Exhibit
10.9


 




 





AMENDED AND RESTATED
CREDIT AGREEMENT


 












 


CARBON ENERGY CORPORATION
(USA)


 


 


and


 


 


BANK OF OKLAHOMA,
NATIONAL ASSOCIATION


 












 


DECEMBER 31, 2002




 





 

















 


AMENDED AND RESTATED CREDIT AGREEMENT


 


THIS AMENDED AND RESTATED CREDIT AGREEMENT, dated as of
December 31, 2002, is by and between CARBON ENERGY CORPORATION (USA), a
Colorado corporation (“Borrower”), and BANK OF OKLAHOMA, NATIONAL ASSOCIATION,
a national banking association (“BOK”).


 


RECITALS


 


A.  Borrower
and Wells Fargo Bank, N.A. (“Wells Fargo”) are parties to an Amended and
Restated Credit Agreement dated as of August 14, 2002, as previously amended
(as so amended, the “Prior Credit Agreement”).


 


B.  Borrower
and BOK desire that this Amended and Restated Credit Agreement be executed and
delivered in order to provide for the terms: (1) upon which BOK will purchase
the Wells Fargo Loan (as defined below) from Wells Fargo, (2) upon which BOK
will make advances to Borrower and issue letters of credit upon the request of
Borrower and by which such advances and letters of credit will be governed and
repaid, and (3) upon which BOK will extend credit to Borrower in connection
with Borrower’s hedging activities through BOK in order to facilitate such
hedging activities and by which such extensions of credit will be governed and
repaid.


 


AGREEMENT


 


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


 


ARTICLE I


 


Definitions and
References


 


Section 1.1.  Defined
Terms.  As used in this Agreement,
each of the following terms shall have the meaning given it in this Section 1.1
or in the sections and subsections referred to below:


 


“Advance” means an advance of funds by BOK to
or for the account of Borrower pursuant to Section 2.1 below.


 


“Affiliate” means, as to any Person, each
Person that directly or indirectly (through one or more intermediaries or
otherwise) controls, is controlled by, or is under common control with, that
Person; provided that, for the purposes of this definition, a Person shall be
deemed to control another Person if the controlling Person possesses, directly
or indirectly, the power to direct or control the direction of the management
and policies of such entity, whether through the ownership of capital stock,
partnership or membership interests or other interests therein, by contract or
otherwise, and shall include without limitation any general partner or any
controlling


 


1

















 


stockholder, controlling member or controlling owner thereof.


 


“Agreement” means this Amended and Restated
Credit Agreement.


 


“Borrower” means Carbon Energy Corporation
(USA), a Colorado corporation.


 


“Borrower/BOK Hedging Assets” means Hedging
Assets of Borrower in connection with any one or more hedging transactions of
Borrower arranged through BOK and as to which BOK is acting as the
counterparty.


 


“Borrower/BOK Hedging Obligations” means
Hedging Obligations incurred by Borrower to BOK in connection with any one or
more hedging transactions of Borrower arranged through BOK and as to which BOK
is acting as the counterparty.


 


“Borrowing Base” means, at any time prior to
the Maturity Date, the aggregate loan value of all Borrowing Base Properties,
as determined by BOK in its sole and absolute discretion, using such
assumptions as to pricing, discount factors, discount rates, expenses and other
factors as BOK customarily uses as to borrowing-base oil and gas loans at the
time such determination is made; provided that the Borrowing Base for the
Borrowing Base Period from the date of this Agreement through the first
redetermination or reduction of the Borrowing Base pursuant to Section 2.9
below shall be $19,000,000, unless Borrower and BOK hereafter mutually agree
upon a different amount.


 


“Borrowing Base Notice” means a written notice
sent to Borrower by BOK notifying Borrower of the Borrowing Base determined by
BOK for the upcoming Borrowing Base Period or other period.


 


“Borrowing Base Period” means: (a) the time
period from the date of this Agreement through May 31, 2003; (b) thereafter,
each six-month period beginning on June 1 or December 1 of each year, until the
June 1 or December 1 most nearly preceding the Maturity Date; and (c)
thereafter, the time period from the June 1 or December 1 most nearly preceding
the Maturity Date through the Maturity Date.


 


“Borrowing Base Properties” means any and all
interests of Borrower, whether now owned or hereafter acquired, in any and all
oil and/or gas properties, wells, leases, gathering systems, processing plants
and other related rights and assets to which BOK now or hereafter gives value
in determining the Borrowing Base.


 


“Business Day” means: (a) with respect to the
making, prepaying, repaying or issuance of, or otherwise relating to, any LIBOR
Tranche, any day which is not a Saturday, a Sunday or a legal holiday on which
commercial banks are authorized or required to be closed in Denver, Colorado,
in Tulsa, Oklahoma or in New York, New York and which is also a day on which
dealings are carried on in the London interbank eurocurrency market, and (b)
for all other purposes hereof, any day which is not a Saturday, a Sunday or a
legal holiday on which commercial banks are authorized or required to be closed
in Denver, Colorado or in Tulsa, Oklahoma.


 


2

















 


“Capital Additions” means, as to any Person:
(a) the net proceeds of any sale by or on behalf of such Person or any
subsidiary of such Person of any common stock, preferred stock, notes, debentures
or other securities issued by such Person or any subsidiary of such Person, net
of reasonable brokerage, printing, accounting, engineering, legal and other
costs actually paid to third parties in connection therewith; plus (b) any and
all capital contributions to such Person or other capital additions to such
Person.


 


“Collateral” means all tangible or intangible
real or personal property which, under the terms of any Security Document, is
or is purported to be covered thereby or subject thereto.


 


“Commitment Amount” means, at any time, the
lesser of:  (a)  the Maximum Loan Amount, or (b) the
Borrowing Base at that time.


 


“Commitment Fee Rate” means, at any time during
a calendar quarter, the per annum rate set forth below corresponding to the
applicable Loan Usage Factor, which shall be determined as of the close of
business on the last Business Day of the preceding calendar quarter:


 


	
  Loan Usage Factor

  	
   

  	
  Commitment

  Fee Rate

  	
   

  
	
  > 60%

  	
   

  	
  0.375

  	
  %

  
	
  < 60%

  	
   

  	
  0.500

  	
  %

  



 


“Consolidated” means, as to any Person, the combined
financial statements, financial position, financial condition, net income,
assets, liabilities and other financial data of such Person and any and all
Affiliates of such Person that would be considered consolidated Affiliates
under GAAP.


 


“Cumulative Net Income” means, with respect to
any Person, the sum of such Person’s net income, determined in accordance with
GAAP or with another accounting system approved in writing by BOK, for each
completed Fiscal Quarter after the date from which such calculation is being
made; provided that, if such Person’s net income is negative for any such
Fiscal Quarter, in computing Cumulative Net Income, such Person’s net income
shall be deemed to be zero for that Fiscal Quarter.


 


“Current Ratio” means, at any time and from
time to time, the ratio of: (a) Borrower’s current assets (including as a
current asset any unused availability of the Revolving Loan, excluding assets
resulting from any mark-to-market of unliquidated commodity or interest rate
hedge contracts); to (b) the sum of Borrower’s current liabilities (excluding
current maturities of the Revolving Loan and liabilities resulting from any
mark-to-market of unliquidated commodity or interest rate hedge contracts), all
determined in accordance with GAAP or with another accounting system agreed to
in writing by BOK.


 


“Debt” means, as to any Person, all
indebtedness, liabilities and obligations of such Person, whether primary or
secondary, direct or indirect, absolute or contingent.


 


3

















 


“Default” means any Event of Default and any
default, event or condition which would, with the giving of any requisite
notice and/or the passage of time, constitute an Event of Default.


 


“Distribution” means any distribution payable in
cash or property to any stockholder of Borrower, or any purchase, redemption or
retirement of, or other payment with respect to, any capital stock of Borrower.


 


“ERISA” means the Employee Retirement Income
Security Act of 1974, as amended from time to time, together with all rules and
regulations promulgated with respect thereto.


 


“ERISA Plan” means any pension benefit plan
subject to Title IV of ERISA maintained by Borrower or any Affiliate of
Borrower to which Borrower is required to contribute.


 


“Event of Default” has the meaning given such
term in Section 7.1 below.


 


“Extended Hedging Repayment Date” means, with
respect to any Borrower/BOK Hedging Obligation payable on any particular
Hedging Settlement Date, such later date (if any such later date is agreed to
by the parties in the relevant confirmation or other document delivered
pursuant to or in connection with the ISDA Agreement) to which Borrower’s
obligation to make payment or delivery is extended.


 


“Fiscal Quarter” means a three-month period
ending on the last day of March, June, September or December of any year.


 


“Fiscal Year” means a twelve-month period
ending on December 31 of any year.


 


“GAAP” means those generally accepted
accounting principles and practices which are recognized as such by the
Financial Accounting Standards Board (or any generally recognized successor)
and which, in the case of Borrower: (a) are applied for all periods in a
consistent manner, and (b) are consistently applied for all periods after the
date hereof so as to properly reflect the financial condition, and the results
of operations and changes in financial position, of Borrower.


 


“Guarantor” means Carbon Energy Corporation, a
Colorado corporation.


 


“Guaranty” means the Guaranty executed and
delivered by Guarantor to BOK to guaranty the Obligations.


 


“Hedging Assets” means, with respect to any
Person, all assets of such Person under commodity hedge, commodity swap,
exchange, collar or cap agreements, fixed price agreements and all other
agreements and arrangements designed to protect such Person against changes in
interest rates or currency exchange rates or fluctuations in the price of oil,
gas, hydrocarbons or other commodities.


 


 “Hedging
L/C” means the standby letter of credit in the amount of $1,800,000, issued
by BOK pursuant to Section 2.2 below, naming Wells Fargo, as beneficiary, for
the purpose of


 


4

















 


providing security for amounts now or hereafter owed by Borrower to
Wells Fargo with respect to hedging positions initiated by Borrower prior to
the date hereof as to which Wells Fargo is the counterparty.


 


“Hedging Loan” has the meaning given such term
in Section 2.2 below.


 


“Hedging Obligations” means, with respect to
any Person, all liabilities of such Person under commodity hedge, commodity
swap, exchange, collar or cap agreements, fixed price agreements and all other
agreements and arrangements designed to protect such Person against changes in
interest rates or currency exchange rates or fluctuations in the price of oil,
gas, hydrocarbons or other commodities.


 


“Hedging Settlement Date” means, with respect
to any Borrower/BOK Hedging Obligation, the first date upon which, under the
ISDA Agreement (and without consideration of any extensions granted thereunder
or in connection therewith), payment or delivery is due from Borrower to BOK
for any amount payable in respect of such Borrower/BOK Hedging Obligation.


 


“Initial Advance” means the first Advance, to
be made within 30 days of the date hereof, in the amount necessary to repay in
full Borrower’s existing indebtedness to Wells Fargo, up to, but not in excess
of, the Commitment Amount.


 


“Initial Engineering Report” means the report
or reports covering the Borrowing Base Properties, dated effective as of
December 31, 2001, prepared by Ryder Scott Company, a true and correct copy of
which has been furnished by Borrower to BOK.


 


“Initial Financial Statements” means the
audited annual financial statements of Guarantor dated as of December 31, 2001,
and the quarterly financial statements of Guarantor dated as of September 30,
2002, copies of  which Initial Financial
Statements have heretofore been delivered by Guarantor to BOK.


 


“Interest Rate Election” means an election
delivered by Borrower to BOK from time to time in the form of Exhibit D
attached hereto and made a part hereof.


 


“ISDA Agreement” means an ISDA Master Agreement
hereafter entered into between Borrower and BOK governing hedging transactions
arranged by BOK on behalf of Borrower and as to which BOK is named as the
counterparty.


 


“Letter of Credit” means a standby letter of
credit issued by BOK pursuant to Section 2.1 below, which shall not include the
Hedging L/C.


 


“LIBOR (Adjusted)” means, with respect to each
LIBOR Tranche and the related LIBOR Interest Period, the rate of interest per
annum determined pursuant to the following formula:


 


	
   

  	
   

  	
  LIBOR (Unadjusted)

  	
   

  
	
  LIBOR (Adjusted)
  =

  	
   

  	
  1.00 - LIBOR Reserve
  Percentage

  	
   

  



 


5

















 


“LIBOR Interest Period” means, with respect to
each LIBOR Tranche, a period of one, two, three, four or six months, as
specified in the Interest Rate Election submitted by Borrower pursuant to
Section 2.3(b) below with respect thereto, beginning on and including the date
specified in such Interest Rate Election (which must be a Business Day) and
ending on (but not including, for the purpose of computing the number of days
in the LIBOR Interest Period) the date which corresponds numerically to such
beginning date one, two, three, four or six months thereafter (or if such month
has no numerically corresponding date, on the last Business Day of such month);
provided that each LIBOR Interest Period which would otherwise end on a day
which is not a Business Day shall end on the next succeeding Business Day
unless such next succeeding Business Day is the first Business Day of a
calendar month, in which case such LIBOR Interest Period shall end on the
Business Day next preceding such numerically corresponding day.  No LIBOR Interest Period may be elected which
would end after the Maturity Date.


 


“LIBOR Reserve Percentage” means, with respect
to any LIBOR Interest Period, the reserve percentage (expressed as a decimal)
equal to the maximum aggregate reserve requirements (including all basic,
emergency, supplemental, marginal and other reserves and taking into account
any transitional adjustments or other scheduled changes in reserve
requirements) specified under regulations issued from time to time by the Board
of Governors of the Federal Reserve System and then applicable to assets or
liabilities consisting of and including “Eurocurrency Liabilities”, as
currently defined in Regulation D of the Board of Governors of the Federal
Reserve System, having a term approximately equal or comparable to such LIBOR
Interest Period.


 


“LIBOR Spread” means, at any time during a
calendar quarter, with respect to any LIBOR Tranche (including without
limitation a LIBOR Tranche that was outstanding prior to the first day of such
calendar quarter), the per annum rate set forth below corresponding to the
applicable Loan Usage Factor, which shall be determined as of the close of
business on the last Business Day of the preceding calendar quarter:


 


	
  Loan Usage
  Factor

  	
   

  	
  LIBOR
  Spread

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  >
  90%

  	
   

  	
  2.700

  	
  %

  
	
  >
  80%, < 90%

  	
   

  	
  2.500

  	
  %

  
	
  >
  60%, < 80%

  	
   

  	
  2.250

  	
  %

  
	
  >
  40%, < 60%

  	
   

  	
  2.000

  	
  %

  
	
  < 40%

  	
   

  	
  1.750

  	
  %

  



 


“LIBOR Tranche” means a portion of the
Revolving Loan outstanding for a specific LIBOR Interest Period and bearing
interest at a fixed rate based upon LIBOR (Adjusted).


 


“LIBOR (Unadjusted)” means, with respect to
each LIBOR Tranche and the related LIBOR Interest Period, the rate of interest
per annum (expressed as a decimal) determined by BOK, in accordance with its
customary practices, to be representative of the rates at which deposits of
U.S. dollars are being offered in the London interbank eurocurrency market for


 


6

















 


delivery on the first day of such LIBOR Interest Period in an amount
equal or comparable to the amount of such LIBOR Tranche and for a period of
time equal or comparable to the length of such LIBOR Interest Period.  LIBOR (Unadjusted), as determined by BOK
with respect to a particular LIBOR Tranche, shall be fixed at such rate for the
duration of the associated LIBOR Interest Period.  If BOK is unable to determine LIBOR (Unadjusted) as described
above for any LIBOR Tranche, or if the associated LIBOR (Adjusted) would exceed
the maximum rate of interest, if any, then permitted to be charged on the Note
under applicable law, Borrower shall be deemed to have elected to have included
in the Prime Rate Portion the portion of the Revolving Loan that would
otherwise have been included in such LIBOR Tranche.


 


“Lien” means, with respect to any property or
assets, any right or interest therein of a creditor to secure Debt owed to him
or any other arrangement with such creditor which provides for the payment of
such Debt out of such property or assets or which allows him to have such Debt
satisfied out of such property or assets prior to the general creditors of any
owner thereof, including without limitation any lien, mortgage, security
interest, pledge, deposit, production payment, rights of a vendor under any
title retention or conditional sale agreement or lease substantially equivalent
thereto, or any other charge or encumbrance for security purposes, whether
arising by law or agreement or otherwise, but excluding any right of offset
which arises without agreement in the ordinary course of business.


 


“Loan Documents” means this Agreement, the Security
Documents, the Note, the IDSA Agreement, the Guaranty, applications for Letters
of Credit, Advance requests and all other agreements, certificates, legal
opinions and other documents, instruments and writings heretofore or hereafter
delivered in connection herewith or therewith.


 


‘‘Loan Usage Factor” means, as of the time of
any determination thereof (which shall be as of the close of business on the
last Business Day of any calendar quarter), the ratio of: (a) (1) the aggregate
amount of all Advances outstanding hereunder, including any Advances made on
that Business Day, plus (2) the face amounts of all Letters of Credit
outstanding hereunder, including any Letters of Credit issued on that Business
Day, to (b) the Commitment Amount in effect at that time; provided that the
“Loan Usage Factor” shall be deemed to be 85% as of the close of business on
the last Business Day of the calendar quarter ended September 30, 2002.


 


“Loans” means the Revolving Loan and the
Hedging Loan.


 


“Maturity Date” means the earlier of: (a)
October 31, 2005, or (b) such date on which the Revolving Loan is due and
payable in full by reason of the occurrence of an Event of Default, as
established pursuant to section 7.1 below; provided that, upon the request of
Borrower, BOK may, in its sole discretion, extend said date to a date not later
than December 31, 2008 by giving written notice of such extension to Borrower,
but nothing contained in this Agreement, the Note or any other Loan Document
shall be deemed to commit or require BOK to grant any such extension.


 


“Maturity Date (Hedging)” means the earlier of:
(a)  October 31, 2005, or (b) such date on which the Hedging Loan is
due and payable in full by reason of the occurrence of an Event of Default, as
established pursuant to Section 7.1 below; provided that, upon the request of


 


7

















 


Borrower, BOK may, in its sole discretion, extend said date to a date
not later than December 31, 2008 by giving written notice of such extension to
Borrower, but nothing contained in this Agreement, the ISDA Agreement or any
other Loan Document shall be deemed to commit or require BOK to grant any such
extension.


 


“Maximum Loan Amount” means $19,000,000;
provided that, upon the request of Borrower, BOK may, in its sole discretion
and upon such terms and conditions as BOK may determine, increase said amount
to an amount not greater than $40,000,000 by giving written notice of such
increase to Borrower, but nothing contained in this Agreement, the Note or any
other Loan Document shall be deemed to commit or require BOK to grant any such
increase.


 


“Note” means a promissory note in the form of
Exhibit A attached hereto and made a part hereof, duly executed and delivered
by Borrower, which promissory note shall evidence Borrower’s obligation to
repay the Revolving Loan.


 


“Obligated Person” means Borrower or Guarantor.


 


“Obligations” means all Debt from time to time
owing by Borrower to BOK under or pursuant to any of the Loan Documents.  “Obligation” means any part of the
Obligations.


 


“Oil and Gas Interests” means any and all oil
and/or gas properties, wells, leases, gas gathering systems, processing plants
and other related real and/or personal property and interests now or hereafter
owned by Borrower.


 


“Payment Date” means the last Business Day of
each calendar month, commencing December 31, 2002, and the Maturity Date.


 


“Person” means an individual, corporation,
partnership, association, joint-stock company, trust or trustee thereof, estate
or executor thereof, limited liability company, unincorporated organization or
joint venture, court or governmental unit or any agency or subdivision thereof,
or any other legally recognizable entity.


 


“Prime Rate” means the fluctuating interest
rate per annum announced from time to time by JPMorgan Chase Bank (or any
successor thereto) as its prime rate, adjusted effective as of the effective
date of any change in the prime rate so announced by JPMorgan Chase Bank (or
any successor thereto).


 


“Prime Rate Portion” means that portion of the
Revolving Loan bearing interest based upon the Prime Rate.


 


“Prime Rate Spread” means, at any time during a
calendar quarter, the per annum rate set forth below corresponding to the
applicable Loan Usage Factor, which shall be determined as of the close of
business on the last Business Day of the preceding calendar quarter:


 


8

















 


	
  Loan Usage Factor

  	
   

  	
  Prime Rate
  Spread

  	
   

  
	
  >
  90%

  	
   

  	
  +0.250

  	
  %

  
	
  > 80%, < 90%

  	
   

  	
  0.000

  	
  %

  
	
  > 60%, < 80%

  	
   

  	
  —0.500

  	
  %

  
	
  > 40%, < 60%

  	
   

  	
  —0.750

  	
  %

  
	
  < 40%

  	
   

  	
  —1.000

  	
  %

  



 


“Prior Credit Agreement” has the meaning given
such term in Recital A above.


 


“Revolving Loan” has the meaning given such
term in Section 2.1 below.


 


“Security Documents” means all security
agreements, deeds of trust, mortgages, chattel mortgages, pledges, guaranties,
financing statements, continuation statements, extension agreements and other
agreements or instruments now, heretofore, or hereafter delivered by any or all
of the Obligated Persons or any other Person to BOK in connection with this
Agreement, the Prior Credit Agreement or any transaction contemplated hereby or
thereby, to secure or guaranty the payment of any part of the Obligations or
the performance of any other duties and obligations of any or all of the Obligated
Persons under the Loan Documents, whenever made or delivered.


 


“Subordinated Debt” means any indebtedness or
other obligation of Borrower, to the extent that the rights of the holders
thereof to enforce the indebtedness or other obligation of Borrower thereunder
have been subordinated to the rights of BOK hereunder or in connection herewith
by subordination agreements executed by the holders of the Subordinated Debt
and satisfactory in form and substance to BOK.


 


“Tangible Net Worth” means, as to any Person:
(a) the equity in such Person owned by the shareholders, partners, members or
other owners of such Person, determined in accordance with GAAP or with another
accounting system approved in writing by BOK, less (b) goodwill and any and all
other intangible assets of such Person, determined in accordance with GAAP or
with another accounting system approved in writing by BOK.


 


“Taxes” has the meaning given such term in
Section 3.7 below.


 


“Termination Event” means: (a) the occurrence
with respect to any ERISA Plan of: (1) a reportable event described in Section
4043(b) (5) of ERISA or (2) any other reportable event described in Section
4043 of ERISA other than a reportable event not subject to the provision for
30-day notice to the Pension Benefit Guaranty Corporation under such
regulations, or (b) the withdrawal of Borrower or of any Affiliate of Borrower
from an ERISA Plan during a plan year in which it was a “substantial employer”
as defined in Section 4001(a) (2) of ERISA, or (c) the filing of a notice of
intent to terminate any ERISA Plan or the treatment of any ERISA Plan amendment
as a termination under Section 4041 of ERISA, or (d) the institution of
proceedings to terminate any ERISA Plan by the Pension Benefit Guaranty
Corporation under Section 4042 of ERISA, or (e) any other event or condition
which might constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any ERISA Plan.


 


9

















 


“Wells Fargo” has the meaning given such term
in Recital A above.


 


“Wells Fargo Loan” means the loan made by Wells
Fargo to Borrower pursuant to the Prior Credit Agreement.


 


Section 1.2.            Incorporation
of Exhibits.  All Exhibits attached
to this Agreement are a part hereof for all purposes.


 


Section 1.3.            Amendment
of Defined Instruments.  Unless the
context otherwise requires or unless otherwise provided herein, the terms
defined in this Agreement which refer to a particular agreement, instrument or
document also refer to and include all renewals, extensions and modifications
of such agreement, instrument or document; provided that nothing contained in
this section shall be construed to authorize any such renewal, extension or
modification.


 


Section 1.4.            References
and Titles.  All references in this
Agreement to Exhibits, Schedules, articles, sections, subsections and other
subdivisions refer to the Exhibits, Schedules, articles, sections, subsections
and other subdivisions of this Agreement unless expressly provided
otherwise.  Titles appearing at the
beginning of any subdivisions are for convenience only and do not constitute
any part of such subdivisions and shall be disregarded in construing the
language contained in such subdivisions. 
The words “this Agreement”, “this instrument”, “herein”, “hereof”,
“hereby”, “hereunder” and words of similar import refer to this Agreement as a
whole and not to any particular subdivision unless expressly so limited.  The phrases “this section” and “this
subsection” and similar phrases refer only to the sections or subsections
hereof in which such phrases occur. 
Unless set off with asterisks in this Agreement (i.e., *or*), the word
“or” has the inclusive meaning frequently identified by the phrase
“and/or”.  Pronouns in masculine,
feminine and neuter genders shall be construed to include any other gender, and
words in the singular form shall be construed to include the plural and vice
versa, unless the context otherwise requires.


 


Section 1.5.            Calculations
and Determinations.  All interest
accruing under the Loan Documents shall be calculated on the basis of actual
days elapsed (including the first day but excluding the last) and a year of 360
days.  Unless otherwise expressly
provided herein or unless BOK otherwise consents, all financial statements and
reports furnished to BOK hereunder shall be prepared and all financial
computations and determinations pursuant hereto shall be made in accordance
with GAAP or with another accounting system agreed to in writing by BOK.


 


ARTICLE II


 


The Loans


 


Section 2.1.            The
Revolving Loan.  (a)  Subject to the other terms and conditions of
this Agreement, BOK agrees to:  (1) make
Advances to Borrower from time to time requested upon written notice to BOK
from Borrower no later than noon, Denver time, at least one Business Day prior
to any Advance, and (2) issue Letters of Credit from time to time requested
upon written


 


10

















 


notice to BOK from Borrower no later than five Business Days prior to
the date of issuance of such Letter of Credit.


 


(b)           Each request by Borrower for an
Advance shall be in the form of Exhibit B attached hereto and made a part
hereof.  Each request by Borrower for
the issuance of a Letter of Credit shall be in the form of Exhibit C attached
hereto and made a part hereof, and shall be accompanied by an application for
issuance of a letter of credit on BOK’s then-standard form, duly executed by
Borrower.


 


(c)           BOK shall not have any obligation to:
(1) make an Advance on or after the Maturity Date, (2) issue or renew a Letter
of Credit which does not expire prior to the Maturity Date, (3) issue a LIBOR
Tranche as to which the LIBOR Interest Period does not expire prior to the
Maturity Date, (4) issue a LIBOR Tranche at any time when four or more prior
LIBOR Tranches remain outstanding, (5) make an Advance in an amount less than
$10,000, (6) issue a LIBOR Tranche in an amount less than $500,000, (7) issue a
LIBOR Tranche in an amount which is not an integral multiple of $100,000,or (8)
make an Advance or issue a Letter of Credit if, after such Advance is made or
such Letter of Credit is issued, the aggregate amount of all Advances
outstanding hereunder plus the sum of the face amounts of all Letters of Credit
outstanding hereunder would exceed the Commitment Amount.


 


(d)           Each payment by BOK under a Letter of
Credit shall be deemed to be an Advance included in the Prime Rate Portion,
bearing interest from the date of such payment, shall be entitled to all
benefits of the Security Documents and shall be subject to all terms of this
Agreement and any and all other applicable Loan Documents.


 


(e)           The Advances and Letters of Credit
described in this Section 2.1 shall be herein collectively referred to as the
“Revolving Loan”.  Within the limitations
set forth in this Section 2.1 and subject to the other terms and provisions of
this Agreement, Borrower may borrow, repay and reborrow the Revolving Loan
hereunder.


 


Section 2.2.            The
Hedging Loan.  (a) Subject to the
other terms and conditions of this Agreement, in addition to the Revolving Loan
described in Section 2.1 above, BOK agrees to: (1) make short-term extensions
of credit to Borrower, each such credit extension to be in an amount equal to
the amount of the applicable Borrower/BOK Hedging Obligation and for the time
period from the applicable Hedging Settlement Date for that Borrower/BOK
Hedging Obligation to the Extended Hedging Repayment Date for that Borrower/BOK
Hedging Obligation, and (2) issue the Hedging L/C and deliver it to Wells Fargo
contemporaneously with the Initial Advance.


 


(b)           BOK shall not have any obligation to
make any credit extension to Borrower in connection with any Borrower/BOK
Hedging Obligation: (1) which arises on or after the Maturity Date (Hedging),
(2) which relates to a hedging transaction not arranged through BOK or as to
which BOK is not acting as the counterparty, or (3) if, immediately after such
credit extension, the following would exceed $3,000,000: (A) the aggregate
amount of all credit extensions from BOK to Borrower in connection with


 


11

















 


Borrower/BOK Hedging Obligations, minus (B) the
aggregate amount of all Borrower/BOK Hedging Assets, plus (C) if the Hedging
L/C remains outstanding, the face amount of the Hedging L/C.


 


(c)           Each credit extension from BOK to
Borrower in connection with Borrower/BOK Hedging Obligations pursuant to the
terms of this Section 2.2 shall be entitled to all benefits of the Security
Documents and shall be subject to all terms of this Agreement and any and all
other applicable Loan Documents.


 


(d)           Any and all credit extensions from
BOK to Borrower in connection with Borrower/BOK Hedging Obligations pursuant to
the terms of this Section 2.2 shall be herein collectively referred to as the
“Hedging Loan”.


 


Section 2.3.            The
Note; ISDA Agreement; Interest. 
(a)  Borrower’s obligation to
repay the Revolving Loan, with interest thereon, shall be evidenced by the
Note.  Borrower’s obligation to repay
the Hedging Loan, with interest, if any, thereon, shall be evidenced by the
ISDA Agreement.  In the event any
provision contained in the Note or the ISDA Agreement conflicts with a
provision contained in this Agreement, the provisions of this Agreement shall
control.


 


(b)           At any time and from time to time
hereafter, if Borrower desires to include in a LIBOR Tranche all or any portion
of the Revolving Loan which is not already included in a LIBOR Tranche,
Borrower shall deliver an Interest Rate Election to BOK at least three Business
Days prior to the first day of the requested LIBOR Interest Period, specifying
the dollar amount it desires to have included in the LIBOR Tranche, the first
day of the LIBOR Interest Period and the duration of the LIBOR Interest Period.  Any portion of the Revolving Loan which is
not included in a LIBOR Tranche shall be included in the Prime Rate Portion.


 


(c)           (1) Except as otherwise provided in
(4) below, interest on each LIBOR Tranche shall accrue at a fixed annual rate
(subject to adjustment for variations in the LIBOR Spread) equal to LIBOR
(Adjusted) with respect to such LIBOR Tranche plus the applicable LIBOR Spread
for the calendar quarter for which interest is being calculated.  (2) Except as otherwise provided in (4) below,
interest on the Prime Rate Portion shall accrue at a fluctuating annual rate
equal to the Prime Rate plus the Prime Rate Spread.  (3) Except as otherwise provided in (4) below, interest on the
Hedging Loan shall accrue as described in the ISDA Agreement; provided that, as
to any Borrower/BOK Hedging Obligation, Borrower shall not be required to pay
interest for the time period from the Hedging Settlement Date for that
Borrower/BOK Hedging Obligation to the Extended Hedging Repayment Date for that
Borrower/BOK Hedging Obligation.  (4)
From and after the occurrence, and during the continuance, of any Event of
Default hereunder, interest on the Loans shall accrue, from the date of
occurrence of the Event of Default until the date the Event of Default is
cured, at a fluctuating annual rate equal to the Prime Rate plus three
percentage points per annum.


 


(d)           Interest accrued on the Prime Rate
Portion shall be due and payable on 


 


12

















 


each Payment Date. 
Interest accrued on each LIBOR Tranche shall be due and payable on the
last day of the LIBOR Interest Period for such LIBOR Tranche (and, in the case
of any LIBOR Tranche having a LIBOR Interest Period in excess of three months,
on the three-month anniversary of the first day of such LIBOR Interest Period).  Any remaining balance of interest on the
Revolving Loan shall be due and payable not later than the Maturity Date.  Interest accrued on the Hedging Loan shall
be due and payable on demand from BOK to Borrower, with any remaining balance
of such interest being due and payable not later than the Maturity Date
(Hedging).


 


Section 2.4.            Mandatory
Principal Payments.  (a)  If for any reason the aggregate outstanding
principal balance of all Advances plus the sum of the face amounts of all
outstanding Letters of Credit shall exceed the Commitment Amount, Borrower
shall, not later than 30 days after written notice thereof from BOK: (1) pay
the excess to BOK in a lump sum; or (2) commence (and thereafter continue) an
amortization schedule under which Borrower repays the Revolving Loan in an
amount at least equal to the excess in six equal monthly principal installments
on the last Business Day of each calendar month, which amounts shall be in
addition to the monthly interest payments and any other principal payments
otherwise due, such that the entire excess is paid within six months; or (3)
execute and deliver to BOK additional mortgages, supplements to mortgages or
other instruments satisfactory in form and substance to BOK, by which Borrower
mortgages, pledges or hypothecates to BOK, or creates a security interest in
for the benefit of BOK, sufficient additional Oil and Gas Interests to induce
BOK to make a redetermination of the Borrowing Base such that the Commitment
Amount is increased to an amount no less than the aggregate outstanding
principal balance of all Advances plus the sum of the face amounts of all
outstanding Letters of Credit.


 


(b)           The outstanding principal balance of
any credit extension under the Hedging Loan shall be due and payable on the
Extended Hedging Repayment Date for that credit extension, but in no event
later than the Maturity Date (Hedging).


 


(c)           The outstanding principal balance of
all Advances, together with all unpaid fees and expenses, shall be due and
payable not later than the Maturity Date.


 


Section 2.5.            Voluntary
Prepayments.  Borrower shall have
the right to prepay any or all Advances and any or all extensions of credit
under the Hedging Loan at any time, in whole or in part, without penalty or
premium (except as otherwise described in Section 3.5 below).


 


Section 2.6.            Termination
of Agreement.  Borrower shall have
the right at any time and from time to time, upon not less than three Business
Days’ prior written notice to BOK, to terminate this Agreement.  Upon any termination of this Agreement,
Borrower shall, at the time of such termination, prepay the Loans in full,
cause all Borrower/BOK Hedging Obligations to be terminated and cause all
outstanding Letters of Credit to be terminated and BOK released from any and
all liabilities thereunder or in connection therewith.  Any such prepayment shall be without penalty
or premium (except as otherwise described in Section 3.5 below).


 


Section 2.7.            Payments
to BOK.  Borrower will pay to BOK
each payment which Borrower owes under the Loan Documents not later than 12:00
noon, Denver time, on the due 


 


13

















 


date, in lawful money of the United States of America and in
immediately available funds.  Any
payment received after such time will be deemed to have been made on the next
following Business Day.  Except as
otherwise provided in this Agreement as to LIBOR Tranches, should any such
payment become due and payable on a day other than a Business Day, the maturity
of such payment shall be extended to the next succeeding Business Day, and, in
the case of a payment of principal or past due interest, interest shall accrue
and be due and payable thereon for the period of such extension.  Each payment under a Loan Document shall be
due and payable at the place provided therein or, if no specific place of
payment is provided, shall be due and payable at the place of payment of the
Note.


 


Section 2.8.            Use
of Proceeds.  In no event shall the
proceeds of either of the Loans be used directly or indirectly for the purpose,
whether immediate, incidental or ultimate, of purchasing, acquiring or carrying
any “margin stock” (as such term is defined in Regulation U promulgated by the
Board of Governors of the Federal Reserve System) or to extend credit to others
directly or indirectly for the purpose of purchasing or carrying any such
margin stock or margin securities. 
Borrower represents and warrants to BOK that Borrower is not engaged
principally, or as one of its important activities, in the business of extending
credit to others for the purpose of purchasing or carrying such margin
stock.  The Loans and the proceeds of
the Loans shall be used solely for the following: (a) as to the Initial
Advance, for the purchase by BOK from Wells Fargo of the Wells Fargo Loan and
the Prior Credit Agreement and related documents for an amount not in excess of
the Commitment Amount; and (b) as to the remainder of the Loans, for the
funding of capital expenditures by Borrower relating to oil and gas properties,
acquisitions by Borrower of other oil and gas properties, the extension of
credit to Borrower to facilitate Borrower’s hedging activities arranged through
BOK and as to which BOK is acting as the counterparty, general working capital
purposes of Borrower and other uses in the ordinary course of Borrower’s
business.


 


Section 2.9.            Borrowing
Base Procedures.  (a) The Borrowing
Base will be redetermined by BOK as of the first day of each Borrowing Base
Period, based upon the engineering reports submitted by Borrower pursuant to
Section 6.1(b) below, the production information submitted by Borrower pursuant
to Section 6.1(b) below and such other information and data as BOK deems
relevant.  BOK may, in its sole
discretion, redetermine the Borrowing Base not more than one additional time
during each calendar year prior to the Maturity Date.  BOK shall advise Borrower of each redetermination of the
Borrowing Base by providing to Borrower a Borrowing Base Notice approximately
10 days prior to the effectiveness of the redetermined Borrowing Base; provided
that if, due to any failure by Borrower to submit in a timely manner any
engineering report or other information required to be submitted by Borrower
hereunder or, if requested in writing by BOK, any additional information or data
needed in connection with a redetermination of the Borrowing Base or due to any
other reason beyond the control of BOK, BOK does not provide a Borrowing Base
Notice at the time described above, then, unless BOK gives notice to the
contrary to Borrower, the Borrowing Base from the previous period shall be
carried over into the new period until a Borrowing Base Notice has been sent to
Borrower by BOK.


 


(b)           In
addition to the Borrowing Base redeterminations described in Section 2.9(a)
above, upon any sale, transfer or other disposition of any Borrowing Base
Property by


 


14

















 


Borrower, BOK may reduce the Borrowing Base by the amount that the
transferred Borrowing Base Property had previously been credited in determining
the Borrowing Base.


 


ARTICLE III


 


Security; Fees; LIBOR
Provisions; Taxes; Increased Capital


 


Section 3.1.            The
Security.  The Obligations will be
secured by the Security Documents and any additional Security Documents
hereafter delivered by any Person and accepted by BOK.


 


Section 3.2.            Perfection
and Protection of Security Interests and Liens.  Borrower will from time to time deliver to BOK any amendments,
financing statements, continuation statements, extension agreements and other
documents, properly completed and executed (and acknowledged when required) by
Borrower in form and substance reasonably satisfactory to BOK, which BOK may
request for the purpose of perfecting, confirming or protecting BOK’s Liens and
other rights in the Collateral.


 


Section 3.3.            Bank
Accounts and Offset.  To secure the
repayment of the Obligations, Borrower hereby grants to BOK a security
interest, a lien, and a right of offset, each of which shall be upon and
against: (a) any and all moneys, securities or other property (and the proceeds
therefrom) of Borrower now or hereafter held or received by or in transit to
BOK from or for the account of Borrower, whether for safekeeping, custody,
pledge, transmission, collection or otherwise, (b) any and all deposits (general
or special, time or demand, provisional or final) of Borrower with BOK, and (c)
any other credits and claims of Borrower at any time existing against BOK,
including without limitation claims under certificates of deposit; provided
that accounts held in Borrower’s name as a trustee or in another fiduciary
capacity shall not be subject to the rights granted to BOK in this Section
3.3.  Upon the occurrence of any Event
of Default, BOK is hereby authorized to foreclose upon, offset, appropriate,
and apply, at any time and from time to time, without notice to Borrower, any
and all items hereinabove referred to against the Obligations (whether or not
such Obligations are then due and payable).


 


Section 3.4.            Fees.  (a) 
Borrower shall pay to BOK, within 30 days after the end of each calendar
quarter (and as of the Maturity Date), commencing with the date of this
Agreement and ending on the Maturity Date, a commitment fee in an amount equal
to: (1) the applicable Commitment Fee Rate, times (2) the excess of the Commitment
Amount over the sum of the aggregate outstanding principal balance of all
Advances plus the sum of the face amounts of all outstanding Letters of Credit,
computed on a daily basis for such calendar quarter.


 


(b)           Borrower shall pay to BOK with respect
to each Letter of Credit a fee in an amount equal to the greater of: (1) two
percent per annum times the face amount of such Letter of Credit, or (2)
$500.00, which fee shall be due and payable at the time of issuance (and again
at the time of any renewal) of such Letter of Credit.  Borrower shall pay to BOK with respect to the Hedging L/C a fee
in an amount equal to $10,000.00.


 


(c)           If BOK determines that market
conditions so warrant, upon notice from BOK to Borrower, Borrower shall pay to
BOK a margin use fee in an amount equal to


 


15

















 


two percent per annum of the margin BOK is required to
post in connection with hedging transactions arranged by BOK for the benefit of
Borrower.


 


Section 3.5.            Special
LIBOR Provisions.  (a)  If BOK shall reasonably determine (which
determination shall, upon notice thereof to Borrower, be conclusive and binding
upon Borrower and BOK) that the introduction of or any change in or in the
interpretation of any law makes it unlawful, or any central bank or other
governmental authority having jurisdiction asserts that it is unlawful, for BOK
to fund, continue or maintain any LIBOR Tranche, the obligation of BOK to fund,
continue or maintain any such LIBOR Tranche shall, upon such determination,
forthwith be suspended until BOK shall notify Borrower that the circumstances
causing such suspension no longer exist, and all LIBOR Tranches shall
automatically be converted into the Prime Rate Portion at the end of the
then-current LIBOR Interest Periods with respect thereto or sooner, if required
by such law or assertion.


 


(b)           If BOK shall reasonably determine
that:


 


(1)           U.S. Dollar deposits in the relevant
amount and for the relevant LIBOR Interest Period are not available to BOK in
its relevant market; or


 


(2)           By reason of circumstances affecting
BOK’s relevant market, adequate means do not exist for ascertaining the
interest rate applicable hereunder to LIBOR Tranches;


 


then, upon notice from BOK to Borrower, the obligation of BOK to include
any portion of the Revolving Loan in a LIBOR Tranche shall forthwith be
suspended until BOK shall notify Borrower that the circumstances causing such
suspension no longer exist.


 


(c)           Borrower agrees to reimburse BOK for
any increase in the cost to BOK of, or any reduction in the amount of any sum
receivable by BOK in respect of, funding, continuing or maintaining (or of its
obligation to fund, continue or maintain) any LIBOR Tranche; provided that the
foregoing shall not apply to increases resulting from general increases in
interest rates or general increases in BOK’s administrative expenses or
overhead costs.  BOK shall promptly
notify Borrower in writing of the occurrence of any such event, such notice to
state, in reasonable detail, the reasons therefor and the additional amount
required fully to compensate BOK for such increased cost or reduced
amount.  Such additional amount shall be
due and payable by Borrower to BOK within fifteen days of Borrower’s receipt of
such notice, and such notice shall, in the absence of clear error, be
conclusive and binding upon Borrower.


 


(d)           In the event BOK shall incur any loss
or expense (including any loss or expense incurred by reason of the liquidation
or reemployment of deposits or other funds acquired by BOK to fund, continue or
maintain any portion of the principal amount of any LIBOR Tranche) as a result
of:


 


(1)           Any conversion, repayment or
prepayment (whether voluntary or mandatory) of the principal amount of any
LIBOR Tranche on a date other than


 


16

















 


the scheduled last day of the LIBOR Interest Period
applicable thereto; or


 


(2)           Any requested LIBOR Tranche not being
funded as a LIBOR Tranche in accordance with the provisions of this Agreement
or the Interest Rate Election therefor;


 


then, upon the written notice by BOK to Borrower, Borrower shall,
within fifteen days of receipt thereof, pay BOK such amount as will (in the
reasonable determination of BOK) reimburse BOK for such loss or expense.  Such written notice (which shall include
calculations in reasonable detail) shall, in the absence of clear error, be
conclusive and binding upon Borrower.


 


Section 3.6.            Increased
Capital Costs.  If any change in, or
the introduction, adoption, effectiveness, interpretation, reinterpretation or
phase-in of, any law or regulation, directive, guideline, decision or request
(whether or not having the force of law) of any court, central bank, regulator
or other governmental authority affects or would affect the amount of capital
required or expected to be maintained by BOK or any Person controlling BOK, and
BOK reasonably determines that the rate of return on its or such controlling
Person’s capital as a consequence of the Revolving Loan is reduced to a level
below that which BOK or such controlling Person could have achieved but for the
occurrence of any such circumstance, then, in any such case upon notice from
time to time by BOK to Borrower, Borrower hereby agrees to pay to BOK, within
fifteen days of the effective date of such notice, such additional amount (as
may be reasonably determined by BOK) sufficient to compensate BOK or such
controlling Person for such reduction in rate of return.  A statement to Borrower by BOK as to any
such additional amount or amounts (including calculations thereof in reasonable
detail) shall, in the absence of clear error, be conclusive and binding upon
Borrower.


 


Section 3.7.            Taxes.  All payments by Borrower of principal of,
and interest on, the Loans and all other amounts payable hereunder shall be
made free and clear of and without deduction for any present or future income,
excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or
other charges of any nature whatsoever imposed by any taxing authority, but
excluding franchise taxes and taxes imposed on or measured by BOK’s net income
or receipts (such non-excluded items being called “Taxes”).  In the event that any withholding or
deduction from any payment to be made by Borrower hereunder is required in
respect of any Taxes pursuant to any applicable law, rule or regulation,
Borrower will:


 


(a)           Pay directly to the relevant
authority the full amount required to be so withheld or deducted;


 


(b)           Promptly forward to BOK an official
receipt or other documentation satisfactory to BOK evidencing such payment to
such authority; and


 


(c)           Pay BOK such additional amount or
amounts as may be necessary to ensure that the net amount actually received by
BOK will equal the full amount BOK would have received had no such withholding
or deduction been required.


 


Moreover, if any Taxes are directly asserted against BOK with respect
to any payment received


 


17

















 


by BOK hereunder, BOK may pay such Taxes and Borrower will promptly pay
such additional amounts (including any penalties, interest or expenses) as may
be necessary in order that the net amount received by BOK after the payment of
such Taxes (including any Taxes on such additional amount) shall equal the
amount BOK would have received had not such Taxes been asserted.


 


If Borrower fails to pay any Taxes when due to the
appropriate taxing authority or fails to remit to BOK the required receipts or
other required documentary evidence, then Borrower shall indemnify, save and
hold harmless BOK from and against any incremental Taxes, interest or penalties
that may become payable by BOK as a result of any such failure.


 


Section 3.8.            Obligations
Absolute.  The obligation of
Borrower to repay any amount drawn on BOK pursuant to the terms of a Letter of
Credit shall be absolute, unconditional and irrevocable, and shall be performed
strictly in accordance with the terms of this Agreement, under all
circumstances whatsoever, including without limitation the following
circumstances:


 


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


 


(b)           Any statement or any other document
presented under any 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 whatsoever; or


 


(c)           Payment by BOK under any Letter of
Credit against presentation of a draft or certificate which does not comply in
all material respects with the terms of such Letter of Credit.


 


Payment by Borrower of a reimbursement obligation in connection with a
Letter of Credit issued pursuant to this Agreement shall not be deemed a waiver
of any rights of Borrower against BOK under Section 3.10(d) below.


 


Section 3.9.            Indemnification.  Borrower hereby indemnifies and agrees to
hold harmless BOK from and against any and all claims, damages, losses,
liabilities, costs or expenses whatsoever which BOK may incur (or which may be
claimed against BOK by any Person) by reason of or in connection with the
execution and delivery or transfer of or payment or failure to pay under any
Letter of Credit; provided, however, that Borrower shall not be required to
indemnify BOK for any claims, damages, losses, liabilities, costs or expenses
to the extent, but only to the extent, caused by the willful misconduct or
gross negligence of BOK in connection with paying a draft presented under a
Letter of Credit.  Nothing in this
Section 3.9 is intended to limit the obligation of Borrower to repay any amount
drawn on BOK pursuant to the terms of a Letter of Credit.


 


Section 3.10.          Liability
of BOK.  Borrower assumes all risks
of the acts or omissions of any beneficiary or permitted transferee of any
Letter of Credit with respect to its use of such


 


18

















 


Letter of Credit.  Neither BOK
nor any of its employees, officers or directors shall be liable or responsible
for:


 


(a)           The use which may be made of any
Letter of Credit or for any acts or omissions of any beneficiary or transferee
thereof in connection therewith;


 


(b)           The validity, sufficiency or
genuineness of documents, or of any endorsements thereon, even if such
documents should in fact prove to be in any or all respects invalid,
insufficient, fraudulent or forged;


 


(c)           Payment by BOK against presentation
of documents which do not comply with the terms of the applicable Letter of
Credit, including failure of any documents to bear any reference or adequate
reference to the applicable Letter of Credit, unless such payment by BOK
results from BOK’s willful misconduct, bad faith or gross negligence in
connection therewith; or


 


(d)           Any other circumstance whatsoever in
making or failing to make payment under the Letter of Credit, except only that
Borrower shall have a claim against BOK, and BOK shall be liable to Borrower,
to the extent, but only to the extent, of any direct (as opposed to
consequential) damages suffered by Borrower which were caused by:


 


(1)           BOK’s willful misconduct, bad faith
or gross negligence in connection with the Letter of Credit; or


 


(2)           BOK’s bad-faith or grossly negligent
failure to pay under any Letter of Credit after the presentation to it by the
beneficiary of a draft and certificate strictly complying with the terms and
conditions of such Letter of Credit.


 


 


ARTICLE IV


 


Conditions Precedent to
Loans


 


Section 4.1.            Initial
Conditions Precedent.  BOK shall
have no obligation to make the Initial Advance, to make any extension of credit
under the Hedging Loan or to issue any Letter of Credit unless BOK shall have
received all of the following at its office in Denver, Colorado, duly executed
and delivered and in form, substance and date satisfactory to BOK:


 


(a)           The Note.


 


(b)           An “Omnibus Certificate” of the
Secretary or an Assistant Secretary of Borrower, which shall contain the names
and signatures of the officers of Borrower authorized to execute Loan Documents
and which shall certify to the truth, correctness and completeness of the
following exhibits attached thereto: (1) a copy of the articles of
incorporation of Borrower and all amendments thereto, (2) a copy of the bylaws
of


 


19

















 


Borrower and all amendments thereto, and (3) a copy of
the resolutions of the board of directors of Borrower authorizing this
Agreement and the transactions contemplated hereby.


 


(c)           A “Compliance Certificate” of an
officer of Borrower in which such person certifies to the satisfaction of the
conditions set out in subsections (a), (b) and (c) of Section 4.2 below.


 


(d)           The Security Documents.


 


(e)           Such title opinions, supplemental
title opinions, UCC searches and other title information concerning Borrower’s
title to the Borrowing Base Properties or any portions thereof as may be
reasonably satisfactory to BOK.


 


(f)            Any and all other Loan Documents.


 


Section 4.2.            Additional
Conditions Precedent.  BOK shall
have no obligation to make the Initial Advance, any other Advance or any
extension of credit under the Hedging Loan or to issue any Letter of Credit
unless the following conditions precedent have been satisfied:


 


(a)           All representations and warranties
made by any Obligated Person in any Loan Document shall be true on and as of
the date of the Advance, the date of the extension of credit under the Hedging
Loan or the date of issuance of the Letter of Credit as if such representations
and warranties had been made as of the date hereof.


 


(b)           No Default shall exist as of the date
of the Advance, the date of the extension of credit under the Hedging Loan or
the date of issuance of the Letter of Credit.


 


(c)           Each Obligated Person shall have
performed and complied with all agreements and conditions herein required to be
performed or complied with by it on or prior to the date of the Advance, the
date of the extension of credit under the Hedging Loan or the date of issuance
of the Letter of Credit.


 


(d)           The making of the Advance, the
extension of credit under the Hedging Loan or the issuance of the Letter of
Credit shall not be prohibited by any law or any regulation or order of any
court or governmental agency or authority and shall not subject BOK to any
penalty or other onerous condition under or pursuant to any such law,
regulation or order.


 


(e)           If an extension of credit under the
Hedging Loan is to be made, an ISDA Agreement in form and substance
satisfactory to BOK shall have been executed and delivered and shall be in full
force and effect between Borrower and BOK.


 


20

















 


ARTICLE V


 


Representations and
Warranties


 


Section 5.1.            Borrower’s
and Guarantor’s Representations and Warranties.  To induce BOK to enter into this Agreement and to make the Loans,
each of Borrower and Guarantor represents and warrants to BOK (which
representations and warranties shall survive the delivery of the Note and shall
be deemed to be continuing representations and warranties until repayment in
full of the Loans) as follows; provided that those portions of the following
representations and warranties relating to Borrower shall be deemed made solely
by Borrower and those portions of the following representations and warranties
relating to Guarantor shall be deemed made solely by Guarantor:


 


(a)           No Default.  Borrower is not in default in any material
respect in the performance of any of the covenants and agreements contained
herein.  No event has occurred and is
continuing which constitutes a Default.


 


(b)           Organization and Good Standing.  Borrower is a corporation duly organized,
validly existing and in good standing under the laws of the State of Colorado,
having all powers required to carry on its business and enter into and carry
out the transactions contemplated hereby. 
Borrower is duly qualified, in good standing, and authorized to do
business in all other jurisdictions wherein the character of the properties
owned or held by it or the nature of the business transacted by it makes such
qualification necessary.


 


(c)           Authorization.  Borrower has duly taken all action necessary
to authorize the execution and delivery by it of the Loan Documents and to
authorize the consummation of the transactions contemplated thereby and the
performance of its obligations thereunder.


 


(d)           No Conflicts or Consents.  The execution and delivery by the various
Obligated Persons of the Loan Documents to which each is a party, the
performance by each of its obligations under such Loan Documents, and the
consummation of the transactions contemplated by the various Loan Documents, do
not and will not: (1) conflict with any provision of: (A) any domestic or
foreign law, statute, rule or regulation, (B) the governing documents of any
Obligated Person, or (C) any agreement, judgment, license, order or permit
applicable to or binding upon any Obligated Person, (2) result in the
acceleration of any Debt owed by any Obligated Person, or (3) result in or
require the creation of any Lien upon any assets or properties of any Obligated
Person except as expressly contemplated by the Loan Documents.  Except as expressly contemplated by the Loan
Documents, no consent, approval, authorization or order of, and no notice to or
filing with, any court or governmental authority or third party is required in
connection with the execution, delivery or performance by any Obligated Person
of any Loan Document or to consummate any transactions contemplated by the Loan
Documents.


 


21

















 


(e)           Enforceable Obligations.  This Agreement is, and the other Loan
Documents when duly executed and delivered will be, legal and binding
obligations of each Obligated Person which is a party hereto or thereto,
enforceable in accordance with their respective terms, except as limited by
bankruptcy, insolvency or similar laws of general application relating to the
enforcement of creditors’ rights and as limited by general equitable
principles.


 


(f)            Initial Financial Statements.  The Initial Financial Statements fairly
present Guarantor’s financial position at the dates thereof.  Since the dates of the Initial Financial
Statements no material adverse change has occurred in Borrower’s or Guarantor’s
financial condition or business.


 


(g)           Other Obligations.  Neither Borrower nor Guarantor has any
outstanding Debt of any kind (including contingent obligations, tax
assessments, and unusual forward or long-term commitments) which is not shown
in the Initial Financial Statements or the notes thereto, except any obligation
of that as a Guarantor as defined in the Financing Commitment by and between
CEC Resources Ltd. (the Borrower), Carbon Energy Corporation (the Guarantor)
and Canadian Imperial Bank of Commerce (CIBC) effective May 17, 2002.


 


(h)           Full Disclosure.  No certificate, statement or other
information delivered herewith or heretofore by Borrower to BOK in connection
with the negotiation of this Agreement or in connection with any transaction
contemplated hereby contains any untrue statement of a material fact or omits
to state any material fact known to Borrower necessary to make the statements
contained herein or therein not misleading in any material respect as of the
date made or deemed made.  At the date
of this Agreement, Borrower is not aware of any material fact that has not been
disclosed to BOK in writing which could materially and adversely affect
Borrower’s properties, businesses, prospects or condition (financial or
otherwise).  To the best of Borrower’s
knowledge, the Initial Engineering Report is based upon complete and accurate
factual information in all material respects, it being understood that the
Initial Engineering Report is necessarily based upon professional opinions,
estimates and projections and that Borrower does not warrant that such
opinions, estimates and projections will ultimately prove to have been
accurate.


 


(i)            Litigation.  Except as disclosed in the Initial Financial
Statements or as otherwise previously disclosed in writing by Borrower to
BOK:  (1) there are no actions, suits or
legal, equitable, arbitrative or administrative proceedings pending, or to the
knowledge of Borrower threatened, against any Obligated Person before any
federal, state, municipal or other court, department, commission, body, board,
bureau, agency, or instrumentality, domestic or foreign, which do or may
materially and adversely affect any Obligated Person, any Affiliate of
Borrower, any Obligated Person’s ownership or use of any of its assets or
properties, its business or financial condition or prospects, or the right or
ability of any Obligated Person to enter into the Loan Documents or perform its
obligations thereunder and (2) there are no outstanding judgments, injunctions,
writs, rulings or orders by any such governmental entity against any Obligated
Person which


 


22

















 


have or may have any such effect.


 


(j)            Title to Properties.  To the best of Borrower’s knowledge,
Borrower has good and defensible title to the Borrowing Base Properties, free
and clear of all liens, encumbrances and defects of title, except for
covenants, restrictions, rights, easements, liens, encumbrances and minor
irregularities in title which do not materially interfere with the occupation,
use and enjoyment of such Borrowing Base Properties in the normal course of
business as presently conducted or materially impair the value thereof for such
business. Borrower enjoys peaceful and undisturbed possession under all
material leases under which it operates, and all such leases are valid and
subsisting, with no material default existing thereunder.


 


(k)           Place of Business.  The chief executive office and principal
place of business of Borrower are located at the address of Borrower set out in
Section 8.3 below.


 


(l)            Taxes.  All tax returns required to be filed by
Borrower in any jurisdiction prior to the date hereof have been filed: all
taxes, assessments, fees and other governmental charges upon Borrower or upon
any of its properties, income or franchises, which are due and payable have
been paid, or adequate reserves have been provided for payment thereof.


 


(m)          Use of Proceeds.  Borrower is not engaged principally, or as
one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of
Regulation U or X of the Board of Governors of the Federal Reserve System), and
no part of the proceeds of either of the Loans will be used to purchase or
carry any such margin stock or to extend credit to any Person for the purpose
of purchasing or carrying any such margin stock.  Neither Borrower nor any Person acting on Borrower’s behalf has
taken or will take any action which might cause this Agreement, the Note or the
ISDA Agreement or the application of the proceeds of either of the Loans to
violate either of said Regulations U or X or any other regulation of the Board
of Governors of the Federal Reserve System or to violate the Securities
Exchange Act of 1934, in each case as now in effect or as the same may
hereafter be in effect.


 


(n)           Investment Company Act Not
Applicable.  Borrower is not an
“investment company” or a person “controlled” by an “investment company” within
the meaning of the Investment Company Act of 1940, as amended.


 


(o)           Public Utility Holding Company Act
Not Applicable.  Borrower is not a
“holding company,” or a “subsidiary company” of a “holding company,” or an
“affiliate” of a “holding company,” or of a “subsidiary company” of a “holding
company” as such terms are defined in the Public Utility Holding Company Act of
1935, as amended.


 


Section 5.2.            Representations
by BOK.  BOK hereby represents that
it will acquire the Note for its own account in the ordinary course of its
commercial banking business; however, the disposition of BOK’s property shall
at all times be and remain within its control and this section


 


23

















 


does not prohibit BOK’s sale of the Note or of any participation in the
Note to any bank, financial institution, investor or other purchaser.


 


ARTICLE VI


 


Covenants of
Borrower


 


Section 6.1.            Affirmative Covenants.  Each of Borrower and Guarantor warrants,
covenants and agrees as follows, until the full and final payment of the
Obligations and the termination of this Agreement, unless BOK has previously
agreed otherwise in writing; provided that those portions of the following
covenants relating to Borrower shall be deemed made solely by Borrower and
those portions of the following covenants relating to Guarantor shall be deemed
made solely by Guarantor:


 


(a)           Payment and Performance.  Borrower will pay all amounts due under the
Loan Documents in accordance with the terms thereof and will in all material
respects observe, perform and comply with every covenant, term and condition
express or implied in the Loan Documents. 
Guarantor will observe, perform and comply with every such term,
covenant and condition, to the extent applicable to Guarantor.


 


(b)           Books, Financial Statements and
Records.  Borrower will at all times
maintain full and accurate books of account and records, will maintain a
standard system of accounting in accordance with GAAP and will furnish the
following statements and reports to BOK at Borrower’s expense:


 


(1)                                  As
soon as available, and in any event within 90 days after the end of each Fiscal
Year, complete Consolidated financial statements of Guarantor (together with a
supplement showing the complete unaudited financial statements of Borrower),
prepared in reasonable detail and in accordance with GAAP or with another
accounting system agreed to in writing by BOK. 
These financial statements shall contain at least a balance sheet as of
the end of such Fiscal Year and a statement of earnings and cash flow, setting
forth in comparative form the corresponding figures for the preceding Fiscal
Year and, to the extent they relate to Guarantor, shall be accompanied by an
opinion of a firm of independent certified public accountants chosen by
Guarantor and competent to perform accounting functions for a substantial
public company, which opinion shall be unqualified and shall state that said
financial statements have been prepared in accordance with GAAP and fairly
present the financial position and the results of operations of Guarantor as of
the end of and for such Fiscal Year;


 


(2)                                  As
soon as available and in any event within 60 days after the end of each Fiscal
Quarter (excluding the last Fiscal Quarter of each Fiscal Year) , complete
unaudited Consolidated financial 


 


24

















 


statements of Guarantor (together with a supplement
showing the complete unaudited financial statements of Borrower) for such
Fiscal Quarter and for the then-current Fiscal Year, prepared in reasonable
detail and in accordance with GAAP or with another accounting system agreed to
in writing by BOK;


 


(3)                                  At
the time of submission of the financial statements described in (1) and (2)
above, a report signed by the president or the chief financial officer of
Borrower and of Guarantor: (A) attesting to the authenticity of such financial
statements, (B) stating that he has read this Agreement and the Security
Documents, (C) stating that after reviewing the financial statements described
above he has concluded that there did not exist any condition or event as of
the date of such financial statements or at the time of his report which
constituted an Event of Default or a Default, or, if he did conclude that such
condition or event existed, specifying the nature and period of existence of
any such condition or event, and (D) showing the calculation of, and Borrower’s
and Guarantor’s compliance with, all of the financial covenants contained
herein;


 


(4)                                  By
March 31 of each year, an engineering report and economic evaluation prepared
as of the preceding December 31 by one or more independent petroleum engineers
chosen by Borrower and reasonably acceptable to BOK, covering all oil and gas
properties and interests included in the Borrowing Base Properties.  Each such engineering report shall be in
form and substance reasonably satisfactory to BOK and shall contain information
and analysis comparable in scope to that contained in the Initial Engineering
Report; and


 


(5)                                  As
soon as available, and in any event within 60 days after the end of each Fiscal
Quarter, commencing with the Fiscal Quarter ending December 31, 2002, a report
describing, for each calendar month during such Fiscal Quarter, the gross
volume of production and sales attributable to production (and the prices at
which such sales were made and the revenues derived from such sales) for each
such calendar month from the Borrowing Base Properties, and describing the
related ad valorem, severance and production taxes and lease operating expenses
attributable thereto and incurred for each such calendar month.


 


(c)           Other Information and Inspections.  Borrower will furnish to BOK any information
which BOK may from time to time request concerning any covenant, provision or
condition of the Loan Documents or any matter in connection with Borrower’s
business and operations.  Borrower will
permit representatives appointed by BOK, including independent accountants,
agents, attorneys, appraisers and any other


 


25

















 


persons, to visit and inspect, at their sole risk
(and, except during the continuance of an Event of Default, at their sole cost
and expense), any of Borrower’s property, including its books of account, other
books and records, and any facilities or other business assets, and to make
extra copies therefrom and photocopies and photographs thereof, and to write
down and record any information such representatives obtain, and Borrower shall
permit BOK or its representatives to investigate and verify the accuracy of the
information furnished to BOK in connection with the Loan Documents and to
discuss all such matters with its officers, managers, employees and
representatives.


 


(d)           Notice of Material Events.  Borrower will promptly notify BOK: (1) of
any material adverse change in the financial condition of Borrower, (2) of the
occurrence of any Default, (3) of the acceleration of the maturity of any Debt
owed by Borrower or of any default by Borrower under any indenture, mortgage,
agreement, contract or other instrument to which Borrower is a party or by
which Borrower or any of Borrower’s properties is bound, (4) of any uninsured
claim of $500,000 or more asserted against Borrower or any of its properties,
(5) of the filing of any suit or proceeding against Borrower (or the occurrence
of any material development in any such suit or proceeding) in which an adverse
decision could have a material adverse effect upon Borrower’s financial
condition, business or operations (or could result in a judgment not covered by
insurance of $500,000 or more against Borrower) , (6) of any Termination Event
or any adverse development with respect to any ERISA Plan, (7) of the merger or
consolidation of Borrower with any other business entity, (8) of the sale,
transfer, lease, exchange or disposal by Borrower of any material assets or
properties or any assets or properties with a value in excess of $250,000,
except sales of already-severed hydrocarbons and other products in the ordinary
course of Borrower’s business, and (9) of the occurrence of any of the
following: a material adverse change in the financial condition of Guarantor, a
default by Guarantor with respect to any material indebtedness owed by
Guarantor to any Person or the filing by Guarantor of any petition for
bankruptcy protection.  Upon the
occurrence of any of the foregoing, Borrower will take all necessary or
appropriate steps to remedy promptly any such material adverse change, Default,
or default, to protect against any such adverse claim, to defend any such suit
or proceeding, and to resolve all controversies on account of any of the
foregoing.  Borrower will also notify
BOK in writing at least twenty Business Days prior to the date that Borrower
changes its name or the location of its chief executive office or principal
place of business or the place where it keeps its books and records concerning
the Collateral, furnishing with such notice any necessary financing statement
amendments or requesting BOK and its counsel to prepare the same.


 


(e)           Maintenance of Existence and
Qualifications.  Borrower will
maintain and preserve its existence and its rights and franchises in full force
and effect and will qualify to do business in all states or jurisdictions where
required by applicable law, except where the failure so to qualify will not
have any material adverse effect on Borrower.


 


(f)            Maintenance of Properties.  Borrower will in all material respects
maintain, preserve, protect and keep all property used or useful in the conduct
of its business in accordance with the standards of a reasonable and prudent
operator.


 


26

















 


(g)           Payment of Trade Debt, Taxes, etc.  Borrower will:  (1) timely file all required tax returns; (2) timely pay all
taxes, assessments, and other governmental charges or levies imposed upon it or
upon its income, profits or property; (3) pay all Debt owed by it on ordinary
trade terms to vendors, suppliers and other Persons providing goods and
services used by it in the ordinary course of its business; and (4) maintain
appropriate accruals and reserves for all of the foregoing Debt in accordance
with GAAP.  Borrower will pay and
discharge in all material respects, when due, all other Debt, taxes or
assessments now or hereafter owed by it. 
Borrower may, however, delay paying or discharging any such Debt so long
as it is in good faith contesting the validity thereof by appropriate
proceedings and has set aside on its books adequate reserves therefor.


 


(h)           Insurance.  Borrower will maintain with financially
sound and reputable insurance companies, insurance with respect to its
business, operations and properties in at least such amounts and against at
least such risks as are usually insured against in the same general area by
companies of established repute engaged in the same or a similar business.


 


(i)            Payment of Expenses.  Borrower will promptly (and in any event
within 30 days after any invoice or other statement or notice) pay all
reasonable costs and expenses incurred by or on behalf of BOK (including
attorneys’ fees) in connection with: 
(1) the preparation, execution and delivery of this Agreement and the
other Loan Documents (including without limitation any and all future
amendments or supplements thereto or restatements thereof) , and any and all
consents, waivers or other documents or instruments relating thereto, (2) the
filing, recording, refiling and re-recording of any Security Documents and any
other documents or instruments or further assurances required to be filed or
recorded or refiled or re-recorded by the terms of any Loan Document, (3) the
examination of Borrower’s title to the Collateral, and (4) the enforcement,
after the occurrence of a Default or an Event of Default, of the Loan
Documents.


 


(j)            Performance on Borrower’s Behalf.  If Borrower fails to pay any taxes,
insurance premiums or other amounts it is required to pay under any Loan
Document, BOK may pay the same. 
Borrower shall immediately reimburse BOK for any such payments, and each
amount paid shall constitute a part of the Obligations, shall be secured by the
Security Documents and shall bear interest at the rate described in Section
2.3(c)(4) above, from the date such amount is paid by BOK until the date such
amount is repaid to BOK.


 


(k)           Compliance with Agreements and Law.  Borrower will perform all material
obligations it is required to perform under the terms of each indenture,
mortgage, deed of trust, security agreement, lease, franchise, agreement,
contract or other instrument or obligation to which it is a party or by which
it or any of its properties is bound in such a way that they result in no
material adverse effect upon the Borrowing Base Properties or Borrower’s
ability to perform its obligations under this Agreement.  Borrower will in all material respects
conduct its business and affairs in compliance with


 


27

















 


all laws, regulations, and orders applicable thereto
(including those relating to pollution and other environmental matters).


 


(l)            Certifications of Compliance.  Borrower will furnish to BOK at Borrower’s
expense all certifications which BOK from time to time reasonably requests, as
to the accuracy and validity of or compliance with all representations,
warranties and covenants made by Borrower in the Loan Documents, the
satisfaction of all conditions contained therein, and all other matters
pertaining thereto.


 


(m)          Additional Security Documents.  Promptly after a request therefor by BOK at
any time and from time to time, Borrower will execute and deliver to BOK such
additional Security Documents and/or amendments to existing Security Documents
as BOK may deem necessary or appropriate in order to grant to BOK a perfected
lien on and security interest in any or all oil and/or gas interests owned by
Borrower.


 


(n)           ERISA Liabilities.  Borrower shall comply with ERISA in all
material respects.  Borrower shall
continue not to be required to contribute to, nor to have any other absolute or
contingent liability in respect of, any “multiemployer plan” as defined in
Section 4001 of ERISA.


 


Section 6.2.            Negative
Covenants.  Borrower warrants,
covenants and agrees that, until the full and final payment of the obligations
and the termination of this Agreement, unless BOK has previously agreed
otherwise in writing:


 


(a)           Financial Covenants.  (1) 
The Current Ratio of Borrower will not, at any time after the date
hereof, be less than 1.0:1.0.  (2) The
Tangible Net Worth of Borrower will not, at any time after the date hereof, be
less than: (A) $7,500,000, plus (B) 50 percent of the Cumulative Net Income of
Borrower for all Fiscal Quarters ending after September 30, 2002, plus (C) 80
percent of any and all Capital Additions to Borrower after September 30,
2002.  (3) The Tangible Net Worth of
Guarantor will not, at any time after the date hereof, be less than: (A)
$17,000,000, plus (B) 50 percent of the Cumulative Net Income of Guarantor for
all Fiscal Quarters ending after September 30, 2002, plus (C) 80 percent of any
and all Capital Additions to Guarantor after September 30, 2002.


 


(b)           Limitation on Liens.  Borrower will not create, assume or permit
to exist any mortgage, deed of trust, pledge, encumbrance, lien or charge of
any kind (including any security interest in or vendor’s lien on property
purchased under conditional sales or other title retention agreements and
including any lease intended as security or in the nature of a title retention
agreement) upon any of Borrower’s properties or assets, whether now owned or
hereafter acquired, except:


 


(1)           Liens at any time existing in favor
of BOK;


 


(2)                                  statutory
Liens for taxes, statutory or contractual mechanics’ and materialmen’s Liens
incurred in the ordinary course of business,


 


28

















 


and other similar Liens incurred in the ordinary
course of business, provided such Liens secure only Debt which is not
delinquent or which is being contested as provided in Section 6.1(g) above; and


 


(3)                                  purchase-money
security interests granted by Borrower on office equipment, vehicles and other
personal property acquired by Borrower in the ordinary course of business;
provided that the aggregate amount secured by all such security interests
outstanding at any one time shall not exceed $250,000.


 


(c)           Additional Debt.  Borrower will not create, incur, assume or
permit to exist Debt of Borrower except:


 


(1)                                the
Loans,


 


(2)                                trade
debt owed to suppliers, pumpers, mechanics, materialmen and others furnishing
goods or services to Borrower in the ordinary course of Borrower’s business,


 


(3)                                Debt
incurred in the ordinary course of Borrower’s business in connection with commodity-price
hedging transactions and gas-balancing contracts,


 


(4)                                Debt
of the types permitted to be secured by the security interests described in
Section 6.2(b) (3) above; provided that the amount of such Debt does not exceed
the limits set forth in said Section;


 


(5)                                Subordinated
Debt; and


 


(6)                                other
unsecured Debt in an aggregate amount not in excess of $250,000 at any time
outstanding.


 


(d)           Limitation on Sales of Property.  Borrower will not sell, transfer, lease,
exchange, alienate or dispose of any of its assets except as follows (and the
following exceptions shall be subject to any limitations contained in the
Security Documents):


 


(1)                                  equipment
which is worn out or obsolete, which is replaced by equipment of equal
suitability and value or which is salvaged from wells which have been plugged
and abandoned by or on behalf of Borrower;


 


(2)                                  inventory
(including oil and gas sold as produced) which is sold in the ordinary course
of business;


 


(3)                                  personal
property located on oil and gas properties operated by third parties, the sale
of which personal property cannot be


 


29

















 


prevented by Borrower;


 


(4)                                  Borrower’s
Permian Basin assets; provided that, at the time of such sale, and as a
condition to BOK’s release of the Security Documents covering such assets,
Borrower shall have made any prepayment of the Revolving Loan required by BOK
to keep the Revolving Loan in compliance with the reduced Borrowing Base; and


 


(5)                                  as
to any Fiscal Year of Borrower, other assets having an aggregate fair market
value not in excess of $250,000.


 


(e)           Limitation on Credit Extensions.  Borrower will not extend credit, make
advances or make loans other than normal and prudent extensions of credit to
customers buying goods and services in the ordinary course of business, which
extensions shall not be for longer periods than those extended by similar
businesses operated in a normal and prudent manner.


 


(f)            Fiscal Year.  Borrower will not change its fiscal year.


 


(g)           Amendment of Contracts.  Borrower will not amend or permit any
amendment to any contract which could reasonably be foreseen to release,
qualify, limit, make contingent or otherwise detrimentally affect, in any
material way, the rights and benefits of BOK under or acquired pursuant to any
of the Security Documents.


 


(h)           Limitation on Guaranties.  Borrower will not assume, guaranty, endorse
or be or become secondarily liable for any Debt which is the primary obligation
of any other Person.


 


(i)            ERISA Plans.  Borrower will not incur any obligation to
contribute to any “multiemployer plan” as defined in Section 4001 of ERISA.


 


(j)            Distributions.  Borrower will not make any Distributions.


 


(k)           Reorganizations; Combinations.  Borrower will not change its name or the
nature of its business, reorganize, liquidate, dissolve or enter into any
merger, joint venture, partnership or other combination.


 


(l)            Hedging Transactions.  Borrower will not at any time enter into or
be or become a party to any one or more hedging transactions with respect to
its oil and gas production for any time period after June 30, 2003, except for
hedging transactions in amounts not in excess of 70 percent of the volume of
Borrower’s proved, developed, producing reserves (timed in accordance with the
expected production rates of such reserves), according to the then most recent
engineering report submitted pursuant to Section 6.1(b) above.


 


30

















 


(m)          Ownership.  Borrower will continue to be a wholly-owned
subsidiary of Guarantor.


 


ARTICLE VII


 


Events of Default and
Remedies


 


Section 7.1.            Events
of Default.  Each of the following
events constitutes an Event of Default under this Agreement:


 


(a)           Borrower fails to pay any Obligation
when due and payable, whether at a date for the payment of a fixed installment
or contingent or other payment to BOK or as a result of acceleration or
otherwise; or


 


(b)           Any “default” or “event of default”
occurs under any Loan Document which defines either term; or


 


(c)           Borrower or Guarantor fails to duly
observe, perform or comply with any covenant, agreement, condition or provision
of any Loan Document; provided that, except with respect to: (1) any such
covenant, agreement, condition or provision which may constitute an Event of
Default under one or more of the other subsections of this Section 7.1, or (2)
any covenant, agreement, condition or provision contained in the ISDA Agreement
or any of Sections 2.3, 2.4, 3.4, 3.5, 3.6, 6.1(i) or 6.2 above, Borrower shall
have a 30-day grace period after such failure in which to cure such failure;


 


(d)           Any representation or warranty
previously, presently or hereafter made in writing by or on behalf of any
Obligated Person in connection with any Loan Document shall prove to have been
false or incorrect in any material respect on any date on or as of which made;
or


 


(e)           Borrower or Guarantor:


 


(1)                                  suffers
the entry against it of a judgment, decree or order for relief by a court of
competent jurisdiction in an involuntary proceeding commenced under any
applicable bankruptcy, insolvency or other similar law of any jurisdiction now
or hereafter in effect, including the federal Bankruptcy Code, as from time to
time amended, or has any such proceeding commenced against it which remains
undismissed for a period of 60 days; or


 


(2)                                  suffers
the appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official for a substantial part of its assets or for
any part of the Borrowing Base Properties in a proceeding brought against or
initiated by it, and such appointment is neither made ineffective nor
discharged within 30 days after the making thereof, or such appointment is
consented to, 


 


31

















 


requested by, or acquiesced to by it; or


 


(3)                                  commences
a voluntary case under any applicable bankruptcy, insolvency or similar law now
or hereafter in effect, including the federal Bankruptcy Code, as from time to
time amended; or applies for or consents to the entry of an order for relief in
an involuntary case under any such law or to the appointment of or taking
possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or other similar official of any substantial part of its assets or
any part of the Borrowing Base Properties; or makes a general assignment for
the benefit of creditors; or fails generally to pay (or admits in writing its
inability to pay) its debts as such debts become due; or takes action in
furtherance of any of the foregoing: or


 


(4)                                  suffers
the entry against it of a final judgment for the payment of money in excess of
$500,000 (not covered by insurance) , unless the same is discharged within 30
days after the date of entry thereof or an appeal or appropriate proceeding for
review thereof is taken within such period and a stay of execution pending such
appeal is obtained; or


 


(5)                                  suffers
the entry of an order issued by any court or tribunal taking, seizing or
apprehending all or one or more parts of the Borrowing Base Properties having
an aggregate value in excess of five percent of the total present value, using
a discount rate of 10 percent per annum, of all proved, developed, producing
reserves attributed to the Borrowing Base Properties and bringing the same into
the custody of such court or tribunal, and such order is not stayed or released
within thirty days after the entry thereof; or


 


(f)            Either: (1) any “accumulated funding
deficiency” (as defined in Section 412(a) of the Internal Revenue Code of 1986,
as amended) in excess of $10,000 exists with respect to any ERISA Plan, whether
or not waived by the Secretary of the Treasury or his delegate, or (2) any
Termination Event occurs with respect to any ERISA Plan and the then current
value of such ERISA Plan’s benefits guaranteed under Title IV of ERISA exceeds
the then current value of such ERISA Plan’s assets available for the payment of
such benefits by more than $10,000 (or in the case of a Termination Event
involving the withdrawal of a substantial employer, the withdrawing employer’s
proportionate share of such excess exceeds such amount): or


 


(g)           The Guaranty ceases to be in full
force and effect and applicable to any and all of the Obligations covered
thereby in accordance with its terms (or Guarantor takes that position),
whether by operation of law, revocation or attempted revocation or otherwise;
or


 


32

















 


(h)           Any default, including the expiration
of any applicable period of grace, occurs with respect to any other
indebtedness owed by Borrower to any Person.


 


Upon the occurrence of an Event of Default described in subsection
(e)(l), (e)(2) or (e)(3) of this section, all of the Obligations shall
thereupon be immediately due and payable, without presentment, demand, protest,
notice of protest, declaration or notice of acceleration or intention to
accelerate, or any other notice or declaration of any kind, all of which are
hereby expressly waived by Borrower. 
During the continuance of any other Event of Default, BOK at any time
and from time to time (unless all Events of Default have theretofore been
remedied) may declare any or all of the Obligations immediately due and
payable, and all such Obligations shall thereupon be immediately due and
payable.


 


Section 7.2.            Remedies.  If any Default or Event of Default shall
occur and be continuing, the obligation of BOK to make Advances, to issue
Letters of Credit and to extend credit under the Hedging Loan shall terminate
immediately.  If any Event of Default
shall occur, BOK may protect and enforce its rights under the Loan Documents by
any appropriate proceedings, including proceedings for specific performance of
any covenant or agreement contained in any Loan Document, and BOK may enforce
the payment of any Obligations due or enforce any other legal or equitable
right.  All rights, remedies and powers
conferred upon BOK under the Loan Documents shall be deemed cumulative and not
exclusive of any other rights, remedies or powers available under the Loan
Documents or at law or in equity.


 


Section 7.3.            Indemnity.  Borrower hereby agrees to indemnify, defend
and hold harmless BOK and its agents, affiliates, officers, directors, and
employees from and against any and all claims, losses, demands, actions, causes
of action, and liabilities whatsoever (including without limitation reasonable
attorneys’ fees and expenses, and costs and expenses reasonably incurred in
investigating, preparing or defending against any litigation or claim, action,
suit, proceeding or demand of any kind or character) arising out of or resulting
from: (a) the Loan Documents (including without limitation the enforcement
thereof), except to the extent such claims, losses, and liabilities are
proximately caused by a BOK’s gross negligence or willful misconduct, (b) the
contamination of any of the Borrowing Base Properties by any hazardous
substance or environmental pollutant, or (c) the violation of any federal,
state or local environmental statute, rule, regulation or ordinance, including
without limitation violation of the Comprehensive Environmental Response,
Compensation and Liability Act, as amended from time to time, or of the
Resource Conservation and Recovery Act, as amended from time to time.


 


ARTICLE VIII


 


Miscellaneous


 


Section 8.1.            Waiver
and Amendment.  No failure or delay
by BOK in exercising any right, power or remedy which it may have under any of
the Loan Documents shall operate as a waiver thereof or of any other right,
power or remedy, nor shall any single or partial exercise by BOK of any such
right, power or remedy preclude any other or further exercise thereof or of any
other right, power or remedy.  No waiver
of any provision of any Loan Document and no consent to any departure therefrom
shall ever be effective unless it is in writing and signed by


 


33

















 


BOK, and then such waiver or consent shall be effective only in the
specific instances and for the purposes for which given and to the extent
specified in such writing.  No notice to
or demand on any Obligated Person shall in any case of itself entitle any
Obligated Person to any other or further notice or demand in similar or other
circumstances.  No modification or
amendment of or supplement to this Agreement or the other Loan Documents shall
be valid or effective unless the same is in writing and signed by the party
against whom it is sought to be enforced.


 


Section 8.2.            Survival
of Agreements; Cumulative Nature. 
All of the Obligated Persons’ various representations, warranties,
covenants and agreements in the Loan Documents shall survive the execution and
delivery of this Agreement and the other Loan Documents and the performance
hereof and thereof, including without limitation the making or granting of the
Loans and the delivery of the Note and the other Loan Documents, and shall
further survive until all of the Obligations are paid in full to BOK and all of
BOK’s obligations to Borrower are terminated. 
All statements and agreements contained in any certificate or other
instrument delivered to BOK pursuant to the terms of any Loan Document shall be
deemed representations and warranties by Borrower to BOK and/or agreements and
covenants of Borrower under this Agreement. 
The representations, warranties, and covenants made by the Obligated
Persons in the Loan Documents, and the rights, powers, and privileges granted
to BOK in the Loan Documents, are cumulative, and no Loan Document shall be
construed in the context of another to diminish, nullify, or otherwise reduce
the benefit to BOK of any such representation, warranty, covenant, right, power
or privilege.  In particular and without
limitation, no exception set out in this Agreement to any representation,
warranty or covenant herein contained shall apply to any similar
representation, warranty or covenant contained in any other Loan Document, and
each such similar representation, warranty or covenant shall be subject only to
those exceptions which are expressly made applicable to it by the terms of the
various Loan Documents.


 


Section 8.3.            Notices.  All notices, requests, consents, demands and
other communications required or permitted under any Loan Document shall be in
writing and, unless otherwise specifically provided in such Loan Document,
shall be deemed sufficiently given or furnished if delivered by personal
delivery, by expedited delivery service with proof of delivery, or by
registered or certified United States mail, return receipt requested, postage
prepaid, at the addresses specified below (unless changed by similar notice in
writing given by the particular Person whose address is to be changed).  Any such notice or communication shall be
deemed to have been given upon receipt:


 


	
  Borrower’s address:

  	
   

  	
  1700 Broadway, Suite 1150

  
	
   

  	
   

  	
  Denver, Colorado 80290

  
	
   

  	
   

  	
  Attention: Mr. Kevin D. Struzeski

  
	
   

  	
   

  	
   

  
	
  with an additional

  	
   

  	
   

  
	
  copy to
  Guarantor at:

  	
   

  	
  1700 Broadway, Suite 1150

  
	
   

  	
   

  	
  Denver, Colorado 80290

  
	
   

  	
   

  	
  Attention: Mr. Kevin D. Struzeski

  



 


34

















 


	
  BOK’s address:

  	
   

  	
  1625 Broadway, Suite 1570

  
	
   

  	
   

  	
  Denver, Colorado 80202

  
	
   

  	
   

  	
  Attention: Thomas M. Foncannon

  
	
   

  	
   

  	
   

  
	
  with an additional

  	
   

  	
   

  
	
  copy to:

  	
   

  	
  Bank of Oklahoma, N.A.

  
	
   

  	
   

  	
  101 East Second Street

  
	
   

  	
   

  	
  Tulsa, Oklahoma 74103

  
	
   

  	
   

  	
  Attention: Energy Department

  



 


Section 8.4.            Parties
in Interest. All grants, covenants and agreements contained in the Loan
Documents shall bind and inure to the benefit of the parties thereto and their
respective successors and assigns; provided, however, that no Obligated Person
may assign or transfer any of its rights or delegate any of its duties or
obligations under any Loan Document without the prior consent of BOK.


 


Section 8.5.            Governing
Law.  The Loan Documents shall be
deemed contracts and instruments made under the laws of the State of Colorado
and shall be construed and enforced in accordance with and governed by the laws
of the State of Colorado and the laws of the United States of America, except
(a) to the extent that the law of another jurisdiction is expressly elected in
a Loan Document, and (b) with respect to specific Liens, or the perfection
thereof, evidenced by Security Documents covering real or personal property
which by the laws applicable thereto are required to be construed under the
laws of another jurisdiction.  Each of
Borrower and Guarantor hereby irrevocably submits itself to the non-exclusive
jurisdiction of the state and federal courts of the State of Colorado.


 


Section 8.6.            Limitation
on Interest.  BOK and the Obligated
Persons intend to contract in strict compliance with applicable usury law from
time to time in effect.  In furtherance
thereof such persons stipulate and agree that none of the terms and provisions
contained in the Loan Documents shall ever be construed to create a contract to
pay, for the use, forbearance or detention of money, interest in excess of the
maximum amount of interest permitted to be charged by applicable law from time
to time in effect.  Neither any
Obligated Person nor any present or future guarantors, endorsers, or other
Persons hereafter becoming liable for payment of any Obligation shall ever be
liable for unearned interest thereon or shall ever be required to pay interest
thereon in excess of the maximum amount that may be lawfully charged under
applicable law from time to time in effect, and the provisions of this section
shall control over all other provisions of the Loan Documents which may be in
conflict or apparent conflict herewith. 
BOK expressly disavows any intention to charge or collect excessive
unearned interest or finance charges in the event the maturity of any obligation
is accelerated.  If (a) the maturity of
any obligation is accelerated for any reason, (b) any Obligation is prepaid and
as a result any amounts held to constitute interest are determined to be in
excess of the legal maximum, or (c) BOK or any other holder of any or all of
the Obligations shall otherwise collect moneys which are determined to
constitute interest which would otherwise increase the interest on any or all
of the Obligations to an amount in excess of that permitted to be charged by
applicable law then in effect, then all such sums determined to constitute
interest in excess or such legal limit shall,


 


35

















 


without penalty, be promptly applied to reduce the then outstanding
principal of the related Obligations or, at BOK’s option, promptly returned to
Borrower or the other payor thereof upon such determination.


 


Section 8.7.            Severability.  If any term or provision of any Loan
Document shall be determined to be illegal or unenforceable, all other terms
and provisions of the Loan Documents shall nevertheless remain effective and
shall be enforced to the fullest extent permitted by applicable law.


 


Section 8.8.            Counterparts.  This Agreement may be separately executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to constitute one
and the same Agreement.  Delivery of
this Agreement and the other documents to be delivered in connection herewith
by any party may be effected, without limitation, by faxing a signed
counterpart of any such document to BOK (any party that effects delivery in
such manner hereby agreeing to transmit promptly to each of the other parties
an actual signed counterpart).


 


Section 8.9.            Conflicts.  To the extent of any irreconcilable
conflicts between the provisions of this Agreement and the provisions of any of
the Loan Documents, the provisions of this Agreement shall prevail.


 


Section 8.10.  Entire
Agreement.  This Agreement, the
Note, the ISDA Agreement, the Security Documents and the other Loan Documents
from time to time executed in connection herewith state the entire agreement
between the parties with respect to the subject matter hereof.


 


SECTION 8.11.  WAIVER
OF JURY TRIAL.  EACH OF BORROWER,
GUARANTOR AND BOK HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION: (A) ARISING UNDER THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL
TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM IN RESPECT OF THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT. 
EACH OF BORROWER, GUARANTOR AND BOK HEREBY AGREES THAT THE OTHERS MAY
FILE A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT
OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHTS TO TRIAL BY JURY.


 


Section 8.12.  Supersession.  At the time of the Initial Advance, the
terms and provisions of this Agreement and the Note shall supersede the terms
and provisions of any and all agreements, promissory notes and related
documents evidencing the Wells Fargo Loan, as assigned to BOK contemporaneously
with the Initial Advance; provided that the security documents securing the
Wells Fargo Loan, as assigned to BOK, shall remain in full force and
effect.  Borrower hereby releases BOK
from any and all duties, obligations and liabilities, whether known or unknown,
assumed by BOK from Wells Fargo, to the extent that they arose under any
document relating to the Wells Fargo Loan at any time on or before the date of
the Initial Advance.


 


36

















 


IN WITNESS WHEREOF, this Agreement is executed as of
the date first written above.


 


 


	
   

  	
  CARBON ENERGY CORPORATION (USA)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Kevin D.
  Struzeski,

  
	
   

  	
   

  	
  Chief Financial
  Officer

  
	
   

  	
   

  
	
   

  	
  BANK OF OKLAHOMA, NATIONAL ASSOCIATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Thomas M.
  Foncannon,

  
	
   

  	
   

  	
  Senior Vice
  President

  
				



 


37

















 


LIMITED JOINDER


 


Carbon Energy Corporation, a Colorado corporation
(“Guarantor”), joins herein for the sole purpose of making the representations
and warranties set forth in the foregoing Amended and Restated Credit
Agreement, insofar and only insofar as they relate to Guarantor, and agreeing
to perform the covenants set forth in the foregoing Amended and Restated Credit
Agreement, insofar and only insofar as they relate to Guarantor; provided that
this joinder shall not be deemed an undertaking by Guarantor to repay the Loans
(as defined in the foregoing Credit Agreement) except to the extent that
Guarantor is obligated to do so pursuant to the terms of the Guaranty (as
defined in the foregoing Amended and Restated Credit Agreement).


 


	
   

  	
  CARBON ENERGY CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
   

  	
   

  
	
   

  	
   

  	
  Kevin D.
  Struzeski,

  
	
   

  	
   

  	
  Chief Financial
  Officer

  



 


38

















 


EXHIBIT A


 


PROMISSORY NOTE


 




	
  $40,000,000

  	
   

  	
  December 31, 2002

  
	
   

  	
   

  	
  Denver, Colorado

  






 


 


FOR VALUE RECEIVED, CARBON ENERGY CORPORATION (USA), a
Colorado corporation (“Borrower”), promises to pay to the order of BANK OF
OKLAHOMA, NATIONAL ASSOCIATION (“Payee”), the principal sum of $40,000,000 (or
so much thereof as may be borrowed hereunder) , together with interest on the
outstanding unpaid balance of such principal amount at the rates provided
below.


 


This Note is issued pursuant to, and is subject to the
terms and provisions of, the Amended and Restated Credit Agreement dated as of
December 31, 2002, between Borrower and Payee, as now in effect or as the same
may hereafter be amended, restated, extended, renewed or otherwise modified
(the “Credit Agreement”).  Except as
otherwise defined herein, terms defined in the Credit Agreement shall have the
same meanings when used herein.


 


The outstanding principal amount of this Note shall be
due and payable as provided in the Credit Agreement.  Any then-unpaid principal balance of this Note shall be due and
payable on the Maturity Date (unless due and payable sooner pursuant to the
terms of the Credit Agreement).


 


Interest shall accrue daily on the unpaid principal
balance of this Note at the applicable rate or rates set forth in the Credit
Agreement, shall be due and payable at such times as may be provided in the
Credit Agreement and at the maturity of this Note, and shall be calculated on
the basis of a year of 360 days and the actual number of days elapsed.


 


All payments of principal and interest hereon shall be
made at Payee’s offices at Bank of Oklahoma Tower, One Williams Center, Tulsa,
Oklahoma 74192 (or at such other place as Payee shall have designated to
Borrower in writing) on the date due in immediately available funds and without
set-off or counterclaim or deduction of any kind.  All payments received hereunder shall be applied first to costs
of collection, second to accrued interest as of the date of payment and third
to the outstanding principal balance of this Note.


 


Notwithstanding anything to the contrary contained in
this Note, upon the occurrence and during the continuance of any Event of
Default specified in the Credit Agreement, overdue principal, and (to the
extent permitted under applicable law) overdue interest, whether caused by
acceleration of maturity or otherwise, shall bear interest at a fluctuating
rate, adjustable the day of any change in such rate, equal to three percentage
points in excess of the Prime Rate, until paid, and shall be due and payable monthly
or, at the option of the holder hereof, on demand.


 


This Note is secured by, and the holder of this Note
is entitled to the benefits of, the Security Documents.  Reference is made to the Security Documents
for a description of the


 


39

















 


property covered thereby and the rights, remedies and obligations of
the holder hereof in respect thereto.


 


Subject to the expiration of any applicable period of
grace provided for in the Credit Agreement, in the event of: (a) any default in
any payment of the principal of or interest or this Note when due and payable,
or (b) any other Event of Default (as defined in the Credit Agreement), then
the whole principal sum of this Note plus accrued interest and all other obligations
of Borrower to holder, direct or indirect, absolute or contingent, now existing
or hereafter arising, shall, at the option of Payee, become immediately due and
payable, and any or all of the rights and remedies provided herein and in the
Credit Agreement and the Security Documents, as they may be amended, modified
or supplemented from time to time may be exercised by Payee.


 


If Borrower fails to pay any amount due under this
Note and Payee has to take any action to collect the amount due or to exercise
its rights under the Security Documents, including without limitation retaining
attorneys for collection of this Note, or if any suit or proceeding is brought
for the recovery of all or any part of or for protection of the indebtedness or
to foreclose the Security Documents or to enforce Payee’s rights under the
Security Documents, then Borrower agrees to pay on demand all reasonable costs
and expenses of any such action to collect, suit or proceeding, or any appeal
of any such suit or proceeding, incurred by Payee, including without limitation
the reasonable fees and disbursements of Payee’s attorneys and their
professional staff.


 


Borrower waives presentment, notice of dishonor and
protest, and assents to any extension of time with respect to any payment due
under this Note, to any substitution or release of collateral and to the
addition or release of any party, except as provided in the Credit
Agreement.  No waiver of any payment or
other right under this Note shall operate as a waiver of any other payment or
right.


 


If any provision in this Note shall be held invalid,
illegal or unenforceable in any jurisdiction, the validity, legality or
enforceability of any defective provisions shall not be in any way affected or
impaired in any other jurisdiction.


 


No delay or failure of the holder of this Note in the
exercise of any right or remedy provided for hereunder shall be deemed a waiver
of such right by the holder hereof, and no exercise of any right or remedy
shall be deemed a waiver of any other right or remedy that the holder may have.


 


All notices given hereunder shall be given as provided
in the Credit Agreement.


 


At the option of the holder hereof, an action may be
brought to enforce this Note in the District Court in and for the City and
County of Denver, State of Colorado, in the United States District Court for
the District of Colorado or in any other court in which venue and jurisdiction
are proper.  Borrower and all signers or
endorsers hereof consent to venue and jurisdiction in the District Court in and
for the City and County of Denver, State of Colorado and in the United States
District Court for the District of Colorado and to service of process under
Sections 13-1-124(1) (a) 


 


40

















 


and 13-1-125, Colorado Revised Statutes (1992), as amended, in any
action commenced to enforce this Note.


 


This Note is in part a substitute for a Promissory
Note dated August 14, 2002, in the face amount of $40,000,000, made by
Borrower, payable to the order of Wells Fargo Bank, N.A., as assigned by Wells
Fargo Bank, N.A. to Payee.


 


This Note is to be governed by and construed according
to the laws of the State of Colorado.


 


	
   

  	
  CARBON ENERGY CORPORATION (USA)

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Kevin D. Struzeski,

  
	
   

  	
   

  	
  Chief Financial Officer

  



 


41

















 


EXHIBIT B


 


ADVANCE REQUEST


 


 


Bank of Oklahoma, National Association


1625 Broadway, Suite 1570


Denver, Colorado 80202


Attention:  Thomas M. Foncannon


 


Gentlemen:


 


1.             This
Advance Request is delivered to you pursuant to Section 2.1 of the Amended and
Restated Credit Agreement dated as of December 31, 2002 (the “Credit
Agreement”), between Carbon Energy Corporation (USA) and Bank of Oklahoma,
National Association.  Except as
otherwise defined herein, terms defined in the Credit Agreement shall have the
same meanings when used herein.


 


2.             Borrower
hereby requests an Advance as follows:


 


(a)           Proposed Date of Advance:


(b)           Amount of Advance:


 


3.             Borrower
hereby represents and warrants that as of the date hereof and as of the date of
the Advance requested hereunder, all statements contained in Section 4.2(a),
(b) and (c) of the Credit Agreement are and will be true and correct in all
material respects.


 


4.             Borrower
agrees that if, at any time prior to the date of the Advance requested by
Borrower hereunder, any representation or warranty of Borrower contained herein
is not true and correct as of such time, Borrower will immediately so notify
BOK.  Except to the extent of any such
notification by Borrower, the acceptance by Borrower of any Advance requested
hereunder shall be deemed a re-certification by Borrower as of the date of such
Advance of the representations and warranties made by Borrower herein.


 


	
   

  	
  CARBON ENERGY CORPORATION (USA)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  



 


42

















 


EXHIBIT C


 


REQUEST FOR ISSUANCE OF LETTER OF CREDIT


 


 


Bank of Oklahoma, National Association


1625 Broadway, Suite 1570


Denver, Colorado 80202


Attention:  Thomas M. Foncannon


 


Gentlemen:


 


1.             This
Request for Issuance of Letter of Credit is delivered to you pursuant to
Section 2.1 of the Amended and Restated Credit Agreement dated as of December
31, 2002 (the “Credit Agreement”), between Carbon Energy Corporation (USA) and
Bank of Oklahoma, National Association. 
Except as otherwise defined herein, terms defined in the Credit
Agreement shall have the same meanings when used herein.


 


2.             Borrower
hereby requests that BOK issue a Letter of Credit as follows:


 


(a)           Name of Beneficiary:


(b)           Proposed Issuance Date:


(c)           Expiration Date:


(d)           Face Amount:


(e)           Payment Instructions (if any):


 


3.             Borrower
hereby represents and warrants that as of the date hereof and as of the date of
issuance of the Letter of Credit requested hereunder, all statements contained
in Section 4.2(a), (b) and (c) of the Credit Agreement are and will be true and
correct in all material respects.


 


4.             Borrower
agrees that if, at any time prior to the date of issuance of the Letter of
Credit requested by Borrower hereunder, any representation or warranty of
Borrower contained herein is not true and correct as of such time, Borrower
will immediately so notify BOK.  Except
to the extent of any such notification by Borrower, the acceptance by Borrower
of any Letter of Credit requested hereunder shall be deemed a re-certification
by Borrower as of the date of such Advance of the representations and
warranties made by Borrower herein.


 


	
   

  	
  CARBON ENERGY CORPORATION (USA)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  



 


43

















 


EXHIBIT D


 


INTEREST RATE ELECTION


 


 


Bank of Oklahoma, National Association


1625 Broadway, Suite 1570


Denver, Colorado 80202


Attention:  Thomas M. Foncannon


 


Gentlemen:


 


1.             This
Interest Rate Election is delivered to you pursuant to Section 2.3 of the
Amended and Restated Credit Agreement dated as of December 31, 2002 (the
“Credit Agreement”), between Carbon Energy Corporation (USA) and Bank of
Oklahoma, National Association.  Except
as otherwise defined herein, terms defined in the Credit Agreement shall have
the same meanings when used herein.


 


2.             Borrower
hereby requests a LIBOR Tranche as follows:


 


(a)           Dollar Amount:


 


(b)           First Day of LIBOR Interest Period:


 


(c)           Duration (month(s)):


 


 


	
   

  	
  CARBON ENERGY CORPORATION (USA)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  



 


44