Exhibit 10.1





Exhibit 10.1




$50,000,000




AMENDED AND RESTATED CREDIT AGREEMENT




dated as of March 31, 2009




Among




CONTANGO OIL & GAS COMPANY,

CONTANGO ENERGY COMPANY,

AND

CONTANGO OPERATORS, INC.




as Borrowers,




THE LENDERS PARTY HERETO FROM TIME TO TIME




as Lenders,




and




GUARANTY BANK




as Administrative Agent and as Issuing Lender





 


 









 







TABLE OF CONTENTS




	 	 	 	 	 
	 	 	Page	 
	 
	 	 	 	 
	ARTICLE I DEFINITIONS AND ACCOUNTING TERMS
	 	 	2	 
	1.01 Certain Defined Terms
	 	 	2	 
	1.02 Computation of Time Periods
	 	 	18	 
	1.03 Accounting Terms; Changes in GAAP
	 	 	18	 
	1.04 Types of Advances
	 	 	18	 
	1.05 Miscellaneous
	 	 	18	 
	ARTICLE II CREDIT FACILITIES
	 	 	18	 
	2.01 Commitment for Advances
	 	 	18	 
	2.02 Borrowing Base
	 	 	19	 
	2.03 Method of Borrowing
	 	 	21	 
	2.04 Reduction of the Commitments
	 	 	24	 
	2.05 Prepayment of Advances; Deposits Into Cash Collateral Account
	 	 	24	 
	2.06 Repayment of Advances
	 	 	26	 
	2.07 Letters of Credit
	 	 	26	 
	2.08 Fees
	 	 	30	 
	2.09 Interest
	 	 	31	 
	2.10 Payments and Computations
	 	 	32	 
	2.11 Sharing of Payments, Etc
	 	 	33	 
	2.12 Breakage Costs
	 	 	34	 
	2.13 Increased Costs
	 	 	34	 
	2.14 Taxes
	 	 	35	 
	ARTICLE III CONDITIONS PRECEDENT
	 	 	38	 
	3.01 Conditions Precedent to Effectiveness
	 	 	38	 
	3.02 Conditions Precedent to All Borrowings
	 	 	40	 
	ARTICLE IV REPRESENTATIONS AND WARRANTIES
	 	 	41	 
	4.01 Corporate Existence; Subsidiaries
	 	 	41	 
	4.02 Power
	 	 	41	 
	4.03 Authorization and Approvals
	 	 	41	 
	4.04 Enforceable Obligations
	 	 	42	 
	4.05 Financial Statements
	 	 	42	 






 


i









 





TABLE OF CONTENTS
(continued)





	 	 	 	 	 
	 	 	Page	 
	 
	 	 	 	 
	4.06 True and Complete Disclosure
	 	 	42	 
	4.07 Litigation; Compliance with Law
	 	 	42	 
	4.08 Use of Proceeds
	 	 	43	 
	4.09 Investment Company Act
	 	 	43	 
	4.10 Federal Power Act
	 	 	43	 
	4.11 Taxes
	 	 	43	 
	4.12 Pension Plans
	 	 	44	 
	4.13 Condition of Property; Casualties
	 	 	44	 
	4.14 No Burdensome Restrictions; No Defaults
	 	 	45	 
	4.15 Environmental Condition
	 	 	45	 
	4.16 Permits, Licenses, Etc
	 	 	46	 
	4.17 Gas Contracts
	 	 	46	 
	4.18 Liens; Titles, Leases, Etc
	 	 	46	 
	4.19 Solvency and Insurance
	 	 	47	 
	4.20 Hedge Contracts
	 	 	47	 
	4.21 Material Agreements
	 	 	47	 
	ARTICLE V AFFIRMATIVE COVENANTS
	 	 	47	 
	5.01 Compliance with Laws, Etc
	 	 	47	 
	5.02 Maintenance of Insurance
	 	 	48	 
	5.03 Preservation of Corporate Existence, Etc
	 	 	49	 
	5.04 Payment of Taxes, Etc
	 	 	49	 
	5.05 Books and Records; Visitation Rights
	 	 	49	 
	5.06 Reporting Requirements
	 	 	49	 
	5.07 Maintenance of Property
	 	 	52	 
	5.08 Agreement to Pledge
	 	 	52	 
	5.09 Use of Proceeds
	 	 	53	 
	5.10 Title Opinions
	 	 	53	 
	5.11 Further Assurances; Cure of Title Defects
	 	 	53	 
	5.12 Cash Management Services
	 	 	54	 
	5.13 Certain Post Closing Matters
	 	 	54	 






 


ii









 





TABLE OF CONTENTS
(continued)





	 	 	 	 	 
	 	 	Page	 
	 
	 	 	 	 
	ARTICLE VI NEGATIVE COVENANTS
	 	 	54	 
	6.01 Liens, Etc
	 	 	54	 
	6.02 Debts, Guaranties, and Other Obligations
	 	 	55	 
	6.03 Agreements Restricting Liens and Distributions
	 	 	56	 
	6.04 Merger or Consolidation; Asset Sales
	 	 	56	 
	6.05 Restricted Payments
	 	 	57	 
	6.06 Investments
	 	 	57	 
	6.07 Affiliate Transactions
	 	 	58	 
	6.08 Compliance with ERISA
	 	 	58	 
	6.09 Sale-and-Leaseback
	 	 	59	 
	6.10 Change of Business
	 	 	59	 
	6.11 Organizational Documents, Name Change
	 	 	59	 
	6.12 Use of Proceeds; Letters of Credit
	 	 	59	 
	6.13 Take-or-Pay or Other Prepayments
	 	 	59	 
	6.14 Limitation on Speculative Hedging
	 	 	60	 
	6.15 Accounts Payable
	 	 	60	 
	6.16 Current Ratio
	 	 	60	 
	ARTICLE VII EVENTS OF DEFAULT; REMEDIES
	 	 	60	 
	7.01 Events of Default
	 	 	60	 
	7.02 Optional Acceleration of Maturity
	 	 	63	 
	7.03 Automatic Acceleration of Maturity
	 	 	63	 
	7.04 Right of Set-off
	 	 	64	 
	7.05 Non-exclusivity of Remedies
	 	 	64	 
	7.06 Application of Proceeds
	 	 	64	 
	ARTICLE VIII MULTIPLE BORROWERS
	 	 	65	 
	8.01 Obligations Joint and Several and Unconditional
	 	 	65	 
	8.02 Reinstatement
	 	 	66	 
	8.03 Subrogation
	 	 	66	 
	8.04 Remedies
	 	 	66	 
	8.05 Limitation on Obligations
	 	 	66	 
	8.06 Borrower Representative
	 	 	66	 






 


iii









 





TABLE OF CONTENTS
(continued)





	 	 	 	 	 
	 	 	Page	 
	 
	 	 	 	 
	ARTICLE IX THE ADMINISTRATIVE AGENT AND THE ISSUING LENDER
	 	 	67	 
	9.01 Authorization and Action
	 	 	67	 
	9.02 Administrative Agent’s Reliance, Etc
	 	 	67	 
	9.03 The Administrative Agent and Its Affiliates
	 	 	67	 
	9.04 Lender Credit Decision
	 	 	68	 
	9.05 Indemnification
	 	 	68	 
	9.06 Successor Administrative Agent and Issuing Lender
	 	 	69	 
	9.07 Collateral Matters
	 	 	69	 
	ARTICLE X MISCELLANEOUS
	 	 	70	 
	10.01 Amendments, Etc
	 	 	70	 
	10.02 Notices, Etc
	 	 	71	 
	10.03 No Waiver; Remedies
	 	 	71	 
	10.04 Costs and Expenses
	 	 	71	 
	10.05 Binding Effect
	 	 	72	 
	10.06 Lender Assignments and Participations
	 	 	72	 
	10.07 Indemnification
	 	 	75	 
	10.08 No Consequential Damages
	 	 	75	 
	10.09 Execution in Counterparts
	 	 	76	 
	10.10 Survival of Representations, Etc
	 	 	76	 
	10.11 Severability
	 	 	76	 
	10.12 Business Loans
	 	 	76	 
	10.13 Governing Law
	 	 	76	 
	10.14 Submission to Jurisdiction
	 	 	76	 
	10.15 Confidentiality
	 	 	77	 
	10.16 WAIVER OF JURY TRIAL
	 	 	78	 
	10.17 USA PATRIOT ACT Notice
	 	 	78	 
	10.18 ORAL AGREEMENTS
	 	 	78	 
	10.19 Amendment and Restatement
	 	 	79	 







 


iv









 







EXHIBITS:




	 	 	 	 	 	 	 
	 

	 	Exhibit A
	 	—
	 	Form of Assignment and Assumption
	 

	 	Exhibit B
	 	—
	 	Form of Mortgage
	 

	 	Exhibit C
	 	—
	 	Form of Note
	 

	 	Exhibit D
	 	—
	 	Form of Notice of Borrowing
	 

	 	Exhibit E
	 	—
	 	Form of Notice of Conversion or Continuation
	 

	 	Exhibit F
	 	—
	 	Form of Security Agreement
	 

	 	Exhibit G
	 	—
	 	Form of Transfer Letters






SCHEDULES:




	 	 	 	 	 	 	 
	 

	 	Schedule I
	 	—
	 	Borrowers, Administrative Agent, and Lender Information
	 

	 	Schedule 4.01
	 	—
	 	Subsidiaries
	 

	 	Schedule 4.05
	 	—
	 	Existing Debt
	 

	 	Schedule 4.07
	 	—
	 	Litigation
	 

	 	Schedule 4.20
	 	—
	 	Hedge Contracts
	 

	 	Schedule 4.21
	 	—
	 	Material Contracts
	 

	 	Schedule 6.07
	 	—
	 	Affiliate Transactions







 


 









 




AMENDED AND RESTATED CREDIT AGREEMENT




This Amended and Restated Credit Agreement dated as of March 31, 2009 is among Contango Oil &
Gas Company, a Delaware corporation (“Contango”), Contango Energy Company, a Delaware
corporation (“CEC”), and Contango Operators, Inc., a Delaware corporation and successor by
merger to Contango Resources Company (“COI”, together with Contango and CEC, collectively,
the “Borrowers” and individually, a “Borrower”), the Lenders (as defined below),
and Guaranty Bank, as administrative agent and as issuing lender for such Lenders.



RECITALS




WHEREAS, Contango and Contango Resources Company, a Delaware corporation (“CRC”, and
together with Contango, the “Original Borrowers”), and the Lenders, Administrative Agent
and Issuing Lender entered into that certain Credit Agreement dated as of October 3, 2008 (the
“Original Credit Agreement”), pursuant to which the Lenders provided to the Original
Borrowers a credit facility in the maximum principal amount of $50,000,000;



WHEREAS, in order to secure the full and punctual payment and performance of the obligations
under the Original Credit Agreement, CRC has executed and delivered mortgages, deeds of trust,
collateral assignments, security agreements and financing statements in favor of the Administrative
Agent (collectively, the “Original Security Instruments”) granting a mortgage lien and
continuing security interest in and to the collateral described in such Original Security
Instruments;



WHEREAS, Contango desires to effect a corporate restructuring (the “Restructuring”),
pursuant to which (i) CRC will be merged with and into COI, an indirect wholly-owned subsidiary of
Contango, and (ii) REX Offshore Corporation, a Delaware corporation and an indirect wholly-owned
subsidiary of Contango, will be merged with and into COI;



WHEREAS, the Original Borrowers have requested that the Original Credit Agreement be amended
and restated as set forth herein to, among other things, (i) permit and reflect the Restructuring
and (ii) add COI and CEC as Borrowers to the Loan Documents;



WHEREAS, the Borrowers, Administrative Agent, Issuing Lender and all of the Lenders (i) have
agreed to amend and restate (but not extinguish) the Original Credit Agreement in its entirety as
set forth herein and (ii) desire to have the obligations of the Borrowers hereunder continue to be
secured by the liens and security interests created under the Original Security Instruments; and



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


 


 









 





NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and
other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged,
the parties to this Agreement, intending to be legally bound, (i) hereby agree that the Original
Credit Agreement is amended and restated (but not substituted or extinguished) and (ii) hereby
further agree as follows:



ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS




1.01 Certain Defined Terms. As used in this Agreement, the terms defined above shall
have the meanings set forth above and the following terms shall have the following meanings (unless
otherwise indicated, such meanings to be equally applicable to both the singular and plural forms
of the terms defined):



“Acceptable Security Interest” in any Property means a Lien which (a) exists in favor
of the Administrative Agent for the benefit of the Secured Parties, (b) is superior to all Liens or
rights of any other Person in the Property encumbered thereby other than Permitted Subject Liens,
(c) secures the Obligations, and (d) is perfected and enforceable.




“Act” has the meaning specified in Section 10.17.



“Adjusted Reference Rate” means, for any day, the fluctuating rate per annum of
interest equal to the greater of (a) the Reference Rate in effect on such day and (b) the Federal
Funds Rate in effect on such day plus 1/2 of 1%.



“Administrative Agent” means Guaranty Bank, in its capacity as agent pursuant to
Article IX, and any successor agent pursuant to Section 9.06.



“Advance” means an advance by a Lender to a Borrower pursuant to Section 2.01(a) as
part of a Borrowing and refers to a Reference Rate Advance or a Eurodollar Rate Advance.



“Affiliate” means, as to any Person, any other Person that, directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under common control with,
such Person or any Subsidiary of such Person. The term “control” (including the terms “controlled
by” or “under common control with”) means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person, whether through ownership
of a Control Percentage, by contract, or otherwise. Without limiting the generality of the
foregoing, a Person shall be deemed to be controlled by another Person if such other Person
possesses, directly or indirectly, the power to vote 20% or more of the securities having ordinary
voting power for the election of directors, managing general partners or the equivalent.



“Agreement” means this Amended and Restated Credit Agreement, as the same may be
amended, supplemented, or otherwise modified from time to time in accordance with the terms hereof.



“Approved Fund” means any Fund that is administered or managed by (a) a Lender, (b) an
Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a
Lender.


 


2









 





“Assignment and Assumption” means an assignment and assumption entered into by a
Lender and an Eligible Assignee, and accepted by the Administrative Agent, in substantially the
form of the attached Exhibit A.




“Borrower” or “Borrowers” has the meaning specified in the Preamble.



“Borrower Representative” means Contango which, pursuant to Section 8.06 of this
Agreement, is authorized to act on behalf of the Borrowers.



“Borrowing” means a borrowing consisting of Advances made on the same day by the
Lenders pursuant to Section 2.01(a) or the Conversion or continuation of such Advances pursuant to
Section 2.03(b).



“Borrowing Base” means at any particular time, the Dollar amount determined as the
“Borrowing Base” in accordance with Section 2.02 on account of Proven Reserves attributable to Oil
and Gas Properties of COI (and, if Contango and/or CEC acquires any Oil and Gas Properties,
Contango and/or CEC, as the case may be) subject to an Acceptable Security Interest and described
in the most recent Engineering Report delivered to the Administrative Agent and the Lenders
pursuant to Section 2.02.



“Business Day” means a day of the year on which banks are not required or authorized
to close in Dallas, Texas and, if the applicable Business Day relates to any Eurodollar Rate
Advances, on which dealings are carried on by banks in the London interbank market.



“Capital Leases” means, as applied to any Person, any lease of any Property by such
Person as lessee which would, in accordance with GAAP, be required to be classified and accounted
for as a capital lease on the balance sheet of such Person.



“Cash Collateral Account” means a special interest bearing cash collateral account
pledged by the Borrowers to the Administrative Agent containing cash deposited pursuant to
Section 2.05(b)(i), Section 7.02(b), or Section 7.03(b) to be maintained with the Administrative
Agent in accordance with Section 2.07(g) and bear interest or be invested in the Administrative
Agent’s reasonable discretion.



“Cash Management Agreement” means any agreement to provide cash management services,
including treasury, depository, overdraft, credit or debit card, electronic funds transfer and
other cash management arrangements.




“Cash Management Bank” means Guaranty Bank.



“Cash Management Bank Obligations” means all obligations of the Borrowers or any
Subsidiary thereof arising from time to time under any Cash Management Agreement with the Cash
Management Bank; provided that if such Cash Management Bank ceases to be a Lender or an
Affiliate of a Lender hereunder, the Cash Management Bank Obligations owed to such Cash Management
Bank shall no longer be secured or guaranteed under any Loan Document.




“CEC” has the meaning specified in the Preamble.


 


3









 





“CERCLA” means the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended, state and local analogs, and all rules and regulations and requirements
thereunder in each case as now or hereafter in effect.



“Change in Control” means any of the following events: (a) any “person” or “group”
(within the meaning of Section 13(d) or 14(d) of the Exchange Act has become, directly or
indirectly, the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a Person shall be deemed to have “beneficial ownership” of all such shares that any
such Person has the right to acquire, whether such right is exercisable immediately or only after
the passage of time, by way of merger, consolidation or otherwise), of a majority or more of the
common stock of Contango on a fully-diluted basis, after giving effect to the conversion and
exercise of all outstanding warrants, options and other securities of Contango (whether or not such
securities are then currently convertible or exercisable), (b) during any period of two consecutive
calendar quarters, individuals who at the beginning of such period were members of Contango’s board
of directors cease for any reason to constitute a majority of the directors of Contango then in
office unless (i) such new directors were elected by a majority of the directors of Contango who
constituted the board of directors of Contango at the beginning of such period (or by directors so
elected) or (ii) the reason for such directors failing to constitute a majority is a result of
retirement by directors due to age, death or disability, (c) any Borrower ceases to own directly or
indirectly all of the Equity Interests of each of its Subsidiaries that such Borrower owns on the
date of this Agreement, or (d) Kenneth R. Peak ceases to be (i) the Chairman and Chief Executive
Officer of Contango and is not replaced with an individual satisfactory to the Administrative Agent
in its sole discretion within 90 days after he ceases to be the Chairman and Chief Executive
Officer of Contango or (ii) actively engaged in the executive management of any of the Borrowers
and is not replaced with an individual satisfactory to the Administrative Agent in its sole
discretion within 90 days after he ceases to be actively engaged in the executive management of any
Borrower.




“Chapter One” has the meaning specified in Section 10.12.




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




“COI” has the meaning specified in the Preamble.



“Collateral” means (a) all “Collateral” and “Mortgaged Properties” (as defined in each
of the Mortgages and the Security Agreements, as applicable) or similar terms used in the Security
Instruments, each of which shall, as of the Effective Date, consist solely of Property relating to
the DMR Leases, and (b) all amounts contained in bank accounts of each Borrower maintained by any
Lender.



“Commitment” means, for any Lender, the amount set opposite such Lender’s name on
Schedule I as its Commitment, or if such Lender has entered into any Assignment and Acceptance, as
set forth for such Lender as its Commitment in the Register maintained by the Administrative Agent
pursuant to Section 10.06(c), as such amount may be reduced or terminated pursuant to Section 2.04
or Article VII or otherwise under this Agreement, and “Commitments” shall mean all such
Commitments collectively. The aggregate Commitments on the date hereof are $50,000,000.





“Commitment Termination Date” means the earlier of (a) the Maturity Date and (b) the
earlier termination in whole of the Commitments pursuant to Section 2.04 or Article VII.


 


4









 






“Contango” has the meaning specified in the Preamble.



“Control Percentage” means, with respect to any Person, the percentage of the
outstanding Equity Interest (including any options, warrants or similar rights to purchase such
Equity Interest) of such Person having ordinary voting power which gives the direct or indirect
holder of such Equity Interest the power to elect a majority of the board of directors (or other
applicable governing body) of such Person.



“Controlled Group” means all members of a controlled group of corporations and all
businesses (whether or not incorporated) under common control which, together with one or more
Borrowers, are treated as a single employer under Section 414 of the Code.



“Convert,” “Conversion,” and “Converted” each refers to a conversion
of an Advance of one Type into an Advance of another Type pursuant to Section 2.03(b).




“CRC” has the meaning specified in the Recitals.



“Credit Extensions” means (a) an Advance made by any Lender, and (b) the issuance,
increase or extension of any Letter of Credit by the Issuing Lender.



“Current Assets” means, for any period, the current assets of Contango and its
consolidated Subsidiaries. For purposes of this calculation “current assets” shall include, as of
the date of calculation, the Unused Commitment Amount and shall exclude, as of the date of
calculation, (a) the current portion of deferred tax assets, (b) any assets representing a
valuation account arising from the application of SFAS 133 and 143, and (c) any cash deposited with
or at the request of a counterparty to any Hedge Contract.



“Current Liabilities” means, for any period, the current liabilities of Contango and
its consolidated Subsidiaries. For purposes of this calculation “current liabilities” shall
exclude, as of the date of calculation, (a) the current portion of Debt existing under this
Agreement, (b) any liabilities representing a valuation account arising from the application
of SFAS 133 and 143, and (c) the current portion of deferred tax obligations.




“Debt,” for any Person, means without duplication:



(a) indebtedness of such Person for borrowed money, including, without limitation, obligations
under letters of credit and agreements relating to the issuance of letters of credit or acceptance
financing;



(b) obligations of such Person evidenced by bonds, debentures, notes or other similar
instruments;


 


5









 





(c) obligations of such Person to pay the deferred purchase price of Property or services
(including, without limitation, obligations that are non-recourse to the credit of such Person but
are secured by the assets of such Person, but excluding trade accounts payable);



(d) obligations of such Person as lessee under Capital Leases and obligations of such Person
in respect of synthetic leases;



(e) obligations of such Person under any Interest Hedge Agreement or Hydrocarbon Hedge
Agreement;



(f) obligations of such Person owing in respect of redeemable preferred stock or other
preferred equity interest of such Person;



(g) any obligations of such Person owing in connection with any volumetric or production
prepayments;



(h) obligations of such Person under direct or indirect guaranties in respect of, and
obligations (contingent or otherwise) of such Person to purchase or otherwise acquire, or otherwise
to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds
referred to in clauses (a) through (g) above;



(i) indebtedness or obligations of others of the kinds referred to in clauses (a) through (h)
secured by any Lien on or in respect of any Property of such Person; and




(j) all liabilities of such Person in respect of unfunded vested benefits under any Plan.



“Default” means (a) an Event of Default or (b) any event or condition which with
notice or lapse of time or both would become an Event of Default.



“DMR Leases” means the Leases and Wells listed on Exhibit A to the Amended and
Restated Act of First Lien Mortgage, Security Agreement, Financing Statement, Fixture Filing and
Assignment of Production dated as of the Effective Date executed by COI in favor of the
Administrative Agent for the ratable benefit of the Secured Parties.




“Dollars” and “$” means lawful money of the United States of America.



“Effective Date” means the date on which all of the conditions precedent to
effectiveness of this Agreement set forth in Section 3.01 shall have been satisfied by the
Borrowers or waived in writing by the Lenders.



“Eligible Assignee” means (a) a Lender, (b) an Affiliate of a Lender, (c) an Approved
Fund, and (d) any other Person (other than a natural person) approved by (i) the Administrative
Agent and the Issuing Lender in their sole discretion and (ii) unless an Event of Default has
occurred and is continuing at the time any assignment is effected pursuant to this Agreement, the
Borrower Representative (which consent by the Borrower Representative may not be unreasonably
withheld or delayed); provided that notwithstanding the foregoing, “Eligible Assignee”
shall not include a Borrower or any Affiliate or Subsidiary of a Borrower.


 


6









 





“Engineering Report” means a report, in form and substance reasonably satisfactory to
the Administrative Agent, prepared by an Independent Engineer, addressed to the Administrative
Agent and the Lenders with respect to the Oil and Gas Properties owned by any Borrower or any of
its Subsidiaries (or to be acquired by any Borrower or any of its Subsidiaries, as applicable)
which are included or are to be included in the Borrowing Base, which report shall (a) specify the
location, quantity, and type of the estimated Proven Reserves attributable to such Oil and Gas
Properties, (b) contain a projection of the rate of production of such Oil and Gas Properties,
(c) contain an estimate of the net operating revenues to be derived from the production and sale of
Hydrocarbons from such Proven Reserves based on product price and cost escalation assumptions
reasonably specified by the Administrative Agent and the Lenders, and (d) contain such other
information as is customarily obtained from and provided in such reports or is otherwise reasonably
requested by the Administrative Agent.



“Environment” or “Environmental” shall have the meanings set forth in
42 U.S.C. 9601(8) (1988).



“Environmental Claim” means any third party (including governmental agencies and
employees) action, lawsuit, claim, demand, regulatory action or proceeding, order, decree, consent
agreement or notice of potential or actual responsibility or violation (including claims or
proceedings under the Occupational Safety and Health Acts or similar laws or requirements relating
to health or safety of employees) which seeks to impose liability under any Environmental Law or
common law theories.



“Environmental Law” means, as to any Borrower or any Subsidiary of a Borrower, all
Legal Requirements applicable to such Borrower or such Subsidiary arising from, relating to, or in
connection with the Environment, health, or safety, including without limitation CERCLA, relating
to (a) pollution, contamination, injury, destruction, loss, protection, cleanup, reclamation or
restoration of the air, surface water, groundwater, land surface or subsurface strata, or other
natural resources; (b) solid, gaseous or liquid waste generation, treatment, processing, recycling,
reclamation, cleanup, storage, disposal or transportation; (c) exposure to pollutants,
contaminants, hazardous, or toxic substances, materials or wastes; (d) the safety or health of
employees; or (e) the manufacture, processing, handling, transportation, distribution in commerce,
use, storage or disposal of hazardous, or toxic substances, materials or wastes.



“Environmental Permit” means any permit, license, order, approval, registration or
other authorization under Environmental Law.



“Equity Interest” means with respect to any Person, any shares, interests,
participation, or other equivalents (however designated) of corporate stock, membership interests,
or partnership interests (or any other ownership interests) of such Person.



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



“ERISA Affiliate” means each member of a controlled group of corporations and all
businesses (whether or not incorporated) under common control which, together with a Borrower, are
treated as a single employer under Section 414 of the Code.


 


7









 





“Eurocurrency Liabilities” has the meaning assigned to that term in Regulation D of
the Federal Reserve Board (or any successor), as in effect from time to time.



“Eurodollar Rate” means, for the Interest Period for each Eurodollar Rate Advance
comprising the same Borrowing, the interest rate per annum (rounded upward to the nearest whole
multiple of 1/100 of 1% per annum) set forth on Reuters Reference LIBOR01 as the London Interbank
Offered Rate, for deposits in Dollars at 11:00 a.m. (London, England time) two Business Days before
the first day of such Interest Period and for a period equal to such Interest Period; provided
that, provided that, if no such quotation appears on the Reuters Reference LIBOR01, the
Eurodollar Rate shall be an interest rate per annum equal to the rate per annum at which deposits
in Dollars are offered by the principal office of Guaranty Bank (or such other Lender as shall then
be serving as the Administrative Agent) in London, England to prime banks in the London interbank
market at 11:00 a.m. (London, England time) two Business Days before the first day of such Interest
Period in an amount substantially equal to the Eurodollar Rate Advance to be maintained by the
Lender that is the Administrative Agent in respect of such Borrowing and for a period equal to such
Interest Period.



“Eurodollar Rate Advance” means an Advance which bears interest as provided in
Section 2.09(b).




“Event of Default” has the meaning specified in Section 7.01.



“Expiration Date” means, with respect to any Letter of Credit, the date on which such
Letter of Credit will expire or terminate in accordance with its terms.



“Extraordinary Proceeds” means any cash received by or paid to or for the account of a
Borrower not in the ordinary course of business (but excluding proceeds described in
Section 2.04(b)(i) or (ii), proceeds of Equity issuances by Contango, capital infusions by Contango
in COI or CEC, and capital infusions by CEC in COI), including amounts received in respect of
foreign, United States, state or local tax refunds, pension plan reversions, purchase price and
other monetary adjustments made pursuant to any acquisition document and/or indemnification
payments made pursuant to any acquisition document (other than such indemnification payments to the
extent that the amounts so received are applied by the applicable Borrower for the purpose of
replacing, repairing or restoring any assets or properties of such Borrower, thereby satisfying the
condition giving rise to the claim for indemnification, or otherwise covering any out-of-pocket
expenses incurred by such Borrower in obtaining such payments).



“Federal Funds Rate” means, for any period, a fluctuating interest rate per annum
equal for each day during such period to the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is
a Business Day, the average of the quotations for any such day on such transactions received by the
Administrative Agent from three Federal funds brokers of recognized standing selected by it.


 


8









 





“Federal Reserve Board” means the Board of Governors of the Federal Reserve System or
any of its successors.



“Fund” means any Person (other than a natural person) that is (or will be) engaged in
making, purchasing, holding or otherwise investing in commercial loans and similar extensions of
credit in the ordinary course of its business.



“GAAP” means United States generally accepted accounting principles as in effect from
time to time, applied on a basis consistent with the requirements of Section 1.03.



“Governmental Authority” means, as to any Person in connection with any subject, any
foreign, national, state or provincial governmental authority, or any political subdivision of any
state thereof, or any agency, department, commission, board, authority or instrumentality, bureau
or court, in each case having jurisdiction over such Person or such Person’s Property in connection
with such subject.



“Hazardous Substance” means the substances identified as such pursuant to CERCLA and
those regulated under any other Environmental Law, including without limitation pollutants,
contaminants, petroleum, petroleum products, radionuclides, radioactive materials, and medical and
infectious waste.



“Hazardous Waste” means the substances regulated as such pursuant to any Environmental
Law.



“Hedge Contract” means (a) any and all rate swap transactions, basis swaps, credit
derivative transactions, forward rate transactions, commodity swaps, commodity options, forward
commodity contracts, equity or equity index swaps or options, bond or bond price or bond index
swaps or options or forward bond or forward bond price or forward bond index transactions, interest
rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar
transactions, currency swap transactions, cross-currency rate swap transactions, currency options,
spot contracts, or any other similar transactions or any combination of any of the foregoing
(including any options to enter into any of the foregoing), whether or not any such transaction is
governed by or subject to any master agreement, and (b) any and all transactions of any kind, and
the related confirmations, which are subject to the terms and conditions of, or governed by, any
form of master agreement published by the International Swaps and Derivatives Association, Inc.,
any International Foreign Exchange Master Agreement, or any other master agreement (any such master
agreement, together with any related schedules, a “Master Agreement”), including any such
obligations or liabilities under any Master Agreement.



“Hydrocarbon Hedge Agreement” means a Hedge Contract which is intended to reduce or
eliminate the risk of fluctuations in the price of Hydrocarbons.



“Hydrocarbons” means oil, gas, coal seam gas, casinghead gas, drip gasoline, natural
gasoline, condensate, distillate, and all other liquid and gaseous hydrocarbons produced or to be
produced in conjunction therewith from a well bore and all products, by-products, and other
substances derived therefrom or the processing thereof, and all other minerals and substances
produced in conjunction with such substances, including, but not limited to, sulfur, geothermal
steam, water, carbon dioxide, helium, and any and all minerals, ores, or substances of value and
the products and proceeds therefrom.


 


9









 






“Indemnitee” has the meaning specified in Section 10.07.



“Independent Engineer” means William M. Cobb & Associates, Inc., or any other
engineering firm reasonably acceptable to the Administrative Agent.




“Information” has the meaning specified in Section 10.15.



“Initial Financial Statements” means the audited consolidated balance sheet of
Contango as at December 31, 2008, and the related audited consolidated and consolidating statements
of income, cash flow, and retained earnings for the fiscal year then ended.



“Interest Hedge Agreement” means a Hedge Contract between a Borrower and one or more
financial institutions providing for the exchange of nominal interest obligations between such
Borrower and such financial institution or the cap of the interest rate on any Debt of such
Borrower.



“Interest Period” means, for each Eurodollar Rate Advance comprising part of the same
Borrowing, the period commencing on the date of such Eurodollar Rate Advance or the date of the
Conversion of any Reference Rate Advance into a Eurodollar Rate Advance and ending on the last day
of the period selected by the Borrower Representative pursuant to the provisions below and
Section 2.03 and, thereafter, each subsequent period commencing on the last day of the immediately
preceding Interest Period and ending on the last day of the period selected by the Borrower
Representative pursuant to the provisions below and Section 2.03. The duration of each such
Interest Period shall be one, two, or three months, in each case as the Borrower Representative
may, upon notice received by the Administrative Agent not later than 2:00 p.m. (Central Standard or
Daylight Savings Time) on the third Business Day prior to the first day of such Interest Period,
select; provided, however, that:



(a) no Borrower may select any Interest Period which ends after the Commitment Termination
Date;



(b) Interest Periods commencing on the same date for Advances comprising part of the same
Borrowing shall be of the same duration;



(c) whenever the last day of any Interest Period would otherwise occur on a day other than a
Business Day, the last day of such Interest Period shall be extended to occur on the next
succeeding Business Day, provided that if such extension would cause the last day of such Interest
Period to occur in the next following calendar month, the last day of such Interest Period shall
occur on the next preceding Business Day; and



(d) any Interest Period which begins on the last Business Day of a calendar month (or on a day
for which there is no numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Business Day of the calendar month in which it would have
ended if there were a numerically corresponding day in such calendar month.


 


10









 





“Issuing Lender” means Guaranty Bank and any successor issuing bank pursuant to
Section 9.06.



“Leases” means all oil and gas leases, oil, gas and mineral leases, oil, gas and
casinghead gas leases or any other instruments, agreements, or conveyances under and pursuant to
which the owner thereof has or obtains the right to enter upon lands and explore for, drill, and
develop such lands for the production of Hydrocarbons.



“Legal Requirement” means, as to any Person, any law, statute, ordinance, decree,
requirement, order, judgment, rule, regulation (or official interpretation of any of the foregoing)
of, and the terms of any license or permit issued by, any Governmental Authority, including, but
not limited to, Regulations D, T, U, and X, which is applicable to such Person.



“Lenders” means the lenders listed on the signature pages of this Agreement and each
Eligible Assignee that shall become a party to this Agreement pursuant to Section 10.06, and
“Lender” means any such lender individually.



“Lending Office” means, as to any Lender, the office or offices of such Lender
described as such in such Lender’s administrative questionnaire requested by the Administrative
Agent, or such other office or offices as a Lender may from time to time notify the Borrower
Representative and the Administrative Agent.



“Letter of Credit” means any standby letter of credit issued by the Issuing Lender for
the account of a Borrower in connection with the Commitments and which is subject to this
Agreement, and “Letters of Credit” means all such letters of credit collectively.



“Letter of Credit Application” means the Issuing Lender’s standard form letter of
credit application for standby letters of credit that has been executed by the Borrower
Representative and accepted by the Issuing Lender in connection with the issuance of a Letter of
Credit.



“Letter of Credit Documents” means all Letters of Credit, Letter of Credit
Applications, and agreements, documents, and instruments entered into in connection with or
relating thereto.



“Letter of Credit Exposure” means, at any time, the sum of (a) the aggregate undrawn
maximum face amount of all Letters of Credit at such time plus (b) the aggregate unpaid
amount of all Reimbursement Obligations at such time.



“Letter of Credit Obligations” means the obligations of the Borrowers under this
Agreement in connection with the Letters of Credit, including the Reimbursement Obligations.



“Lien” means any mortgage, lien, pledge, assignment, charge, deed of trust, security
interest, hypothecation, preference, deposit arrangement for a third party’s benefit or encumbrance
(or other type of arrangement having the practical effect of the foregoing) to secure or provide
for the payment of any obligation of any Person, whether arising by contract, operation of law, or
otherwise (including, without limitation, the interest of a vendor or lessor under any conditional
sale agreement, synthetic lease, Capital Lease, or other title retention agreement).


 


11









 






“Liquid Investments” means:



(a) direct obligations of, or obligations the principal of and interest on which are
unconditionally guaranteed by, the United States maturing within 180 days from the date of any
acquisition thereof;



(b) (i) negotiable or nonnegotiable certificates of deposit, time deposits, or other similar
banking arrangements maturing within 180 days from the date of acquisition thereof (“bank debt
securities”), issued by (A) any Lender (or any Affiliate of any Lender) or (B) any other bank or
trust company if at the time of deposit or purchase, such bank debt securities are rated not less
than “AA” (or the then equivalent) by the rating service of Standard & Poor’s Ratings Group or of
Moody’s Investors Service, Inc., and (ii) commercial paper issued by (A) any Lender (or any
Affiliate of any Lender) or (B) any other Person if at the time of purchase such commercial paper
is rated not less than “A-1” (or the then equivalent) by the rating service of Standard & Poor’s
Ratings Group or not less than “P-1” (or the then equivalent) by the rating service of Moody’s
Investors Service, Inc., or upon the discontinuance of both of such services, such other nationally
recognized rating service or services, as the case may be, as shall be selected by the Borrower
Representative with the consent of the Required Lenders;



(c) deposits in money market funds investing exclusively in investments described in clauses
(a) and (b) above;



(d) repurchase agreements relating to investments described in clauses (a) and (b) above with
a market value at least equal to the consideration paid in connection therewith, with any Person
who regularly engages in the business of entering into repurchase agreements and has a combined
capital surplus and undivided profit of not less than $500,000,000.00, if at the time of entering
into such agreement the debt securities of such Person are rated not less than “AA” (or the then
equivalent) by the rating service of Standard & Poor’s Ratings Group or of Moody’s Investors
Service, Inc.; and



(e) such other instruments (within the meaning of Article 9 of the Texas Business and Commerce
Code) as the Borrower Representative may request and the Administrative Agent may approve in
writing.



“Loan Documents” means this Agreement, the Notes, the Letter of Credit Documents, the
Security Instruments, each Hedge Contract entered into with a Swap Counterparty, and each other
agreement, instrument, certificate or document executed by any Borrower, the Borrower
Representative, or any Borrower’s Subsidiary or any of their respective officers at any time in
connection with this Agreement.




“Lost Interest” has the meaning specified in Section 2.09(d)(i).



“Material Adverse Change” means (a) a material adverse change since June 30, 2008 in
the business, assets (including Oil and Gas Properties), condition (financial or otherwise),
results of operations, or prospects of the Borrowers and their respective Subsidiaries taken as a
whole (but excluding any adverse change resulting from Hurricane Gustav or Hurricane Ike) or (b) a
material adverse effect on any Borrower’s or any Borrower’s Subsidiary’s ability to perform its
obligations under this Agreement, any Note, or any other Loan Document.


 


12









 





“Maturity Date” means October 3, 2010, or to the extent that the Maturity Date is
extended in writing by all the Lenders (it being understood that no such Lender is obligated to
grant any such extension), such later date that is approved by the Lenders.



“Maximum Rate” means the maximum nonusurious interest rate under applicable law
(determined under such laws after giving effect to any items which are required by such laws to be
construed as interest in making such determination, including without limitation if required by
such laws, certain fees and other costs).



“Merger Documents” means, collectively, (a) the Agreement and Plan of Merger of
Contango Resources Company with and into Contango Operators, Inc. dated March 31, 2009, (b) the
Agreement and Plan of Merger of REX Offshore Corporation with and into Contango Operators, Inc.
dated March 31, 2009, (c) and all other documents, instruments, and agreements executed or
delivered in connection with the Restructuring, together with any exhibits and schedules thereto.



“Mortgages” means, collectively, that certain Amended and Restated Act of First Lien
Mortgage, Security Agreement, Financing Statement, Fixture Filing and Assignment of Production
dated as of the Effective Date executed by COI in favor of the Administrative Agent for the ratable
benefit of the Secured Parties, and any other mortgage or deed of trust executed by any Borrower in
favor of the Administrative Agent for the ratable benefit of the Secured Parties in substantially
the form of the attached Exhibit B or such other form as may be requested by the Administrative
Agent.



“Multiemployer Plan” means a “multiemployer plan” as defined in Section 4001(a)(3) of
ERISA.



“Note” means a promissory note of the Borrowers payable to the order of any Lender, in
substantially the form of the attached Exhibit C, evidencing indebtedness of the Borrowers to such
Lender resulting from Advances owing to such Lender.



“Notice of Borrowing” means a notice of borrowing in the form of the attached
Exhibit D signed by a Responsible Officer of the Borrower Representative.



“Notice of Conversion or Continuation” means a notice of conversion or continuation in
the form of the attached Exhibit E signed by a Responsible Officer of the Borrower Representative.



“Obligations” means (a) all principal, interest, fees, reimbursements,
indemnifications, and other amounts payable by any Borrower or any Subsidiary of a Borrower to the
Administrative Agent, the Issuing Lender, or the Lenders under the Loan Documents, including
without limitation, the Letter of Credit Obligations, and (b) all Cash Management Bank Obligations,
and all renewals, extensions and/or rearrangements of any of the foregoing.



“Oil and Gas Properties” means fee mineral interests, term mineral interests, Leases,
subleases, farm-outs, royalties, overriding royalties, net profit interests, carried interests,
production payments and similar mineral interests, and all unsevered and unextracted Hydrocarbons
in, under, or attributable to such oil and gas Properties and interests.


 


13









 






“Original Borrowers” has the meaning specified in the Recitals.




“Original Closing Date” means October 3, 2008.




“Original Credit Agreement” has the meaning specified in the Recitals.




“Other Borrower Obligations” has the meaning specified in Section 8.01.




“Other Taxes” has the meaning specified in Section 2.14(b).



“PBGC” means the Pension Benefit Guaranty Corporation or any entity succeeding to any
or all of its functions under ERISA.



“Permit” means any approval, certificate of occupancy, consent, waiver, exemption,
variance, franchise, order, permit, authorization, right or license of or from any Governmental
Authority, including without limitation, an Environmental Permit.




“Permitted Liens” means the Liens permitted under Section 6.01.



“Permitted Subject Liens” means the Liens permitted under paragraphs (b), (c), (d),
(e), (f), (g), (h) and (i) of Section 6.01.



“Person” means an individual, partnership, corporation (including a business trust),
joint stock company, limited liability corporation or company, limited liability partnership,
trust, unincorporated association, joint venture or other entity, or a government or any political
subdivision or agency thereof or any trustee, receiver, custodian or similar official.



“Plan” means an employee benefit plan (other than a Multiemployer Plan) maintained for
employees of any Borrower or any member of the Controlled Group and covered by Title IV of ERISA or
subject to the minimum funding standards under Section 412 of the Code.



“Pro Rata Share” means, with respect to any Lender, (a) with respect to amounts owing
under the Commitments, (i) if such Commitments have not been canceled, the ratio (expressed as a
percentage) of such Lender’s uncancelled Commitment at such time to the aggregate uncancelled
Commitments at such time, or (ii) if the aggregate Commitments have been terminated, the ratio as
determined pursuant to the preceding clause (i) immediately prior to such termination or (b) with
respect to amounts owing generally under this Agreement and the other Loan Documents, the ratio
(expressed as a percentage) of aggregate Commitments of such Lender to the aggregate Commitments of
all the Lenders (or if such Commitments have been terminated, the ratio (expressed as a percentage)
of Credit Extensions owing to such Lender to the aggregate Credit Extensions owing to all such
Lenders).



“Property” of any Person means any property or assets (whether real, personal, or
mixed, tangible or intangible) of such Person.



“Proven Reserves” means, at any particular time, the estimated quantities of
Hydrocarbons which geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs attributable to Oil and Gas Properties included
or to be included in the Borrowing Base under then existing economic and operating conditions
(i.e., prices and costs as of the date the estimate is made).


 


14









 





“Reference Rate” means a fluctuating interest rate per annum as shall be in effect
from time to time equal to the rate of interest publicly announced by Guaranty Bank (or such other
Lender as shall then be serving as the Administrative Agent), as its reference rate, whether or not
any Borrower has notice thereof.



“Reference Rate Advance” means an Advance which bears interest as provided in
Section 2.09(a).




“Register” has the meaning set forth in paragraph (c) of Section 10.06.



“Regulations D, T, U, and X” mean Regulations D, T, U, and X of the Federal Reserve
Board, as the same is from time to time in effect, and all official rulings and interpretations
thereunder or thereof.



“Reimbursement Obligations” means the obligations of the Borrowers to reimburse the
Issuing Lender for amounts paid by the Issuing Lender under Letters of Credit as established by the
Letter of Credit Applications and Section 2.07(d)(i).



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



“Release” shall have the meaning set forth in CERCLA or under any other Environmental
Law.



“Reportable Event” means a “reportable event” described in Section 4043 of ERISA and
the regulations issued thereunder.



“Required Lenders” means, (a) at any time when there are more than two Lenders,
Lenders holding at least 66 2/3% of the aggregate Commitments, or if the Commitments have been
terminated or expired, 66 2/3% of the outstanding principal amount of the Advances and Letter of
Credit Exposure (with the aggregate amount of each Lender’s risk participation and funded
participation in Letter of Credit Obligations being deemed to be “held” by such Lender for purposes
of this definition) or (b) at any time when there are one or two Lenders, all of the Lenders.



“Response” shall have the meaning set forth in CERCLA or under any other Environmental
Law.



“Responsible Officer” means (a) with respect to any Person that is a corporation, such
Person’s Chairman, Chief Executive Officer, President, Chief Financial Officer, Vice President or
Secretary, (b) with respect to any Person that is a limited liability company, a manager or the
Chairman, Chief Executive Officer, President, Chief Financial Officer, Vice President or Secretary
of such Person or of such Person’s managing member or manager, and (c) with respect to any Person
that is a general partnership or a limited liability partnership, the Chief Executive Officer,
President, Chief Financial Officer, Vice President or Secretary of such Person’s general partner or
partners.


 


15









 





“Restricted Payment” means, with respect to any Person, (a) any direct or indirect
dividend or distribution (whether in cash, securities or other Property) or any direct or indirect
payment of any kind or character (whether in cash, securities or other Property) in consideration
for or otherwise in connection with any retirement, purchase, redemption or other acquisition of
any Equity Interest of such Person, or any options, warrants or rights to purchase or acquire any
such Equity Interest of such Person or (b) principal or interest payments (in cash, Property or
otherwise) on, or redemptions of, subordinated debt of such Person; provided that the term
“Restricted Payment” shall not include any dividend or distribution payable solely in Equity
Interests of such Person or warrants, options, or other rights to purchase such Equity Interests.




“Restructuring” has the meaning specified in the Recitals.




“Returns” has the meaning specified in Section 4.11(c).



“Secured Parties” means the Administrative Agent, the Issuing Lender, the Lenders, the
Cash Management Bank and the Swap Counterparties.



“Security Agreements” means, collectively, that certain Amended and Restated Security
Agreement dated as of the Effective Date executed by COI in favor of the Administrative Agent for
the ratable benefit of the Secured Parties and any other security agreement in substantially the
form of the attached Exhibit F, executed by any of the Borrowers.



“Security Instruments” means, collectively, (a) the Mortgages, (b) the Transfer
Letters, (c) the Security Agreements, (d) each other agreement, instrument or document executed at
any time in connection with the Security Agreements or the Mortgages, (e) each agreement,
instrument or document executed in connection with the Cash Collateral Account, and (f) each other
agreement, instrument or document executed at any time in connection with securing the Obligations.



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


 


16









 





“Subsidiary” of a Person means any corporation or other entity of which more than 50%
of the outstanding Equity Interests having ordinary voting power under ordinary circumstances to
elect a majority of the board of directors or similar governing body of such corporation or other
entity (irrespective of whether at such time Equity Interests of any other class or classes of such
corporation or other entity shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned or controlled by such Person, by such
Person and one or more Subsidiaries of such Person or by one or more Subsidiaries of such Person.
Unless otherwise indicated herein, each reference to the term “Subsidiary” shall mean a Subsidiary
of a Borrower. Notwithstanding the foregoing, in no event shall Contango Offshore Exploration, LLC
be considered a Subsidiary.




“Summer/Fall Months” has the meaning specified in Section 6.14.



“Swap Counterparty” means any Lender (or Affiliate of a Lender) that is party to a
Hydrocarbon Hedge Agreement or Interest Hedge Agreement with a Borrower or any of its Subsidiaries;
provided that, any such Swap Counterparty that ceases to be a Lender or an Affiliate of a Lender
shall continue to be a “Swap Counterparty” for purposes of this Agreement and the other Loan
Documents to the extent that such Swap Counterparty entered into a Hedge Contract with a Borrower
or any of its Subsidiaries and such Hedge Contract remains in effect and there are remaining
obligations under such Hedge Contract (but excluding any transactions, confirms, or trades entered
into after such Person ceases to be a Lender or an Affiliate of a Lender).




“Taxes” has the meaning specified in Sections 2.14(a) and 4.11(b).




“Tax Group” has the meaning specified in Section 4.11(a).



“Termination Event” means (a) a Reportable Event with respect to a Plan (other than a
Reportable Event not subject to the provision for 30-day notice to the PBGC under such
regulations), (b) the withdrawal of a Borrower or any of its Affiliates 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, or (e) any other event or condition which constitutes grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any Plan.



“Transfer Letters” means, collectively, the letters in lieu of transfer orders in
substantially the form of the attached Exhibit G and executed by any Borrower executing a Mortgage.




“Type” has the meaning set forth in Section 1.04.



“Unused Commitment Amount” means, with respect to a Lender at any time, (a) the lesser
of (i) such Lender’s Commitment at such time and (ii) such Lender’s Pro Rata Share of the Borrowing
Base then in effect at such time minus (b) in each case the sum of (i) the aggregate
outstanding principal amount of all Advances owed to such Lender at such time plus
(ii) such Lender’s Pro Rata Share of the aggregate Letter of Credit Exposure at such time.


 


17









 






“Wells” has the meaning specified in Section 2.02(b)(iv).




“Winter/Spring” has the meaning specified in Section 6.14.



1.02 Computation of Time Periods. In this Agreement, with respect to the computation
of periods of time from a specified date to a later specified date, the word “from” means “from and
including” and the words “to” and “until” each means “to but excluding”.



1.03 Accounting Terms; Changes in GAAP. Except as otherwise expressly provided
herein, all accounting terms used herein shall be interpreted, and all financial statements and
certificates and reports as to financial matters required to be delivered to the Lenders hereunder
shall (unless otherwise disclosed to the Lenders in writing at the time of delivery thereof) be
prepared, in accordance with GAAP applied on a basis consistent with those used in the preparation
of the Initial Financial Statements. All calculations made for the purposes of determining
compliance with this Agreement shall (except as otherwise expressly provided herein) be made by
application of GAAP applied on a basis consistent with those used in the preparation of the Initial
Financial Statements. In addition, all calculations and defined accounting terms used herein
shall, unless expressly provided otherwise, when referring to any Person, refer to such Person on a
consolidated basis and mean such Person and its consolidated Subsidiaries.



1.04 Types of Advances. Advances are distinguished by “Type.” The “Type” of an
Advance refers to the determination whether such Advance is a Eurodollar Rate Advance or Reference
Rate Advance.



1.05 Miscellaneous. Article, Section, Schedule, and Exhibit references are to
Articles and Sections of and Schedules and Exhibits to this Agreement, unless otherwise specified.
All references to instruments, documents, contracts, and agreements are references to such
instruments, documents, contracts, and agreements as the same may be amended, supplemented, and
otherwise modified from time to time, unless otherwise specified. The words “hereof”, “herein”,
and “hereunder” and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement. The term “including”
means “including, without limitation,”. Paragraph headings have been inserted in this Agreement as
a matter of convenience for reference only and it is agreed that such paragraph headings are not a
part of this Agreement and shall not be used in the interpretation of any provision of this
Agreement.



ARTICLE II

CREDIT FACILITIES





2.01 Commitment for Advances.



(a) Each Lender severally agrees, on the terms and conditions set forth in this Agreement, to
make Advances to any Borrower from time to time on any Business Day during the period from the date
of this Agreement until the Commitment Termination Date in an amount for each Lender not to exceed
such Lender’s Unused Commitment Amount. Each Borrowing shall, in the case of Borrowings consisting
of Reference Rate Advances, be in an aggregate amount not less than $100,000 and in integral
multiples of $100,000 in excess thereof, and in the case of Borrowings consisting of Eurodollar
Rate Advances, be in an aggregate amount not less than $100,000 and in integral multiples of
$100,000 in excess thereof, and in each case shall consist of Advances of the same Type made on the
same day by the Lenders ratably according to their respective Commitments. Within the limits of
each Lender’s Commitment, and subject to the terms of this Agreement, any Borrower may from time to
time borrow, prepay, and reborrow Advances.


 


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(b) Notes. The indebtedness of the Borrowers to each Lender resulting from the
Advances owing to such Lender shall be evidenced by a Note of the Borrowers payable to the order of
such Lender.




2.02 Borrowing Base.



(a) Borrowing Base. The Borrowing Base in effect as of the date of this Agreement has
been set by the Administrative Agent and the Lenders and acknowledged and accepted by the Borrowers
as $375,000,000. Such Borrowing Base shall remain in effect until the next redetermination made
pursuant to this Section 2.02. The Borrowing Base shall be determined in accordance with the
standards set forth in Section 2.02(d) and is subject to periodic redetermination pursuant to
Section 2.02(b) and Section 2.02(c).




(b) Calculation of Borrowing Base.



(i) The Borrower Representative shall deliver to the Administrative Agent and each of the
Lenders on or before each April 1, beginning April 1, 2009, an Engineering Report dated effective
as of the immediately preceding December 31, and such other information as may be reasonably
requested by any Lender with respect to the Oil and Gas Properties included or to be included in
the Borrowing Base. The Administrative Agent shall promptly, and in any event within 30 days after
the Administrative Agent and the Lenders’ receipt of such Engineering Report and other information,
deliver to each Lender the Administrative Agent’s recommendation for the redetermined Borrowing
Base. The Administrative Agent and the Lenders shall promptly, and in any event within 15 days
after the Lenders’ receipt of the Administrative Agent’s recommendation, redetermine the Borrowing
Base in accordance with Section 2.02(d), and the Administrative Agent shall promptly notify the
Borrower Representative in writing of the amount of the Borrowing Base as so redetermined.



(ii) The Borrower Representative shall deliver to the Administrative Agent and each Lender on
or before each October 1, beginning October 1, 2009, an Engineering Report dated effective as of
the immediately preceding June 30, and such other information as may be reasonably requested by the
Administrative Agent or any Lender with respect to the Oil and Gas Properties included or to be
included in the Borrowing Base. The Administrative Agent shall promptly, and in any event within
30 days after the Administrative Agent and the Lenders’ receipt of such Engineering Report and
other information, deliver to each Lender the Administrative Agent’s recommendation for the
redetermined Borrowing Base. The Administrative Agent and the Lenders shall promptly, and in any
event within 15 days after the Lenders’ receipt of the Administrative Agent’s recommendation,
redetermine the Borrowing Base in accordance with Section 2.02(d), and the Administrative Agent
shall promptly notify the Borrower Representative in writing of the amount of the Borrowing Base as
so redetermined.


 


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(iii) In the event that the Borrower Representative does not furnish to the Administrative
Agent and the Lenders the Engineering Report or other information specified in clauses (i) and (ii)
above by the date specified therein, the Administrative Agent and the Lenders may nonetheless
redetermine the Borrowing Base and redesignate the Borrowing Base from time-to-time thereafter in
their sole discretion until the Administrative Agent and the Lenders receive the relevant
Engineering Report or other information, as applicable, whereupon the Administrative Agent and the
Lenders shall redetermine the Borrowing Base as otherwise specified in this Section 2.02.



(iv) Each delivery of an Engineering Report by the Borrower Representative to the
Administrative Agent and the Lenders shall constitute a representation and warranty by each
Borrower to the Administrative Agent and the Lenders that (A) COI (and, if Contango and/or CEC
acquires any Oil and Gas Properties, Contango and/or CEC, as the case may be) owns the Oil and Gas
Properties specified therein with all of such Proven Reserves of COI (and, if applicable, Contango
and/or CEC, as the case may be) covered therein subject to an Acceptable Security Interest and free
and clear of any Liens (except Permitted Liens), and (B) on and as of the date of such Engineering
Report each Oil and Gas Property described as “proved developed” therein was developed for oil and
gas, and the wells pertaining to such Oil and Gas Properties that are described therein as
producing wells (“Wells”), were each producing oil and gas in paying quantities, except for
Wells that were utilized as water or gas injection wells or as water disposal wells.



(c) Interim Redeterminations. In addition to the Borrowing Base redeterminations
provided for in Section 2.02(b), the Administrative Agent and the Lenders may (i) at the request of
the Borrowers make one additional redetermination of the Borrowing Base during any six-month period
between scheduled redeterminations, and (ii) in their sole discretion make additional
redeterminations of the Borrowing Base at any time and for any reason between scheduled
redeterminations, and in any case, based on such information as the Administrative Agent and the
Lenders deem relevant (but in accordance with Section 2.02(d)). The party requesting the
redetermination shall give the other party at least 10 days’ prior written notice that a
redetermination of the Borrowing Base pursuant to this paragraph (c) is to be performed. In
connection with any redetermination of the Borrowing Base under this Section 2.02(c), the Borrower
Representative shall promptly, and in any event with 14 days after a request is made by the
Administrative Agent or a Lender, provide the Administrative Agent and the Lenders with such
information regarding each Borrower’s and its respective Subsidiaries’ business (including, without
limitation, its Oil and Gas Properties, the Proven Reserves, and production relating thereto) as
the Administrative Agent or any Lender may request. The Administrative Agent shall promptly, and
in any event within 45 days after the Administrative Agent and the Lenders’ receipt of such
information, and to the extent applicable, an updated Engineering Report, notify the Borrower
Representative in writing of each redetermination of the Borrowing Base pursuant to this
Section 2.02(c) and the amount of the Borrowing Base as so redetermined.


 


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(d) Standards for Redetermination. Each redetermination of the Borrowing Base by the
Administrative Agent and the Lenders pursuant to this Section 2.02 shall be made (i) in the sole
discretion of the Administrative Agent and the Lenders (but in accordance with the other provisions
of this Section 2.02(d)), (ii) in accordance with the Administrative Agent’s and the Lenders’
customary internal standards and practices for valuing and redetermining the value of Oil and Gas
Properties in connection with reserve based oil and gas loan transactions, (iii) in conjunction
with the most recent Engineering Report or other information received by the Administrative Agent
and the Lenders relating to the Proven Reserves of COI (and, if Contango and/or CEC shall have
acquired any Oil and Gas Properties, Contango and/or CEC, as the case may be), and (iv) based upon
the estimated value of the Proven Reserves owned by COI (and, if Contango and/or CEC shall have
acquired any Oil and Gas Properties, Contango and/or CEC, as the case may be) as determined by the
Administrative Agent and the Lenders. In valuing and redetermining the Borrowing Base, the
Administrative Agent and the Lenders may also consider the business, financial condition, and Debt
obligations of the Borrowers and their respective Subsidiaries and such other factors as the
Administrative Agent and the Lenders customarily deem appropriate. In that regard, each Borrower
acknowledges that the determination of the Borrowing Base contains an equity cushion (market value
in excess of loan value), which is essential for the adequate protection of the Administrative
Agent and the Lenders. No Proven Reserves of COI’s (and, if Contango and/or CEC acquires any Oil
and Gas Properties, Contango’s and/or CEC’s, as the case may be) Oil and Gas Properties shall be
included or considered for inclusion in the Borrowing Base unless the Administrative Agent and the
Lenders shall have received, at the Borrower’s expense and only to the extent required hereunder,
evidence of title satisfactory in form and substance to the Administrative Agent that the
Administrative Agent has an Acceptable Security Interest in the Oil and Gas Properties relating
thereto pursuant to the Security Instruments. At all times after the Administrative Agent has
given the Borrower Representative notification of a redetermination of the Borrowing Base under
this Section 2.02, the Borrowing Base shall be equal to the redetermined amount or such lesser
amount designated by the Borrower Representative and disclosed in writing to the Administrative
Agent and the Lenders until the Borrowing Base is subsequently redetermined in accordance with this
Section 2.02.



(e) Voting. Any changes in, or renewals of, the Borrowing Base (other than increases
in the Borrowing Base) must be consented to in writing by the Required Lenders. Any increases in
the Borrowing Base must be consented to in writing by all the Lenders.




2.03 Method of Borrowing.



(a) Notice. Each Borrowing shall be made pursuant to a Notice of Borrowing (or by
telephone notice promptly confirmed in writing by a Notice of Borrowing), given not later than
1:00 p.m. (Central Standard or Daylight Savings Time) (i) on the third Business Day before the date
of the proposed Borrowing, in the case of a Borrowing comprised of Eurodollar Rate Advances or
(ii) one Business Day before the date of the proposed Borrowing, in the case of a Borrowing
comprised of Reference Rate Advances, by the Borrower Representative to the Administrative Agent,
which shall in turn give to each Lender prompt notice of such proposed Borrowing by facsimile or
telex. Each Notice of a Borrowing shall be given by facsimile or telex, confirmed immediately in
writing if by telex, specifying the information required therein. In the case of a proposed
Borrowing comprised of Eurodollar Rate Advances, the Administrative Agent shall promptly notify
each Lender of the applicable interest rate under Section 2.09(b). Each Lender shall, before
2:00 p.m. (Central Standard or Daylight Savings Time) on the date of such Borrowing, make available
for the account of its Lending Office to the Administrative Agent at its address referred to in
Section 10.02, or such other location as the Administrative Agent may specify by notice to the
Lenders, in same day funds, in the case of a Borrowing, such Lender’s Pro Rata Share of such
Borrowing. After the Administrative Agent’s receipt of such funds and upon fulfillment of the
applicable conditions set forth in Article III, the Administrative Agent shall make such funds
available to any Borrower, as requested by the Borrower Representative, at its account with the
Administrative Agent.


 


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(b) Conversions and Continuations. The Borrowers may elect to Convert or continue any
Borrowing under this Section 2.03 by delivering an irrevocable Notice of Conversion or Continuation
to the Administrative Agent at the Administrative Agent’s office no later than 1:00 p.m. (Central
Standard or Daylight Savings Time) (i) on the date which is at least three Business Days in advance
of the proposed Conversion or continuation date in the case of a Conversion to or a continuation of
a Borrowing comprised of Eurodollar Rate Advances and (ii) on the Business Day before the date of
the proposed Conversion in the case of a Conversion to a Borrowing comprised of Reference Rate
Advances. Each such Notice of Conversion or Continuation shall be in writing or by telex or
facsimile, confirmed immediately in writing if by telex, specifying the information required
therein and executed by a Responsible Officer of the Borrower Representative. Promptly after
receipt of a Notice of Conversion or Continuation under this Section, the Administrative Agent
shall provide each Lender with a copy thereof and, in the case of a Conversion to or a continuation
of a Borrowing comprised of Eurodollar Rate Advances, notify each Lender of the applicable interest
rate under Section 2.09(b).



(c) Certain Limitations. Notwithstanding anything to the contrary contained in
paragraphs (a) and (b) above:



(i) at no time shall there be more than five Interest Periods applicable to outstanding
Eurodollar Rate Advances and no Borrower may select Eurodollar Rate Advances for any Borrowing at
any time that a Default has occurred and is continuing;



(ii) if any Lender shall, at least one Business Day before the date of any requested
Borrowing, Conversion, or continuation, notify the Administrative Agent and the Borrower
Representative that the introduction of or any change in or in the interpretation of any law or
regulation makes it unlawful, or that any central bank or other Governmental Authority asserts that
it is unlawful, for such Lender or its Lending Office to perform its obligations under this
Agreement to make Eurodollar Rate Advances or to fund or maintain Eurodollar Rate Advances, the
right of the Borrowers to select Eurodollar Rate Advances from such Lender shall be suspended until
such Lender shall notify the Administrative Agent that the circumstances causing such suspension no
longer exist, and the Advance made by such Lender in respect of such Borrowing, Conversion, or
continuation shall be a Reference Rate Advance;



(iii) if the Administrative Agent is unable to determine the Eurodollar Rate for Eurodollar
Rate Advances comprising any requested Borrowing, the right of the Borrowers to select Eurodollar
Rate Advances for such Borrowing or for any subsequent Borrowing shall be suspended until the
Administrative Agent shall notify the Borrower Representative and the Lenders that the
circumstances causing such suspension no longer exist, and each Advance comprising such Borrowing
shall be a Reference Rate Advance;


 


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(iv) if the Required Lenders shall, at least one Business Day before the date of any requested
Borrowing, notify the Administrative Agent that the Eurodollar Rate for Eurodollar Rate Advances
comprising such Borrowing will not adequately reflect the cost to such Lenders of making or funding
their respective Eurodollar Rate Advances, as the case may be, for such Borrowing, the
Administrative Agent shall promptly notify the Borrower Representative and the right of the
Borrowers to select Eurodollar Rate Advances for such Borrowing or for any subsequent Borrowing
shall be suspended until the Administrative Agent shall notify the Borrower Representative and the
Lenders that the circumstances causing such suspension no longer exist, and each Advance comprising
such Borrowing shall be a Reference Rate Advance; and



(v) if a Borrower shall fail to select the duration or continuation of any Interest Period for
any Eurodollar Rate Advances in accordance with the provisions contained in the definition of
“Interest Period” in Section 1.01 and paragraph (b) above, the Administrative Agent shall forthwith
so notify the Borrower Representative and the Lenders and such Advances shall be made available to
the applicable Borrower, as designated by the Borrower Representative, on the date of the Borrowing
comprised of such Advances as Reference Rate Advances or, if existing Eurodollar Rate Advances,
shall Convert into Reference Rate Advances.



(d) Notices Irrevocable. Each Notice of Borrowing and Notice of Conversion or
Continuation shall be irrevocable and binding on each Borrower. In the case of any Borrowing for
which the related Notice of Borrowing specifies is to be comprised of Eurodollar Rate Advances, the
Borrowers shall indemnify each Lender against any loss, out-of-pocket cost, or expense incurred by
such Lender as a result of any failure by any Borrower to fulfill on or before the date specified
in such Notice of Borrowing for such Borrowing the applicable conditions set forth in Article III
including, without limitation, any loss, cost, or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Lender to fund the Advance to be made by
such Lender as part of such Borrowing when such Advance, as a result of such failure, is not made
on such date.



(e) Administrative Agent Reliance. Unless the Administrative Agent shall have
received notice from a Lender before the date of any Borrowing that such Lender shall not make
available to the Administrative Agent such Lender’s Pro Rata Share of a Borrowing, the
Administrative Agent may assume that such Lender has made its Pro Rata Share of such Borrowing
available to the Administrative Agent on the date of such Borrowing in accordance with
paragraph (a) of this Section 2.03 and the Administrative Agent may, in reliance upon such
assumption, make available to the applicable Borrower, as designated by the Borrower
Representative, on such date a corresponding amount. If and to the extent that such Lender shall
not have so made its Pro Rata Share of such Borrowing available to the Administrative Agent, such
Lender and the Borrowers severally agree to immediately repay to the Administrative Agent on demand
such corresponding amount, together with interest on such amount, for each day from the date such
amount is made available to a Borrower until the date such amount is repaid to the Administrative
Agent, at (i) in the case of the Borrowers, the interest rate applicable on such day to Advances
comprising such Borrowing and (ii) in the case of such Lender, the Federal Funds Rate for such day.
If such Lender shall repay to the Administrative Agent such corresponding amount and interest as
provided above, such corresponding amount so repaid shall constitute such Lender’s Advance as part
of such Borrowing for purposes of this Agreement even though not made on the same day as the other
Advances comprising such Borrowing.


 


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(f) Lender Obligations Several. The failure of any Lender to make the Advance to be
made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any,
to make its Advance on the date of such Borrowing. No Lender shall be responsible for the failure
of any other Lender to make the Advance to be made by such other Lender on the date of any
Borrowing.




2.04 Reduction of the Commitments.



(a) Optional. The Borrowers shall have the right, upon at least three Business Days’
irrevocable notice from the Borrower Representative to the Administrative Agent, to terminate in
whole or reduce ratably in part the unused portion of the Commitments; provided that, in
each case, each partial reduction shall be in the aggregate amount of $10,000,000 or in integral
multiples of $5,000,000 in excess thereof.



(b) Mandatory. If at any time the Borrowing Base is less than an amount equal to five
(5) times the amount of the aggregate Commitments, the Commitments shall automatically and without
the giving of any notice or other condition, be reduced ratably to the extent necessary to cause
such Commitments, as so reduced, to equal no more than 20% of the Borrowing Base then in effect.
In addition, if either of the Borrowers (i) sells, leases, transfers, assigns, farms-out, conveys
or otherwise disposes of any of its Property in a transaction not permitted by Section 6.04,
(ii) creates, incurs, assumes or otherwise becomes liable for any Debt in a transaction not
permitted by Section 6.02, or (iii) receives Extraordinary Proceeds, then the aggregate amount of
the Commitments shall be reduced by an amount equal to the net sales proceeds, debt issuance
proceeds, or Extraordinary Proceeds, as applicable, received by the Borrowers.



(c) Application. Any reduction and termination of the Commitments pursuant to this
Section 2.04 (whether voluntary or mandatory) shall be applied ratably to each Lender’s Commitments
and shall be permanent, with no obligation of the Lenders to reinstate such Commitments.




2.05 Prepayment of Advances; Deposits Into Cash Collateral Account.



(a) Optional. The Borrowers may prepay the Advances, after giving by 1:00 p.m.
(Central Standard or Daylight Savings Time) (i) in the case of Eurodollar Rate Advances, at least
three Business Days’ or (ii) in the case of Reference Rate Advances, same Business Day’s,
irrevocable prior written notice from the Borrower Representative to the Administrative Agent
stating the proposed date and aggregate principal amount of such prepayment. If any such notice is
given, the Borrowers shall prepay the Advances in whole or ratably in part in an aggregate
principal amount equal to the amount specified in such notice, together with accrued interest to
the date of such prepayment on the principal amount prepaid and amounts, if any, required to be
paid pursuant to Section 2.12 as a result of such prepayment being made on such date;
provided, however, that each partial prepayment with respect to: (a) any amounts prepaid
in respect of Eurodollar Rate Advances shall be applied to Eurodollar Rate Advances comprising part
of the same Borrowing; (b) any prepayments made in respect of Reference Rate Advances shall be made
in a minimum amounts of $100,000 and in integral multiples of $100,000 in excess thereof; and
(c) any prepayments made in respect of any Borrowing comprised of Eurodollar Rate Advances shall be
made in an aggregate principal amount of at least $500,000 and in integral multiples of $100,000 in
excess thereof, and in an aggregate principal amount such that after giving effect thereto such
Borrowing shall have a remaining principal amount outstanding with respect to such Borrowing of at
least $500,000. Full prepayments of any Borrowing are permitted without restriction of amounts.


 


24









 





(b) Mandatory. If the aggregate Commitments are reduced pursuant to Section 2.04
(whether voluntarily or as the result of a mandatory reduction) and after giving effect to such
reduction the sum of (A) the aggregate outstanding amount of the Advances plus (B) the excess, if
any, of the Letter of Credit Exposure over the amount held in the Cash Collateral Account at such
time ever exceeds the aggregate Commitments (such excess being referred to herein as a
“deficiency”), the Borrower Representative shall after receipt of written notice from the
Administrative Agent regarding such deficiency, deliver to the Administrative Agent within ten days
of receipt of such notice from the Administrative Agent, a written response indicating which of the
following actions (or combination thereof) the Borrowers intend to take to remedy such deficiency
(and the failure of the Borrower Representative to deliver such election notice or the Borrowers to
perform the action chosen to remedy such deficiency shall constitute an Event of Default):



(i) prepay the Advances to the extent of the deficiency set forth in such notice or, if the
Advances have been repaid in full, make deposits into the Cash Collateral Account to provide cash
collateral for the Letter of Credit Exposure such that the deficiency is cured within 30 days after
the date such deficiency notice is received by the Borrower Representative from the Administrative
Agent; or



(ii) pledge as Collateral for the Obligations additional Oil and Gas Properties acceptable to
the Administrative Agent and each of Lenders such that the deficiency is cured within 30 days after
the date such written response is sent by the Borrower Representative to the Administrative Agent.



(c) Each prepayment pursuant to this Section 2.05(b) shall be accompanied by accrued interest
on the amount prepaid to the date of such prepayment and amounts, if any, required to be paid
pursuant to Section 2.12 as a result of such prepayment being made on such date. Each prepayment
under Section 2.05(b)(i) shall be applied to the Advances as determined by the Administrative Agent
and agreed to by the Lenders in their sole discretion.



(d) Illegality. If any Lender shall notify the Administrative Agent and the Borrower
Representative that, on or after the date hereof, the introduction of or any change in or in the
interpretation of any law or regulation makes it unlawful, or that any central bank or other
Governmental Authority asserts that it is unlawful for such Lender or its Lending Office to perform
its obligations under this Agreement to maintain any Eurodollar Rate Advances of such Lender then
outstanding hereunder, (i) the Borrowers shall, no later than 2:00 p.m. (Central Standard or
Daylight Savings Time) (A) if not prohibited by law, on the last day of the Interest Period for
each outstanding Eurodollar Rate Advance made by such Lender or (B) if required by such notice, on
the second Business Day following its receipt of such notice, prepay all of the Eurodollar Rate
Advances made by such Lender then outstanding, together with accrued interest on the principal
amount prepaid to the date of such prepayment and amounts, if any, required to be paid pursuant to
Section 2.12 as a result of such prepayment being made on such date, (ii) such Lender shall
simultaneously make a Reference Rate Advance to the Borrowers on such date in an amount equal to
the aggregate principal amount of the Eurodollar Rate Advances prepaid to such Lender, and
(iii) the right of the Borrowers to select Eurodollar Rate Advances from such Lender for any
subsequent Borrowing shall be suspended until such Lender gives notice referred to above shall
notify the Administrative Agent that the circumstances causing such suspension no longer exist.


 


25









 





(e) No Additional Right; Ratable Prepayment. No Borrower shall have the right to
prepay any principal amount of any Advance except as provided in this Section 2.05, and all notices
given pursuant to this Section 2.05 shall be irrevocable and binding upon each Borrower. Each
payment of any Advance pursuant to this Section 2.05 shall be made in a manner such that all
Advances comprising part of the same Borrowing are paid in whole or ratably in part.



2.06 Repayment of Advances. The Borrowers shall repay to the Administrative Agent for
the ratable benefit of the Lenders the outstanding principal amount of each Advance, together with
any accrued interest thereon, on the Maturity Date or such earlier date pursuant to Section 7.02 or
Section 7.03.




2.07 Letters of Credit.



(a) Commitments for Letters of Credit. From time to time from the date of this
Agreement until 30 days prior to the Maturity Date at the request of the Borrower Representative,
the Issuing Lender shall, on the terms and conditions hereinafter set forth, issue, increase, or
extend the Expiration Date of, Letters of Credit for the account of the Borrower on any Business
Day. No Letter of Credit will be issued, increased, or extended:



(i) if such issuance, increase, or extension would cause the Letter of Credit Exposure to
exceed the lesser of (A) $5,000,000 and (B) the lesser of (1) the aggregate Commitments at such
time and (2) the Borrowing Base in effect at such time minus, in each case, under this
clause (B) the sum of the aggregate outstanding principal amount of all Advances at such time;



(ii) if such Letter of Credit has an Expiration Date later than the earlier of (A) one year
after the date of issuance thereof (or, in the case of any extension thereof, one year after the
date of such extension) and (B) 30 days prior to the Maturity Date;



(iii) unless the Letter of Credit Documents are in form and substance acceptable to the
Issuing Lender in its sole discretion;



(iv) unless such Letter of Credit is a standby letter of credit not supporting the repayment
of indebtedness for borrowed money of any Person;


 


26









 





(v) unless the Borrower Representative has delivered to the Issuing Lender a completed and
executed Letter of Credit Application; and



(vi) unless such Letter of Credit is governed by (A) the Uniform Customs and Practice for
Documentary Credits (2007 Revision) or the Uniform Customs and Practice for Documentary Credits
(2006 Revision), or (B) the International Standby Practices (ISP98) or International Chamber of
Commerce Publication No. 590, in either case, including any subsequent revisions thereof approved
by a Congress of the International Chamber of Commerce and adhered to by the Issuing Lender.



If the terms of any Letter of Credit Application referred to in the foregoing clause (v) conflicts
with the terms of this Agreement, the terms of this Agreement shall control.



(b) Participations. Upon the date of the issuance or increase of a Letter of Credit,
the Issuing Lender shall be deemed to have sold to each other Lender and each other Lender shall
have been deemed to have purchased from the Issuing Lender a participation in the related Letter of
Credit Obligations equal to such Lender’s Pro Rata Share at such date and such sale and purchase
shall otherwise be in accordance with the terms of this Agreement. The Issuing Lender shall
promptly notify each such participant Lender by telephone, or facsimile of each Letter of Credit
issued, increased, or extended or converted and the actual dollar amount of such Lender’s
participation in such Letter of Credit.



(c) Issuing. Each Letter of Credit shall be issued, increased, or extended pursuant
to a Letter of Credit Application (or by telephone notice promptly confirmed in writing by a Letter
of Credit Application), given by the Borrower Representative not later than 2:00 p.m. (Central
Standard or Daylight Savings Time) on the fifth Business Day before the date of the proposed
issuance, increase, or extension of such Letter of Credit, and the Issuing Lender shall give to
each other Lender prompt notice thereof by telex, telephone, or facsimile. Each Letter of Credit
Application shall be delivered by facsimile or by mail specifying the information required therein;
provided that if such Letter of Credit Application is delivered by facsimile, the Borrower
Representative shall follow such facsimile with an original by mail. After the Issuing Lender’s
receipt of such Letter of Credit Application (by facsimile or by mail) and upon fulfillment of the
applicable conditions set forth in Article III, the Issuing Lender shall issue, increase, or extend
such Letter of Credit for the account of any Borrower. Each Letter of Credit Application shall be
irrevocable and binding on each Borrower.




(d) Reimbursement.



(i) The Borrowers hereby agree to pay to the Issuing Lender an amount equal to any amount paid
by the Issuing Lender under any Letter of Credit, which amount shall be due and payable on demand
given by the Issuing Lender to the Borrower Representative. In the event the Issuing Lender makes
a payment pursuant to a request for draw presented under a Letter of Credit and such payment is not
promptly reimbursed by the Borrowers upon demand, the Issuing Lender shall give the Administrative
Agent notice of the Borrowers’ failure to make such reimbursement and the Administrative Agent
shall promptly notify each Lender of the amount necessary to reimburse the Issuing Lender. Upon
such notice from the Administrative Agent, each Lender shall promptly reimburse the Issuing Lender
for such Lender’s Pro Rata Share of such amount, and such reimbursement shall be deemed for all
purposes of this Agreement to be an Advance to the Borrowers transferred at the Borrowers’ request
to the Issuing Lender. If such reimbursement is not made by any Lender to the Issuing Lender on
the same day on which the Administrative Agent notifies such Lender to make reimbursement to the
Issuing Lender hereunder, such Lender shall pay interest on its Pro Rata Share thereof to the
Issuing Lender at a rate per annum equal to the Federal Funds Rate. Each Borrower hereby
unconditionally and irrevocably authorizes, empowers, and directs the Administrative Agent and the
Lenders to record and otherwise treat such reimbursements to the Issuing Lender as Reference Rate
Advances under a Borrowing made at the request of the Borrowers to reimburse the Issuing Lender
which have been transferred to the Issuing Lender at the Borrowers’ request.


 


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(ii) Each Lender’s obligation to make Advances or to purchase and fund risk participations in
Letters of Credit pursuant to this Section 2.07(d) shall be absolute and unconditional and shall
not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or
other right which such Lender may have against the Issuing Lender, any Borrower, or any other
Person for any reason whatsoever, (B) the occurrence or continuance of a Default, or (C) any other
occurrence, event or condition, whether or not similar to any of the foregoing. No such funding of
risk participations shall relieve or otherwise impair the obligation of the Borrowers to pay the
Reimbursement Obligations together with interest as provided herein. Nothing herein is intended to
release the Borrowers’ obligations under any Letter of Credit Application, but only to provide an
additional method of payment therefor. The making of any Borrowing under Section 2.07(d)(i) shall
not constitute a cure or waiver of any Default or Event of Default, other than the payment Default
or Event of Default which is satisfied by the application of the amounts deemed advanced hereunder,
caused by a Borrower’s failure to comply with the provisions of this Agreement or the Letter of
Credit Application.



(e) Obligations Unconditional. The obligations of the Borrowers under this Agreement
in respect of each Letter of Credit shall be unconditional and irrevocable, and shall be paid
strictly in accordance with the terms of this Agreement under all circumstances, including, without
limitation, the following circumstances:




(i) any lack of validity or enforceability of any Letter of Credit Documents;



(ii) any amendment or waiver of, or any consent to or departure from, any Letter of Credit
Documents;



(iii) the existence of any claim, set-off, defense, or other right which any Borrower may have
at any time against any beneficiary or transferee of such Letter of Credit (or any Persons for whom
any such beneficiary or any such transferee may be acting), the Issuing Lender, or any other
Person, whether in connection with this Agreement, the transactions contemplated in this Agreement
or in any Letter of Credit Documents, or any unrelated transaction;


 


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(iv) any statement or any other document presented under such Letter of Credit proving to be
forged, fraudulent, invalid, or insufficient in any respect or any statement therein being untrue
or inaccurate in any respect;



(v) payment by the Issuing Lender under such Letter of Credit against presentation of a draft
or certificate which does not strictly comply with the terms of such Letter of Credit; or



(vi) any other circumstance or happening whatsoever, whether or not similar to any of the
foregoing,



provided, however, that nothing contained in this paragraph (e) shall be deemed to
constitute a waiver of any remedies of the Borrowers in connection with the Letters of Credit or
the Borrowers’ rights under Section 2.07(f) below.



(f) Liability of Issuing Lender. Each Borrower assumes all risks of the acts or
omissions of any beneficiary or transferee of any Letter of Credit with respect to its use of such
Letter of Credit. Neither the Issuing Lender nor any of its Related Parties shall be liable or
responsible for:



(i) the use which may be made of any Letter of Credit or any acts or omissions of any
beneficiary or transferee in connection therewith;



(ii) the validity, sufficiency, or genuineness of documents, or of any endorsement thereon,
even if such documents should prove to be in any or all respects invalid, insufficient, fraudulent,
or forged;



(iii) payment by the Issuing Lender against presentation of documents which do not strictly
comply with the terms of a Letter of Credit, including failure of any documents to bear any
reference or adequate reference to the relevant Letter of Credit; or



(iv) any other circumstances whatsoever in making or failing to make payment under any Letter
of Credit (INCLUDING THE ISSUING LENDER’S OWN NEGLIGENCE),



except that the Borrowers shall have a claim against the Issuing Lender, and the Issuing
Lender shall be liable to the Borrowers, to the extent of any direct, as opposed to consequential,
damages suffered by the Borrowers which the Borrowers prove were caused by the Issuing Lender’s
willful misconduct or gross negligence in determining whether documents presented under a Letter of
Credit comply with the terms of such Letter of Credit. In furtherance and not in limitation of the
foregoing, the Issuing Lender may accept documents that appear on their face to be in order,
without responsibility for further investigation, regardless of any notice or information to the
contrary.


 


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(g) Cash Collateral Account.



(i) If the Borrowers are required to deposit funds in the Cash Collateral Account pursuant to
terms hereof, then the Borrowers and the Issuing Lender shall establish the Cash Collateral Account
and the Borrowers shall execute any documents and agreements, including the Issuing Lender’s
standard form assignment of deposit accounts, that the Issuing Lender requests in connection
therewith to establish the Cash Collateral Account and grant the Administrative Agent a first
priority security interest in such account and the funds therein. Each Borrower hereby pledges to
the Administrative Agent and grants to the Administrative Agent for the benefit of the Secured
Parties a security interest in the Cash Collateral Account, whenever established, all funds held in
the Cash Collateral Account from time to time, and all proceeds thereof as security for the payment
of the Obligations.



(ii) So long as no Default or Event of Default exists, (x) the Administrative Agent may apply
the funds held in the Cash Collateral Account only to the reimbursement of any Letter of Credit
Obligations, and (y) the Issuing Lender shall release to the applicable Borrower as designated by,
and at the Borrower Representative’s written request, any funds held in the Cash Collateral Account
in an amount up to but not exceeding the excess, if any (immediately prior to the release of any
such funds), of the total amount of funds held in the Cash Collateral Account over the Letter of
Credit Exposure. During the existence of any Default, the Administrative Agent may apply any funds
held in the Cash Collateral Account to the Obligations in accordance with Section 7.06, regardless
of the Letter of Credit Exposure that may remain outstanding.



(iii) The Administrative Agent shall exercise reasonable care in the custody and preservation
of any funds held in the Cash Collateral Account and shall be deemed to have exercised such care if
such funds are accorded treatment substantially equivalent to that which the Administrative Agent
accords its own Property, it being understood that the Administrative Agent shall not have any
responsibility for taking any necessary steps to preserve rights against any parties with respect
to any such funds.



(h) Letters of Credit Issued for Subsidiaries. Notwithstanding that a Letter of
Credit issued or outstanding hereunder is in support of any obligations of, or is for the account
of, a Subsidiary of a Borrower, the Borrowers shall be obligated to reimburse the Issuing Lender
hereunder for any and all drawings under such Letter of Credit issued under the either Facility by
the Issuing Lender. Each Borrower hereby acknowledges that the issuance of Letters of Credit for
the account of any of Subsidiary of a Borrower inures to the benefit of such Borrower, and that
such Borrower’s business derives substantial benefits from the businesses of such Subsidiaries.




2.08 Fees.



(a) Commitment Fees. The Borrowers agree to pay to the Administrative Agent for the
account of each Lender a commitment fee at a per annum rate equal to 0.50% on the daily Unused
Commitment Amount of such Lender from the date of this Agreement until the Commitment Termination
Date. The commitment fees shall be due and payable quarterly in arrears on the last day of each
March, June, September, and December commencing on March 31, 2009 and continuing thereafter through
and including the Commitment Termination Date.


 


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(b) Letter of Credit Fees.



(i) The Borrowers agree to pay (a) to the Administrative Agent for the pro rata benefit of the
Lenders a per annum letter of credit fee for each Letter of Credit issued hereunder in an amount
equal to the greater of (1) 2.00% times the daily maximum amount available to be drawn under such
Letter of Credit and (2) $500, and (b) to the Issuing Lender, a fronting fee for each Letter of
Credit equal to 0.125% times the maximum amount available to be drawn under such Letter of Credit.
Each such fee shall be computed on a quarterly basis in arrears and be due and payable on the last
day of each March, June, September, and December commencing March 31, 2009.



(ii) The Borrowers also agree to pay to the Issuing Lender such other usual and customary fees
associated with any transfers, amendments, drawings, negotiations or reissuances of any Letters of
Credit.



2.09 Interest. The Borrowers shall pay interest on the unpaid principal amount of
each Advance made by each Lender from the date of such Advance until such principal amount shall be
paid in full as follows:



(a) Reference Rate Advances. If such Advance is a Reference Rate Advance, the
Borrowers shall pay interest on the unpaid principal amount of such Advances at a rate per annum
equal at all times to the Adjusted Reference Rate in effect from time to time payable monthly in
arrears on the last day of each calendar month and on the date such Reference Rate Advance shall be
paid in full; provided that, if a Default or Event of Default shall have occurred and be
continuing, such interest shall accrue at a rate per annum equal at all times to the Adjusted
Reference Rate plus 4% per annum.



(b) Eurodollar Rate Advances. If such Advance is a Eurodollar Rate Advance, a rate
per annum equal at all times during the Interest Period for such Advance to the Eurodollar Rate for
such Interest Period plus 2.00%; provided that, if a Default or Event of Default
shall have occurred and be continuing, such interest shall accrue at a rate per annum equal at all
times to the Adjusted Reference Rate plus 4% per annum.



(c) Additional Interest on Eurodollar Rate Advances. The Borrowers shall pay to each
Lender, so long as any such Lender shall be required under regulations of the Federal Reserve Board
to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency
Liabilities, additional interest on the unpaid principal amount of each Eurodollar Rate Advance of
such Lender, from the effective date of such Advance until such principal amount is paid in full,
at an interest rate per annum equal at all times to the remainder obtained by subtracting (i) the
Eurodollar Rate for the Interest Period for such Advance from (ii) the rate obtained by dividing
such Eurodollar Rate by a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage of
such Lender for such Interest Period, payable on each date on which interest is payable on such
Advance. Such additional interest payable to any Lender shall be determined by such Lender and
notified to the Borrower Representative through the Administrative Agent (such notice to include
the calculation of such additional interest, which calculation shall be conclusive in the absence
of manifest error).




 


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 (d) Usury Recapture.



(i) If, with respect to any Lender or the Issuing Lender, the effective rate of interest
contracted for under the Loan Documents, including the stated rates of interest and fees contracted
for hereunder and any other amounts contracted for under the Loan Documents which are deemed to be
interest, at any time exceeds the Maximum Rate, then the outstanding principal amount of the loans
made by such Lender or Issuing Lender, as applicable, hereunder shall bear interest at a rate which
would make the effective rate of interest for such Lender or Issuing Lender, as applicable, under
the Loan Documents equal the Maximum Rate until the difference between the amounts which would have
been due at the stated rates and the amounts which were due at the Maximum Rate (the “Lost
Interest”) has been recaptured by such Lender or Issuing Lender, as applicable.



(ii) If, when the loans and reimbursement obligations made hereunder are repaid in full, the
Lost Interest has not been fully recaptured by such Lender or Issuing Lender, as applicable,
pursuant to the preceding paragraph, then, to the extent permitted by law, for the loans and other
credit extensions made hereunder by such Lender or Issuing Lender, as applicable, the interest
rates charged under Section 2.09 hereunder shall be retroactively increased such that the effective
rate of interest under the Loan Documents was at the Maximum Rate since the effectiveness of this
Agreement to the extent necessary to recapture the Lost Interest not recaptured pursuant to the
preceding sentence and, to the extent allowed by law, the Borrowers shall pay to such Lender or
Issuing Lender, as applicable, the amount of the Lost Interest remaining to be recaptured by such
Lender or Issuing Lender, as applicable.



(iii) NOTWITHSTANDING THE FOREGOING OR ANY OTHER TERM IN THIS AGREEMENT AND THE LOAN DOCUMENTS
TO THE CONTRARY, IT IS THE INTENTION OF EACH LENDER, THE ISSUING LENDER AND THE BORROWERS TO
CONFORM STRICTLY TO ANY APPLICABLE USURY LAWS. ACCORDINGLY, IF ANY LENDER OR THE ISSUING LENDER
CONTRACTS FOR, CHARGES, OR RECEIVES ANY CONSIDERATION WHICH CONSTITUTES INTEREST IN EXCESS OF THE
MAXIMUM RATE, THEN ANY SUCH EXCESS SHALL BE CANCELED AUTOMATICALLY AND, IF PREVIOUSLY PAID, SHALL
AT SUCH LENDER’S OR THE ISSUING LENDER’S OPTION, AS APPLICABLE, BE APPLIED TO THE OUTSTANDING
AMOUNT OF THE LOANS MADE HEREUNDER BY SUCH LENDER OR REIMBURSEMENT OBLIGATIONS DUE HEREUNDER, AS
APPLICABLE, OR BE REFUNDED TO THE BORROWERS.




2.10 Payments and Computations.



(a) Payment Procedures. The Borrowers shall make each payment under this Agreement
and under the Notes not later than 2:00 p.m. (Central Standard or Daylight Savings Time) on the day
when due in Dollars to the Administrative Agent at its Lending Office (or such other location as
the Administrative Agent shall designate in writing to the Borrower Representative) in same day
funds without deduction, setoff, or counterclaim of any kind. The Administrative Agent shall
promptly thereafter cause to be distributed like funds relating to the payment of principal,
interest or fees ratably (other than amounts payable solely to the Administrative Agent, the
Issuing Lender, or a specific Lender pursuant to Section 2.08(c), Section 2.09(c), Section 2.09(d),
Section 2.12, Section 2.13, Section 2.14, Section 9.05, or Section 10.07, but after taking into
account payments effected pursuant to Section 7.04) in accordance with each Lender’s Pro Rata Share
to the Lenders for the account of their respective Lending Offices, and like funds relating to the
payment of any other amount payable to any Lender or the Issuing Lender to such Lender or Issuing
Lender for the account of its Lending Office, in each case to be applied in accordance with the
terms of this Agreement.


 


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(b) Computations. All computations of interest based on the Reference Rate and of
commitment fees shall be made by the Administrative Agent on the basis of a year of 365 or 366
days, as the case may be, and all computations of interest based on the Eurodollar Rate and the
Federal Funds Rate and Letter of Credit fees shall be made by the Administrative Agent, on the
basis of a year of 360 days, in each case for the actual number of days (including the first day,
but excluding the last day) occurring in the period for which such interest or fees are payable.
Each determination by the Administrative Agent of an interest rate or fee shall be conclusive and
binding for all purposes, absent manifest error.



(c) Non-Business Day Payments. Whenever any payment shall be stated to be due on a
day other than a Business Day, such payment shall be made on the next succeeding Business Day, and
such extension of time shall in such case be included in the computation of payment of interest or
fees, as the case may be; provided, however, that if such extension would cause payment of
interest on or principal of Eurodollar Rate Advances to be made in the next following calendar
month, such payment shall be made on the next preceding Business Day.



(d) Administrative Agent Reliance. Unless the Administrative Agent shall have
received written notice from the Borrower Representative prior to the date on which any payment is
due to the Lenders that the Borrowers shall not make such payment in full, the Administrative Agent
may assume that the Borrowers have made such payment in full to the Administrative Agent on such
date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to
each Lender on such date an amount equal to the amount then due such Lender. If and to the extent
the Borrowers shall not have so made such payment in full to the Administrative Agent, each Lender
shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender,
together with interest, for each day from the date such amount is distributed to such Lender until
the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Rate for
such day.



2.11 Sharing of Payments, Etc. If any Lender shall obtain any payment (whether
voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of
the Advances or Letter of Credit Obligations made by it in excess of its Pro Rata Share of payments
on account of the Advances or Letter of Credit Obligations obtained by all the Lenders, such Lender
shall notify the Administrative Agent and forthwith purchase from the other Lenders such
participations in the Advances made by them or Letter of Credit Obligations held by them as shall
be necessary to cause such purchasing Lender to share the excess payment ratably with each of them;
provided, however, that if all or any portion of such excess payment is thereafter
recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such
Lender shall repay to the purchasing Lender the purchase price to the extent of such Lender’s
ratable share (according to the proportion of (a) the amount of the participation sold by such
Lender to the purchasing Lender as a result of such excess payment to (b) the total amount of such
excess payment) of such recovery, together with an amount equal to such Lender’s ratable share
(according to the proportion of (i) the amount of such Lender’s required repayment to the
purchasing Lender to (ii) the total amount of all such required repayments to the purchasing
Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the
total amount so recovered. The Borrowers agree that any Lender so purchasing a participation from
another Lender pursuant to this Section 2.11 may, to the fullest extent permitted by law, exercise
all its rights of payment (including the right of set-off) with respect to such participation as
fully as if such Lender were the direct creditor of the Borrowers in the amount of such
participation.


 


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2.12 Breakage Costs. If (a) any payment of principal of any Eurodollar Rate Advance
is made other than on the last day of the Interest Period for such Advance, whether as a result of
any payment pursuant to Section 2.05, the acceleration of the maturity of the Notes pursuant to
Article VII, or otherwise, or (b) the Borrowers fail to make a principal or interest payment with
respect to any Eurodollar Rate Advance on the date such payment is due and payable, the Borrowers
shall, within 10 days of any written demand (which written demand shall include a calculation of
the losses, costs and expenses referred to below) sent by any Lender to the Borrower Representative
through the Administrative Agent, pay to the Administrative Agent for the account of such Lender
any amounts required to compensate such Lender for any additional losses, out-of-pocket costs or
expenses which it may reasonably incur as a result of such payment or nonpayment, including,
without limitation, any loss (but excluding loss of anticipated profits), cost or expense incurred
by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to
fund or maintain such Advance.




2.13 Increased Costs.



(a) Eurodollar Rate Advances. If, due to either (i) the introduction of or any change
(other than any change by way of imposition or increase of reserve requirements included in the
Eurodollar Rate Reserve Percentage) in or in the interpretation of any law or regulation or
(ii) the compliance with any guideline or request from any central bank or other Governmental
Authority (whether or not having the force of law), there shall be any increase in the cost to any
Lender of agreeing to make or making, funding, or maintaining Eurodollar Rate Advances, then the
Borrowers shall from time to time, upon demand by such Lender to the Borrower Representative (with
a copy of such demand to the Administrative Agent), immediately pay to the Administrative Agent for
the account of such Lender additional amounts sufficient to compensate such Lender for such
increased cost; provided, however, that the Borrowers shall not be obligated for the payment of any
such additional amounts to the extent such costs accrued more than 180 days prior to the date the
Borrower Representative was given such demand. A certificate as to the amount of such increased
cost and detailing the calculation of such cost submitted to the Borrower Representative and the
Administrative Agent by such Lender shall be conclusive and binding for all purposes, absent
manifest error.



(b) Capital Adequacy. If any Lender or the Issuing Lender determines in good faith,
on or after the date hereof, that compliance with any law or regulation or any guideline or request
from any central bank or other Governmental Authority (whether or not having the force of law)
affects or would affect the amount of capital required or expected to be maintained by such Lender
or the Issuing Lender or any corporation controlling such Lender or the Issuing Lender and that the
amount of such capital is increased by or based upon the existence of such Lender’s commitment to
lend or the Issuing Lender’s commitment to issue the Letters of Credit and other commitments of
this type, then, upon 30 days’ prior written notice by such Lender or the Issuing Lender to the
Borrower Representative (with a copy of any such demand to the Administrative Agent), the Borrowers
shall immediately pay to the Administrative Agent for the account of such Lender or to the Issuing
Lender, as the case may be, from time to time as specified by such Lender or the Issuing Lender,
additional amounts sufficient to compensate such Lender or the Issuing Lender, in light of such
circumstances, (i) with respect to such Lender, to the extent that such Lender reasonably
determines such increase in capital to be allocable to the existence of such Lender’s commitment to
lend under this Agreement and (ii) with respect to the Issuing Lender, to the extent that the
Issuing Lender reasonably determines such increase in capital to be allocable to the issuance or
maintenance of the Letters of Credit. A certificate as to such amounts and detailing the
calculation of such amounts submitted to the Borrower Representative by such Lender or the Issuing
Lender shall be conclusive and binding for all purposes, absent manifest error.


 


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(c) Letters of Credit. If any change in any law or regulation or in the
interpretation thereof by any court or administrative or Governmental Authority charged with the
administration thereof shall either (i) impose, modify, or deem applicable any reserve, special
deposit, or similar requirement against letters of credit issued by, or assets held by, or deposits
in or for the account of, the Issuing Lender or (ii) impose on the Issuing Lender any other
condition regarding the provisions of this Agreement relating to the Letters of Credit or any
Letter of Credit Obligations, and the result of any event referred to in the preceding clause (i)
or (ii) shall be to increase the cost to the Issuing Lender of issuing or maintaining any Letter of
Credit (which increase in cost shall be determined by the Issuing Lender’s reasonable allocation of
the aggregate of such cost increases resulting from such event), then, upon demand by the Issuing
Lender to the Borrower Representative, the Borrowers shall pay to the Issuing Lender, from time to
time as specified by the Issuing Lender, additional amounts which shall be sufficient to compensate
the Issuing Lender for such increased cost; provided, however, that the Borrowers shall not
be obligated for the payment of any such additional amounts to the extent such costs accrued more
than 180 days prior to the date the Borrower Representative was given such demand. A certificate
as to such increased cost incurred by the Issuing Lender, as a result of any event mentioned in
clause (i) or (ii) above, and detailing the calculation of such increased costs submitted by the
Issuing Lender to the Borrower Representative, shall be conclusive and binding for all purposes,
absent manifest error.




2.14 Taxes.



(a) No Deduction for Certain Taxes. Any and all payments by any Borrower shall be
made, in accordance with Section 2.10, free and clear of and without deduction for any and all
present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities
with respect thereto, excluding, in the case of each Lender, the Issuing Lender, and the
Administrative Agent, taxes imposed on its income, and franchise taxes imposed on it by the
jurisdiction under the laws of which such Lender, Issuing Lender or Administrative Agent (as the
case may be) is organized, or the jurisdiction of such Person’s Lending Office, or any political
subdivision of such jurisdiction (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as “Taxes”). If any
Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable to any
Lender, the Issuing Lender, or the Administrative Agent, (A) the sum payable shall be increased as
may be necessary so that, after making all required deductions (including deductions applicable to
additional sums payable under this Section 2.14), such Lender, the Issuing Lender, or the
Administrative Agent (as the case may be) receives an amount equal to the sum it would have
received had no such deductions been made; provided, however, that if a Borrower’s
obligation to deduct or withhold Taxes is caused solely by such Lender’s, the Issuing Lender’s, or
the Administrative Agent’s failure to provide the forms described in paragraph (d) of this
Section 2.14 and such Lender, the Issuing Lender, or the Administrative Agent could have provided
such forms, no such increase shall be required; (B) the Borrowers shall make such deductions; and
(C) the Borrowers shall pay the full amount deducted to the relevant taxation authority or other
authority in accordance with applicable Legal Requirement.


 


35









 





(b) Other Taxes. In addition, the Borrowers agree to pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges or similar levies which arise
from any payment made or from the execution, delivery or registration of, or otherwise with respect
to, this Agreement, the Notes, or the other Loan Documents (hereinafter referred to as “Other
Taxes”).



(c) Indemnification. EACH BORROWER INDEMNIFIES EACH LENDER, THE ISSUING LENDER AND
THE ADMINISTRATIVE AGENT FOR THE FULL AMOUNT OF TAXES OR OTHER TAXES (INCLUDING, WITHOUT
LIMITATION, ANY TAXES OR OTHER TAXES IMPOSED BY ANY JURISDICTION ON AMOUNTS PAYABLE UNDER THIS
SECTION 2.14) PAID BY SUCH LENDER, THE ISSUING LENDER OR THE ADMINISTRATIVE AGENT (AS THE CASE MAY
BE) AND ANY LIABILITY (INCLUDING INTEREST AND EXPENSES) ARISING THEREFROM OR WITH RESPECT THERETO,
WHETHER OR NOT SUCH TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY ASSERTED. EACH PAYMENT REQUIRED
TO BE MADE BY THE BORROWERS IN RESPECT OF THIS INDEMNIFICATION SHALL BE MADE TO THE ADMINISTRATIVE
AGENT FOR THE BENEFIT OF ANY PARTY CLAIMING SUCH INDEMNIFICATION WITHIN 30 DAYS FROM THE DATE THE
BORROWER REPRESENTATIVE RECEIVES WRITTEN DEMAND THEREFOR FROM THE ADMINISTRATIVE AGENT ON BEHALF OF
ITSELF AS ADMINISTRATIVE AGENT, FROM THE ISSUING LENDER OR FROM ANY SUCH LENDER. IF ANY LENDER,
THE ADMINISTRATIVE AGENT OR THE ISSUING LENDER RECEIVES A REFUND IN RESPECT OF ANY TAXES PAID BY A
BORROWER UNDER THIS PARAGRAPH (C), SUCH LENDER, THE ADMINISTRATIVE AGENT OR THE ISSUING LENDER, AS
THE CASE MAY BE, SHALL PROMPTLY PAY TO THE BORROWER REPRESENTATIVE SUCH BORROWER’S SHARE OF SUCH
REFUND.


 


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(d) Foreign Lender Withholding Exemption. Each Lender and Issuing Lender that is not
incorporated under the laws of the United States of America or a state thereof agrees that, at the
time or times prescribed by applicable law and from time to time as reasonably requested in writing
by the Borrower Representative, it shall deliver to the Borrower Representative and the
Administrative Agent (i) two duly completed copies of United States Internal Revenue Service
Form W8-ECI or W8-BEN or successor applicable form, as the case may be, certifying in each case
that such Lender is entitled to receive payments under this Agreement and the Notes payable to it,
without deduction or withholding of any United States federal income taxes, (ii) if applicable, an
Internal Revenue Service Form W-8 or W-9 or successor applicable form, as the case may be, to
establish an exemption from United States backup withholding tax, and (iii) any other
certification, identification, information or documentation which is necessary or required under an
applicable tax treaty or otherwise by law to reduce or eliminate any withholding tax. Each Lender
and Issuing Lender which delivers to the Borrower Representative and the Administrative Agent a
Form W8-ECI, W8-BEN, W-8 or W-9 pursuant to the next preceding sentence further undertakes to
deliver to the Borrower Representative and the Administrative Agent two further copies of such
letter and Form W8-ECI, W8-BEN, W-8 or W-9, or successor applicable forms, or other applicable
certification, as the case may be, on or before the date that any such form or certification
expires or becomes obsolete or after the occurrence of any event requiring a change in the most
recent form or other certification previously delivered by it to the Borrower Representative and
the Administrative Agent, and such extensions or renewals thereof as may reasonably be requested by
the Borrower Representative and the Administrative Agent certifying in the case of a Form W8-ECI or
W8-BEN that such Lender or Issuing Lender is entitled to receive payments under this Agreement
without deduction or withholding of any United States federal income taxes. If an event (including
without limitation any change in treaty, law or regulation) has occurred prior to the date on which
any delivery required by the preceding sentence would otherwise be required which renders all such
forms inapplicable or which would prevent any Lender or Issuing Lender from duly completing and
delivering any such letter or form with respect to it and such Lender or Issuing Lender advises the
Borrower Representative and the Administrative Agent that it is not capable of receiving payments
without any deduction or withholding of United States federal income tax, and in the case of a
Form W-8 or W-9, establishing an exemption from United States backup withholding tax, such Lender
or Issuing Lender shall not be required to deliver such letter or forms. The Borrowers shall
withhold tax at the rate and in the manner required by the laws of the United States with respect
to payments made to a Lender failing to timely provide the requisite Internal Revenue Service
forms.



(e) Evidence of Payments. As soon as practicable after any payment of Taxes, Other
Taxes or any taxes which are paid pursuant to clause (c) above by any Borrower to a Governmental
Authority, such 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.


 


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ARTICLE III

CONDITIONS PRECEDENT




3.01 Conditions Precedent to Effectiveness. The Original Agreement shall be amended
and restated in its entirety as set forth herein and this Agreement shall become effective upon the
occurrence of the following conditions precedent:



(a) Documentation. The Administrative Agent shall have received the following duly
executed by all the parties thereto, in form and substance satisfactory to the Administrative
Agent, the Issuing Lender and the Lenders, and, where applicable, in sufficient copies for each
Lender:



(i) this Agreement, a Note payable to the order of each Lender in the amount of its
Commitment, the Security Agreements, Mortgages encumbering the Proven Reserves and Oil and Gas
Properties of Borrower as described therein, and each of the other Loan Documents, and all attached
exhibits and schedules;



(ii) a favorable opinion of (A) the Borrowers’ counsel dated as of the date of this Agreement
in form and substance reasonably satisfactory to the Administrative Agent and the Lenders and
covering such matters as the Administrative Agent may reasonably request and (B) the Borrowers’
local counsel in Louisiana dated as of the date of this Agreement in form and substance reasonably
satisfactory to the Administrative Agent and the Lenders and covering such matters as the
Administrative Agent may reasonably request;



(iii) copies, certified as of the date of this Agreement by a Responsible Officer or the
secretary or an assistant secretary of each Borrower of (a) the resolutions of the board of
directors or managers (or other applicable governing body) of such Borrower approving the Loan
Documents to which it is a party, (b) the articles or certificate (as applicable) of incorporation
(or organization) and bylaws, limited liability company agreement, operating agreement, limited
partnership agreement or other governing documents of such Borrower, and (c) all other documents
evidencing other necessary corporate action and governmental approvals, if any, with respect to
this Agreement, the Notes, and the other Loan Documents;



(iv) certificates of a Responsible Officer of each Borrower certifying the names and true
signatures of the officers of such Borrower authorized to sign this Agreement, the Notes, the
Notices of Borrowing, the Notices of Conversion or Continuation, and the other Loan Documents to
which such Borrower is a party;



(v) certificates of good standing for each Borrower in each state in which each such Person is
organized or qualified to do business, which certificate shall be dated a date not sooner than 10
days prior to the date of this Agreement;



(vi) a certificate dated as of the date of this Agreement from a Responsible Officer of the
Borrower Representative on behalf of the Borrowers stating that (a) all representations and
warranties of each Borrower set forth in this Agreement and the other Loan Documents are true and
correct in all material respects (except in the case of representations and warranties which are
made solely as of an earlier date or time, which representations and warranties shall be true and
correct in all material respects as of such earlier date or time); (b) no Default has occurred and
is continuing; and (c) the conditions in this Section 3.01 have been met;


 


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(vii) appropriate UCC-1 and UCC-3, as applicable, Financing Statements covering the Collateral
for filing by the Administrative Agent with the appropriate authorities and any other documents,
agreements or instruments reasonably necessary to create an Acceptable Security Interest in such
Collateral;



(viii) casualty insurance certificates naming the Administrative Agent loss payee and
liability insurance certificates naming Administrative Agent as additional insured and evidencing
insurance which meets the requirements of this Agreement and the Security Instruments, and which is
otherwise satisfactory to the Administrative Agent; and



(ix) such other documents, governmental certificates, agreements and lien searches as the
Administrative Agent or any Lender may reasonably request.



(b) Payment of Fees. On the date of this Agreement, the Borrowers shall have paid all
costs and expenses that have been invoiced and are payable pursuant to Section 10.04.



(c) Security Instruments. The Administrative Agent shall have received all
appropriate evidence required by the Administrative Agent and the Lenders in their sole discretion
necessary to determine that the Administrative Agent (for its benefit and the benefit of the
Secured Parties) shall have an Acceptable Security Interest in the Collateral (which shall include
all of the DMR Leases and any related Property) and that all actions or filings necessary to
protect, preserve and validly perfect such Liens have been made, taken or obtained, as the case may
be, and are in full force and effect.



(d) Environmental. The Administrative Agent shall have received such environmental
assessments or other reports as it may reasonably require and shall be satisfied with the condition
of the Oil and Gas Properties with respect to the Borrowers’ compliance with Environmental Laws.




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



(f) Representations and Warranties. The representations and warranties contained in
Article IV hereof and in each other Loan Document shall be true and correct in all material
respects as of the Effective Date (except in the case of representations and warranties which are
made solely as of an earlier date or time, which representations and warranties shall be true and
correct in all material respects as of such earlier date or time).



(g) Material Adverse Change. No event or circumstance that could reasonably be
expected to cause a Material Adverse Change shall have occurred.



(h) No Proceeding or Litigation; No Injunctive Relief. No action, suit, investigation
or other proceeding (including, without limitation, the enactment or promulgation of a statute or
rule) by or before any arbitrator or any Governmental Authority shall be threatened or pending and
no preliminary or permanent injunction or order by a state or federal court shall have been entered
(i) in connection with (A) any of the Oil and Gas Properties or other Properties of any of the
Borrowers and their respective Subsidiaries or (B) this Agreement or any transaction contemplated
hereby or (ii) which, in any case, in the judgment of the Administrative Agent, could reasonably be
expected to result in a Material Adverse Change.



(i) Consents, Licenses, Approvals, Etc. The Administrative Agent shall have received
true copies (certified to be such by the applicable Borrower or other appropriate party) of all
material consents, licenses and approvals required in accordance with applicable Legal
Requirements, or in accordance with any document, agreement, instrument or arrangement to which any
Borrower is a party, and in each case, in connection with the execution, delivery, performance,
validity and enforceability of this Agreement and the other Loan Documents. In addition, each
Borrower and its respective Subsidiaries shall have all such material consents, licenses and
approvals required in connection with the continued operation of such Borrower and its respective
Subsidiaries, and such approvals shall be in full force and effect, and all applicable waiting
periods shall have expired without any action being taken or threatened by any competent authority
which would restrain, prevent or otherwise impose adverse conditions on this Agreement and the
actions contemplated hereby.


 


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(j) Material Contracts. The Borrowers shall have delivered to the Administrative
Agent copies of all contracts, agreements, or instruments contemplated by Section 4.21.



(k) Notice of Borrowing. The Administrative Agent shall have received a Notice of
Borrowing from the Borrower Representative, with appropriate insertions and executed by a duly
authorized officer of the Borrower Representative for any Advances to be made on the Effective
Date.



(l) Due Diligence. The Administrative Agent shall be satisfied, in its sole and
absolute discretion, with all business, financial, legal, title, engineering and environmental due
diligence with respect to Borrowers and their Subsidiaries.



(m) Restructuring. The Administrative Agent shall have received (i) copies, certified
by a Responsible Officer of the Borrower Representative, of the Merger Documents, together with all
amendments, modifications or waivers thereto in effect as of the date of this Agreement and (ii) a
certificate of a Responsible Officer of the Borrower Representative certifying that Restructuring
is being consummated concurrently (with all of the conditions precedent thereto having been
satisfied in all respects by the parties thereto). The Borrowers hereby acknowledge and agree that
the consummation of the transactions contemplated under this Agreement and the Restructuring are
intended to be simultaneous for all intents and purposes.



3.02 Conditions Precedent to All Borrowings. The obligation of each Lender to make an
Advance on the occasion of each Borrowing and of the Issuing Lender to issue, increase, or extend
any Letter of Credit shall be subject to the further conditions precedent that on the date of such
Borrowing or the date of the issuance, increase, or extension of such Letter of Credit:



(a) the following statements shall be true (and each of the giving of the applicable Notice of
Borrowing, Notice of Conversion or Continuation, or Letter of Credit Application and the acceptance
by any Borrower of the proceeds of such Borrowing or the issuance, increase, or extension of such
Letter of Credit shall constitute a representation and warranty by the Borrowers that on the date
of such Borrowing or on the date of such issuance, increase, or extension of such Letter of Credit,
as applicable, such statements are true):



(i) the representations and warranties contained in Article IV of this Agreement and the
representations and warranties contained in the Security Instruments and each of the other Loan
Documents are true and correct in all material respects on and as of the date of such Borrowing or
the date of the issuance, increase, or extension of such Letter of Credit, before and after giving
effect to such Borrowing or to the issuance, increase, or extension of such Letter of Credit and to
the application of the proceeds from such Borrowing, as though made on and as of such date, except
those representations and warranties that speak of a certain date, which representations and
warranties were true and correct as of such date; and


 


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(ii) no Default has occurred and is continuing or would result from such Borrowing or from the
application of the proceeds therefrom, or would result from the issuance, increase, or extension of
such Letter of Credit; and



(b) the Administrative Agent shall have received such other approvals, opinions, or documents
as any Lender through the Administrative Agent may reasonably request.



ARTICLE IV

REPRESENTATIONS AND WARRANTIES





The Borrowers represent and warrant that, after giving effect to the Restructuring,:



4.01 Corporate Existence; Subsidiaries. (a) Each Borrower is duly organized, validly
existing, and in good standing under the laws of its jurisdiction of organization or formation and
in good standing and qualified to do business in each jurisdiction where its ownership or lease of
Property or conduct of its business requires such qualification except where the failure to be so
qualified could not reasonably be expected to cause a Material Adverse Change, and (b) each
Subsidiary of the respective Borrowers is duly organized, validly existing, and in good standing
under the laws of its jurisdiction of organization or formation and in good standing and qualified
to do business in each jurisdiction where its ownership or lease of Property or conduct of its
business requires such qualification except where the failure to be so qualified could not
reasonably be expected to cause a Material Adverse Change. As of the date of this Agreement, the
Borrowers have no Subsidiaries other than as set forth in Schedule 4.01.



4.02 Power. The execution, delivery, and performance by the Borrowers of this
Agreement, the Notes and the other Loan Documents to which it is a party and the consummation of
the transactions contemplated hereby and thereby, including the request for and borrowing of any
Advance by any Borrower, the request for and issuance, extension or increase of any Letter of
Credit for the account of any Borrower, and the receipt and use of the proceeds of any Advance and
such Letter of Credit: (a) are within such Borrower’s governing powers, (b) have been duly
authorized by all necessary governing action, (c) do not contravene (i) any Borrower’s certificate
or articles of incorporation, bylaws, limited liability company agreement, partnership agreement or
other similar governance documents or (ii) any Legal Requirement or any contractual restriction
binding on or affecting any Borrower, and (d) will not result in or require the creation or
imposition of any Lien prohibited by this Agreement.



4.03 Authorization and Approvals. Except for the filing of the Security Instruments
or as contemplated by this Agreement, no consent, order, authorization, or approval or other action
by, and no notice to or filing with, any Governmental Authority or any other Person is required for
the due execution, delivery, and performance by any Borrowers of this Agreement, the Notes or the
other Loan Documents to which such Borrower is a party or the consummation of the transactions
contemplated hereby or thereby (including the request and borrowing of any Advance by any Borrower,
the request for and issuance extension or increase of, any Letter of Credit for the account of any
Borrower, and the receipt and use of the proceeds of such Advance and such Letter of Credit) that
has not been obtained or given.


 


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4.04 Enforceable Obligations. This Agreement, the Notes and the other Loan Documents
to which a Borrower is a party have been duly executed and delivered by such Borrower. Each Loan
Document is the legal, valid, and binding obligation of each Borrower which is a party to it and
enforceable against such Borrower in accordance with its terms, except as such enforceability may
be limited by any applicable bankruptcy, insolvency, reorganization, moratorium, or similar law
affecting creditors’ rights generally and by general principles of equity.




4.05 Financial Statements.



(a) The Borrowers have delivered to the Administrative Agent and the Lenders copies of the
Initial Financial Statements and such Initial Financial Statements present fairly in all material
respects the financial condition of the Borrowers as of the Effective Date in accordance with GAAP.
As of the date of the Initial Financial Statements, there were no material contingent obligations,
liabilities for taxes, extraordinary forward or long-term commitments, or unrealized or anticipated
losses of any Borrower or any of its Subsidiaries, except as disclosed therein and adequate
reserves for such items have been made in accordance with GAAP.



(b) All projections, estimates, and pro forma financial information furnished by, or on behalf
of, the Borrowers were prepared on the basis of assumptions, data, information, tests, or
conditions believed by the Borrowers to be reasonable at the time such projections, estimates, and
pro forma financial information were furnished.



(c) No event or circumstance that could reasonably be expected to cause a Material Adverse
Change has occurred.



(d) As of the date of this Agreement, neither of the Borrowers nor any of their respective
Subsidiaries has any Debt other than the Debt listed on Schedule 4.05.



4.06 True and Complete Disclosure. All written information (excluding estimates)
heretofore or contemporaneously furnished by, or on behalf of, any Borrower in writing to any
Lender or the Administrative Agent for purposes of or in connection with this Agreement, any other
Loan Document or any transaction contemplated hereby or thereby is, and all other such written
information hereafter furnished by, or on behalf of, any Borrower in writing to the Administrative
Agent or any of the Lenders shall be, true and accurate in all material respects on the date as of
which such information is dated or certified and does not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the statements contained therein
taken as a whole not misleading at such time.




4.07 Litigation; Compliance with Law.



(a) Except as set forth on Schedule 4.07, there is no pending or, to the knowledge of the
Borrowers, threatened action, suit, or legal, equitable, arbitrative or administrative proceeding
affecting any Borrower or any of their respective Subsidiaries before any court, Governmental
Authority or arbitrator which could reasonably be expected to cause a Material Adverse Change or
which purports to affect the legality, validity, binding effect or enforceability of this
Agreement, any Note, or any other Loan Document. Additionally, there is no pending or, to the
knowledge of the Borrowers, threatened action, suit, or legal equitable, arbitrative or
administrative proceeding instituted against any Borrower or any of their respective Subsidiaries
which seeks to adjudicate any Borrower or any such Subsidiary as bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or
composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization
or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver,
trustee or other similar official for it or for any substantial part of its Property.


 


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(b) Each Borrower and its respective Subsidiaries have complied in all respects with all
statutes, rules, regulations, orders and restrictions of any Governmental Authority having
jurisdiction over the conduct of their respective businesses or the ownership of their respective
Property, except where such non-compliance could not reasonably be expected to cause a Material
Adverse Change.



4.08 Use of Proceeds. The proceeds of the Advances will be used by the Borrowers for
the purposes described in Section 5.09. No Borrower is engaged in the business of extending credit
for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U). No
proceeds of any Advance will be used to purchase or carry any margin stock in violation of
Regulation T, U or X.



4.09 Investment Company Act. None of the Borrowers nor any of their respective
Subsidiaries is an “investment company” or a company “controlled” by an “investment company” within
the meaning of the Investment Company Act of 1940, as amended.



4.10 Federal Power Act. None of the Borrowers nor any of their respective
Subsidiaries is subject to regulation under the Federal Power Act, as amended or any other Legal
Requirement which regulates the incurring by such Person of Debt, including Legal Requirements
relating to common contract carriers or the sale of electricity, gas, steam, water or other public
utility services.




4.11 Taxes.



(a) Reports and Payments. All Returns (as defined below in clause (c) of this
Section 4.11) required to be filed by or on behalf of any Borrower or any member of the Controlled
Group (hereafter collectively called the “Tax Group”) have been duly filed on a timely
basis or appropriate extensions have been obtained and such Returns are and will be true, complete
and correct in all material respects, except where the failure to so file would not be reasonably
expected to cause a Material Adverse Change; and all Taxes shown to be payable on the Returns or on
subsequent assessments with respect thereto will have been paid in full on a timely basis, and no
other Taxes will be payable by the Tax Group with respect to items or periods covered by such
Returns, except in each case to the extent of (i) reserves reflected in the Initial Financial
Statements or financial statements of any Borrower delivered to the Administrative Agent pursuant
to this Agreement, or (ii) Taxes that are being contested in good faith. The reserves for accrued
Taxes reflected in the financial statements delivered to the Lenders under this Agreement are
adequate in the aggregate for the payment of all unpaid Taxes, whether or not disputed, for the
period ended as of the date thereof and for any period prior thereto, and for which the Tax Group
may be liable in its own right, as withholding agent or as a transferee of the assets of, or
successor to, any Person.


 


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(b) Taxes Definition. “Taxes” in this Section 4.11 shall mean all taxes, charges,
fees, levies, or other assessments imposed by any federal, state, local, or foreign taxing
authority, including without limitation, income, gross receipts, excise, real or personal property,
sales, occupation, use, service, leasing, environmental, value added, transfer, payroll, and
franchise taxes (and including any interest, penalties, or additions to tax attributable to or
imposed on with respect to any such assessment).



(c) Returns Definition. “Returns” in this Section 4.11 shall mean any federal, state,
local, or foreign report, estimate, declaration of estimated Tax, information statement or return
relating to, or required to be filed in connection with, any Taxes, including any information
return or report with respect to backup withholding or other payments of third parties.



4.12 Pension Plans. All Plans are in compliance in all material respects with all
applicable provisions of ERISA. No Termination Event has occurred with respect to any Plan, and
each Plan has complied with and been administered in all material respects in accordance with
applicable provisions of ERISA and the Code. No “accumulated funding deficiency” (as defined in
Section 302 of ERISA) has occurred with respect to any Plan and there has been no excise tax
imposed under Section 4971 of the Code with respect to any Plan. No Reportable Event has occurred,
whether individually or in the aggregate, with respect to any Multiemployer Plan, and each
Multiemployer Plan has complied with and been administered in all material respects with in
accordance with applicable provisions of ERISA and the Code. The present value of all benefits
vested under each Plan (based on the assumptions used to fund such Plan) did not, as of the last
annual valuation date applicable thereto, exceed the value of the assets of such Plan allocable to
such vested benefits by an amount that could reasonably be expected to give rise to a Material
Adverse Change. No Borrower and no member of the Controlled Group has had a complete or partial
withdrawal from any Multiemployer Plan for which any Borrower has any withdrawal liability. As of
the most recent valuation date applicable thereto, no Borrower nor any of their respective ERISA
Affiliates would become subject to any liability under ERISA if a Borrower or any of ERISA
Affiliate of a Borrower has received notice that any Multiemployer Plan is insolvent or in
reorganization. Based upon GAAP existing as of the date of this Agreement and current factual
circumstances, no Borrower has reason to believe that the annual cost during the term of this
Agreement to the Borrowers or any ERISA Affiliate of a Borrower for post-retirement benefits to be
provided to the current and former employees of a Borrower or any ERISA Affiliate of a Borrower
under Plans that are welfare benefit plans (as defined in Section 3(1) of ERISA) could, in the
aggregate, reasonably be expected to cause a Material Adverse Change.



4.13 Condition of Property; Casualties. Each Borrower and each of their respective
Subsidiaries has good and defensible title to all of its Properties as is customary in the oil and
gas industry in all material respects, free and clear of all Liens except for Permitted Liens. The
material Properties used or to be in the continuing operations of the Borrowers and their
respective Subsidiaries are in reasonably good repair, working order and condition (ordinary wear
and tear excepted). Except for any adverse change directly resulting from the effects of Hurricane
Gustav or Hurricane Ike, since the Original Closing Date, neither the business nor any Property of
the Borrowers and their respective Subsidiaries has been affected as a result of any fire,
explosion, earthquake, flood, drought, windstorm, accident, strike or other labor disturbance,
embargo, requisition or taking of Property or cancellation of contracts, Permits, or concessions by
a Governmental Authority, riot, activities of armed forces, or acts of God or of any public enemy
(whether or not covered by insurance).


 


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4.14 No Burdensome Restrictions; No Defaults.



(a) None of the Borrowers nor any of their respective Subsidiaries is a party to any
indenture, loan, or credit agreement or any lease or other agreement or instrument or subject to
any charter or corporate restriction or provision of applicable Legal Requirement that could
reasonably be expected to cause a Material Adverse Change. None of the Borrowers nor any their
respective Subsidiaries is in default under or with respect to any contract, agreement, lease, or
other instrument to which a Borrower or any such Subsidiary is a party and which could reasonably
be expected to cause a Material Adverse Change or under any agreement in connection with any Debt.
None of the Borrowers nor any of their respective Subsidiaries has received any notice of default
under any material contract, agreement, lease, or other instrument to which such Borrower or such
Subsidiary is a party.




(b) No Default has occurred and is continuing.




4.15 Environmental Condition.



(a) Permits, Etc. The Borrowers and their respective Subsidiaries (i) have obtained
all Environmental Permits necessary for the ownership and operation of their respective Properties
and the conduct of their respective businesses, except where the failure to obtain such
Environmental Permit could not reasonably be expected to result in a Material Adverse Change;
(ii) have at all times been and are in compliance with all terms and conditions of such Permits and
with all other requirements of applicable Environmental Laws, except for any noncompliance that
could not reasonably be expected to result in a Material Adverse Change; (iii) have not received
notice of any violation or alleged violation of any Environmental Law or Permit that has not been
resolved or that could reasonably be expected to cause a Material Adverse Change; and (iv) are not
subject to any actual or contingent Environmental Claim, which could reasonably be expected to
cause a Material Adverse Change.



(b) Certain Liabilities. To the Borrowers’ actual knowledge, none of the present or
previously owned or operated Property of any Borrower, of any Subsidiary of a Borrower, or of any
former Subsidiary of a Borrower, wherever located: (i) has been placed on or proposed to be placed
on the National Priorities List, the Comprehensive Environmental Response Compensation Liability
Information System list, or their state or local analogs, or have been otherwise investigated,
designated, listed, or identified as a potential site for removal, remediation, cleanup, closure,
restoration, reclamation, or other response activity under any Environmental Laws; (ii) is subject
to a Lien, arising under or in connection with any Environmental Laws, that attaches to any
revenues or to any Property owned or operated by any Borrower, wherever located, which could
reasonably be expected to cause a Material Adverse Change; or (iii) has been the site of any
Release of Hazardous Substances or Hazardous Wastes from present or past operations which has
caused at the site or at any third-party site any condition that has resulted in or could
reasonably be expected to result in the need for Response that would cause a Material Adverse
Change.


 


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(c) Certain Actions. Without limiting the foregoing, (i) all necessary notices have
been properly filed, and no further action is required under current Environmental Law as to each
Response or other restoration or remedial project undertaken by any Borrower or any present or
former Subsidiary of a Borrower on any of their presently or formerly owned or operated Property
and (ii) the present and, to the Borrowers’ knowledge, future liability, if any, of the Borrowers
which could reasonably be expected to arise in connection with requirements under Environmental
Laws will not result in a Material Adverse Change.



4.16 Permits, Licenses, Etc. The Borrowers and their respective Subsidiaries possess
all consents, authorizations, Permits, licenses, patents, patent rights or licenses, trademarks,
trademark rights, trade names rights and copyrights which are necessary to the conduct of their
business, except to the extent the failure to do so could not reasonably be expected to result in a
Material Adverse Change. The Borrowers and their respective Subsidiaries manage and operate their
business in all material respects in accordance with all applicable Legal Requirements and good
industry practices.



4.17 Gas Contracts. None of the Borrowers nor any of their respective Subsidiaries,
as of the date hereof, (a) is obligated in any material respect by virtue of any prepayment made
under any contract containing a “take-or-pay” or “prepayment” provision or under any similar
agreement to deliver Hydrocarbons produced from or allocated to any Borrower’s or any such
Subsidiary’s Oil and Gas Properties at some future date without receiving full payment therefor at
the time of delivery, or (b) has produced gas, in any material amount, subject to, and none of the
Borrowers’ nor any of their respective Subsidiaries’ Oil and Gas Properties is subject to,
balancing rights of third parties or subject to balancing duties under governmental requirements,
in each case other than those imbalances which (i) occur in the ordinary course of business and
(ii) do not, in the aggregate, exceed 1% of the value of the Proven Reserves of the Borrowers and
their respective Subsidiaries.



4.18 Liens; Titles, Leases, Etc. None of the Property of any Borrower or of any of
their respective Subsidiaries is subject to any Lien other than Permitted Liens. On the date of
this Agreement, all governmental actions and all other filings, recordings, registrations, third
party consents and other actions which are necessary to create and perfect the Liens provided for
in the Security Instruments will have been made, obtained and taken in all relevant jurisdictions
(other than filings of the Mortgages and any financing statements contemplated by the Security
Instruments, which filings shall occur promptly after the date of this Agreement). All Leases and
agreements for the conduct of business of the Borrowers and their respective Subsidiaries are valid
and subsisting, in full force and effect and there exists no default or event of default or
circumstance which with the giving of notice or lapse of time or both would give rise to a default
under any of such leases or agreements which could reasonably be expected to cause a Material
Adverse Change. Other than customary restrictions in contracts or agreements prohibiting the
granting of a Lien in, or assignment of, such contract or agreement, none of the Borrowers nor any
of their respective Subsidiaries is a party to any agreement or arrangement (other than this
Agreement and the Security Instruments), or subject to any order, judgment, writ or decree, which
either restricts or purports to restrict its ability to grant Liens to secure the Obligations
against their respective assets or Properties.


 


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4.19 Solvency and Insurance. As of the Effective Date, each Borrower and each of
their respective Subsidiaries is Solvent. Additionally, each Borrower carries insurance required
under Section 5.02.



4.20 Hedge Contracts. Schedule 4.20 sets forth, as of the date hereof, a true and
complete list of all Interest Hedge Agreements, Hydrocarbon Hedge Agreements, and any other Hedge
Contract of each Borrower and each of their respective Subsidiaries, the material terms thereof
(including the type, term, effective date, termination date and notional amounts or volumes), the
net mark to market value thereof, all credit support agreements relating thereto (including any
margin required or supplied), and the counterparty to each such agreement.



4.21 Material Agreements. Schedule 4.21 sets forth a complete and correct list of all
material agreements, leases, indentures, purchase agreements, obligations in respect of letters of
credit, guarantees, joint venture agreements, and other instruments in effect or to be in effect as
of the date hereof providing for, evidencing, securing or otherwise relating to any Debt or other
material obligations of any Borrower, and all obligations of any Borrower to issuers of surety or
appeal bonds issued for account of such Borrower, and such list correctly sets forth the names of
the debtor or lessee and creditor or lessor with respect to the Debt or lease obligations
outstanding or to be outstanding and the Property subject to any Lien securing such Debt or lease
obligation. Also set forth on Schedule 4.21 is a complete and correct list of all material
agreements and other instruments of the Borrowers relating to the purchase, transportation by
pipeline, gas processing, marketing, sale and supply of natural gas and other Hydrocarbons. Except
as detailed otherwise in Schedule 4.21, the Borrowers have heretofore delivered to the
Administrative Agent and the Lenders a complete and correct copy of all such material credit
agreements, indentures, purchase agreements, contracts, letters of credit, guarantees, joint
venture agreements, or other instruments, including any modifications or supplements thereto, as in
effect on the date hereof and as of the Effective Date.



ARTICLE V

AFFIRMATIVE COVENANTS




So long as any Note or any amount under any Loan Document shall remain unpaid, any Letter of
Credit shall remain outstanding or any Letter of Credit Exposure shall exist, or any Lender shall
have any Commitment hereunder, each Borrower jointly and severally agrees, unless the Required
Lenders shall otherwise consent in writing, to comply with the following covenants.



5.01 Compliance with Laws, Etc. Each Borrower shall comply, and cause each of its
Subsidiaries to comply in all material respects with all Legal Requirements. Without limiting the
generality and coverage of the foregoing, each Borrower shall comply, and shall cause each of its
Subsidiaries to comply in all material respects with all Environmental Laws and all laws,
regulations, or directives with respect to equal employment opportunity and employee safety in all
jurisdictions in which such Borrower, or any of its Subsidiaries does business; provided,
however, that this Section 5.01 shall not prevent such Borrower or any such Subsidiary from, in
good faith and with reasonable diligence, contesting the validity or application of any such laws
or regulations by appropriate legal proceedings so long as such reserve as may be required by GAAP
shall have been made therefor. Without limitation of the foregoing, each Borrower shall, and shall
cause each of its Subsidiaries to, (a) maintain and possess all authorizations, Permits, licenses,
trademarks, trade names, rights and copyrights which are necessary to the conduct of its business
except to the extent the failure to do so could not reasonably be expected to result in a Material
Adverse Change, and (b) obtain, as soon as practicable, all consents or approvals required from any
states of the United States (or other Governmental Authorities) necessary to grant the
Administrative Agent an Acceptable Security Interest in COI’s (and, if Contango and/or CEC acquires
any Oil and Gas Properties, Contango’s and/or CEC’s, as the case may be) Oil and Gas Properties
included or to be included in the Borrowing Base.


 


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5.02 Maintenance of Insurance.



(a) Each Borrower shall, and shall cause each of its Subsidiaries to, procure and maintain or
shall cause to be procured and maintained continuously in effect policies of insurance in form and
amounts and issued by companies, associations or organizations reasonably satisfactory to the
Administrative Agent covering such casualties, risks, perils, liabilities and other hazards
reasonably required by the Administrative Agent, but excluding business interruption insurance.
Without limiting the foregoing, (i) prior to January 10, 2010, the Borrowers shall maintain wind
storm coverage of at least $34,500,000 and (ii) at all other times, the Borrowers shall maintain
wind storm coverage of at least $50,000,000. In addition, each Borrower shall, and shall cause each
of its Subsidiaries to, comply with all requirements regarding insurance contained in the Security
Instruments.



(b) All certified copies of policies or certificates thereof, and endorsements and renewals
thereof shall be delivered to and retained by the Administrative Agent. All policies of insurance
shall either have attached thereto a Lender’s loss payable endorsement for the benefit of the
Administrative Agent, as loss payee in form reasonably satisfactory to the Administrative Agent or
shall name the Administrative Agent as an additional insured, as applicable. The Borrowers shall
furnish the Administrative Agent with a certificate of insurance or a certified copy of all
policies of insurance required. All policies or certificates of insurance shall set forth the
coverage, the limits of liability, the name of the carrier, the policy number, and the period of
coverage. In addition, all policies of insurance required under the terms hereof shall contain an
endorsement or agreement by the insurer that any loss shall be payable in accordance with the terms
of such policy notwithstanding any act of negligence of any Borrower, or a Subsidiary or any party
holding under any Borrower or a Subsidiary which might otherwise result in a forfeiture of the
insurance and the further agreement of the insurer waiving all rights of setoff, counterclaim or
deductions against any Borrower and its Subsidiaries. Without limiting the generality of the
foregoing provisions, the Administrative Agent will be named as an additional insured and will be
provided a waiver of subrogation on each Borrower’s general liability and umbrella policies. All
such policies shall contain a provision that notwithstanding any contrary agreements between any
Borrower, its Subsidiaries, and the applicable insurance company, such policies will not be
canceled, allowed to lapse without renewal, surrendered or amended (which provision shall include
any reduction in the scope or limits of coverage) without at least 30 days’ prior written notice to
the Administrative Agent unless such is cancelled for non-payment of premium and then the
Administrative Agent will be given 10 days notice of cancellation. In the event that,
notwithstanding the “lender’s loss payable endorsement” requirement of this Section 5.02, the
proceeds of any insurance policy described above are paid to a Borrower or a Subsidiary of a
Borrower, the Borrowers shall deliver such proceeds to the Administrative Agent immediately upon
receipt.


 


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5.03 Preservation of Corporate Existence, Etc. Each Borrower shall preserve and
maintain, and cause each of its Subsidiaries to preserve and maintain, its corporate, limited
liability company or limited partnership, as applicable, existence, rights, franchises, and
privileges in the jurisdiction of its incorporation or organization, as applicable, and qualify and
remain qualified, and cause each such Subsidiary to qualify and remain qualified, as a foreign
entity in each jurisdiction in which qualification is necessary or desirable in view of its
business and operations or the ownership of its Properties, and, in each case, where failure to
qualify or preserve and maintain its rights and franchises could reasonably be expected to cause a
Material Adverse Change.



5.04 Payment of Taxes, Etc. Each Borrower shall pay and discharge, and cause each of
its Subsidiaries to pay and discharge, before the same shall become delinquent, (a) all taxes,
assessments, and governmental charges or levies imposed upon it or upon its income or profits or
Property that are material in amount, prior to the date on which penalties attach thereto and
(b) all lawful claims that are material in amount which, if unpaid, might by law become a Lien upon
its Property; provided, however, that no Borrower nor any such Subsidiary shall be required
to pay or discharge any such tax, assessment, charge, levy, or claim which is being contested in
good faith and by appropriate proceedings, and with respect to which reserves in conformity with
GAAP have been provided.



5.05 Books and Records; Visitation Rights. The Borrowers shall, and shall cause their
Subsidiaries to, keep adequate records and books of account with respect to their business
activities and their Properties in which proper entries are made in accordance with GAAP,
reflecting all financial transactions and matters involving the assets and business of the
Borrowers or such Subsidiaries, as the case may be. At any reasonable time and from time to time,
upon reasonable notice, each Borrower shall, and shall cause its Subsidiaries to, permit the
Administrative Agent and any Lender or any of their respective agents or representatives thereof,
to (a) examine and make copies of and abstracts from the records and books of account of, and visit
and inspect at their reasonable discretion the Properties of, such Borrower and any such Subsidiary
and (b) discuss the affairs, finances and accounts of such Borrower and any such Subsidiary with
any of their respective officers or directors.



5.06 Reporting Requirements. The Borrower Representative shall furnish to the
Administrative Agent and each Lender:




(a) Oil and Gas Reserve Reports.



(i) As soon as available but in any event on or before April 1 of each year, an Engineering
Report prepared as of the immediately preceding December 31;



(ii) As soon as available but in any event on or before October 1 of each year an Engineering
Report prepared as of the immediately preceding June 30;


 


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(iii) Such other information as may be reasonably requested by the Administrative Agent, or
any Lender through the Administrative Agent, with respect to the Oil and Gas Properties included or
to be included in the Borrowing Base;



(iv) With the delivery of each Engineering Report, a certificate from a Responsible Officer of
the Borrower Representative certifying that, to his knowledge and in all material respects: (a) the
factual information provided by each Borrower in connection with the preparation of the Engineering
Report was true and correct, (b) COI owns good and defensible title to the Oil and Gas Properties
evaluated in such Engineering Report and purported to be owned by COI, such Properties are free of
all Liens except for Permitted Liens and such Properties are subject to an Acceptable Security
Interest to the extent required by this Agreement, (c) except as set forth on an exhibit to the
certificate, on a net basis there are no gas imbalances, take or pay or other prepayments with
respect to COI’s Oil and Gas Properties evaluated in such Engineering Report which would require
COI to deliver Hydrocarbons produced from such Oil and Gas Properties at some future time without
then or thereafter receiving full payment therefor, (d) none of the Oil and Gas Properties of COI
that are included in the Borrowing Base 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 such Oil and Gas Properties sold and in such detail as reasonably required by the
Administrative Agent, (e) attached to the certificate is a list of its Oil and Gas Properties of
COI added to and deleted from the immediately prior Engineering Report and a list showing any
change in working interest or net revenue interest in its Oil and Gas Properties occurring and the
reason for such change, (f) attached to the certificate is a list of all Persons disbursing
proceeds to COI from its Oil and Gas Properties that are included in the Borrowing Base, (g) all of
the Oil and Gas Properties of COI classified as Proven Reserves and evaluated by such Engineering
Report that are included in the Borrowing Base are pledged as Collateral for the Obligations, and
(h) to the extent required by the Administrative Agent, attached to the certificate is a monthly
cash flow budget for the six months following the delivery of such certificate setting forth COI’s
projections for production volumes, revenues, expenses, taxes, budgeted capital expenditures and
working capital requirements during such period; provided that, if Contango and/or CEC
acquires any Oil and Gas Properties that are to be included in the Borrowing Base, the reports and
statements described above shall also apply to Contango and/or CEC, as the case may be, and such
Oil and Gas Properties;



(b) Defaults. As soon as possible and in any event within five days after (i) the
occurrence of any Default or (ii) the occurrence of any default under any instrument or document
evidencing Debt of any Borrower or any Subsidiary of a Borrower, in each case known to any officer
of any Borrower or any Subsidiary of a Borrower which is continuing on the date of such statement,
a statement of a Responsible Officer of the Borrower Representative setting forth the details of
such Default or default, as applicable, and the actions which such Borrower or such Subsidiary has
taken and proposes to take with respect thereto;



(c) Termination Events. As soon as possible and in any event (i) within 30 days after
any Borrower or any ERISA Affiliate knows or has reason to know that any Termination Event
described in clause (a) of the definition of Termination Event with respect to any Plan has
occurred, and (ii) within five (5) days after any Borrower or any ERISA Affiliate knows or has
reason to know that any other Termination Event with respect to any Plan has occurred, a statement
of a Responsible Officer of the Borrower Representative describing such Termination Event and the
action, if any, which such Borrower or such ERISA Affiliate proposes to take with respect thereto;


 


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(d) Termination of Plans. Promptly and in any event within two Business Days after
receipt thereof by any Borrower or any ERISA Affiliate from the PBGC, copies of each notice
received by any Borrower or any such ERISA Affiliate of the PBGC’s intention to terminate any Plan
or to have a trustee appointed to administer any Plan;



(e) Other ERISA Notices. Promptly and in any event within five Business Days after
receipt thereof by any Borrower or any ERISA Affiliate from a Multiemployer Plan sponsor, a copy of
each notice received by any Borrower or any ERISA Affiliate concerning the imposition or amount of
withdrawal liability pursuant to Section 4202 of ERISA;



(f) Environmental Notices. Promptly and in any event within five Business Days after
the receipt thereof by any Borrower or any Subsidiary of a Borrower, a copy of any form of request,
notice, summons or citation received from the Environmental Protection Agency, or any other
Governmental Authority, concerning (i) violations or alleged violations of Environmental Laws,
which seeks to impose liability therefor and could cause a Material Adverse Change, (ii) any action
or omission on the part of any Borrower or any Subsidiary of a Borrower or any of their former
Subsidiaries in connection with Hazardous Waste or Hazardous Substances which could reasonably
result in the imposition of liability therefor that could cause a Material Adverse Change,
including without limitation any information request related to, or notice of, potential
responsibility under CERCLA, or (iii) the filing of a Lien upon, against or in connection with any
Borrower or any Subsidiary of a Borrower or their former Subsidiaries, or any of their leased or
owned Property, wherever located;



(g) Other Governmental Notices. Promptly and in any event within five Business Days
after receipt thereof by any Borrower or any Subsidiary of a Borrower a copy of any notice,
summons, citation, or proceeding seeking to modify in any material respect, revoke, or suspend any
material contract, license, permit or agreement with any Governmental Authority;



(h) Material Changes. Promptly and in any event within five Business Days after the
knowledge thereof by any Borrower or any Subsidiary of a Borrower, written notice of any condition
or event of which any Borrower has knowledge, which condition or event has resulted or may
reasonably be expected to result in (i) a Material Adverse Change or (ii) a breach of or
noncompliance with any material term, condition, or covenant of any material contract to which any
Borrower or any Subsidiary of a Borrower is a party or by which they or their Properties may be
bound which breach or noncompliance could reasonably be expected to result in a Material Adverse
Change;



(i) Disputes, Etc. Promptly and in any event within five Business Days after the
receipt thereof by any Borrower or any Subsidiary of a Borrower, written notice of (i) any claims,
legal or arbitration proceedings, proceedings before any Governmental Authority, or disputes, or to
the knowledge of any Borrower threatened, or affecting any Borrower, or any Subsidiary of a
Borrower which, if adversely determined, could reasonably be expected to cause a Material Adverse
Change, or any material labor controversy of which any Borrower or any Subsidiary of a Borrower has
knowledge resulting in or reasonably considered to be likely to result in a strike against any
Borrower or any Subsidiary of a Borrower and (ii) any claim, judgment, Lien or other encumbrance
(other than a Permitted Lien) affecting any Property of any Borrower or any Subsidiary of a
Borrower if the value of the claim, judgment, Lien, or other encumbrance affecting such Property
shall exceed $1,000,000;


 


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(j) Other Accounting Reports. (i) Promptly and in any event within five Business Days
after receipt thereof, a copy of each other report or letter submitted to any Borrower or any
Subsidiary of a Borrower by independent accountants in connection with any annual, interim or
special audit made by them of the books of any Borrower or any Subsidiary of a Borrower, and a copy
of any response by any Borrower or any Subsidiary of a Borrower, or the Board of Directors (or
other applicable governing body) of a Borrower or any Subsidiary of a Borrower, to such letter or
report, and (ii) promptly and in any event within five Business Days thereafter, written notice of
any material change in the accounting or financial reporting practices of the Borrowers;



(k) Notices Under Other Loan Agreements. Promptly and in any event within five
Business Days after the furnishing thereof, copies of any statement, report or notice furnished to
any Person pursuant to the terms of any 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 5.06;



(l) Compliance Certificate. If requested by the Administrative Agent, a certificate
from a Responsible Officer of the Borrower Representative demonstrating compliance with the
financial ratio requirement set forth in Section 6.16; and



(m) Other Information. Such other information respecting the business or Properties,
or the condition or operations, financial or otherwise, of any Borrower or any Subsidiary of a
Borrower, as any Lender through the Administrative Agent may from time to time reasonably request.
The Administrative Agent agrees to provide the Lenders with copies of any material notices and
information delivered solely to the Administrative Agent pursuant to the terms of this Agreement.



5.07 Maintenance of Property. Each Borrower shall, and shall cause each of its
Subsidiaries to, maintain their owned, leased, or operated Property necessary to the conduct of its
business in reasonably good condition and repair (ordinary wear and tear excepted) and shall
abstain, and cause each of its Subsidiaries to abstain from, knowingly or willfully permitting the
commission of waste or other injury, destruction, or loss of natural resources, or the occurrence
of pollution, contamination, or any other condition in, on or about the owned or operated Property
involving the Environment that could reasonably be expected to result in Response activities and
that could reasonably be expected to cause a Material Adverse Change.



5.08 Agreement to Pledge. COI shall grant to the Administrative Agent an Acceptable
Security Interest in any Property of COI now owned or hereafter acquired, including Proven Reserves
and Oil and Gas Properties, promptly after receipt of a written request from the Administrative
Agent. Notwithstanding anything in this Agreement to the contrary, so long as Contango and/or CEC
shall not own any Oil and Gas Properties, Contango and/or CEC, as the case may be, shall not be
required to pledge any of its Property as Collateral for the Obligations. If, however, Contango
and/or CEC acquires any Oil and Gas Properties, Contango and/or CEC shall promptly notify the
Administrative Agent and shall, promptly after receipt of a written request from the Administrative
Agent, grant to the Administrative Agent an Acceptable Security Interest in any such Oil and Gas
Properties and related Property.


 


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5.09 Use of Proceeds. The Borrowers shall use the proceeds of the Advances and the
Letters of Credit only (a) to finance the acquisition and development of Oil and Gas Properties,
(b) for working capital and other general corporate purposes and (c) to make Restricted Payments
permitted by Section 6.05.



5.10 Title Opinions. With respect to Oil and Gas Properties that are included in the
Borrowing Base, the Borrowers shall from time to time, upon the reasonable request of the
Administrative Agent, take such actions and execute and deliver such documents and instruments as
the Administrative Agent shall require to ensure that the Administrative Agent shall have received
satisfactory title opinions (including, if requested, supplemental or new title opinions addressed
to it) or, to the extent acceptable to the Administrative Agent in its sole discretion, other title
evidence, which title opinions or other title evidence (a) shall collectively cover at least 81% of
the present value of the Proven Reserves of COI shown on the most recently delivered Engineering
Report (and together with any Proven Reserves acquired since the date of such report) and at least
81% of the present value of the Proven Reserves of COI (and, if Contango and/or CEC purchases any
Oil and Gas Properties, Contango and/or CEC, as the case may be) that are categorized as “proved,
developed and producing” on the most recently delivered Engineering Report (and together with any
Proven Reserves acquired since the date of such report), (b) shall be in form and substance
acceptable to the Administrative Agent in its sole discretion, and (c) shall include opinions or,
to the extent acceptable to the Administrative Agent in its sole discretion, other title evidence
regarding the before payout and after payout ownership interests held by COI (and, if applicable,
Contango and/or CEC) for all wells located on the Oil and Gas Properties covered thereby as to the
ownership of Oil and Gas Properties of COI (and, if applicable, Contango and/or CEC).



5.11 Further Assurances; Cure of Title Defects. Each Borrower shall promptly cure any
defects in the creation and issuance of the Notes and the execution and delivery of the Security
Instruments and this Agreement. Each Borrower hereby authorizes the Lenders and the Administrative
Agent to file any financing statements without the signature of such Borrower to the extent
permitted by applicable Legal Requirements in order to perfect or maintain the perfection of any
security interest granted under any of the Loan Documents. Each Borrower at its expense will
promptly execute and deliver to the Administrative Agent upon request all such other documents,
agreements and instruments to comply with or accomplish the covenants and agreements of such
Borrower in the Security Instruments and this Agreement, or to further evidence and more fully
describe the collateral intended as security for the Notes, or to correct any omissions in the
Security Instruments, or to state more fully the security obligations set out herein or in any of
the Security Instruments, or to perfect, protect or preserve any Liens created pursuant to any of
the Security Instruments, or to make any recordings, to file any notices or obtain any consents,
all as may be necessary or appropriate in connection therewith or to enable the Administrative
Agent to exercise and enforce its rights and remedies with respect to any Collateral. Within 30
days after (a) a request by the Administrative Agent or the Lenders to the Borrower Representative
to cure any title defects or exceptions which are not Permitted Liens raised by such information or
(b) a notice by the Administrative Agent to the Borrower Representative that the Borrowers have
failed to comply with Section 5.10 above, the Borrowers shall (i) cure such title defects or
exceptions which are not Permitted Liens or substitute acceptable Oil and Gas Properties with no
title defects or exceptions except for Permitted Liens covering Collateral of an equivalent value
and (ii) deliver to the Administrative Agent satisfactory evidence in form and substance acceptable
to the Administrative Agent in its reasonable business judgment as to COI’s ownership (and if
Contango and/or CEC acquires any Oil and Gas Properties, Contango’s and/or CEC’s ownership, as the
case may be) of such Oil and Gas Properties and the Administrative Agent’s Liens and security
interests therein as are required to maintain compliance with Section 5.10. In addition, the
Borrowers shall cause the Administrative Agent to, at all times, have an Acceptable Security
Interest in all of COI’s (and if Contango and/or CEC acquires any Oil and Gas Properties,
Contango’s and/or CEC’s, as the case may be) Proven Reserves and Oil and Gas Properties to the
extent required under Section 5.08.


 


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5.12 Cash Management Services. The Borrowers shall collectively maintain an aggregate
minimum monthly average bank account balance of at least $2,500,000 with the Cash Management Bank.



ARTICLE VI

NEGATIVE COVENANTS




So long as any Note or any amount under any Loan Document shall remain unpaid, any Letter of
Credit shall remain outstanding or any Letter of Credit Exposure shall exist, or any Lender shall
have any Commitment, the Borrowers jointly and severally agree, unless the Required Lenders
otherwise consent in writing, to comply with the following covenants.



6.01 Liens, Etc. No Borrower shall create, assume, incur, or suffer to exist, nor
permit any of its Subsidiaries to create, assume, incur, or suffer to exist, any Lien on or in
respect of any of its Property whether now owned or hereafter acquired, or assign any right to
receive income, except that the Borrowers and their respective Subsidiaries may create, incur,
assume, or suffer to exist:




(a) Liens created by the Security Instruments;



(b) purchase money Liens and Liens in connection with Capital Leases, in each case upon or in
any equipment acquired or held by a Borrower or any Subsidiary of a Borrower in the ordinary course
of business; provided that, the Debt secured by such Liens (i) was incurred solely for the
purpose of financing the acquisition of such equipment, does not exceed the aggregate purchase
price of such equipment, and is otherwise permitted by this Agreement, (ii) is secured only by such
equipment and not by any other assets of any Borrower or any Subsidiary of a Borrower, and (iii) is
not increased in amount;



(c) Liens for taxes, assessments, or other governmental charges or levies not yet due or that
(provided that foreclosure, sale, or other similar proceedings shall not have been initiated) are
being contested in good faith by appropriate proceedings, and such reserve as may be required by
GAAP shall have been made therefor;


 


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(d) Liens in favor of vendors, carriers, warehousemen, repairmen, mechanics, workmen,
materialmen, construction, or similar Liens arising by operation of law in the ordinary course of
business in respect of obligations that are not yet due or that are being contested in good faith
by appropriate proceedings, provided that such reserves as may be required by GAAP shall have been
made therefor;



(e) Liens to operators and non-operators under joint operating agreements and similar
agreements arising in the ordinary course of the business of a Borrower or the relevant Subsidiary
of a Borrower to secure amounts owing, which amounts are not yet due or are being contested in good
faith by appropriate proceedings, if such reserve as may be required by GAAP shall have been made
therefor;



(f) royalties, overriding royalties, net profits interests, production payments, reversionary
interests, calls on production, preferential purchase rights and other burdens on or deductions
from the proceeds of production, that do not secure Debt for borrowed money and that are taken into
account in computing the net revenue interests and working interests of any Borrower or any
Subsidiary of a Borrower warranted in the Security Instruments;



(g) Liens arising in the ordinary course of business out of pledges or deposits under workers’
compensation laws, unemployment insurance, old age pensions or other social security or retirement
benefits, or similar legislation or to secure public or statutory obligations of a Borrower;



(h) Liens arising under operating agreements, unitization and pooling agreements and orders,
farmout agreements, gas balancing agreements and other agreements, in each case that are customary
in the oil, gas and mineral production business and that are entered into in the ordinary course of
business and that are taken into account in computing the net revenue interests and working
interests of any Borrower or any Subsidiary of a Borrower warranted in the Security Instruments, to
the extent that such Liens do not materially impair the use of the Property covered by such Lien
for the purposes for which such Property is held by a Borrower or any Subsidiary of a Borrower; and



(i) easements, rights-of-way, restrictions, and other similar encumbrances, and minor defects
in the chain of title that are customarily accepted in the oil and gas financing industry, none of
which interfere with the ordinary conduct of the business of any Borrower or any Subsidiary of a
Borrower or materially detract from the value or use of the Property to which they apply.



6.02 Debts, Guaranties, and Other Obligations. No Borrower shall, nor shall any
Borrower permit any of its Subsidiaries to, create, assume, suffer to exist, or in any manner
become or be liable in respect of, any Debt except:




(a) Debt of the Borrowers under the Loan Documents;


(b) Debt listed on Schedule 4.05 and any renewals, extensions, or replacements thereof;
provided that the amount of such Debt may not be increased;



 


55









 






(c) Debt in the form of obligations for the deferred purchase price of Property or services
incurred in the ordinary course of business which are not yet due and payable or are being
contested in good faith by appropriate proceedings and for which adequate reserves in accordance
with GAAP have been established;



(d) Debt secured by the Liens permitted under paragraph (b) of Section 6.01 in an aggregate
amount not to exceed $1,000,000 at any time;



(e) Debt under Hydrocarbon Hedge Agreements or Interest Hedge Agreements which are not
prohibited by the terms of Section 6.14;



(f) Debt consisting of sureties or bonds provided to any Governmental Authority or other
Person and assuring payment of contingent liabilities of any Borrower or any Subsidiary of a
Borrower in connection with the operation of the Oil and Gas Properties, including with respect to
plugging, facility removal and abandonment of its Oil and Gas Properties;



(g) Debt owing in connection with the financing of insurance premiums in the ordinary course
of business; and



(h) Debt not otherwise permitted under this Section 6.02; provided that such Debt
(i) is not secured by any Lien and (ii) does not exceed $1,000,000 in the aggregate at any time
outstanding.



6.03 Agreements Restricting Liens and Distributions. No Borrower shall, nor shall any
Borrower permit any of its Subsidiaries to, create, incur, assume or permit to exist any contract,
agreement or understanding (other than this Agreement and the Security Instruments), which in any
way prohibits or restricts the granting, conveying, creation or imposition of any Lien on any of
its Property (other than customary restrictions in contracts or agreements prohibiting the granting
of a Lien in, or assignment of, such contract or agreement), whether now owned or hereafter
acquired, to secure the Obligations or restricts any Subsidiary of a Borrower from paying dividends
to a Borrower, or which requires the consent of or notice to other Persons in connection therewith.



6.04 Merger or Consolidation; Asset Sales. Other than the Restructuring, no Borrower
shall, nor shall any Borrower permit any of its Subsidiaries to:




(a) merge or consolidate with or into any other Person; or



(b) sell, lease, transfer, assign, farm-out, convey, or otherwise dispose of any of its
Property (including, without limitation, any working interest, overriding royalty interest,
production payments, net profits interest, royalty interest, or mineral fee interest) other than:
(i) the sale of Hydrocarbons in the ordinary course of business; (ii) the sale or transfer of
equipment that is (A) obsolete, worn out, depleted or uneconomic and disposed of in the ordinary
course of business, (B) no longer necessary for the business of such Person, or
(C) contemporaneously replaced by equipment of at least comparable value and use; (iii) the sale,
lease, transfer or other disposition of Property to a Borrower; provided that at the time
thereof and immediately after giving effect thereto no Default shall have occurred and be
continuing and the Administrative Agent shall continue to have an Acceptable Security Interest in
the Collateral; and (iv) other sales, leases, transfers, assignments, farm-outs, conveyance or
dispositions of Property for fair market value; provided that the aggregate amount of the
proceeds of such transaction, taken together with all other such transactions during any fiscal
year under this clause (iv), may not exceed 5% of the Borrowing Base in effect at the time such
transaction is effected.


 


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6.05 Restricted Payments. No Borrower shall, nor shall any Borrower permit any of its
Subsidiaries to, make any Restricted Payments except that if (a) no Default or Event of Default has
occurred or will occur after giving effect to the making of such Restricted Payment, (b) no
Borrowing Base deficiency of the type described in Section 2.05(b) shall exist before or after
giving effect to the making of such Restricted Payment, and (c) the Borrowing Base shall, both
before and after giving effect to such Restricted Payment, be equal to or greater than five (5)
times the aggregate Commitments then in effect, then (i) the Subsidiaries may make Restricted
Payments to a Borrower, (ii) CEC may make Restricted Payments to Contango, (iii) COI may make
Restricted Payments to CEC, and (iv) the Borrowers may make Restricted Payments described in clause
(a) of the definition thereof.



6.06 Investments. No Borrower shall, nor shall any Borrower permit any of its
Subsidiaries to, make or permit to exist any loans, advances, or capital contributions to, or make
any investment in, or purchase or commit to purchase any stock or other securities or evidences of
indebtedness of or interests in any Person or any assets or business of any Person, including
without limitation any Oil and Gas Properties or assets related to Oil and Gas Properties, except:




(a) Liquid Investments;



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



(c) acquisitions of Oil and Gas Properties and appurtenant facilities (including gas
gathering, gas pipeline or oil pipeline and related facilities), whether through farm-out, farm-in,
participation agreements, joint operating agreements, joint venture or area of mutual interest
agreements or other similar arrangements customary in the industry, so long as, with respect to any
Oil and Gas Properties acquired by either of the Borrowers, the Administrative Agent is granted an
Acceptable Security Interest in such Oil and Gas Properties to the extent required under
Section 5.08;



(d) Investments by Subsidiaries of Contango (other than COI or CEC) and by Subsidiaries of CEC
(other than COI), in each case in liquified natural gas facilities, gas processing facilities and
gas storage facilities, whether through the direct purchase of Property or through joint venture
arrangements, participation agreements or other similar arrangements; and




(e) Other Investments in an aggregate amount not to exceed $20,000,000.


 


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6.07 Affiliate Transactions. Except as described in Schedule 6.07, no Borrower shall,
nor shall any Borrower permit any of its Subsidiaries to, directly or indirectly, enter into or
permit to exist any transaction or series of transactions (including, but not limited to, the
purchase, sale, lease or exchange of Property, the making of any investment, the giving of any
guaranty, or the assumption of any obligation or the rendering of any service) with any of their
Affiliates unless such transaction or series of transactions is on terms no less favorable to such
Borrower or such Subsidiary, as applicable, than those that could be obtained in a comparable arm’s
length transaction with a Person that is not such an Affiliate.



6.08 Compliance with ERISA. No Borrower shall, nor shall any Borrower permit any of
its Subsidiaries or ERISA Affiliates to, directly or indirectly, (a) engage in, or permit any of
its Subsidiaries or ERISA Affiliates to engage in, any transaction in connection with which a
Borrower, any Subsidiary of a Borrower or any ERISA Affiliate of a Borrower could be subjected to
either a civil penalty assessed pursuant to section 502(c), (i) or (l) of ERISA or a tax imposed by
Chapter 43 of Subtitle D of the Code; (b) terminate, or permit any of its Subsidiaries or ERISA
Affiliates to terminate, any Plan in a manner, or take any other action with respect to any Plan,
which could result in any liability to a Borrower, any Subsidiary of a Borrower or any ERISA
Affiliate of a Borrower to the PBGC; (c) fail to make, or permit any of its Subsidiaries or ERISA
Affiliates to fail to make, full payment when due of all amounts which, under the provisions of any
Plan, agreement relating thereto or Legal Requirements, a Borrower, a Subsidiary of a Borrower or
any ERISA Affiliate of a Borrower is required to pay as contributions thereto; (d) permit to exist,
or allow any of its Subsidiaries or ERISA Affiliates 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 of its Subsidiaries or ERISA Affiliates
to permit, the actuarial present value of the benefit liabilities (as “actuarial present value of
the benefit liabilities” shall have the meaning specified in Section 4041 of ERISA) under any Plan
maintained by a Borrower, any Subsidiary of a Borrower or any ERISA Affiliate of a Borrower 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; (f) contribute to or assume an obligation to contribute to, or permit any of its
Subsidiaries or ERISA Affiliates to contribute to or assume an obligation to contribute to, any
Multiemployer Plan; (g) acquire, or permit any of its Subsidiaries or ERISA Affiliates to acquire,
an interest in any Person that causes such Person to become an ERISA Affiliate with respect to a
Borrower, any Subsidiary of a Borrower or any ERISA Affiliate of a Borrower if such Person
sponsors, maintains or contributes to, or at any time in the six-year period preceding such
acquisition has sponsored, maintained, or contributed to, (1) any Multiemployer Plan, or (2) any
other plan that is subject to Title IV of ERISA under which the actuarial present value of the
benefit liabilities under such plan 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 of its Subsidiaries or ERISA Affiliates 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 of its Subsidiaries or
ERISA Affiliates 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 of its Subsidiaries or ERISA Affiliates to amend, a Plan resulting in an increase in
current liability such that a Borrower, any Subsidiary of a Borrower or any ERISA Affiliate of a
Borrower is required to provide security to such Plan under Section 401(a)(29) of the Code; or
(k) permit to exist any occurrence of any Reportable Event or any other event or condition, which
presents a material (in the opinion of the Required Lenders) risk of a termination by the PBGC of
any Plan.


 


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6.09 Sale-and-Leaseback. No Borrower shall, nor shall any Borrower permit any of its
Subsidiaries to, sell or transfer to a Person any Property, whether now owned or hereafter
acquired, if at the time or thereafter a Borrower or a Subsidiary of a Borrower shall lease as
lessee such Property or any part thereof or other Property which a Borrower or a Subsidiary of a
Borrower intends to use for substantially the same purpose as the Property sold or transferred.



6.10 Change of Business. No Borrower shall, nor shall any Borrower permit any of its
Subsidiaries to, discontinue its usual business or make any material change in the character of its
business as an independent oil and gas exploration and production company. No Borrower shall, nor
shall any Borrower permit any of its Subsidiaries to, operate or carry on business in any
jurisdiction other than the United States.



6.11 Organizational Documents, Name Change. No Borrower shall, nor shall any Borrower
permit any of its Subsidiaries to, (a) amend or change its name without giving the Administrative
Agent 30 days’ prior written notice of such name change or (b) amend, supplement, modify or restate
their articles or certificate of incorporation, bylaws, limited liability company agreements, or
other equivalent organizational documents, or amend or change its jurisdiction of incorporation,
organization or formation without prior written notice to, and prior consent of, the Administrative
Agent (which consent shall not be unreasonably withheld or delayed); provided that no such prior
written consent shall be required for amendments to such organizational documents that are
administrative and ministerial in nature.



6.12 Use of Proceeds; Letters of Credit. No Borrower will permit the proceeds of any
Advance or Letters of Credit to be used for any purpose other than those permitted by Section 5.09.
No Borrower will engage in the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulation U). No Borrower nor any Person acting on
behalf of a Borrower has taken or shall take, nor permit any Subsidiary of a Borrower to take, any
action which might cause any of the Loan Documents to violate Regulation T, U or X or any other
regulation of the Board of Governors of the Federal Reserve System 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, including without limitation, the use of the proceeds
of any Advance or Letters of Credit to purchase or carry any margin stock in violation of
Regulation T, U or X.



6.13 Take-or-Pay or Other Prepayments. No Borrower shall, nor shall any Borrower
permit any of its Subsidiaries to, allow gas imbalances (other than those imbalances which
(a) occur in the ordinary course of business and (b) do not, in the aggregate, exceed 1% of the
value of the Proven Reserves of the Borrowers and their respective Subsidiaries), take-or-pay or
other prepayments with respect to the Oil and Gas Properties of any Borrower or any Subsidiary
which would require any Borrower or any Subsidiary to deliver any volumes of their respective
Hydrocarbons produced on a monthly basis from such Oil and Gas Properties at some future time
without then or thereafter receiving full payment therefor.


 


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6.14 Limitation on Speculative Hedging. Other than the Hedge Contracts set forth on
Schedule 4.20 hereto (which Hedge Contracts shall not be modified without the prior written consent
of the Administrative Agent), no Borrower shall, nor shall any Borrower permit any of its
Subsidiaries to, (a) purchase, assume, or hold a speculative position in any commodities market or
futures market or enter into any Hydrocarbon Hedge Agreement, Interest Hedge Agreement or similar
hedge arrangement for speculative purposes or (b) be party to or otherwise enter into any Hedge
Contract which (i) is entered into for reasons other than as a part of its normal business
operations as a risk management strategy and/or hedge against changes resulting from market
conditions related to such Borrower’s operations, and (ii) covers notional volumes that would be in
excess of (A) 80% of the production volumes anticipated by the Administrative Agent to be produced
by the Borrowers during each of the Winter/Spring Months for periods that such Hedge Contract is in
effect, and (B) 35% of the production volumes anticipated by the Administrative Agent to be
produced by the Borrowers during the Summer/Fall Months for periods that such Hedge Contract is in
effect. Notwithstanding the foregoing, the Borrowers may purchase commodity floors or puts on up
to 100% of the production volumes anticipated during the period such hedge arrangement is in effect
and attributable to Proven Reserves of the Borrowers and their respective Subsidiaries that are
categorized as “proved, developed and producing”. For purposes of the foregoing Section, the
“Winter/Spring Months” shall be December, January, February, March, April, May and June, and the
“Summer/Fall Months” shall be July, August, September, October and November.



6.15 Accounts Payable. No Borrower shall, nor shall any Borrower permit any of its
Subsidiaries to, allow any of its trade payables or other accounts payable to be outstanding for
more than 60 days past due (except in cases where any such trade payable is being disputed in good
faith and adequate reserves under GAAP have been established).



6.16 Current Ratio. Contango shall not permit the ratio of (a) its Current Assets to
(b) its Current Liabilities, to be less 1.00 to 1.00 as of the end of any fiscal quarter, beginning
with the fiscal quarter ending March 31, 2009.



ARTICLE VII

EVENTS OF DEFAULT; REMEDIES




7.01 Events of Default. The occurrence of any of the following events shall
constitute an “Event of Default” under any Loan Document:



(a) Payment. The Borrowers (i) shall fail to pay when due any principal under the
Notes or any other Loan Document or (ii) shall fail to pay any interest, fees, reimbursements,
indemnifications, or other amounts due and payable hereunder, under the Notes, or under any other
Loan Document, and such failure shall continue for a period of two Business Days after the due date
therefor;



(b) Representation and Warranties. Any representation or warranty made or deemed to
be made (i) by any Borrower (or any of their respective officers) in this Agreement or in any other
Loan Document, or (ii) by any Borrower (or any of their respective officers) in connection with
this Agreement or any other Loan Document, shall prove to have been incorrect in any material
respect when made or deemed to be made;


 


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(c) Covenant Breaches. Any Borrower shall fail to (i) perform or observe (and, if
applicable, to fail to cause its Subsidiaries to perform or observe) any covenant contained in
Section 5.02(a), Section 5.06(b), Section 5.11, or Article VI of this Agreement or (ii) fail to
perform or observe (and, if applicable, to fail to cause its Subsidiaries to perform or observe)
any other term or covenant set forth in this Agreement or in any other Loan Document which is not
covered by clause (i) above or any other provision of this Section 7.01 if such failure shall
remain unremedied for 30 days after the earlier of a Borrower’s knowledge of such breach or failure
and the date notice thereof is given to the Borrower Representative by the Administrative Agent or
any Lender and the date ;



(d) Cross-Defaults. (i) Any Borrower or any Subsidiary of a Borrower shall fail to
pay any principal of or premium or interest on its Debt which is outstanding in a principal amount
of at least $250,000 individually or when aggregated with all such Debt of any Borrower or any
Subsidiary of a Borrower so in default (but excluding Debt evidenced by the Notes) when the same
becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand
or otherwise), and such failure shall continue after the applicable grace period, if any, specified
in the agreement or instrument relating to such Debt; (ii) any other event shall occur or condition
shall exist under any agreement or instrument relating to Debt which is outstanding in a principal
amount of at least $250,000 individually or when aggregated with all such Debt of such Borrower or
such Subsidiary so in default, and shall continue after the applicable grace period, if any,
specified in such agreement or instrument, if the effect of such event or condition is to
accelerate, or to permit the acceleration of, the maturity of such Debt; or (iii) any such Debt
shall be declared to be due and payable, or required to be prepaid (other than by a regularly
scheduled required prepayment), prior to the stated maturity thereof; provided that, for
purposes of this Section 7.01(d), the “principal amount” of the obligations in respect of any
Hedging Contracts at any time shall be the maximum aggregate amount (giving effect to any netting
agreements) that would be required to be paid if such Hedging Contracts were terminated at such
time;



(e) Insolvency. Any Borrower or any Subsidiary of a Borrower shall generally not pay
its debts as such debts become due, or shall admit in writing its inability to pay its debts
generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall
be instituted by or against any Borrower or any Subsidiary of a Borrower seeking to adjudicate it a
bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or
the appointment of a receiver, trustee or other similar official for it or for any substantial part
of its Property and, in the case of any such proceeding instituted against the any Borrower or any
Subsidiary of a Borrower either such proceeding shall remain undismissed for a period of 30 days or
any of the actions sought in such proceeding shall occur; or any Borrower or any Subsidiary of a
Borrower shall take any corporate action to authorize any of the actions set forth above in this
paragraph (e);


 


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(f) Judgments. Any judgment or order for the payment of money in excess of $250,000
shall be rendered against any Borrower or any Subsidiary of a Borrower and either (i) enforcement
proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there
shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect;



(g) Termination Events. Any Termination Event with respect to a Plan shall have
occurred, and, 30 days after a Borrower has knowledge of such occurrence, (i) such Termination
Event shall not have been corrected and (ii) such Termination Event is reasonably likely to result
(as determined by the Required Lenders in good faith) in a liability to a Borrower, any Subsidiary
of a Borrower or ERISA Affiliate of a Borrower of $250,000 or more in the aggregate;



(h) Plan Withdrawals. A Borrower or any member of the Controlled Group as employer
under a Multiemployer Plan shall have made a complete or partial withdrawal from such Multiemployer
Plan and the plan sponsor of such Multiemployer Plan shall have notified such withdrawing employer
that such employer has incurred a withdrawal liability in an annual amount exceeding $250,000 in
the aggregate;




(i) Change in Control. A Change in Control shall have occurred;



(j) Borrowing Base. Any failure to cure any Borrowing Base deficiency in accordance
with Section 2.05;



(k) Loan Documents. Any provision of any Loan Document shall for any reason (except
to the extent permitted by the terms thereof) cease to be valid and binding on the Borrowers or any
such Person shall so state in writing;



(l) Security Instruments. (i) The Administrative Agent shall fail to have an
Acceptable Security Interest in any portion of the Collateral (other than Collateral released in
accordance with this Agreement or any other Loan Document) or (ii) any Security Instrument shall at
any time and for any reason cease to create the Lien on the Property purported to be subject to
such agreement in accordance with the terms of such agreement, or cease to be in full force and
effect, or shall be contested by any Borrower;



(m) Potential Failure of Title. The title of COI (and, if Contango and/or CEC
acquires any Oil and Gas Properties, Contango and/or CEC, as the case may be) to any of the Oil and
Gas Properties subject to the Mortgages, or any material part thereof, shall become the subject
matter of litigation before any Governmental Authority or arbitrator that could reasonably be
expected to result in a Material Adverse Change with respect to such Borrower’s title to such Oil
and Gas Properties;



(n) Casualty. Loss, theft, substantial damage, or destruction of a material portion
of the Collateral the subject of any Security Instrument not fully covered by insurance (except for
deductibles and allowing for the depreciated value of such Collateral) shall have occurred; or



(o) Material Adverse Change. An event resulting in a Material Adverse Change shall
have occurred.


 


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7.02 Optional Acceleration of Maturity. If any Event of Default (other than an Event
of Default pursuant to paragraph (e) of Section 7.01) shall have occurred and be continuing, then,
and in any such event,



(a) the Administrative Agent (i) shall at the request, or may with the consent, of the
Required Lenders, by notice to the Borrower Representative, declare the obligation of each Lender
and the Issuing Lender to make extensions of credit hereunder, including making Advances and
issuing, increasing or extending Letters of Credit, to be terminated, whereupon the same shall
forthwith terminate, and (ii) shall at the request, or may with the consent, of the Required
Lenders, by notice to the Borrower Representative, declare all principal, interest, fees,
reimbursements, indemnifications, and all other amounts payable under this Agreement, the Notes,
and the other Loan Documents to be forthwith due and payable, whereupon all such amounts shall
become and be forthwith due and payable in full, without notice of intent to demand, demand,
presentment for payment, notice of nonpayment, protest, notice of protest, grace, notice of
dishonor, notice of intent to accelerate, notice of acceleration, and all other notices, all of
which are hereby expressly waived by each Borrower;



(b) the Borrowers shall, on demand made to the Borrower Representative by the Administrative
Agent at the request or with the consent of the Required Lenders, deposit with the Administrative
Agent into the Cash Collateral Account an amount of cash necessary to cause the amount held in such
account to equal the Letter of Credit Exposure as security for the Obligations; and



(c) the Administrative Agent shall at the request of, or may with the consent of, the Required
Lenders proceed to enforce its rights and remedies under the Security Instruments and any other
Loan Document for the ratable benefit of itself, the Issuing Lender and the Lenders by appropriate
proceedings.



7.03 Automatic Acceleration of Maturity. If any Event of Default pursuant to
paragraph (e) of Section 7.01 shall occur,



(a) (i) the obligation of each Lender and the Issuing Lender to make extensions of credit
hereunder, including making Advances and issuing, increasing or extending Letters of Credit, shall
terminate, and (ii) all principal, interest, fees, reimbursements, indemnifications, and all other
amounts payable under this Agreement, the Notes, and the other Loan Documents shall become and be
forthwith due and payable in full, without notice of intent to demand, demand, presentment for
payment, notice of nonpayment, protest, notice of protest, grace, notice of dishonor, notice of
intent to accelerate, notice of acceleration, and all other notices, all of which are hereby
expressly waived by each Borrower;



(b) the Borrowers shall deposit with the Administrative Agent into the Cash Collateral Account
an amount of cash necessary to cause the amount held in such account to equal the Letter of Credit
Exposure as security for the Obligations; and



(c) the Administrative Agent shall at the request of, or may with the consent of, the Required
Lenders proceed to enforce its rights and remedies under the Security Instruments and any other
Loan Document for the ratable benefit of itself, the Issuing Lender and the Lenders by appropriate
proceedings.


 


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7.04 Right of Set-off. Upon the occurrence and during the continuance of any Event of
Default, the Administrative Agent, the Issuing Lender, each Lender and each Affiliate of a Lender
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 indebtedness at any time owing by the Administrative Agent, the Issuing
Lender, such Lender or such Affiliate of a Lender to or for the credit or the account of a Borrower
against any and all of the obligations of such Borrower or any other Borrower now or hereafter
existing under this Agreement, the Notes held by the Administrative Agent, the Issuing Lender or
such Lender, and the other Loan Documents, irrespective of whether or not the Administrative Agent,
the Issuing Lender, such Lender or such Affiliate of a Lender shall have made any demand under this
Agreement, such Notes, or such other Loan Documents, and although such obligations may be
unmatured. The Administrative Agent, the Issuing Lender and each Lender (for itself and its
Affiliates) agrees to promptly notify the Borrower Representative after any such set-off and
application made by the Administrative Agent, the Issuing Lender, such Lender, or such Affiliate of
a Lender provided that the failure to give such notice shall not affect the validity of such
set-off and application. The rights of the Administrative Agent, the Issuing Lender, each Lender
and each Affiliate of Lender under this Section 7.04 are in addition to any other rights and
remedies (including, without limitation, other rights of set-off) that the Administrative Agent,
the Issuing Lender, such Lender or such Affiliate may have under the other Loans Documents or under
any applicable Legal Requirement.



7.05 Non-exclusivity of Remedies. No remedy conferred upon the Administrative Agent,
the Issuing Lender and the Lenders is intended to be exclusive of any other remedy, and each remedy
shall be cumulative of all other remedies existing by contract, at law, in equity, by statute or
otherwise.



7.06 Application of Proceeds. From and during the continuance of any Event of
Default, any monies or Property actually received by the Administrative Agent pursuant to this
Agreement or any other Loan Document, the exercise of any rights or remedies under any Security
Instrument or any other agreement with any Borrower which secures any of the Obligations, shall be
applied in the following order:



(a) First, to the payment of all amounts, including without limitation costs and expenses
incurred in connection with the collection of such proceeds and the payment of any part of the
Obligations, due to the Administrative Agent under any of the expense reimbursement or indemnity
provisions of this Agreement or any other Loan Document, any Security Instrument or other
collateral documents;



(b) Second, ratably, according to the then unpaid amounts thereof, without preference or
priority of any kind among them, to the payment of the Obligations then due and payable, including
Obligations with respect to Letters of Credit and including any obligations of any Borrower or any
Subsidiary of a Borrower owing to any Swap Counterparty under any Interest Hedge Agreement or
Hydrocarbon Hedge Agreement; and


 


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(c) Third, the remainder, if any, to the Borrower Representative for the benefit of the
Borrowers and their respective Subsidiaries (and their respective successors or assigns), or such
other Person as may be lawfully entitled to receive the same or as a court of competent
jurisdiction may direct.



ARTICLE VIII

MULTIPLE BORROWERS




8.01 Obligations Joint and Several and Unconditional. The obligations of each
Borrower under this Agreement and the Notes are joint and several and absolute and unconditional
irrespective of the value, genuineness, validity, regularity or enforceability of the obligations
of any other Borrower under this Agreement, the Notes or any other Loan Document (collectively, the
“Other Borrower Obligations”), or any substitution, release or exchange of any other
guarantee of or security for any of the Other Borrower Obligations, and, to the fullest extent
permitted by applicable law, irrespective of any other circumstance whatsoever which might
otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being
the intent of this Article VIII that the obligations of each Borrower hereunder shall be absolute
and unconditional under any and all circumstances. Without limiting the generality of the
foregoing, it is agreed that the occurrence of any one or more of the following shall not affect
the liability of any Borrower under this Agreement, the Notes or any other agreement referred to
herein or therein:



(a) at any time or from time to time, without notice to any Borrower, the time for any
performance of or compliance with any of the Other Borrower Obligations shall be extended, or such
performance or compliance shall be waived;



(b) any of the acts mentioned in any of the provisions of this Agreement or the Notes or any
other agreement or instrument referred to herein or therein shall be done or omitted;



(c) the maturity of any of the Other Borrower Obligations shall be accelerated, or any of the
Other Borrower Obligations shall be modified, supplemented or amended in any respect, or any right
under this Agreement or the Notes or any other Loan Document shall be waived or any other guarantee
of any of the Other Borrower Obligations or any security therefor shall be released or exchanged in
whole or in part or otherwise dealt with; or



(d) any lien or security interest granted to, or in favor of, the Administrative Agent, the
Issuing Lender or any Lender or Lenders as security for any of the Other Borrower Obligations shall
fail to be perfected.



Each Borrower hereby expressly waives, with respect to the Other Borrower Obligations diligence,
presentment, demand of payment, protest and all notices whatsoever, and any requirement that the
Administrative Agent, the Issuing Lender or any Lender exhaust any right, power or remedy or
proceed against the other Borrower under this Agreement or the Notes or any other Loan Document, or
against any other Person under any other guarantee of, or security for, any of the Other Borrower
Obligations.


 


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8.02 Reinstatement. The obligations of a Borrower under this Agreement, the Notes or
any other agreement or instrument referred to herein or therein, shall be automatically reinstated
if and to the extent that for any reason any payment by or on behalf of any other Borrower in
respect of the Other Borrower Obligations is rescinded or must be otherwise restored by any holder
of any of the Other Borrower Obligations, whether as a result of any proceedings in a bankruptcy or
reorganization or otherwise, and each Borrower agrees that it will indemnify the Administrative
Agent, the Issuing Lender and each Lender on demand for all reasonable costs and expenses
(including, without limitation, the reasonable fees of counsel) incurred by the Administrative
Agent or such Lender in connection with such rescission or restoration.



8.03 Subrogation. Each Borrower hereby agrees that until the payment and satisfaction
in full of all Other Borrower Obligations, the expiration and termination of this Agreement and the
Commitments of the Lenders under this Agreement, and the expiration or termination of all Letters
of Credit, it shall not exercise any right or remedy arising by reason of any performance by it of
any of its obligations hereunder, whether by subrogation or otherwise, against the Other Borrower
Obligations or any security for any of the Other Borrower Obligations.



8.04 Remedies. Each Borrower agrees that, as between such Borrower and the Lenders,
the obligations of any other Borrower under this Agreement and the Notes may be declared to be
forthwith due and payable as provided in Article VII hereof (and shall be deemed to have become
automatically due and payable in the circumstances provided in Article VII) notwithstanding any
stay, injunction or other prohibition preventing such declaration (or such obligations from being
deemed to have become automatically due and payable), such obligations (whether or not due and
payable by such other Borrower) shall forthwith become due and payable by such Borrower.



8.05 Limitation on Obligations. Notwithstanding any provision to the contrary
contained herein, in any of the Notes or any other Loan Document, to the extent the joint
obligations of the Borrowers would be adjudicated to be invalid or unenforceable for any reason
(including, without limitation, because of applicable state or federal law relating to fraudulent
conveyances or transfers) then the aggregate obligations of each Borrower hereunder and under the
Notes and all other agreements and instruments referred to herein or therein shall be limited to
the maximum amount that is permissible under applicable Legal Requirement (whether federal or state
and including, with limitation, any bankruptcy, insolvency, reorganization, moratorium, or similar
law affecting creditors’ rights generally).



8.06 Borrower Representative. Each Borrower hereby designates Contango as its
representative and agent on its behalf for the purposes of issuing Notices of Borrowing, Notices of
Conversion or Continuations, giving instructions with respect to the disbursement of the proceeds
of the Advances, selecting interest rate options, requesting, extending, increasing Letters of
Credit, giving and receiving all other notices and consents hereunder or under any of the other
Loan Documents and taking all other actions (including in respect of compliance with covenants) on
behalf of any Borrower or Borrowers under the Loan Documents. Borrower Representative hereby
accepts such appointment. Administrative Agent, Issuing Lender and each Lender may regard any
notice or other communication pursuant to any Loan Document from Borrower Representative as a
notice or communication from all Borrowers, and may give any notice or communication required or
permitted to be given to any Borrower or Borrowers hereunder to Borrower Representative on behalf
of such Borrower or Borrowers. Each Borrower agrees that each notice, election, representation and
warranty, covenant, agreement and undertaking made on its behalf by Borrower Representative shall
be deemed for all purposes to have been made by such Borrower and shall be binding upon and
enforceable against such Borrower to the same extent as if the same had been made directly by such
Borrower.


 


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ARTICLE IX

THE ADMINISTRATIVE AGENT AND THE ISSUING LENDER




9.01 Authorization and Action. Each Lender hereby appoints and authorizes the
Administrative Agent to take such action as agent on its behalf and to exercise such powers under
this Agreement as are delegated to the Administrative Agent by the terms hereof and of the other
Loan Documents, together with such powers as are reasonably incidental thereto. As to any matters
not expressly provided for by this Agreement or any other Loan Document (including, without
limitation, enforcement or collection of the Notes), the Administrative Agent shall not be required
to exercise any discretion or take any action, but shall be required to act or to refrain from
acting (and shall be fully protected in so acting or refraining from acting) upon the instructions
of the Required Lenders and such instructions shall be binding upon all Lenders and all holders of
Notes; provided, however, that the Administrative Agent shall not be required to take any
action which exposes the Administrative Agent to personal liability or which is contrary to this
Agreement, any other Loan Document, or applicable Legal Requirement.



9.02 Administrative Agent’s Reliance, Etc. Neither the Administrative Agent nor any
of its Related Parties shall be liable for any action taken or omitted to be taken (INCLUDING THE
ADMINISTRATIVE AGENT’S OR SUCH RELATED PARTY’S OWN NEGLIGENCE) by it or them under or in connection
with this Agreement or the other Loan Documents, except for its or their own gross negligence or
willful misconduct. Without limitation of the generality of the foregoing, the Administrative
Agent: (a) may treat the payee of any Note as the holder thereof until the Administrative Agent
receives written notice of the assignment or transfer thereof signed by such payee and in form
satisfactory to the Administrative Agent; (b) may consult with legal counsel (including counsel for
the Borrowers), independent public accountants, and other experts selected by it and shall not be
liable for any action taken or omitted to be taken in good faith by it in accordance with the
advice of such counsel, accountants, or experts; (c) makes no warranty or representation to any
Lender and shall not be responsible to any Lender for any statements, warranties, or
representations made in or in connection with this Agreement or the other Loan Documents; (d) shall
not have any duty to ascertain or to inquire as to the performance or observance of any of the
terms, covenants or conditions of this Agreement or any other Loan Document on the part of any
Borrower or any Subsidiary of a Borrower or to inspect the Property (including the books and
records) of any Borrower or any Subsidiary of a Borrower; (e) shall not be responsible to any
Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency, or
value of this Agreement or any other Loan Document; and (f) shall incur no liability under or in
respect of this Agreement or any other Loan Document by acting upon any notice, consent,
certificate, or other instrument or writing (which may be by facsimile or telex) believed by it to
be genuine and signed or sent by the proper party or parties.



9.03 The Administrative Agent and Its Affiliates. With respect to its Commitment, the
Advances made by it and the Notes issued to it, the Administrative Agent shall have the same rights
and powers under this Agreement as any other Lender and may exercise the same as though it were not
the Administrative Agent. The term “Lender” or “Lenders” shall, unless otherwise expressly
indicated, include the Administrative Agent in its individual capacity. The Administrative Agent
and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and
generally engage in any kind of business with, any Borrower or any Subsidiary of a Borrower, and
any Person who may do business with or own securities of any Borrower or any such Subsidiary, all
as if the Administrative Agent were not an agent hereunder and without any duty to account therefor
to the Lenders.


 


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9.04 Lender Credit Decision. Each Lender acknowledges that it has, independently and
without reliance upon the Administrative Agent or any other Lender and based on the Initial
Financial Statements and such other documents and information as it has deemed appropriate, made
its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges
that it shall, independently and without reliance upon the Administrative Agent 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 this Agreement.



9.05 Indemnification. THE LENDERS SEVERALLY AGREE TO INDEMNIFY THE ADMINISTRATIVE
AGENT AND THE ISSUING LENDER AND EACH OF THEIR RESPECTIVE RELATED PARTIES (TO THE EXTENT NOT
REIMBURSED BY A BORROWER), ACCORDING TO THEIR RESPECTIVE PRO RATA SHARES FROM AND AGAINST ANY AND
ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS,
EXPENSES, OR DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY,
OR ASSERTED AGAINST THE ADMINISTRATIVE AGENT AND THE ISSUING LENDER IN ANY WAY RELATING TO OR
ARISING OUT OF THIS AGREEMENT OR ANY ACTION TAKEN OR OMITTED BY THE ADMINISTRATIVE AGENT OR THE
ISSUING LENDER UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT (INCLUDING THE ADMINISTRATIVE
AGENT’S AND THE ISSUING LENDER’S AND EACH OF THEIR RELATED PARTIES’ OWN NEGLIGENCE), AND INCLUDING
ENVIRONMENTAL LIABILITIES, PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO PERSON SEEKING
INDEMNIFICATION, 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 THE PERSON SEEKING
INDEMNIFICATION. WITHOUT LIMITATION OF THE FOREGOING, EACH LENDER AGREES TO REIMBURSE THE
ADMINISTRATIVE AGENT AND THE ISSUING LENDER PROMPTLY UPON DEMAND FOR ITS RATABLE SHARE OF ANY OUT
OF POCKET EXPENSES (INCLUDING COUNSEL FEES) INCURRED BY THE ADMINISTRATIVE AGENT IN CONNECTION WITH
THE PREPARATION, EXECUTION, DELIVERY, ADMINISTRATION, MODIFICATION, AMENDMENT, OR ENFORCEMENT
(WHETHER THROUGH NEGOTIATIONS, LEGAL PROCEEDINGS, OR OTHERWISE) OF, OR LEGAL ADVICE IN RESPECT OF
RIGHTS OR RESPONSIBILITIES UNDER, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, TO THE EXTENT THAT THE
ADMINISTRATIVE AGENT OR THE ISSUING LENDER IS NOT REIMBURSED FOR SUCH BY A BORROWER.


 


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9.06 Successor Administrative Agent and Issuing Lender. The Administrative Agent or
the Issuing Lender may resign at any time by giving written notice thereof to the Lenders and the
Borrower Representative and may be removed at any time with or without cause by the Required
Lenders upon receipt of written notice from the Required Lenders to such effect. Upon receipt of
notice of any such resignation or removal, the Required Lenders shall have the right to appoint a
successor Administrative Agent or Issuing Lender with, if any Event of Default has not occurred and
is not continuing, the consent of the Borrower Representative, which consent shall not be
unreasonably withheld. If no successor Administrative Agent or Issuing Lender shall have been so
appointed by the Required Lenders with the consent of the Borrower Representative, and shall have
accepted such appointment, within 30 days after the retiring Administrative Agent’s or Issuing
Lender’s giving of notice of resignation or the Required Lenders’ removal of the retiring
Administrative Agent or Issuing Lender, then the retiring Administrative Agent or Issuing Lender
may, on behalf of the Lenders and the Borrowers, appoint a successor Administrative Agent or
Issuing Lender, which shall be, in the case of a successor agent, a commercial bank organized under
the laws of the United States of America or of any State thereof and having a combined capital and
surplus of at least $500,000,000.00 and, in the case of the Issuing Lender, a Lender. Upon the
acceptance of any appointment as Administrative Agent or Issuing Lender by a successor
Administrative Agent or Issuing Lender, such successor Administrative Agent or Issuing Lender shall
thereupon succeed to and become vested with all the rights, powers, privileges, and duties of the
retiring Administrative Agent or Issuing Lender, and the retiring Administrative Agent or Issuing
Lender shall be discharged from its duties and obligations under this Agreement and the other Loan
Documents, except that the retiring Issuing Lender shall remain the Issuing Lender with respect to
any Letters of Credit outstanding on the effective date of its resignation or removal and the
provisions affecting the Issuing Lender with respect to such Letters of Credit shall inure to the
benefit of the retiring Issuing Lender until the termination of all such Letters of Credit. After
any retiring Administrative Agent’s or Issuing Lender’s resignation or removal hereunder as
Administrative Agent or Issuing Lender, the provisions of this Article IX shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent or
Issuing Lender under this Agreement and the other Loan Documents.




9.07 Collateral Matters.



(a) The Administrative Agent is authorized on behalf of the Secured Parties, without the
necessity of any notice to or further consent from such Secured Parties, from time to time, to take
any actions with respect to any Collateral or Security Instruments which may be necessary to
perfect and maintain Acceptable Security Interests in and Liens upon the Collateral granted
pursuant to the Security Instruments. The Administrative Agent is further authorized (but not
obligated) on behalf of the Secured Parties, without the necessity of any notice to or further
consent from the Secured Parties, from time to time, to take any action in exigent circumstances as
may be reasonably necessary to preserve any rights or privileges of the Secured Parties under the
Loan Documents or applicable Legal Requirement.



(b) The Secured Parties irrevocably authorize the Administrative Agent to release any Lien
granted to or held by the Administrative Agent upon any Collateral (a) upon termination of all the
Commitments, termination of all Letters of Credit, and the payment in full of all outstanding
Advances, Letter of Credit Obligations and all other Obligations payable under this Agreement and
under any other Loan Document; (b) constituting property sold or to be sold or disposed of as part
of or in connection with any disposition permitted under this Agreement or any other Loan Document;
(c) constituting property in which any Borrower or any Subsidiary of a Borrower owned no interest
at the time the Lien was granted or at any time thereafter; or (d) constituting property leased to
any Borrower or any Subsidiary of a Borrower under a lease which has expired or has been terminated
in a transaction permitted under this Agreement or is about to expire and which has not been, and
is not intended by such Borrower or such Subsidiary to be, renewed or extended. Upon the request
of the Administrative Agent at any time, the Secured Parties will confirm in writing the
Administrative Agent’s authority to release particular types or items of Collateral pursuant to
this Section 9.07.


 


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ARTICLE X

MISCELLANEOUS




10.01 Amendments, Etc. No amendment or waiver of any provision of this Agreement, the
Notes, or any other Loan Document, nor consent to any departure by any Borrower or any Subsidiary
of a Borrower therefrom, shall in any event be effective unless the same shall be in writing and
signed by the Required Lenders and the Borrowers, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which given;
provided, however, that:



(a) no amendment, waiver, or consent shall, unless in writing and signed by all the Lenders
and the Borrowers, do any of the following: (i) increase the Borrowing Base or the aggregate
Commitments, (ii) postpone any date fixed for any payment of principal of, or interest on, the
Notes, (iii) waive any of the conditions specified in Section 3.01, (iv) reduce the principal of,
or interest on, the Notes or any fees or other amounts payable hereunder or under any other Loan
Document, (v) postpone any date fixed for any fees or other amounts (other than principal and
interest thereon) payable hereunder or extend the Maturity Date or the Commitment Termination Date,
(vi) change the percentage of Lenders which shall be required for the Lenders or any of them to
take any action hereunder or under any other Loan Document, (vii) amend Section 2.11 or this
Section 10.01, (viii) amend the definition of “Required Lenders” or “Obligations”, (ix) amend or
waive compliance with Section 6.04(a), or (x) release a material portion of the Collateral securing
the Obligations, except for releases of Collateral sold as permitted by this Agreement; and



(b) no amendment, waiver or consent shall, unless in writing and signed by the Administrative
Agent or the Issuing Lender in addition to the Lenders required above to take such action, affect
the rights or duties of the Administrative Agent or the Issuing Lender, as the case may be, under
this Agreement or any other Loan Document; and



(c) no amendment may be made to Section 7.06 which has the effect of subordinating the
priority of the obligations owing to any Swap Counterparty or the Cash Management Bank from the
priority established for such obligations on the date of this Agreement unless such amendment shall
have the consent of, in addition to the consent of the Required Lenders, the Swap Counterparty or
Cash Management Bank, as applicable, so affected.


 


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10.02 Notices, Etc.



(a) Notices Generally. Except in the case of notices and other communications
expressly permitted to be given by telephone (and except as provided in paragraph (b) below), all
notices and other communications provided for herein shall be in writing and shall be delivered by
hand or overnight courier service, mailed by certified or registered mail or sent by facsimile as
follows: (i) if to the Borrower Representative, to it at its address set forth in Schedule I,
(ii) if to the Administrative Agent, to it at its address set forth in Schedule I, (iii) if to the
Issuing Lender, to it at its address set forth in Schedule I; and (iv) if to a Lender, to it at its
address (or facsimile number) set forth in its administrative questionnaire given to the
Administrative Agent. Notices sent by hand or overnight courier service, or mailed by certified or
registered mail, shall be deemed to have been given when received; notices sent by facsimile shall
be deemed to have been given when sent (except that, if not given during normal business hours for
the recipient, shall be deemed to have been given at the opening of business on the next business
day for the recipient), except that notices and communications to the Administrative Agent or the
Issuing Lender pursuant to Article II or Article IX shall not be effective until received by the
Administrative Agent or Issuing Lender. Notices delivered through electronic communications to the
extent provided in paragraph (b) below, shall be effective as provided in said paragraph (b).



(b) Electronic Communications. Notices and other communications to the Lenders and
the Issuing Lender hereunder may be delivered or furnished by electronic communication (including
e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative
Agent, provided that the foregoing shall not apply to notices to any Lender or the Issuing
Lender pursuant to Article II. Unless the Administrative Agent otherwise prescribes, (i) notices
and other communications sent to an e-mail address shall be deemed received upon the sender’s
receipt of an acknowledgement from the intended recipient (such as by the “return receipt
requested” function, as available, return e-mail or other written acknowledgement),
provided that if such notice or other communication is not sent during the normal business
hours of the recipient, such notice or communication shall be deemed to have been sent at the
opening of business on the next business day for the recipient, and (ii) notices or communications
posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the
intended recipient at its e-mail address as described in the foregoing clause (i) of notification
that such notice or communication is available and identifying the website address therefor.



(c) Change of Address, Etc. Any party hereto may change its address or facsimile
number for notices and other communications hereunder by notice to the other parties hereto.



10.03 No Waiver; Remedies. No failure on the part of any Lender, the Administrative
Agent or the Issuing Lender to exercise, and no delay in exercising, any right hereunder or under
any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such
right preclude any other or further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any remedies provided by law.



10.04 Costs and Expenses. The Borrowers agree to pay within three Business Days
following demand, (a) all reasonable and documented out-of-pocket costs and expenses of the
Administrative Agent in connection with the preparation, execution, delivery, administration,
modification, and amendment of this Agreement, the Notes and the other Loan Documents including,
without limitation, the reasonable and documented fees and out-of-pocket expenses of counsel for
the Administrative Agent with respect to advising the Administrative Agent as to its rights and
responsibilities under this Agreement, and (b) all reasonable and documented out-of-pocket costs
and expenses, if any, of the Administrative Agent, the Issuing Lender, and each Lender (including,
without limitation, reasonable and documented counsel fees and expenses of the Administrative
Agent, the Issuing Lender, and each Lender) in connection with the enforcement (whether through
negotiations, legal proceedings, or otherwise) of this Agreement, the Notes and the other Loan
Documents.


 


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10.05 Binding Effect. Subject to Section 3.01(a), this Agreement shall become
effective when it shall have been executed by the Borrowers, the Administrative Agent, and each
Lender and thereafter shall be binding upon and inure to the benefit of the Borrowers, the
Administrative Agent, the Issuing Lender, and each Lender and their respective successors and
assigns, except that the Borrowers shall not have the right to assign its rights or delegate its
duties under this Agreement or any interest in this Agreement without the prior written consent of
each Lender.




10.06 Lender Assignments and Participations.



(a) Assignments. Any Lender may assign to one or more banks or other entities all or
any portion of its rights and obligations under this Agreement (including, without limitation, all
or a portion of its Commitments, the Advances owing to it, the Notes held by it, and the
participation interest in the Letter of Credit Obligations held by it); provided, however,
that (i) each such assignment shall be of a constant, and not a varying, percentage of such
Lender’s rights and obligations assigned under this Agreement and shall be an equal percentage with
respect to both its obligations owing in respect of the Commitments and the related Advances and
Letters of Credit, (ii) the amount of the Commitments and Advances of such Lender being assigned
pursuant to each such assignment (determined as of the date of the Assignment and Assumption with
respect to such assignment) shall be, if to an entity other than a Lender, not less than
$10,000,000 (or, if less, the amount of its remaining Commitments and Advances in connection with
an assignment of all such remaining Commitments and Advances) and, with respect to amounts equal to
$10,000,000 or greater, shall be an integral multiple of $1,000,000 in excess thereof, (iii) the
amount of the Commitments and Advances held by an assignee, after giving effect to all such
assignments to such assignee, shall not be less than $10,000,000, (iv) each such assignment shall
be to an Eligible Assignee, (v) the parties to each such assignment shall execute and deliver to
the Administrative Agent, for its acceptance and recording in the Register, an Assignment and
Assumption, together with the Notes subject to such assignment, and (vi) each Eligible Assignee
(other than the Eligible Assignee of the Administrative Agent) shall pay to the Administrative
Agent a $5,000 administrative fee. Upon such execution, delivery, acceptance and recording, from
and after the effective date specified in each Assignment and Assumption, which effective date
shall be at least three Business Days after the execution thereof, (A) the assignee thereunder
shall be a party hereto for all purposes and, to the extent that rights and obligations hereunder
have been assigned to it pursuant to such Assignment and Assumption, have the rights and
obligations of a Lender hereunder and (B) such Lender thereunder shall, to the extent that rights
and obligations hereunder have been assigned by it pursuant to such Assignment and Assumption,
relinquish its rights and be released from its obligations under this Agreement (and, in the case
of an Assignment and Assumption covering all or the remaining portion of such Lender’s rights and
obligations under this Agreement, such Lender shall cease to be a party hereto).


 


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(b) Terms of Assignments. By executing and delivering an Assignment and Assumption,
the Lender thereunder and the assignee thereunder confirm to and agree with each other and the
other parties hereto as follows: (i) other than as provided in such Assignment and Assumption,
such Lender makes no representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this Agreement or the
execution, legality, validity, enforceability, genuineness, sufficiency of value of this Agreement
or any other instrument or document furnished pursuant hereto; (ii) such Lender makes no
representation or warranty and assumes no responsibility with respect to the financial condition of
any Borrower or any Subsidiary of a Borrower or the performance or observance by any Borrower or
any Subsidiary of a Borrower of any of their respective obligations under this Agreement or any
other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has
received a copy of this Agreement, together with copies of the Initial Financial Statements
referred to in Section 4.05 and such other documents and information as it has deemed appropriate
to make its own credit analysis and decision to enter into such Assignment and Assumption;
(iv) such assignee will, independently and without reliance upon the Administrative Agent, such
Lender 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 this
Agreement; (v) such assignee appoints and authorizes the Administrative Agent to take such action
as agent on its behalf and to exercise such powers under this Agreement as are delegated to the
Administrative Agent by the terms hereof, together with such powers as are reasonably incidental
thereto; and (vi) such assignee agrees that it will perform in accordance with their terms all of
the obligations which by the terms of this Agreement are required to be performed by it as a
Lender.



(c) The Register. The Administrative Agent shall maintain at its address referred to
in Section 10.02 a copy of each Assignment and Assumption delivered to and accepted by it and a
register for the recordation of the names and addresses of the Lenders and the Commitments of, and
principal amount of the Advances owing to, each Lender from time to time (the “Register”).
The entries in the Register shall be conclusive and binding for all purposes, absent manifest
error, and the Borrowers, the Administrative Agent, the Issuing Lender, and the Lenders may treat
each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrowers or any Lender at any
reasonable time and from time to time upon reasonable prior notice.



(d) Procedures. Upon its receipt of an Assignment and Assumption executed by a Lender
and an Eligible Assignee, together with the Notes subject to such assignment, the Administrative
Agent shall, if such Assignment and Assumption has been completed and is in substantially the form
of the attached Exhibit A, (i) accept such Assignment and Assumption, (ii) record the information
contained therein in the Register, and (iii) give prompt notice thereof to the Borrower
Representative. Within five Business Days after the Borrower Representative’s receipt of such
notice, the Borrowers shall execute and deliver to the Administrative Agent in exchange for the
surrendered Notes (A) a new Note to the order of the Eligible Assignee in an amount equal to the
Commitment assumed by it pursuant to such Assignment and Assumption, and (B) if the applicable
Lender has retained any Commitment hereunder, a new Note to the order of such Lender in an amount
equal to the Commitment retained by it hereunder. Such new Notes shall be dated the effective date
of such Assignment and Assumption and shall otherwise be in substantially the form of the attached
Exhibit C.


 


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(e) Participations.



(i) Each Lender may sell participations to one or more banks or other entities in or to all or
a portion of its rights and obligations under this Agreement (including, without limitation, all or
a portion of its Commitments, the Advances owing to it, its participation interest in the Letter of
Credit Obligations, if any, and the Notes held by it); provided, however, that (A) such
Lender’s obligations under this Agreement (including, without limitation, its Commitments to the
Borrowers hereunder) shall remain unchanged, (B) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations, (C) such Lender shall remain the
holder of any such Notes for all purposes of this Agreement, (D) the Borrowers, the Administrative
Agent, and the Issuing Lender 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, and
(E) such Lender shall not require the participant’s consent to any matter under this Agreement,
except for change in the principal amount of the Notes, reductions in fees or interest, releasing
all or substantially all of any Collateral, permitting the Borrowers or any Subsidiary of a
Borrower to enter into any merger or consolidation with or into any other Person, postponement of
any date fixed for any payment of principal of, or interest on, the Notes or any fees or other
amounts payable hereunder, or extensions of the Maturity Date or the Commitment Termination Date.



(ii) Subject to paragraph (iii) of this Section 10.06(e), each Borrower agrees that each
participant shall be entitled to the benefits of, and subject to the requirements of, Section 2.12,
Section 2.13 and Section 2.14 to the same extent as if it were a Lender and had acquired its
interest by assignment pursuant to paragraph (a) of this Section. To the extent permitted by law,
each participant also shall be entitled to the benefits of Section 7.04 as though it were a Lender,
provided such participant agrees to be subject to Section 2.11 as though it were a Lender.



(iii) A participant shall not be entitled to receive any greater payment under Section 2.13
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 is not organized in the United States shall
not be entitled to the benefits of Section 2.14 unless the Borrowers are notified of the
participation sold to such participant and such participant agrees, for the benefit of the
Borrowers, to comply with Section 2.14(d), in which case Section 2.14 shall be applied as if such
participant had become a Lender and had acquired its interest by assignment pursuant to
paragraph (a) of this Section.



(iv) Any Lender may at any time pledge or assign a security interest in all or any portion of
its rights under this Agreement (including under its Note(s)) to secure obligations of such Lender,
including any pledge or assignment to secure obligations to a Federal Reserve Bank;
provided that no such pledge or assignment shall release such Lender from any of its
obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.


 


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10.07 Indemnification. EACH BORROWER SHALL INDEMNIFY THE ADMINISTRATIVE AGENT (AND
ANY SUB-AGENT THEREOF), EACH LENDER AND THE ISSUING 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 REASONABLE FEES, CHARGES AND DISBURSEMENTS OF ANY COUNSEL FOR ANY INDEMNITEE),
INCURRED BY ANY INDEMNITEE OR ASSERTED AGAINST ANY INDEMNITEE BY ANY THIRD PARTY OR BY A BORROWER
OR ANY OTHER BORROWER ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF (I) THE EXECUTION OR
DELIVERY OF THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED
HEREBY OR THEREBY, THE PERFORMANCE BY THE PARTIES HERETO OF THEIR RESPECTIVE OBLIGATIONS HEREUNDER
OR THEREUNDER OR THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, (II) ANY
ADVANCE OR LETTER OF CREDIT OR THE USE OR PROPOSED USE OF THE PROCEEDS THEREFROM (INCLUDING ANY
REFUSAL BY THE ISSUING LENDER 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), (III) ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS SUBSTANCES ON OR
FROM ANY PROPERTY OWNED OR OPERATED BY SUCH BORROWER OR ANY OF ITS SUBSIDIARIES, OR ANY
ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO SUCH BORROWER OR ANY OF ITS SUBSIDIARIES, OR (IV) ANY
ACTUAL OR PROSPECTIVE CLAIM, LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE
FOREGOING, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY, WHETHER BROUGHT BY A THIRD PARTY OR
BY SUCH BORROWER OR ANY OTHER LOAN PARTY, AND REGARDLESS OF WHETHER ANY INDEMNITEE IS A PARTY
THERETO, IN ALL CASES, WHETHER OR NOT CAUSED BY OR ARISING, IN WHOLE OR IN PART, OUT OF THE
COMPARATIVE, CONTRIBUTORY OR SOLE NEGLIGENCE OF THE INDEMNITEE, 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. ALL AMOUNTS DUE UNDER THIS SECTION 10.07 SHALL BE PAYABLE WITHIN TEN BUSINESS
DAYS AFTER DEMAND THEREFOR. THE AGREEMENTS IN THIS SECTION SHALL SURVIVE THE RESIGNATION OF THE
ADMINISTRATIVE AGENT, THE RESIGNATION OF THE ISSUING LENDER, THE REPLACEMENT OF ANY LENDER, THE
TERMINATION OF THE COMMITMENTS AND THE REPAYMENT, SATISFACTION OR DISCHARGE OF ALL THE OTHER
OBLIGATIONS.



10.08 No Consequential Damages. The parties to this Agreement agree not to assert any
claim against any other party to this Agreement or any other Loan Document, any Affiliates of the
foregoing, or any of their respective directors, officers, employees, attorneys, agents, and
advisers, on any theory of liability, for special, indirect, consequential, or punitive damages
arising out of or otherwise relating to the Loan Documents.


 


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10.09 Execution in Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall constitute one and
the same agreement.



10.10 Survival of Representations, Etc. All representations and warranties contained
in this Agreement or made in writing by or on behalf of the Borrowers in connection herewith shall
survive the execution and delivery of this Agreement and the Loan Documents, the making of the
Advances and any investigation made by or on behalf of the Lenders, none of which investigations
shall diminish any Lender’s right to rely on such representations and warranties. All obligations
of the Borrowers provided for in Section 2.12, Section 2.13, Section 2.14(c), Section 10.04, and
Section 10.07 and all of the obligations of the Lenders in Section 9.05 shall survive any
termination of this Agreement and repayment in full of the Obligations.



10.11 Severability. In case one or more provisions of this Agreement or the other
Loan Documents shall be invalid, illegal or unenforceable in any respect under any applicable Legal
Requirement, the validity, legality, and enforceability of the remaining provisions contained
herein or therein shall not be affected or impaired thereby.



10.12 Business Loans. Each Borrower warrants and represents that the Loans evidenced
by the Notes are and shall be for business, commercial, investment, or other similar purposes and
not primarily for personal, family, household, or agricultural use, as such terms are used in
Chapter One (“Chapter One”) of the Texas Credit Code. At all such times, if any, as
Chapter One shall establish a Maximum Rate, the Maximum Rate shall be the “indicated rate ceiling”
(as such term is defined in Chapter One) from time to time in effect.



10.13 Governing Law. This Agreement, the Notes and the other Loan Documents shall be
governed by, and construed and enforced in accordance with, the laws of the State of Texas.
Without limiting the intent of the parties set forth above, (a) Chapter 346 of the Texas Finance
Code, as amended (relating to revolving loans and revolving tri-party accounts (formerly Tex. Rev.
Civ. Stat. Ann. Art. 5069, Ch. 15)), shall not apply to this Agreement, the Notes, or the
transactions contemplated hereby and (b) to the extent that any Lender may be subject to Texas law
limiting the amount of interest payable for its account, such Lender shall utilize the indicated
(weekly) rate ceiling from time to time in effect. Each Letter of Credit shall be governed by
either the Uniform Customs and Practice for Documentary Credits, International Chamber of Commerce
Publication No. 500 (2006 version) or the International Standby Practices (ISP98), International
Chamber of Commerce Publication No. 600 (and any subsequent revisions thereof approved by a
Congress of the International Chamber of Commerce and adhered to by the Issuing Lender).



10.14 Submission to Jurisdiction. Each Borrower hereby irrevocably submits to the
jurisdiction of any Texas state or federal court sitting in Dallas, Texas in any action or
proceeding arising out of or relating to this Agreement or the other Loan Documents, and each
Borrower hereby irrevocably agrees that all claims in respect of such action or proceeding may be
heard and determined in such court. Each Borrower hereby unconditionally and irrevocably waives,
to the fullest extent it may effectively do so, any right it may have to the defense of an
inconvenient forum to the maintenance of such action or proceeding. Each Borrower hereby agrees
that service of copies of the summons and complaint and any other process which may be served in
any such action or proceeding may be made by mailing or delivering a copy of such process to such
Borrower at its address set forth in this Agreement. Each Borrower agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Nothing in this Section 10.14 shall
affect the rights of any Lender to serve legal process in any other manner permitted by the law or
affect the right of any Lender to bring any action or proceeding against any Borrower or any
Property of any Borrower in the courts of any other jurisdiction.


 


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10.15 Confidentiality. Each of the Administrative Agent and the Lenders agrees to
maintain the confidentiality of the Information (as defined below), except that Information may be
disclosed (a) to its and its Affiliates’ directors, officers, employees and agents, including
accountants, legal counsel and other advisors (it being understood that the Persons to whom such
disclosure is made will be informed of the confidential nature of such Information and instructed
to keep such Information confidential), (b) to the extent requested by any regulatory authority
(including any self-regulatory authority, such as the National Association of Insurance
Commissioners), (c) to the extent required by applicable Legal Requirement or by any subpoena or
similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any
remedies hereunder or under any other Loan Document or any 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 10.15, to (i) any assignee of or participant in, or any prospective assignee of or
participant in, any of its rights or obligations under this Agreement or (ii) any actual or
prospective counterparty (or its advisors) to any swap or derivative transaction relating to a
Borrower and its obligations, (g) with the consent of the Borrower Representative or (h) to the
extent such Information (x) becomes publicly available other than as a result of a breach of this
Section 10.15 or (y) becomes available to the Administrative Agent or any Lender on a
nonconfidential basis from a source other than a Borrower. For purposes of this Section 10.15,
“Information” means all information received from a Borrower or any of Subsidiary of a
Borrower relating to any such Person or any of their respective businesses, other than any such
information that is available to the Administrative Agent or any Lender on a nonconfidential basis
prior to disclosure by any such Person. Any Person required to maintain the confidentiality of
Information as provided in this Section 10.15 shall be considered to have complied with its
obligation to do so if such Person has exercised the same degree of care to maintain the
confidentiality of such Information as such Person would accord to its own confidential
information. Notwithstanding anything herein to the contrary, “Information” shall not include, and
the Administrative Agent and each Lender may disclose without limitation of any kind, any
information with respect to the “tax treatment” and “tax structure” (in each case, within the
meaning of Treasury Regulation Section 1.6011-4) of the transactions contemplated hereby and all
materials of any kind (including opinions or other tax analyses) that are provided to the
Administrative Agent or such Lender relating to such tax treatment and tax structure;
provided that with respect to any document or similar item that in either case contains
information concerning the tax treatment or tax structure of the transaction as well as other
information, this sentence shall only apply to such portions of the document or similar item that
relate to the tax treatment or tax structure of the Loans, Letters of Credit and transactions
contemplated hereby.


 


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10.16 .WAIVER OF JURY TRIAL. EACH BORROWER, THE LENDERS, THE ISSUING LENDER AND THE
ADMINISTRATIVE AGENT HEREBY ACKNOWLEDGE THAT THEY HAVE BEEN REPRESENTED BY AND HAVE CONSULTED WITH
COUNSEL OF THEIR CHOICE, AND HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY WAIVE
ANY AND ALL RIGHT TO TRIAL BY JURY IN RESPECT OF ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.



10.17 USA PATRIOT ACT Notice. Each Lender that is subject to the Act (as hereinafter
defined) and the Issuing Lender (for itself and not on behalf of any Lender) and the Administrative
Agent (for itself and not on behalf of any Lender) hereby notifies each 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
such Borrower, which information includes the name and address of such Borrower and other
information that will allow such Lender, Issuing Lender or the Administrative Agent, as applicable,
to identify each Borrower in accordance with the Act.



10.18 Amendment and Restatement. This Agreement amends and restates in its entirety
the Original Credit Agreement. All rights, benefits, indebtedness, interest, liabilities and
obligations of the parties to the Original Credit Agreement are hereby amended, restated and
superseded in their entirety according to the terms and provisions set forth herein. All
“Obligations” under the Original Credit Agreement, including without limitation (a) the Debt
outstanding under the Original Credit Agreement and the Loan Documents (as defined in the Original
Credit Agreement; together with the Original Credit Agreement, the “Existing Loan
Documents) and all accrued and unpaid interest thereon and (b) all accrued and unpaid fees
under the Existing Loan Documents, are hereby renewed by this Agreement and shall, from and after
the Effective Date, be governed by this Agreement and the other Existing Loan Documents (other than
such Existing Loan Documents that are being replaced as of the Effective Date with such amended and
restated Loan Documents described in this Agreement). Effective as of the Effective Date, all
references to the Loan Agreement in any other Loan Document shall refer to this Agreement and all
references to terms defined in the Loan Agreement shall refer to such terms as defined in this
Agreement. The other Existing Loan Documents and the existing Liens and security interests in the
Collateral granted in the Original Credit Agreement and such other Existing Loan Documents are
hereby continued and remain in full force and effect. This Agreement shall not result in or
constitute a waiver of any Default or Event of Default under the Original Credit Agreement or a
release, discharge or forgiveness of any amount payable pursuant to the Original Credit Agreement,
which such amounts are payable pursuant to the terms of this Agreement. Each Borrower hereby
acknowledges, warrants, represents and agrees that this Agreement is not intended to be, and shall
not be deemed or construed to be, a novation or release of the Existing Loan Documents. All
Schedules attached to the Original Credit Agreement are hereby replaced by the Schedules attached
to this Agreement.


 


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10.19 ORAL AGREEMENTS. THIS WRITTEN AGREEMENT AND THE LOAN DOCUMENTS, AS DEFINED IN
THIS AGREEMENT, REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.




THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.



[Remainder of this page intentionally left blank. Signature page follows.]





 


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EXECUTED as of the date first above written.



	 	 	 	 	 
	 	BORROWERS:




CONTANGO OIL & GAS COMPANY

 	 
	 	By:  	/s/ Kenneth R. Peak
 	 
	 	 	Name:  	Kenneth R. Peak 	 
	 	 	Title:  	Chairman and Chief Executive
Officer 	 
	 
	 	CONTANGO ENERGY COMPANY

 	 
	 	By:  	/s/ Kenneth R. Peak
 	 
	 	 	Name:  	Kenneth R. Peak 	 
	 	 	Title:  	Chairman and Chief Executive
Officer 	 
	 
	 	CONTANGO OPERATORS, INC.

 	 
	 	By:  	/s/ Kenneth R. Peak
 	 
	 	 	Name:  	Kenneth R. Peak 	 
	 	 	Title:  	Chairman and Chief Executive
Officer 	 



Signature Page to Amended and

Restated Credit Agreement





 


 









 








	 	 	 	 	 
	 	LENDERS:




GUARANTY BANK

 	 
	 	By:  	/s/ Kelly L. Elmore III
 	 
	 	 	Kelly L. Elmore III 	 
	 	 	Senior Vice President 	 



Signature Page to Amended and

Restated Credit Agreement





 


 









 







SCHEDULE I




BORROWERS, ADMINISTRATIVE AGENT, AND LENDER INFORMATION




	 	 	 
	Borrowers:
	 	 
	 
	 	 
	Contango Oil & Gas Company

	 	3700 Buffalo Speedway
	 

	 	Suite 960
	 

	 	Houston, Texas 77098
	 

	 	Attention: Mr. Kenneth R.
Peak
	 
	 	 
	Contango Energy Company

	 	3700 Buffalo Speedway
	 

	 	Suite 960
	 

	 	Houston, Texas 77098
	 

	 	Attention: Mr. Kenneth R.
Peak
	 
	 	 
	Contango Operators, Inc.

	 	3700 Buffalo Speedway
	 

	 	Suite 960
	 

	 	Houston, Texas 77098
	 

	 	Attention: Mr. Kenneth R.
Peak
	 
	 	 
	Administrative Agent/Issuing Lender:
	 	 
	 
	 	 
	Guaranty Bank

	 	8333 Douglas Avenue
	 

	 	10th Floor
	 

	 	Dallas, Texas 75225
	 

	 	Facsimile: 214.360.3463
	 

	 	Attention: Mr. John Clark






Commitments




	 	 	 	 	 
	Lenders:	 	Commitments:	 
	Guaranty Bank
	 	$	50,000,000.00	 
	Total:
	 	$	50,000,000.00	 






Schedule I

Borrower, Administrative Agent, and Lender Information