 or two and one half percent (2.5%) of the then effective Conforming Borrowing
Base in any year.



          (n) a Change in Control shall occur.



     Section 10.02 Remedies.



          (a) In the case of an Event of Default other than one described in Section 10.01(h), Section
10.01(i) or Section 10.01(j), at any time thereafter during the continuance of such Event of
Default, the Administrative Agent may, and at the request of the Majority Lenders, shall, by notice
to the Borrower, take either or both of the following actions, at the same or



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



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



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




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




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




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




          (iv) fourth, pro rata to payment of principal outstanding on the Loans and Indebtedness
referred to in Clause (b) of the definition of Indebtedness owing to a Lender or an
Affiliate of a Lender;




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




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




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



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ARTICLE XI



THE AGENTS




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



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



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



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



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



     Section 11.06 Resignation or Removal of Administrative Agent. Subject to the
appointment and acceptance of a successor Administrative Agent as provided in this Section 11.06,
the Administrative Agent may resign at any time by notifying the Lenders, the Issuing Bank and the
Borrower, and the Administrative Agent may be removed at any time with or without cause by the
Majority Lenders. Upon any such resignation or removal, the Majority Lenders shall have the right,
with the approval of the Borrower, to appoint a successor. If no successor shall have been so
appointed by the Majority Lenders and shall have accepted such appointment within 30 days after the
retiring Administrative Agent gives notice of its resignation or removal of the retiring
Administrative Agent, then the retiring Administrative Agent may, on behalf of the Lenders and the
Issuing Bank, appoint a successor Administrative Agent. Upon the acceptance of its appointment as
Administrative Agent hereunder by a successor, such successor shall succeed to and become vested
with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the
retiring Administrative Agent shall be discharged from its duties and obligations hereunder. The
fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable
to its predecessor unless otherwise agreed between the Borrower and such successor. After the
Administrative Agent’s resignation hereunder, the provisions of this Article XI and Section 12.03
shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and
their respective Related Parties in respect of any actions taken or omitted to be taken by any of
them while it was acting as Administrative Agent.



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



     Section 11.08 No Reliance. Each Lender acknowledges that it has, independently and
without reliance upon the Administrative Agent or any other Lender and based on such documents and
information as it has deemed appropriate, made its own credit analysis and decision to enter into
this Agreement and each other Loan Document to which it is a party. Each Lender also acknowledges
that it will, independently and without reliance upon the Administrative Agent or any other Lender
and based on such documents and information as it shall from time to time deem appropriate,
continue to make its own decisions in taking or not taking action under or based upon this
Agreement, any other Loan Document, any related agreement or any document furnished hereunder or
thereunder. The Administrative Agent shall not be required to keep itself informed as to the
performance or observance by the Borrower or



79









 







any of its Subsidiaries of this Agreement, the Loan
Documents or any other document referred to or provided for herein or to inspect the Properties or
books of the Borrower or its Subsidiaries. Except for notices, reports and other documents and
information expressly required to be furnished to the Lenders by the Administrative Agent
hereunder, the Administrative Agent and the Arranger shall have no duty or responsibility to
provide any Lender with any credit or other information concerning the affairs, financial condition
or business of the Borrower (or any of its
Affiliates) which may come into the possession of the Administrative Agent or any of its
Affiliates. In this regard, each Lender acknowledges that Vinson & Elkins L.L.P. is acting in this
transaction as special counsel to the Administrative Agent only, except to the extent otherwise
expressly stated in any legal opinion or any Loan Document. Each other party hereto will consult
with its own legal counsel to the extent that it deems necessary in connection with the Loan
Documents and the matters contemplated therein.



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



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



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


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



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




     Section 11.10 Authority of Administrative Agent to Release Collateral and Liens. Each
Lender and the Issuing Bank hereby authorizes the Administrative Agent to release any



80









 







collateral
that is permitted to be sold or released pursuant to the terms of the Loan Documents. Each Lender
and the Issuing Bank hereby authorizes the Administrative Agent to execute and deliver to the
Borrower, at the Borrower’s sole cost and expense, any and all releases of Liens, termination
statements, assignments or other documents reasonably requested by the Borrower in connection with
any sale or other disposition of Property to the extent such sale or other
disposition is permitted by the terms of Section 9.11 or is otherwise authorized by the terms
of the Loan Documents.



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



ARTICLE XII



MISCELLANEOUS




     Section 12.01 Notices.



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




          (i) if to the Borrower, to it at 410 17th Street, Suite 1850, Denver, CO 80202,
Attention of Bill I. Pennington (Telecopy No. 303.565.4606); with a copy to Gersten Savage
LLP, 600 Lexington Avenue, New York, NY 10022, Attention of David Danovitch (Telecopy No.
212.980.5192);




          (ii) if to the Administrative Agent, to it at 1717 Main Street, 4th Floor,
Mail Code TX1-2448, Dallas, Texas 75201, Attention of J. Scott Fowler (Telecopy No.
214.290.2332) with a copy to 10 South Dearborn, Floor 7, Chicago, Illinois 60603-2003,
Attention of Chavonne Cockrell (Telecopy No. 312.385.7096); and




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



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



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



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     Section 12.02 Waivers; Amendments.



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



          (b) Neither this Agreement nor any provision hereof nor any Security Instrument nor any
provision thereof may be waived, amended or modified except pursuant to an agreement or agreements
in writing entered into by the Borrower and the Majority Lenders or by the Borrower and the
Administrative Agent with the consent of the Majority Lenders; provided that no such agreement
shall (i) increase the Maximum Credit Amount of any Lender without the written consent of such
Lender, (ii) increase the Borrowing Base or Conforming Borrowing Base without the written consent
of each Lender, decrease or maintain the Borrowing Base or Conforming Borrowing Base without the
consent of the Majority Lenders, or modify Section 2.07 in any manner without the consent of each
Lender, (iii) reduce the principal amount of any Loan or LC Disbursement or reduce the rate of
interest thereon, or reduce any fees payable hereunder, or reduce any other Indebtedness hereunder
or under any other Loan Document, without the written consent of each Lender affected thereby, (iv)
postpone the scheduled date of payment or prepayment of the principal amount of any Loan or LC
Disbursement, or any interest thereon, or any fees payable hereunder, or any other Indebtedness
hereunder or under any other Loan Document, or reduce the amount of, waive or excuse any such
payment, or postpone or extend the Termination Date without the written consent of each Lender
affected thereby, (v) change Section 4.01(b) or Section 4.01(c) in a manner that would alter the
pro rata sharing of payments required thereby, without the written consent of each Lender, (vi)
waive or amend Section 3.04(c), Section 6.01, Section 8.14, Section 10.02(c) or Section 12.14 or
change the definition of the terms “Domestic Subsidiary”, “Foreign Subsidiary”, or “Subsidiary”,
without the written consent of each Lender, (vii) release any Guarantor (except as set forth in the
Guaranty Agreement), release any of the collateral (other than as provided in Section 11.10), or
reduce the percentage set forth in Section 8.14(a) to less than 80% (or, as applicable, 95%),
without the written consent of each Lender, or (viii) change any of the provisions of this Section
12.02(b) or the definition of “Majority Lenders” or any other provision hereof specifying the
number or percentage of Lenders required to waive, amend or modify any rights hereunder or under
any other Loan Documents or make any determination or grant any consent hereunder or any other Loan
Documents, without the written consent of each Lender; provided further that no



82









 







such agreement
shall amend, modify or otherwise affect the rights or duties of the Administrative Agent or the
Issuing Bank hereunder or under any other Loan Document without the prior written consent of the
Administrative Agent or the Issuing Bank, as the case may be. Notwithstanding the foregoing, any
supplement to Schedule 7.14 (Subsidiaries) shall be effective
simply by delivering to the Administrative Agent a supplemental schedule clearly marked as
such and, upon receipt, the Administrative Agent will promptly deliver a copy thereof to the
Lenders.



     Section 12.03 Expenses, Indemnity; Damage Waiver.



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



          (b) THE BORROWER SHALL INDEMNIFY THE ADMINSTRATIVE AGENT, THE ARRANGER, THE ISSUING BANK AND
EACH LENDER, AND EACH RELATED PARTY OF ANY OF THE FOREGOING PERSONS (EACH SUCH PERSON BEING CALLED
AN “INDEMNITEE”) AGAINST, AND HOLD EACH INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES,
CLAIMS, DAMAGES, LIABILITIES AND RELATED EXPENSES, INCLUDING THE FEES, CHARGES AND DISBURSEMENTS OF
ANY COUNSEL FOR ANY INDEMNITEE, INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE ARISING OUT OF, IN
CONNECTION WITH, OR AS A RESULT OF (i) THE EXECUTION OR DELIVERY OF THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, (ii) THE PERFORMANCE
BY THE PARTIES HERETO OR THE PARTIES TO ANY OTHER LOAN DOCUMENT OF THEIR RESPECTIVE OBLIGATIONS
HEREUNDER OR THEREUNDER OR THE CONSUMMATION OF THE TRANSACTIONS



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CONTEMPLATED HEREBY OR BY ANY OTHER
LOAN DOCUMENT, (iii) THE FAILURE OF THE BORROWER OR ANY SUBSIDIARY TO COMPLY WITH THE TERMS OF ANY
LOAN DOCUMENT, INCLUDING THIS AGREEMENT, OR WITH ANY GOVERNMENTAL REQUIREMENT, (iv) ANY INACCURACY
OF ANY
REPRESENTATION OR ANY BREACH OF ANY WARRANTY OR COVENANT OF THE BORROWER OR ANY GUARANTOR SET
FORTH IN ANY OF THE LOAN DOCUMENTS OR ANY INSTRUMENTS, DOCUMENTS OR CERTIFICATIONS DELIVERED IN
CONNECTION THEREWITH, (v) ANY LOAN OR LETTER OF CREDIT OR THE USE OF THE PROCEEDS THEREFROM,
INCLUDING, WITHOUT LIMITATION, (A) ANY REFUSAL BY THE ISSUING BANK TO HONOR A DEMAND FOR PAYMENT
UNDER A LETTER OF CREDIT IF THE DOCUMENTS PRESENTED IN CONNECTION WITH SUCH DEMAND DO NOT STRICTLY
COMPLY WITH THE TERMS OF SUCH LETTER OF CREDIT, OR (B) THE PAYMENT OF A DRAWING UNDER ANY LETTER OF
CREDIT NOTWITHSTANDING THE NON-COMPLIANCE, NON-DELIVERY OR OTHER IMPROPER PRESENTATION OF THE
DOCUMENTS PRESENTED IN CONNECTION THEREWITH, (vi) ANY OTHER ASPECT OF THE LOAN DOCUMENTS, (vii) THE
OPERATIONS OF THE BUSINESS OF THE BORROWER AND ITS SUBSIDIARIES BY THE BORROWER AND ITS
SUBSIDIARIES, (viii) ANY ASSERTION THAT THE LENDERS WERE NOT ENTITLED TO RECEIVE THE PROCEEDS
RECEIVED PURSUANT TO THE SECURITY INSTRUMENTS, (ix) ANY ENVIRONMENTAL LAW APPLICABLE TO THE
BORROWER OR ANY SUBSIDIARY OR ANY OF THEIR PROPERTIES, INCLUDING WITHOUT LIMITATION, THE PRESENCE,
GENERATION, STORAGE, RELEASE, THREATENED RELEASE, USE, TRANSPORT, DISPOSAL, ARRANGEMENT OF DISPOSAL
OR TREATMENT OF OIL, OIL AND GAS WASTES, SOLID WASTES OR HAZARDOUS SUBSTANCES ON ANY OF THEIR
PROPERTIES, (x) THE BREACH OR NON-COMPLIANCE BY THE BORROWER OR ANY SUBSIDIARY WITH ANY
ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY, (xi) THE PAST OWNERSHIP BY THE
BORROWER OR ANY SUBSIDIARY OF ANY OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES
WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT LIABILITY, (xii)
THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT, DISPOSAL, GENERATION, THREATENED RELEASE,
TRANSPORT, ARRANGEMENT FOR TRANSPORT OR ARRANGEMENT FOR DISPOSAL OF OIL, OIL AND GAS WASTES, SOLID
WASTES OR HAZARDOUS SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY THE BORROWER OR
ANY SUBSIDIARY OR ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS MATERIALS ON OR FROM ANY
PROPERTY OWNED OR OPERATED BY THE BORROWER OR ANY OF ITS SUBSIDIARIES, (xiii) ANY ENVIRONMENTAL
LIABILITY RELATED IN ANY WAY TO THE BORROWER OR ANY OF ITS SUBSIDIARIES, (xiv) ANY OTHER
ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS OR (xv) ANY ACTUAL
OR PROSPECTIVE CLAIM, LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE FOREGOING,
WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY AND REGARDLESS OF WHETHER ANY INDEMNITEE IS A
PARTY THERETO, AND SUCH INDEMNITY SHALL EXTEND TO EACH INDEMNITEE NOTWITHSTANDING THE SOLE OR
CONCURRENT NEGLIGENCE OF EVERY KIND



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OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN
AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT
IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE INDEMNITEES OR BY REASON OF
STRICT
LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR MORE OF THE INDEMNITEES; PROVIDED THAT SUCH
INDEMNITY SHALL NOT, AS TO ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS,
DAMAGES, LIABILITIES OR RELATED EXPENSES ARE DETERMINED BY A COURT OF COMPETENT JURISDICTION BY
FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT
OF SUCH INDEMNITEE.



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



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



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



     Section 12.04 Successors and Assigns.



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



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




          (A) the Borrower, provided that no consent of the Borrower shall be required if
an Event of Default has occurred and is continuing, is to any other assignee; and




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




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




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




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




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




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




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



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Section 12.04 shall be treated for purposes of this
Agreement as a sale by such Lender of a participation in such rights and obligations in
accordance with Section 12.04(c).




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




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




     (c) (i) Any Lender may, without the consent of the Borrower, the Administrative Agent
or the Issuing Bank, sell participations to one or more banks or other entities (a
“Participant”) in all or a portion of such Lender’s rights and obligations under
this Agreement (including all or a portion of its Commitment and the Loans owing to it);
provided that (A) such Lender’s obligations under this Agreement shall remain unchanged, (B)
such Lender shall remain solely responsible to the other parties hereto for the performance
of such obligations and (C) the Borrower, the Administrative Agent, the Issuing Bank and the
other Lenders shall continue to deal solely and directly with such Lender in connection with
such Lender’s rights and obligations under this Agreement. Any agreement or instrument
pursuant to which a Lender sells such a participation shall provide that such Lender shall
retain the sole right to enforce this Agreement and to approve any amendment, modification
or waiver of any provision of this Agreement. In addition such agreement must provide that
the Participant be bound by the provisions of Section 12.03. Subject to Section
12.04(c)(ii), the Borrower agrees that each Participant shall be entitled to the benefits of
Section 5.01, Section 5.01(d) and Section 5.03 to the same extent as if it were a Lender and
had acquired its interest by assignment pursuant to Section 12.04(b). To the extent
permitted by law, each Participant also shall be entitled to the benefits of Section 12.08
as though it were a Lender, provided such Participant agrees to be subject to Section
4.01(c) as though it were a Lender.



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



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



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



     Section 12.05 Survival; Revival; Reinstatement.



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



          (b) To the extent that any payments on the Indebtedness or proceeds of any collateral are
subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be
repaid to a trustee, debtor in possession, receiver or other Person under any



88









 







bankruptcy law,
common law or equitable cause, then to such extent, the Indebtedness so satisfied shall be revived
and continue as if such payment or proceeds had not been received and the Administrative Agent’s
and the Lenders’ Liens, security interests, rights, powers and remedies under this Agreement and
each Loan Document shall continue in full force and effect.
In such event, each Loan Document shall be automatically reinstated and the Borrower shall
take such action as may be reasonably requested by the Administrative Agent and the Lenders to
effect such reinstatement.



     Section 12.06 Counterparts; Integration; Effectiveness.



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



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



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



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



     Section 12.08 Right of Setoff. If an Event of Default shall have occurred and be
continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time
to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general
or special, time or demand, provisional or final) at any time held and other obligations (of
whatsoever kind, including, without limitations obligations under Swap Agreements) at any time
owing by such Lender or Affiliate to or for the credit or the account of the Borrower or any
Subsidiary against any of and all the obligations of the Borrower or any Subsidiary owed to such
Lender now or hereafter existing under this Agreement or any other Loan Document, irrespective



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of
whether or not such Lender shall have made any demand under this Agreement or any other Loan
Document and although such obligations may be unmatured. The rights of each Lender under this
Section 12.08 are in addition to other rights and remedies (including other rights of setoff) which
such Lender or its Affiliates may have.



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



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



          (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS SHALL BE BROUGHT IN THE
COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES OF AMERICA FOR THE NORTHERN DISTRICT OF TEXAS,
AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY HEREBY ACCEPTS FOR ITSELF AND (TO THE
EXTENT PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY OBJECTION,
INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR
PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS.



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



          (d) EACH PARTY HEREBY (i) IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN; (ii) IRREVOCABLY WAIVES, TO THE MAXIMUM
EXTENT NOT



90









 







PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY
SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO,
ACTUAL DAMAGES; (iii) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OF COUNSEL FOR
ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE
THE FOREGOING WAIVERS, AND (iv) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT,
THE LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 12.09.



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



     Section 12.11 Confidentiality. Each of the Administrative Agent, the Issuing Bank and
the Lenders agrees to maintain the confidentiality of the Information (as defined below), except
that Information may be disclosed (a) to its and its Affiliates’ directors, officers, employees and
agents, including accountants, legal counsel and other advisors (it being understood that the
Persons to whom such disclosure is made will be informed of the confidential nature of such
Information and instructed to keep such Information confidential), (b) to the extent requested by
any regulatory authority, (c) to the extent required by applicable laws or regulations or by any
subpoena or similar legal process, (d) to any other party to this Agreement or any other Loan
Document, (e) in connection with the exercise of any remedies hereunder or under any other Loan
Document or any suit, action or proceeding relating to this Agreement or any other Loan Document or
the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing
provisions substantially the same as those of this Section 12.11, to (i) any assignee of or
Participant in, or any prospective assignee of or Participant in, any of its rights or obligations
under this Agreement (who agrees to be bound by the terms hereof) or (ii) any actual or prospective
counterparty (or its advisors) to any Swap Agreement relating to the Borrower and its obligations
(who agrees to be bound by the terms hereof), (g) with the consent of the Borrower or (h) to the
extent such Information (i) becomes publicly available other than as a result of a breach of this
Section 12.11 or (ii) becomes available to the Administrative Agent, the Issuing Bank or any Lender
on a non-confidential basis from a source other than the Borrower. For the purposes of this
Section 12.11, “Information” means all information received from the Borrower or any
Subsidiary relating to the Borrower or any Subsidiary and their businesses, other than any such
information that is available to the Administrative Agent, the Issuing Bank or any Lender on a
non-confidential basis prior to disclosure by the Borrower or a Subsidiary; provided that, in the
case of information received from the Borrower or any Subsidiary after the date hereof, such
information is clearly identified at the time of delivery as confidential. Any Person required to
maintain the confidentiality of Information as provided in this Section 12.11 shall be considered
to have complied with its obligation to do so if such Person has exercised the same degree of care
to maintain the confidentiality of such Information as such Person would accord to its own
confidential information.



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     Section 12.12 Interest Rate Limitation. It is the intention of the parties hereto
that each Lender shall conform strictly to usury laws applicable to it. Accordingly, if the
transactions contemplated hereby would be usurious as to any Lender under laws applicable to it
(including the laws of the United States of America and the State of Texas or any other
jurisdiction whose laws may be mandatorily applicable to such Lender notwithstanding the other
provisions of this Agreement), then, in that event, notwithstanding anything to the contrary in any
of the Loan
Documents or any agreement entered into in connection with or as security for the Notes, it is
agreed as follows: (a) the aggregate of all consideration which constitutes interest under law
applicable to any Lender that is contracted for, taken, reserved, charged or received by such
Lender under any of the Loan Documents or agreements or otherwise in connection with the Notes
shall under no circumstances exceed the maximum amount allowed by such applicable law, and any
excess shall be canceled automatically and if theretofore paid shall be credited by such Lender on
the principal amount of the Indebtedness (or, to the extent that the principal amount of the
Indebtedness shall have been or would thereby be paid in full, refunded by such Lender to the
Borrower); and (b) in the event that the maturity of the Notes is accelerated by reason of an
election of the holder thereof resulting from any Event of Default under this Agreement or
otherwise, or in the event of any required or permitted prepayment, then such consideration that
constitutes interest under law applicable to any Lender may never include more than the maximum
amount allowed by such applicable law, and excess interest, if any, provided for in this Agreement
or otherwise shall be canceled automatically by such Lender as of the date of such acceleration or
prepayment and, if theretofore paid, shall be credited by such Lender on the principal amount of
the Indebtedness (or, to the extent that the principal amount of the Indebtedness shall have been
or would thereby be paid in full, refunded by such Lender to the Borrower). All sums paid or
agreed to be paid to any Lender for the use, forbearance or detention of sums due hereunder shall,
to the extent permitted by law applicable to such Lender, be amortized, prorated, allocated and
spread throughout the stated term of the Loans evidenced by the Notes until payment in full so that
the rate or amount of interest on account of any Loans hereunder does not exceed the maximum amount
allowed by such applicable law. If at any time and from time to time (i) the amount of interest
payable to any Lender on any date shall be computed at the Highest Lawful Rate applicable to such
Lender pursuant to this Section 12.12 and (ii) in respect of any subsequent interest computation
period the amount of interest otherwise payable to such Lender would be less than the amount of
interest payable to such Lender computed at the Highest Lawful Rate applicable to such Lender, then
the amount of interest payable to such Lender in respect of such subsequent interest computation
period shall continue to be computed at the Highest Lawful Rate applicable to such Lender until the
total amount of interest payable to such Lender shall equal the total amount of interest which
would have been payable to such Lender if the total amount of interest had been computed without
giving effect to this Section 12.12. To the extent that Chapter 303 of the Texas Finance Code is
relevant for the purpose of determining the Highest Lawful Rate applicable to a Lender, such Lender
elects to determine the applicable rate ceiling under such Chapter by the weekly ceiling from time
to time in effect. Chapter 346 of the Texas Finance Code does not apply to the Borrower’s
obligations hereunder.



     Section 12.13 EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO SPECIFICALLY AGREES
THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND AGREES THAT IT IS
CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN



92









 







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



     Section 12.14 Collateral Matters; Swap Agreements. The benefit of the Security
Instruments and of the provisions of this Agreement relating to any collateral securing the
Indebtedness shall also extend to and be available to those Lenders or their Affiliates which are
counterparties to any Swap Agreement with the Borrower or any of its Subsidiaries on a pro rata
basis in respect of any obligations of the Borrower or any of its Subsidiaries which arise under
any such Swap Agreement while such Person or its Affiliate is a Lender, but only while such Person
or its Affiliate is a Lender, including any Swap Agreements between such Persons in existence prior
to the date hereof. No Lender or any Affiliate of a Lender shall have any voting rights under any
Loan Document as a result of the existence of obligations owed to it under any such Swap
Agreements.



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



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



     Section 12.17 Restatement; Existing Credit Agreement. The parties hereto agree that
this Agreement amends and restates (but does not extinguish) the Existing Credit Agreement in its
entirety. On the Effective Date, the loans and other Debt of the Borrower under the Existing



93









 







Credit Agreement shall be refinanced in full with the proceeds of the initial funding and the
commitments of the lenders thereunder shall be superseded by this Agreement and terminated.



[SIGNATURES BEGIN NEXT PAGE]




94









 





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



	 	 	 	 	 
	BORROWER:	 	TETON ENERGY CORPORATION
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 





Amended and Restated Credit Agreement

Signature Page




 









 








	 	 	 	 	 
	ADMINISTRATIVE AGENT/LENDER:	 	JPMORGAN CHASE BANK, N.A.,

as Administrative Agent and a Lender
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	J. Scott Fowler,
	 

	 	 	 	Senior Vice President






Amended and Restated Credit Agreement

Signature Page






 









 








ANNEX I




LIST OF MAXIMUM CREDIT AMOUNTS




Aggregate Maximum Credit Amounts




	 	 	 	 	 	 	 	 	 
	             Name of Lender	 	Applicable Percentage	 	Maximum Credit Amount
	JPMorgan Chase Bank, N.A.

	 	 	100.00	%	 	$	50,000,000.00	 
	TOTAL

	 	 	100.00	%	 	$	50,000,000.00	 






Annex I - 1 









 





EXHIBIT A




FORM OF NOTE




			
	 	 	 
	$[___],000,000.00
	 	[                                        ], 20___






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



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



     This Note is one of the Notes referred to in the Amended and Restated Credit Agreement dated
as of August 9, 2007 among the Borrower, the Administrative Agent, and the other lenders signatory
thereto (including the Lender), and evidences Loans made by the Lender thereunder (such Credit
Agreement as the same may be amended, supplemented or restated from time to time, the “Credit
Agreement”). Capitalized terms used in this Note have the respective meanings assigned to them
in the Credit Agreement.



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



A - 1 









 





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



	 	 	 	 	 
	 	 	TETON ENERGY CORPORATION
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 





A-2 









 





EXHIBIT B




FORM OF BORROWING REQUEST




[                                        ], 20___




     Teton Energy Corporation, a Delaware corporation (the “Borrower”), pursuant to Section
2.03 of the Amended and Restated Credit Agreement dated as of August 9, 2007 (together with all
amendments, restatements, supplements or other modifications thereto, the “Credit
Agreement”) among the Borrower, JPMorgan Chase Bank, N.A., as Administrative Agent and the
other lenders which are or become parties thereto (unless otherwise defined herein, each
capitalized term used herein is defined in the Credit Agreement), hereby requests a Borrowing as
follows:



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



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



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



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



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



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



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



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



[                                        ]

[                                        ]

[                                        ]

[                                        ]

[                                        ]




B-1 









 







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




	 	 	 	 	 
	 	 	TETON ENERGY CORPORATION
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 





B-2 









 





EXHIBIT C




FORM OF INTEREST ELECTION REQUEST




[                                        ], 20__




     Teton Energy Corporation, a Delaware corporation (the “Borrower”), pursuant to Section
2.04 of the Amended and Restated Credit Agreement dated as of August 9, 2007 (together with all
amendments, restatements, supplements or other modifications thereto, the “Credit
Agreement”) among the Borrower, JPMorgan Chase Bank, N.A., as Administrative Agent and the
other lenders which are or become parties thereto (unless otherwise defined herein, each
capitalized term used herein is defined in the Credit Agreement), hereby makes an Interest Election
Request as follows:



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



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



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



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



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



	 	 	 	 	 
	 	 	TETON ENERGY CORPORATION
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 





C-1 









 





EXHIBIT D




FORM OF COMPLIANCE CERTIFICATE




     The undersigned hereby certifies that he/she is the [                    ] of Teton Energy Corporation,
a Delaware corporation (the “Borrower”), and that as such he/she is authorized to execute
this certificate on behalf of the Borrower. With reference to the Amended and Restated Credit
Agreement dated as of August 9, 2007 (together with all amendments, restatements, supplements or
other modifications thereto being the “Agreement”) among the Borrower, JPMorgan Chase Bank,
N.A., as Administrative Agent, and the other lenders which are or become a party thereto, the
undersigned represents and warrants as follows (each capitalized term used herein having the same
meaning given to it in the Agreement unless otherwise specified):



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



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



          (c) Since December 31, 2006, no change has occurred, either in any case or in the aggregate,
in the condition, financial or otherwise, of the Borrower or any Subsidiary which could reasonably
be expected to have a Material Adverse Effect [or specify event].



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



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



     EXECUTED AND DELIVERED this [___] day of [                    ].



	 	 	 	 	 
	 	 	TETON ENERGY CORPORATION
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 





D-1 









 





EXHIBIT E-1




FORM OF LEGAL OPINION OF GERSTEN SAVAGE LLP





E-1-1 









 








EXHIBIT E-2




FORM OF LEGAL OPINION OF LOCAL COUNSEL





E-2-1 









 








EXHIBIT F-1




SECURITY INSTRUMENTS




     1. Amended and Restated Guaranty and Pledge Agreement dated as of August 9, 2007 by the
Borrower and Teton North America LLC, Teton Piceance LLC, Teton DJ LLC, Teton Williston LLC and
Teton Big Horn LLC, as the Guarantors, in favor of the Administrative Agent and the Lenders.



     2. Financing Statements in respect of item 1.



     3. Amendment to and Ratification of Mortgage dated as of August 9, 2007 by and between the
Borrower, as mortgagor, and the Administrative Agent for the benefit of itself, the Lenders and
others, and acknowledged, ratified and agreed to by Teton Piceance LLC (Colorado).



     4. Financing Statements in respect of item 3.



     5. Mortgage, Deed of Trust, Assignment of As-Extracted Collateral, Security Agreement and
Financing Statement dated as of August 9, 2007 by Teton DJ LLC, as mortgagor, for the benefit of
the Administrative Agent, the Lenders and others (Colorado).



     6. Financing Statements in respect of item 5



     7. Mortgage, Deed of Trust, Assignment of As-Extracted Collateral, Security Agreement and
Financing Statement dated as of August 9, 2007 by Teton DJ LLC, as mortgagor, for the benefit of
the Administrative Agent, the Lenders and others (Nebraska).



     8. Financing Statements in respect of item 7.



     9. Mortgage, Deed of Trust, Assignment of As-Extracted Collateral, Security Agreement and
Financing Statement dated as of August 9, 2007, by Teton Piceance LLC, as mortgagor, for the
benefit of the Administrative Agent, the Lenders and others (Colorado).



     10. Financing Statements in respect of item 9.




F-1-1 









 








EXHIBIT F-2




FORM OF GUARANTY AND PLEDGE AGREEMENT




F-2-1 









 





EXHIBIT G




FORM OF ASSIGNMENT AND ASSUMPTION




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



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



	 	 	 
	1. Assignor:

	 	                                        
	 
	 	 
	2. Assignee:

	 	                                        
	 

	 	[and is an Affiliate of [identify Lender]1]
	 
	 	 
	3. Borrower:

	 	Teton Energy Corporation
	 
	 	 
	4. Administrative Agent:

	 	JPMorgan Chase Bank, N.A., as the administrative agent
under the Credit Agreement
	 
	 	 
	5. Credit Agreement:

	 	The Amended and Restated Credit Agreement dated as of August
9, 2007 among Teton Energy Corporation, the
Lenders parties thereto, JPMorgan Chase Bank, N.A., as
Administrative Agent, and the other lenders party thereto.








 




			
	1	 	Select as applicable.




G-1 









 










     6. Assigned Interest:



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

	 	$		 	 	$		 	 	 		%
	 
	 	 	 	 	 	 	 	 	 
	 

	 	$		 	 	$		 	 	 		%
	 
	 	 	 	 	 	 	 	 	 
	 

	 	$		 	 	$		 	 	 		%
	 
	 	 	 	 	 	 	 	 	 




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




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



	 	 	 	 	 
	 	 	ASSIGNOR
	 
	 	 	 	 
	 	 	[NAME OF ASSIGNOR]
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	ASSIGNEE
	 
	 	 	 	 
	 	 	[NAME OF ASSIGNEE]
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 







 




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




G-2 









 










	 	 	 
	Consented to and Accepted:
	 
	 	 
	JPMorgan Chase Bank, N.A., as Administrative Agent
	 
	 	 
	By:
	 	 
	 

	 	 
	Name:
	 	 
	 

	 	 
	Title:
	 	 
	 

	 	 
	 
	 	 
	Consented to:
	 
	 	 
	TETON ENERGY CORPORATION
	 
	 	 
	By:
	 	 
	 

	 	 
	Name:
	 	 
	 

	 	 
	Title:
	 	 
	 

	 	 





G-3 









 






ANNEX 1




STANDARD TERMS AND CONDITIONS FOR



ASSIGNMENT AND ASSUMPTION




     1. Representations and Warranties.



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




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




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



G-4 









 





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




G-5 









 








SCHEDULE 7.05




LITIGATION




None.





Schedule 7.05 - 1 









 








SCHEDULE 7.14




SUBSIDIARIES AND PARTNERSHIPS



Teton Energy Corporation owns the following subsidiaries:




          (a) Teton North America LLC, a Colorado limited liability company.



     Teton North America LLC owns the following:




100% of the membership interests of Teton Piceance LLC

100% of the membership interests of Teton DJ LLC

100% of the membership interests of Teton Williston LLC

100% of the membership interests of Teton Big Horn LLC




     Teton Piceance LLC owns an undivided 25% working interest (19.69% net revenue
interest) in a 6,314-acre block located in Garfield County, Colorado, townships T5S
96W and T6S 96 97W, immediately to the northwest of Grand Valley gas field, the
westernmost of the four gas fields that comprise the continuous, basin-centered,
tight gas sand accumulation (the “Piceance Fairway”).




     Teton DJ LLC owns over 256,000 gross leased acres with a working interest of
25% and average net revenue interest of approximately 81%, is located on the eastern
flank of the DJ basin in Chase, Dundy, Perkins, and Keith counties in Nebraska and
Colorado in an Area of Mutual Interest (“AMI”) with Noble Energy, Inc. Teton DJ LLC
also 10,600 gross leased acres outside of the AMI with working interests between 50%
to 100% and average net revenue interest of approximately 81%.




     Teton Williston LLC owns an undivided 25% leasehold interest in certain
undeveloped oil and gas leases in the Williston Basin covering approximately 87,000
gross (58,000 net) acres in the state of North Dakota.




     Teton Big Horn LLC owns an undivided 100% leasehold interest in 12,000 gross
and net acres in the Big Horn Basin in the State of Wyoming.




     Teton owns 100% of the membership interests in Goltech LLC, which is a Texas
limited liability company that is in the process of being dissolved. Goltech
formerly owned Teton’s interest in Goloil, which was sold in July 2004.



          (b) Teton currently owns no interests in any partnerships.




Schedule 7.14 - 1 









 








SCHEDULE 7.15




LOCATION OF BUSINESS AND OFFICES




Legal name of the Borrower: Teton Energy Corporation

     Address: 410 17th Street, Suite 1850, Denver, Colorado 80202

     All names and trade names that the Borrower has used in the last five years: None

     Jurisdictions of organization over the last five years: Delaware

     Current jurisdiction of organization: Delaware

     Organizational number: 2896826

     Taxpayer identification number: 84-1482290

     Location of chief executive office or sole place of business over the last five years:

          410 17th Street, Suite 1850, Denver, Colorado 80202




Legal name of the Obligor: Teton North America LLC

     Address: 410 17th Street, Suite 1850, Denver, Colorado 80202

     All names and trade names that the Borrower has used in the last five years: None

     Jurisdictions of organization over the last five years: Colorado

     Current jurisdiction of organization: Colorado

     Organizational number: 20051069170

     Location of chief executive office or sole place of business over the last five years:

          410 17th Street, Suite 1850, Denver, Colorado 80202




Legal name of the Obligor: Teton Piceance LLC

     Address: 410 17th Street, Suite 1850, Denver, Colorado 80202

     All names and trade names that the Borrower has used in the last five years: None

     Jurisdictions of organization over the last five years: Colorado

     Current jurisdiction of organization: Colorado

     Organizational number: 20051069213

     Location of chief executive office or sole place of business over the last five years:

          410 17th Street, Suite 1850, Denver, Colorado 80202




Legal name of the Obligor: Teton DJ LLC

     Address: 410 17th Street, Suite 1850, Denver, Colorado 80202

     All names and trade names that the Borrower has used in the last five years: None

     Jurisdictions of organization over the last five years: Colorado

     Current jurisdiction of organization: Colorado

     Organizational number: 20051069240

     Location of chief executive office or sole place of business over the last five years:

          410 17th Street, Suite 1850, Denver, Colorado 80202




Schedule 7.15 - 1 









 





Legal name of Obligor: Teton Williston LLC

     Address: 410 17th Street, Suite 1850, Denver, Colorado 80202

     All names and trade names that the Borrower has used in the last five years: None

     Jurisdictions of organization over the last five years: Colorado

     Current jurisdiction of organization: Colorado

     Organizational number: 20061183886

     Location of chief executive office or sole place of business over the last five years:

          410 17th Street, Suite 1850, Denver, Colorado 80202




Legal name of Obligor: Teton Big Horn LLC

     Address: 410 17th Street, Suite 1850, Denver, Colorado 80202

     All names and trade names that the Borrower has used in the last five years: None

     Jurisdictions of organization over the last five years: Colorado

     Current jurisdiction of organization: Colorado

     Organizational number: [in process of obtaining]

     Location of chief executive office or sole place of business over the last five years:

          410 17th Street, Suite 1850, Denver, Colorado 80202





Schedule 7.15 - 2 









 








SCHEDULE 7.18




GAS IMBALANCES




None.





Schedule 7.18 - 1 









 








SCHEDULE 7.19




MARKETING CONTRACTS




     1. Encana contract, Gas Gathering Contract 6/29/2006, Berry petroleum and Encana Oil and Gas
(USA) Inc.




	 	•	 	Term, Life of Lease
	 
	 	•	 	Fees, $0.33 MMBTU per receipt point and actual prorate
electricity costs for Gathering Fee
	 
	 	•	 	Processing, on a keep whole basis, with Encana, at it’s option,
will either return liquid shrink in kind or purchase shrink, to Enterprise
Meeker Plant, CIG insidee FERC lesss $0.10 per MMBTU
	 
	 	•	 	Treating Fee for Co2 > 3.0%, $0.06 of the % CO0>3.0%, CPI
adjusted annually after first anniversary date
	 
	 	•	 	August 2007 to December 2007 pricing layers:






	 	(1)	 	first 12,000 day at CIG RM -$0.04

	 
	 	(2)	 	>12,000 day at Rockies Cheyenne -$0.23




No firm pricing/volume commitments post December 2007.





Schedule 7.19 - 1 









 








SCHEDULE 7.20




SWAP AGREEMENTS



BNP Paribas Hedge Contract





	 	•	 	ISDDA Agreement dated October 24, 2006
	 
	 	•	 	Two hedge transactions to date:





     1. Reference # 122448 zero-cost collars, November 29, 360,000 MMBTU, covering January 2007
through December 2007 @ 30,000 MMBTU per month at $6.00 per MMBTU floor and $7.25 per MMBTU cap.



     2. Reference # 141886 6/13/2007, Swap @ $5.78 MMBTU, 480,000 MMBTU July 2007 through October
2008 @ 30,000 MMBTU per month




Schedule 7.20 - 1 









 








SCHEDULE 9.05




INVESTMENTS




None.





Schedule 9.05 - 1