Exhibit
4.12




 


FIRST LIEN CREDIT
AGREEMENT





dated as of December 8,
2006,


among


FOREST ALASKA OPERATING
LLC,

as the Borrower,


FOREST ALASKA HOLDING
LLC,

as Holdings,


the LENDERS from time to
time party hereto


and


CREDIT SUISSE,

as Administrative Agent and Collateral Agent






CREDIT SUISSE SECURITIES
(USA) LLC


and


J.P. MORGAN SECURITIES
INC.,

as Co-Lead Arrangers and Joint Bookrunners






JPMORGAN CHASE
BANK, N.A.,

as Syndication Agent




 





 


 
















 


Table of Contents


	
  

  	
   

  	
  Page

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE I

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Definitions

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 1.01. Defined
  Terms

  	
   

  	
  1

  	
   

  
	
  SECTION 1.02. Terms
  Generally

  	
   

  	
  28

  	
   

  
	
  SECTION 1.03.
  Classification of Loans and Borrowings

  	
   

  	
  29

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  The Credits

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 2.01.
  Commitments

  	
   

  	
  29

  	
   

  
	
  SECTION 2.02. Loans

  	
   

  	
  29

  	
   

  
	
  SECTION 2.03. Evidence
  of Debt; Repayment of Loans

  	
   

  	
  30

  	
   

  
	
  SECTION 2.04. Fees

  	
   

  	
  31

  	
   

  
	
  SECTION 2.05. Interest
  on Loans

  	
   

  	
  31

  	
   

  
	
  SECTION 2.06. Default
  Interest

  	
   

  	
  31

  	
   

  
	
  SECTION 2.07. Alternate
  Rate of Interest

  	
   

  	
  32

  	
   

  
	
  SECTION 2.08.
  Termination and Reduction of Commitments

  	
   

  	
  32

  	
   

  
	
  SECTION 2.09.
  Conversion and Continuation of Borrowings

  	
   

  	
  32

  	
   

  
	
  SECTION 2.10. Repayment
  of Borrowings

  	
   

  	
  34

  	
   

  
	
  SECTION 2.11. Optional
  Prepayment; Prepayment Premium

  	
   

  	
  34

  	
   

  
	
  SECTION 2.12. Mandatory
  Prepayments

  	
   

  	
  35

  	
   

  
	
  SECTION 2.13. Reserve
  Requirements; Change in Circumstances

  	
   

  	
  37

  	
   

  
	
  SECTION 2.14. Change in
  Legality

  	
   

  	
  38

  	
   

  
	
  SECTION 2.15. Indemnity

  	
   

  	
  38

  	
   

  
	
  SECTION 2.16. Pro Rata
  Treatment

  	
   

  	
  39

  	
   

  
	
  SECTION 2.17. Sharing
  of Setoffs

  	
   

  	
  39

  	
   

  
	
  SECTION 2.18. Payments

  	
   

  	
  40

  	
   

  
	
  SECTION 2.19. Taxes

  	
   

  	
  40

  	
   

  
	
  SECTION 2.20.
  Assignment of Commitments Under Certain Circumstances; Duty to Mitigate

  	
   

  	
  42

  	
   

  
	
  SECTION 2.21. Change in
  Control Put

  	
   

  	
  43

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Representations
  and Warranties

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.01.
  Organization; Powers

  	
   

  	
  44

  	
   

  
	
  SECTION 3.02.
  Authorization

  	
   

  	
  44

  	
   

  
	
  SECTION 3.03. Enforceability

  	
   

  	
  44

  	
   

  



 



 i
 






 



 


	
  

  	
   

  	
  Page

  	
   

  
	
  SECTION 3.04.
  Governmental Approvals

  	
   

  	
  45

  	
   

  
	
  SECTION 3.05. Financial
  Statements; Absence of Undisclosed Liabilities; Reserve Reports

  	
   

  	
  45

  	
   

  
	
  SECTION 3.06. No
  Material Adverse Change

  	
   

  	
  45

  	
   

  
	
  SECTION 3.07. Title to
  Properties; Possession Under Leases

  	
   

  	
  46

  	
   

  
	
  SECTION 3.08.
  Subsidiaries

  	
   

  	
  46

  	
   

  
	
  SECTION 3.09.
  Litigation; Compliance with Laws

  	
   

  	
  46

  	
   

  
	
  SECTION 3.10.
  Agreements

  	
   

  	
  47

  	
   

  
	
  SECTION 3.11. Federal
  Reserve Regulations

  	
   

  	
  47

  	
   

  
	
  SECTION 3.12.
  Investment Company Act

  	
   

  	
  47

  	
   

  
	
  SECTION 3.13. Use of
  Proceeds

  	
   

  	
  47

  	
   

  
	
  SECTION 3.14. Tax
  Returns

  	
   

  	
  47

  	
   

  
	
  SECTION 3.15. No
  Material Misstatements

  	
   

  	
  47

  	
   

  
	
  SECTION 3.16. Employee
  Benefit Plans

  	
   

  	
  48

  	
   

  
	
  SECTION 3.17. Environmental
  Matters

  	
   

  	
  48

  	
   

  
	
  SECTION 3.18. Insurance

  	
   

  	
  48

  	
   

  
	
  SECTION 3.19. Security
  Documents

  	
   

  	
  48

  	
   

  
	
  SECTION 3.20. Location
  of Real Property and Leased Premises

  	
   

  	
  49

  	
   

  
	
  SECTION 3.21. Labor
  Matters

  	
   

  	
  50

  	
   

  
	
  SECTION 3.22. Solvency

  	
   

  	
  50

  	
   

  
	
  SECTION 3.23.
  Sanctioned Persons

  	
   

  	
  50

  	
   

  
	
  SECTION 3.24. Gas
  Imbalances; Prepayments

  	
   

  	
  51

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Conditions of
  Lending

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Affirmative
  Covenants

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.01.
  Existence; Compliance with Laws; Businesses and Properties

  	
   

  	
  54

  	
   

  
	
  SECTION 5.02. Insurance

  	
   

  	
  54

  	
   

  
	
  SECTION 5.03.
  Obligations and Taxes

  	
   

  	
  55

  	
   

  
	
  SECTION 5.04. Financial
  Statements, Reports, etc

  	
   

  	
  56

  	
   

  
	
  SECTION 5.05.
  Litigation and Other Notices

  	
   

  	
  58

  	
   

  
	
  SECTION 5.06.
  Information Regarding Collateral

  	
   

  	
  58

  	
   

  
	
  SECTION 5.07.
  Maintaining Records; Access to Properties and Inspections

  	
   

  	
  59

  	
   

  
	
  SECTION 5.08. Use of
  Proceeds

  	
   

  	
  59

  	
   

  
	
  SECTION 5.09. Employee
  Benefits

  	
   

  	
  59

  	
   

  
	
  SECTION 5.10.
  Compliance with Environmental Laws

  	
   

  	
  60

  	
   

  
	
  SECTION 5.11.
  Preparation of Environmental Reports

  	
   

  	
  60

  	
   

  
	
  SECTION 5.12. Further
  Assurances

  	
   

  	
  60

  	
   

  
	
  SECTION 5.13. Compliance with Leases

  	
   

  	
  61

  	
   

  



 



 ii
 






 



 


	
  

  	
   

  	
  Page

  	
   

  
	
  SECTION 5.14. Interest
  Rate Protection Agreements

  	
   

  	
  61

  	
   

  
	
  SECTION 5.15. Commodity
  Price Hedging Program

  	
   

  	
  61

  	
   

  
	
  SECTION 5.16. Delivery
  of Reserve Reports

  	
   

  	
  61

  	
   

  
	
  SECTION 5.17. Title
  Information

  	
   

  	
  63

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VI

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Negative
  Covenants

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 6.01.
  Indebtedness

  	
   

  	
  64

  	
   

  
	
  SECTION 6.02. Liens

  	
   

  	
  65

  	
   

  
	
  SECTION 6.03. Sale and
  Lease-Back Transactions

  	
   

  	
  66

  	
   

  
	
  SECTION 6.04.
  Investments, Loans and Advances

  	
   

  	
  66

  	
   

  
	
  SECTION 6.05. Mergers,
  Consolidations, Sales of Assets and Acquisitions

  	
   

  	
  68

  	
   

  
	
  SECTION 6.06.
  Restricted Payments; Payment of Certain Indebtedness; Restrictive Agreements

  	
   

  	
  68

  	
   

  
	
  SECTION 6.07.
  Transactions with Affiliates

  	
   

  	
  70

  	
   

  
	
  SECTION 6.08. Business
  of Holdings, Borrower and Subsidiaries; No Foreign Subsidiaries

  	
   

  	
  70

  	
   

  
	
  SECTION 6.09. Amendment
  of Certain Indebtedness and Agreements

  	
   

  	
  70

  	
   

  
	
  SECTION 6.10. Interest
  Coverage Ratio

  	
   

  	
  70

  	
   

  
	
  SECTION 6.11. Asset
  Coverage Ratios

  	
   

  	
  71

  	
   

  
	
  SECTION 6.12. Leverage
  Ratio

  	
   

  	
  71

  	
   

  
	
  SECTION 6.13. Capital Expenditures

  	
   

  	
  72

  	
   

  
	
  SECTION 6.14. Fiscal
  Year

  	
   

  	
  73

  	
   

  
	
  SECTION 6.15. Certain
  Equity Interests

  	
   

  	
  73

  	
   

  
	
  SECTION 6.16. Hedging
  Agreements

  	
   

  	
  73

  	
   

  
	
  SECTION 6.17.
  Take-or-Pay or Other Prepayments

  	
   

  	
  73

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VII

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Events of
  Default

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VIII

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  The Agent

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IX

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Miscellaneous

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 9.01. Notices

  	
   

  	
  79

  	
   

  
	
  SECTION 9.02. Survival
  of Agreement

  	
   

  	
  79

  	
   

  
	
  SECTION 9.03. Binding Effect

  	
   

  	
  80

  	
   

  



 



 iii
 






 



 


	
  

  	
   

  	
  Page

  	
   

  
	
  SECTION 9.04.
  Successors and Assigns

  	
   

  	
  80

  	
   

  
	
  SECTION 9.05. Expenses;
  Indemnity

  	
   

  	
  83

  	
   

  
	
  SECTION 9.06. Right of
  Setoff

  	
   

  	
  85

  	
   

  
	
  SECTION 9.07.
  Applicable Law

  	
   

  	
  85

  	
   

  
	
  SECTION 9.08. Waivers;
  Amendment

  	
   

  	
  85

  	
   

  
	
  SECTION 9.09. Interest
  Rate Limitation

  	
   

  	
  86

  	
   

  
	
  SECTION 9.10. Entire
  Agreement

  	
   

  	
  86

  	
   

  
	
  SECTION 9.11. WAIVER OF
  JURY TRIAL

  	
   

  	
  87

  	
   

  
	
  SECTION 9.12.
  Severability

  	
   

  	
  87

  	
   

  
	
  SECTION 9.13.
  Counterparts

  	
   

  	
  87

  	
   

  
	
  SECTION 9.14. Headings

  	
   

  	
  87

  	
   

  
	
  SECTION 9.15.
  Jurisdiction; Consent to Service of Process

  	
   

  	
  87

  	
   

  
	
  SECTION 9.16.
  Confidentiality

  	
   

  	
  88

  	
   

  
	
  SECTION 9.17.
  Termination or Release

  	
   

  	
  89

  	
   

  
	
  SECTION 9.18. USA
  PATRIOT Act Notice

  	
   

  	
  89

  	
   

  
	
  SECTION 9.19. No
  Fiduciary Relationship

  	
   

  	
  89

  	
   

  
	
  SECTION 9.20.
  Intercreditor Agreement

  	
   

  	
  90

  	
   

  
	
  SECTION 9.21. Security
  Documents

  	
   

  	
  90

  	
   

  
	
  SECTION 9.22. Parent Liability

  	
   

  	
  90

  	
   

  



 



 iv
 






 



 


	
  Schedules

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 1.01(a)

  	
   

  	
  Existing Hedging Agreements

  
	
  Schedule 1.01(b)

  	
   

  	
  Closing Date Mortgaged Real Property

  
	
  Schedule 1.01(c)

  	
   

  	
  Qualified Purchaser

  
	
  Schedule 2.01

  	
   

  	
  Lenders and Commitments

  
	
  Schedule 3.08

  	
   

  	
  Subsidiaries

  
	
  Schedule 3.09

  	
   

  	
  Litigation

  
	
  Schedule 3.17

  	
   

  	
  Environmental Matters

  
	
  Schedule 3.19(a)

  	
   

  	
  UCC Filing Offices

  
	
  Schedule 3.19(c)

  	
   

  	
  Mortgage Filing Offices

  
	
  Schedule 3.20(a)

  	
   

  	
  Owned Real Property

  
	
  Schedule 3.20(b)

  	
   

  	
  Leased Real Property

  
	
  Schedule 3.24

  	
   

  	
  Gas Imbalances

  
	
  Schedule 6.01

  	
   

  	
  Existing Indebtedness

  
	
  Schedule 6.02

  	
   

  	
  Existing Liens

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibits

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit A

  	
   

  	
  Form of Administrative Questionnaire

  
	
  Exhibit B

  	
   

  	
  Form of Assignment and Acceptance

  
	
  Exhibit C

  	
   

  	
  Form of Guarantee and Collateral Agreement

  
	
  Exhibit D

  	
   

  	
  Form of Intercreditor Agreement

  
	
  Exhibit E

  	
   

  	
  Form of Mortgage

  
	
  Exhibit F

  	
   

  	
  Form of Parent Undertaking

  
	
  Exhibit G

  	
   

  	
  Form of Opinion of Vinson & Elkins LLP

  
	
  Exhibit H

  	
   

  	
  Form of Solvency Certificate

  
	
  Exhibit I

  	
   

  	
  Form of Compliance Certificate

  
	
  Exhibit J

  	
   

  	
  Form of Engineer’s Certificate

  
	
  Exhibit K

  	
   

  	
  Form of Responsible Officer’s Certificate

  
	
  Exhibit L

  	
   

  	
  Form of Exemption Certificate

  



 



 v














 


FIRST LIEN CREDIT AGREEMENT dated as of December 8, 2006 (this “Agreement”), among FOREST ALASKA
OPERATING LLC, a limited liability company organized under the laws of the
State of Delaware (the “Borrower”); FOREST ALASKA HOLDING LLC, a
limited liability company organized under the laws of the State of Delaware (“Holdings”); the LENDERS from time to time
party hereto; JPMORGAN CHASE BANK, N.A., as Syndication Agent; and CREDIT
SUISSE, as Administrative Agent and Collateral Agent.


The Borrower has requested the Lenders to extend
credit in the form of the Loans (such term and each other capitalized term used
but not defined in this recital having the meaning given it in Article I)
on the Effective Date in an aggregate principal amount not in excess of $250,000,000.  The Borrower has further requested the Second
Lien Lenders to extend credit in the form of the Second Lien Loans on the
Effective Date in an aggregate principal amount not in excess of $125,000,000.  On the Effective Date, (a) $350,000,000
of the proceeds of the Loans and the Second Lien Loans will be used to fund a
distribution (the “Distribution”) by the
Borrower to Holdings and by Holdings to the Parent and (b) $25,000,000 of
the proceeds of the Loans and the Second Lien Loans will be retained by the
Borrower to be used for general corporate purposes of the Borrower and the
Subsidiaries, including the payment of fees and expenses related to the
Transactions.


The Lenders are willing to extend such credit to the
Borrower on the terms and subject to the conditions set forth herein.  Accordingly, the parties hereto agree as
follows:


ARTICLE I


Definitions


SECTION 1.01.  Defined Terms.  As used in this Agreement, the following
terms shall have the meanings specified below:


“1P Capital Expenditures”
shall mean, without duplication, Capital Expenditures made with respect to (a)
proved oil and gas reserves and (b) assets described in clause (g) of the
definition of “Oil and Gas Properties” used in connection with the operation,
work or development of proved oil and gas reserves (it being agreed that
Capital Expenditures in respect of assets described in such clause (g) that are
used in connection with both proved and probable oil and gas reserves shall be
allocated by the Borrower between 1P Capital Expenditures and 2P Capital
Expenditures in a reasonable manner); provided that,
for purposes of this definition, the parenthetical in clause (g) of the
definition of “Oil and Gas Properties” shall be disregarded.


“2P Capital Expenditures”
shall mean, without duplication, Capital Expenditures made with respect to (a)
probable oil and gas reserves and (b) assets described in clause (g) of the
definition of “Oil and Gas Properties” used in connection with the operation, 










 



work or development of
probable oil and gas reserves (it being agreed that Capital Expenditures in
respect of assets described in such clause (g) that are used in connection with
both proved and probable oil and gas reserve, shall be allocated by the
Borrower between 1P Capital Expenditures and 2P Capital Expenditures in a
reasonable manner); provided that,
for purposes of this definition, the parenthetical in clause (g) of the
definition of “Oil and Gas Properties” shall be disregarded.


“4Q06 Consolidated EBITDAX”
shall mean the amount equal to the sum of (a) Consolidated EBITDAX for the
period from and including November 1, 2006 through and including December 31,
2006 plus (b) $1,874,000.


“4Q06 Consolidated Interest
Expense” shall mean the amount equal to the product of (a)
Consolidated Interest Expense for the period from and including the Closing
Date through and including December 31, 2006 and (b) 4.00.


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


“Account Control Agreement”
shall mean an account control agreement, in form and
substance reasonably satisfactory to the Agent and the Borrower, designating
the Agent as secured party.


“Adjusted LIBO Rate”
shall mean, with respect to any Eurodollar Borrowing for any Interest Period,
an interest rate per annum equal to the product of (a) the LIBO Rate in
effect for such Interest Period and (b) Statutory Reserves.


“Administrative Agent Fee
Letter” shall mean the Administrative Agent Fee Letter dated as
of November 1, 2006, between the Borrower, the Agent and Credit Suisse
Securities (USA) LLC.


“Administrative
Questionnaire” shall mean an Administrative Questionnaire in the
form of Exhibit A, or such other form as may be supplied from time
to time by the Agent.


“Affiliate”
shall mean, when used with respect to a specified person, another person that
directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the person specified; provided, however, that, for purposes of Section 6.07,
the term “Affiliate” shall also include
any person that directly or indirectly owns 10% or more of any class of Equity
Interests of the person specified or that is an officer or director of the
person specified.


“Agent”
shall mean Credit Suisse, in its capacity as administrative agent for the
Lenders and collateral agent for the Secured Parties.


“Agreement”
shall have the meaning assigned to such term in the introductory paragraph.



 2
 






 



“Alternate Base Rate”
shall mean, for any day, a rate per annum equal to the greater of (a) the
Prime Rate in effect on such day and (b) the Federal Funds Effective Rate
in effect on such day plus 1/2 of 1%. 
If the Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the Federal
Funds Effective Rate for any reason, including the inability or failure of the
Agent to obtain sufficient quotations in accordance with the terms of the
definition thereof, the Alternate Base Rate shall be determined without regard
to clause (b) of the preceding sentence until the circumstances giving
rise to such inability no longer exist. 
Any change in the Alternate Base Rate due to a change in the Prime Rate
or the Federal Funds Effective Rate shall be effective on the effective date of
such change in the Prime Rate or the Federal Funds Effective Rate, as the case
may be.


“Annualized Consolidated
Interest Expense” shall mean (a) for the period ended on March
31, 2007 composed of four consecutive fiscal quarters, 200% of the sum of (i)
4Q06 Consolidated Interest Expense plus (ii) the Consolidated Interest
Expense for the fiscal quarter ended March 31, 2007, (b) for the period ended
on June 30, 2007 composed of four consecutive fiscal quarters, 133.33% of the
sum of (i) 4Q06 Consolidated Interest Expense plus (ii) the Consolidated
Interest Expense for the period ended on June 30, 2007 composed of two
consecutive fiscal quarters and (c) for the period ended on September 30, 2007
composed of four consecutive fiscal quarters, 100% of the sum of (i) 4Q06
Consolidated Interest Expense plus (ii) Consolidated Interest Expense
for the period ended on September 30, 2007 composed of three fiscal quarters.


“Anticipated Production”
shall mean, for any month, the reasonably anticipated production of crude oil
and natural gas (calculated separately) from the Borrower’s and the
Subsidiaries’ proved developed producing reserves.


“Applicable Percentage”
shall mean, for any day (a) with respect to any Eurodollar Loan, 3.50% per
annum and (b) with respect to any ABR Loan, 2.50% per annum.


“Asset Sale”
shall mean the sale, transfer or other disposition (by way of merger, casualty,
condemnation or otherwise) by Holdings, the Borrower or any of the Subsidiaries
to any person other than the Borrower or any Subsidiary Loan Party of
(a) any Equity Interests in any of the Subsidiaries (including any such
sale by the issuer of such Equity Interests but excluding directors’ qualifying
shares) or (b) any other assets of Holdings, the Borrower or any of the
Subsidiaries (other than (i) inventory (including Hydrocarbons), damaged,
obsolete or worn out assets, scrap and Permitted Investments, in each case
disposed of in the ordinary course of business and (ii) any sale, transfer or
other disposition that, together with all related sales, transfers or other
dispositions, has a value not in excess of $2,500,000).


“Assignment and Acceptance”
shall mean an assignment and acceptance entered into by a Lender and an
assignee, and accepted by the Agent, in the form of Exhibit B or
such other form as shall be approved by the Agent.



 3
 






 



“Available Cash”
shall mean all cash and Permitted Investments of Holdings and its subsidiaries.


“BLM Leases”
shall mean leases in respect of Real Property located on Federal lands and over
which the the Federal Bureau of Land Management has jurisdiction.


“BLM Sub-Collateral Agent”
shall have the meaning assigned to such term in Article VIII.


“Board”
shall mean the Board of Governors of the Federal Reserve System of the United
States of America.


“Borrower”
shall have the meaning assigned to such term in the introductory paragraph to
this Agreement.


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


“Business”
means the oil and gas interests in the Cook Inlet region of Alaska contributed
by Holdings to the Borrower pursuant to the Master Conveyance, as described in
the schedules thereto.


“Business Day”
shall mean any day other than a Saturday, Sunday or day on which banks in New
York City are authorized or required by law to close; provided,
however, that when used in connection
with a Eurodollar Loan, the term “Business Day”
shall also exclude any day on which banks are not open for dealings in dollar
deposits in the London interbank market.


“Capital Expenditures”
shall mean, for any period, (a) the additions to property, plant and
equipment and other capital expenditures (including maintenance capital
expenditures) of Holdings and its subsidiaries that are (or should be) set
forth in a consolidated statement of cash flows of Holdings for such period
prepared in accordance with GAAP and (b) Capital Lease Obligations or
Synthetic Lease Obligations incurred by Holdings and its subsidiaries during
such period, but excluding in each case any such expenditure made to restore,
replace or rebuild property to the condition of such property immediately prior
to any damage, loss, destruction or condemnation of such property, to the
extent such expenditure is made with insurance proceeds, condemnation awards or
damage recovery proceeds relating to any such damage, loss, destruction or
condemnation.


“Capital Lease Obligations”
of any person shall mean the obligations of such person to pay rent or other
amounts under any lease of (or other arrangement conveying the right to use)
real or personal property, or a combination thereof, which obligations are
required to be classified and accounted for as capital leases on a balance
sheet of such person under GAAP, and the amount of such obligations shall be
the capitalized amount thereof determined in accordance with GAAP.



 4
 






 



A “Change in Control”
shall be deemed to have occurred if (a) at any time (i) the Parent or one
or more Non-Financial Qualified Purchasers shall not beneficially own, directly
or indirectly, at least 75% of the issued and outstanding Equity Interests in
Holdings and (ii) one or more Financial Qualified Purchasers shall fail
beneficially to own, directly or indirectly, at least 51% of the issued and
outstanding Equity Interests in Holdings, (b) at any time Holdings shall
fail to directly own, beneficially and of record, 100% of the issued and outstanding
Equity Interests in the Borrower, (c) any change in control (or similar
event, however denominated) with respect to Holdings, the Borrower or any
Subsidiary shall occur under and as defined in any indenture or agreement in
respect of Material Indebtedness to which Holdings, the Borrower or any
Subsidiary is a party or (d) at the time of any sale, transfer or disposition
of Equity Interests in Holdings (other than to an Affiliate of the seller
thereof), the aggregate principal amount of outstanding Loans and Second Lien
Loans as of such time shall exceed 70% of the Enterprise Value as of such time.


“Change in Law”
shall mean (a) the adoption of any law, rule or regulation after the
Closing Date, (b) any change in any law, rule or regulation or in the interpretation
or application thereof by any Governmental Authority after the Closing Date or
(c) compliance by any Lender (or, for purposes of Section 2.13, by
any lending office of such Lender or by such Lender’s holding company, if any)
with any request, guideline or directive (whether or not having the force of
law) of any Governmental Authority made or issued after the Closing Date.


“Closing Date”
shall mean the date of this Agreement.


“Code” shall
mean the Internal Revenue Code of 1986, as amended from time to time.


“Collateral”
shall mean all the “Collateral”, as defined in any Security Document and shall
also include the Mortgaged Properties.


“Collateral Agreement”
shall mean the First Lien Guarantee and Collateral Agreement, substantially in
the form of Exhibit C, among the Borrower, Holdings, the
Subsidiaries party thereto and the Agent for the benefit of the Secured
Parties.


“Collateral and Guarantee
Requirement” means, at any time, the requirement that:


(a) the Agent shall have received from each of
Holdings, the Borrower and the Subsidiaries either (i) a counterpart of
the Collateral Agreement duly executed and delivered on behalf of such person
or (ii) in the case of any person that becomes a Subsidiary after the
Effective Date, a supplement to the Collateral Agreement, in the form specified
therein, duly executed and delivered on behalf of such person within the period
required by Section 5.12;


(b) subject to Section Section 4.01(d)(i)(C) of the
Collateral Agreement, all outstanding Equity Interests in the Borrower and each
Domestic Subsidiary and all other Equity Interests owned by or on behalf of any
Loan Party shall have been pledged 



 5
 






 



pursuant to the
Collateral Agreement and the Agent shall have received (to the extent such
Equity Interests are certificated securities) certificates or other instruments
representing all such Equity Interests, together with undated stock powers or
other instruments of transfer with respect thereto endorsed in blank;


(c) all Indebtedness of Holdings, the Borrower and
each Subsidiary that is owing to any Loan Party shall have been pledged
pursuant to the Collateral Agreement and, to the extent such Indebtedness is
evidenced by a promissory note, the Agent shall have received all such
promissory notes, together with undated instruments of transfer with respect
thereto endorsed in blank;


(d) the Agent shall have received (i) counterparts of
a Mortgage with respect to each Mortgaged Property duly executed and delivered
by the record owner of such Mortgaged Property, (ii) tax Lien searches at the
applicable State’s central filing system and Uniform Commercial Code searches
in form and substance reasonably satisfactory to the Agent, (iii) opinions of
counsel in the jurisdictions in which the Mortgaged Properties owned by the
Borrower or any Subsidiary on the Closing Date are located, addressed to the
Agent and each Lender, with respect to title to Leases included in the Oil and
Gas Properties on the Closing Date that represent 95% of the Proved PV-10% and
55% of the Probable PV-10% (as determined by reference to the Reserve Report as
of June 30, 2006 delivered to the Agent prior to the Closing Date), in
form and substance reasonably satisfactory to the Agent, (iv) on the Closing
Date and on the date of any acquisition of a Mortgaged Property, opinions of
counsel in the jurisdictions in which such Mortgaged Property is located,
addressed to the Agent and each Lender, with respect to the enforceability and
validity of the Mortgages thereon and any related fixture filings, in form and
substance reasonably satisfactory to the Agent and (v) all such other items as
shall be reasonably necessary in the opinion of counsel to the Agent to create
and evidence a valid and perfected first priority mortgage Lien and provide
appropriate notice and filing of such Lien on such Mortgaged Property, subject
only to Liens permitted to Section 6.02;


(e) at all times after the 30th day following the
Closing Date and thereafter, the Agent shall have received from each applicable
Loan Party and each applicable depository bank or securities intermediary, an
executed counterpart of an Account Control Agreement in respect of each deposit
account and securities account of any Loan Party that is required to be subject
to an Account Control Agreement by Section 4.04(b) of the Collateral
Agreement;


(f) all documents and instruments, including Uniform
Commercial Code financing statements and filings with the MMS, required by law
or reasonably requested by the Agent to be filed, registered or recorded to
create the Liens intended to be created by the Security Documents and perfect
such Liens to the extent required by, and with the priority required by, the
Security Documents, shall have been filed, registered or recorded or delivered
to the Agent for filing, registration or recording, and all filing, recording
and similar fees and Taxes payable in connection with the foregoing shall have
been paid or provided for in a manner reasonably satisfactory to the Agent; and



 6
 






 



(g) except for approvals identified in the Parent
Undertaking as approvals to be obtained after the Effective Date, each Loan
Party shall have obtained all consents and approvals required to be obtained by
it in connection with the execution and delivery of all Security Documents to
which it is a party, the performance of its obligations thereunder and the
granting by it of the Liens thereunder;


provided that the foregoing
definition shall not require the creation or perfection of pledges of or
security interests in, or the obtaining of legal opinions with respect to,
particular assets of the Loan Parties if and for so long as the Agent, in
consultation with the Borrower, determines that the cost of creating or
perfecting such pledges or security interests in such assets or obtaining legal
opinions in respect of such assets shall be excessive in view of the benefits
to be obtained by the Lenders therefrom. 
The Agent may grant extensions of time for the perfection of security
interests in or the obtaining of legal opinions with respect to particular
assets where it determines that perfection cannot be accomplished, or opinions
cannot be obtained, without undue effort or expense by the time or times at
which it would otherwise be required by the Loan Documents.


“Commitment”
shall mean, with respect to each Lender, the commitment of such Lender to make
Loans hereunder as set forth on Schedule 2.01 or in the Assignment
and Acceptance pursuant to which such Lender assumed its Commitment, as
applicable, as the same may be (a) reduced on or prior to the Effective Date
pursuant to Section 2.08 and (b) reduced or increased from time to
time pursuant to assignments by or to such Lender pursuant to
Section 9.04.


“Confidential Information
Memorandum” shall mean the Confidential Information Memorandum
of the Borrower dated November 14, 2006.


“Consolidated EBITDAX”
shall mean, for any period, (a) Consolidated Net Income of Holdings and its
subsidiaries for such period plus (b) the sum of Consolidated Interest
Expense, depreciation, depletion expense, amortization expense, income taxes,
exploration expense and other non-cash charges and expenses (except those
excluded in determining Consolidated Net Income) incurred by Holdings and its
subsidiaries during such period; provided, however, that, except for purposes of determining Excess
Cash Flow, Consolidated EBITDAX for any period shall be calculated on a pro forma basis for any divestitures or acquisitions
consummated during such period and, if any such acquisition or divestiture has
a fair market value in excess of $5,000,000, as if such acquisition or
divestiture had occurred on the first day of such period).  Notwithstanding any other provision in this
Agreement, “Consolidated EBITDAX” for the
fiscal quarter ended on June 30, 2006, September 30, 2006 and December 31, 2006
shall be deemed to be $23,733,000, $18,106,000 and 4Q06 Consolidated EBITDAX.


“Consolidated Interest
Expense” shall mean, for any period, (a) the interest
expense (including imputed interest expense in respect of Capital Lease
Obligations and Synthetic Lease Obligations) of Holdings and its subsidiaries
for such period, determined on a consolidated basis in accordance with GAAP plus
(b) any interest accrued during such period in respect of Indebtedness of
Holdings or any of its subsidiaries that is required to be capitalized rather
than included in consolidated interest expense for such 



 7
 






 



period in accordance with
GAAP plus (c) the amount of dividends paid to any person (other than
Holdings or any of its subsidiaries) during such period on preferred stock in Holdings,
the Borrower or any of their Subsidiaries, determined on a consolidated basis
in accordance with GAAP.  For purposes of
the foregoing, interest expense shall be determined after giving effect to any
net payments made or received by the Borrower or any Subsidiary with respect to
interest rate Hedging Agreements. 
Notwithstanding any other provision in this Agreement, “Consolidated Interest Expense” for
any period of four fiscal quarters ended on or prior to September 30, 2007
shall be deemed to be Annualized Consolidated Interest Expense.


“Consolidated Net Income”
shall mean, for any period, the net income or loss of Holdings and its
subsidiaries for such period determined on a consolidated basis in accordance
with GAAP; provided that there shall be excluded
(a) the income of any Subsidiary to the extent that the declaration or payment
of dividends or similar distributions by such Subsidiary in the amount of such
income is not at the time permitted by operation of the terms of its charter or
any agreement, instrument, judgment, decree, statute, rule or governmental
regulation applicable to such Subsidiary, (b) the income of any person in which
any other person (other than Holdings, the Borrower or a wholly owned
Subsidiary or any director holding qualifying shares in accordance with
applicable law) has a joint interest, except to the extent of the amount of
dividends or other distributions actually paid to Holdings, the Borrower or a
wholly owned Subsidiary by such person during such period, (c) any gains or
losses attributable to sales of assets not in the ordinary course of business,
(d) any extraordinary or non-recurring non-cash gains or non-cash losses
(including any non-cash gains or non-cash losses related to any Hedging
Agreements) recorded by Holdings and its Subsidiaries during such period or (e)
any non-cash ceiling-test write downs and/or impairments.


“Contracts”
shall mean all contracts, agreements, operating agreements, farm-out or farm-in
agreements, sharing agreements, mineral purchase agreements, contracts for the
purchase, exchange, transportation, processing or sale of Hydrocarbons,
rights-of-way, easements, surface leases, equipment leases, permits,
franchises, licenses, pooling or unitization agreements, and unit or pooling
designations and orders now or hereafter affecting any of the Oil and Gas
Properties, Operating Equipment, Fixture Operating Equipment or Hydrocarbons
now or hereafter covered hereby, or which are useful or appropriate in drilling
for, producing, treating, handling, storing, transporting or marketing oil, gas
or other minerals produced from any of the Oil and Gas Properties, and all as
such contracts and agreements as they may be amended, supplemented or otherwise
modified from time to time.


“Control”
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of a person, whether through
the ownership of voting securities, by contract or otherwise, and the terms “Controlling” and “Controlled” shall have meanings
correlative thereto.


“Current Assets”
shall mean, at any time, the consolidated current assets (other than cash,
Permitted Investments and FAS 133 assets) of Holdings and its subsidiaries in
accordance with GAAP.  For purposes of
calculating Excess Cash Flow, Current Assets 



 8
 






 



shall be calculated
without regard to any changes in Current Assets as a result of (a) any
reclassification in accordance with GAAP of assets or liabilities, as
applicable, between current and noncurrent or (b) the effects of purchase
accounting.


“Current Liabilities”
shall mean, at any time, the consolidated current liabilities of Holdings and
its subsidiaries at such time (excluding, without duplication, the current
portion of any long-term Indebtedness not yet due and FAS 133
liabilities) in accordance with GAAP. 
For purposes of calculating Excess Cash Flow, Current Liabilities shall
be calculated without regard to any changes in Current Liabilities as a result
of (a) any reclassification in accordance with GAAP of assets or liabilities,
as applicable, between current and noncurrent or (b) the effects of purchase
accounting.


“Declined Amounts”
shall have the meaning assigned to such term in Section 2.12(g).


“Default”
shall mean any event or condition which upon notice, lapse of time or both
would constitute an Event of Default.


“Disqualified Stock”
shall mean any Equity Interest that, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable), or upon
the happening of any event, (a) matures (excluding any maturity as the result
of an optional redemption by the issuer thereof) or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, or is redeemable at the
option of the holder thereof, in whole or in part, or requires the payment of
any cash dividend or any other scheduled payment constituting a return of
capital, in each case at any time on or prior to the first anniversary of the
Maturity Date or (b) is convertible into or exchangeable (unless at the sole
option of the issuer thereof) for (i) debt securities or (ii) any Equity
Interest referred to in clause (a) above, in each case at any time prior to the
first anniversary of the Maturity Date.


“Distribution”
shall have the meaning assigned to such term in the recitals to this Agreement.


“dollars” or
“$” shall mean lawful money of the
United States of America.


“Domestic Subsidiary”
shall mean a Subsidiary incorporated or organized under the laws of the United
States of America, any State thereof or the District of Columbia.


“Effective Date”
shall mean the first date on which the conditions specified in Article IV
are satisfied (or waived in accordance with Section 9.08).


“Enterprise Value”
shall mean, as of any date of determination, the sum of (i) purchase price paid
for any Equity Interests sold, transferred or disposed on such day multiplied
by the fraction the numerator of which 100% and the denominator of which is the
percentage of all issued and outstanding Equity Interests in Holdings on such
day represented by such sold, transferred or disposed Equity Interests plus
(ii) the aggregate principal amount of Indebtedness of Holdings and its
subsidiaries, determined on a consolidated basis, as of such time.


 



 9













 


“Environmental Laws”
shall mean all former, current and future Federal, state, local and foreign
laws (including common law), treaties, regulations, rules, ordinances, codes,
decrees, judgments, directives, orders (including consent orders), and
agreements in each case, relating to protection of the environment, natural
resources, human health and safety or the presence, Release of, or exposure to,
Hazardous Materials, or the generation, manufacture, processing, distribution,
use, treatment, storage, transport, recycling or handling of, or the
arrangement for such activities with respect to, Hazardous Materials.


“Environmental Liability”
shall mean all liabilities, obligations, damages, losses, claims, actions,
suits, judgments, orders, fines, penalties, fees, expenses and costs (including
administrative oversight costs, natural resource damages and remediation
costs), whether contingent or otherwise, arising out of or relating to
(a) compliance or non-compliance with any Environmental Law,
(b) the generation, use, handling, transportation, storage, treatment or
disposal of any Hazardous Materials, (c) exposure to any Hazardous
Materials, (d) the Release of any Hazardous Materials or (e) any
contract, agreement or other consensual arrangement pursuant to which liability
is assumed or imposed with respect to any of the foregoing.


“Equity Interests”
shall mean shares of capital stock, partnership interests, membership interests
in a limited liability company, beneficial interests in a trust or other equity
interests in any person, and any option, warrant or other right entitling the
holder thereof to purchase or otherwise acquire any such equity interest.


“Equity Issuance”
shall mean any issuance or sale by Holdings or the Borrower of any Equity
Interests in Holdings or the Borrower, as applicable, except in each case for
(a) any issuance of directors’ qualifying shares, (b) issuances or
sales of common stock in Holdings to management or employees in Holdings, the
Borrower or any Subsidiary under any employee stock option or stock purchase
plan or employee benefit plan in existence from time to time and (c) issuances
or sales of Equity Interests in Holdings that do not result in a Change in
Control.


“ERISA”
shall mean the Employee Retirement Income Security Act of 1974, as the same may
be amended from time to time.


“ERISA Affiliate” shall mean any
trade or business (whether or not incorporated) that, together with the
Borrower, is treated as a single employer under Section 414(b) or (c) of
the Code, or solely for purposes of Section 302 of ERISA and
Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.


“ERISA Event”
shall mean (a) any “reportable event”, as defined in Section 4043 of
ERISA or the regulations issued thereunder, with respect to a Plan (other than
an event for which the 30-day notice period is waived), (b) the existence
with respect to any Plan of an “accumulated funding deficiency” (as defined in
Section 412 of the Code or Section 302 of ERISA) and, on and after
the effectiveness of the Pension Act, any failure by any Plan to satisfy the
minimum funding standards (within the meaning of Section 412 of the Code or
Section 302 of ERISA) applicable to such Plan, whether or not waived, 



 10
 






 



(c) the filing
pursuant to Section 412 of the Code or Section 303 of ERISA of an
application for a waiver of the minimum funding standard with respect to any
Plan, (d) the incurrence by the Borrower or any of its ERISA Affiliates of
any liability under Title IV of ERISA with respect to the termination of
any Plan or the withdrawal or partial withdrawal of the Borrower or any of its
ERISA Affiliates from any Plan or Multiemployer Plan, (e) the receipt by
the Borrower or any of its ERISA Affiliates from the PBGC or a plan
administrator of any notice relating to the intention to terminate any Plan or
Plans or to appoint a trustee to administer any Plan, (f) the adoption of
any amendment to a Plan that would require the provision of security pursuant
to Section 401(a)(29) of the Code or Section 307 of ERISA, (g) on an after the
effectiveness of the Pension Act, a determination that any Plan is, or is
expected to be, in “at risk” status (within the meaning of Section 303(i)(4)(a)
of ERISA or Section 430(i)(4)(A) of the Code), (h) the receipt by the Borrower
or any of its ERISA Affiliates of any notice, or the receipt by any
Multiemployer Plan from the Borrower or any of its ERISA Affiliates of any
notice, concerning the imposition of Withdrawal Liability or a determination
that a Multiemployer Plan is, or is expected to be, insolvent or in
reorganization, within the meaning of Title IV of ERISA (or, after the
effectiveness of the Pension Act, that a Multiemployer Plan is endangered or in
critical status within the meaning of Section 305 of ERISA) or (i) the
occurrence of a “prohibited transaction” with respect to which the Borrower or
any of the Subsidiaries is a “disqualified person” (within the meaning of
Section 4975 of the Code) or with respect to which the Borrower or any such
Subsidiary could otherwise be liable.


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


“Event of Default”
shall have the meaning assigned to such term in Article VII.


“Excess Cash Flow”
shall mean, for any fiscal year of Holdings and its subsidiaries, the excess of
(a) the sum, without duplication, of (i) Consolidated EBITDAX for
such fiscal year and (ii) reductions to noncash working capital of
Holdings and its subsidiaries for such fiscal year (i.e.,
the decrease, if any, in Current Assets minus Current Liabilities from the
beginning to the end of such fiscal year) over (b) the sum, without
duplication, of (i) the amount of any Taxes paid or payable in cash by
Holdings and its subsidiaries with respect to such fiscal year, including Taxes
paid or payable in cash to the Parent under the Tax Sharing Agreements,
(ii) Consolidated Interest Expense for such fiscal year paid in cash,
(iii) Capital Expenditures made in cash during such fiscal year, except to
the extent financed with the proceeds of Indebtedness, issuances of Equity
Interests, casualty proceeds, condemnation proceeds, other proceeds that would
not be included in Consolidated EBITDAX or amounts that were offered to the
Lenders and the Second Lien Lenders to prepay outstanding Loans pursuant to
Section 2.12(c) and outstanding Second Lien Loans pursuant to Section 2.12(c)
of the Second Lien Credit Agreement but were not accepted by either the Lenders
or the Second Lien Lenders, (iv) permanent repayments of Indebtedness
(other than mandatory prepayments of Loans under Section 2.12) made in cash by
Holdings and its subsidiaries during such fiscal year, but only to the extent
that the Indebtedness so prepaid by its terms cannot be reborrowed 



 11
 






 



or redrawn and such
prepayments do not occur in connection with a refinancing of all or any portion
of such Indebtedness, (v) additions to noncash working capital for such
fiscal year (i.e., the increase, if any, in
Current Assets minus Current Liabilities from the beginning to the end of such
fiscal year) and (vi) to the extent not Capital Expenditures, cash exploration
expenses and cash asset retirement expenses incurred during such fiscal year,
except to the extent financed with the proceeds of Indebtedness, issuances of
Equity Interests, casualty proceeds, condemnation proceeds or other proceeds
that would not be included in Consolidated EBITDAX.


“Excluded Taxes”
shall mean, with respect to the Agent, any Lender or any other recipient of any
payment to be made by or on account of any obligation of the Borrower
hereunder, (a) income or franchise taxes imposed on (or measured by) its net
income by the United States of America or by any Governmental Authority of the
jurisdiction under the laws of which such recipient is organized or in which
its principal office is located or, in the case of any Lender, in which its
applicable lending office is located, (b) any branch profits taxes imposed by
the United States of America or any similar tax imposed by any other
jurisdiction described in clause (a) above and (c) in the case of a
Foreign Lender (other than an assignee pursuant to a request by the Borrower
under Section 2.20(a)), any withholding tax that is imposed on amounts
payable to such Foreign Lender at the time such Foreign Lender becomes a party
to this Agreement (or designates a new lending office) or is attributable to
such Foreign Lender’s failure to comply with Section 2.19(e), except to
the extent that such Foreign Lender (or its assignor, if any) was entitled, at
the time of designation of a new lending office (or assignment), to receive
additional amounts from the Borrower with respect to such withholding tax
pursuant to Section 2.19(a).


“Extraordinary Receipts”
shall mean the receipt by Holdings, the Borrower or any of the Subsidiaries of
any non-ordinary course tax refunds, pension plan reversions, judgments,
litigation settlements or non-casualty insurance proceeds.


“Federal Funds Effective
Rate” shall mean, for any day, the weighted average of the rates
on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published on the next succeeding
Business Day by the Federal Reserve Bank of New York, or, if such rate is
not so published for any day that is a Business Day, the average of the
quotations for the day for such transactions received by the Agent from three
Federal funds brokers of recognized standing selected by it.


“Federal Tax Sharing
Agreement” shall mean Federal Income Tax Allocation Agreement
dated as of November 1, 2006, between the Parent and Holdings.


“Financial Officer”
of any person shall mean the chief financial officer, principal accounting officer,
treasurer or controller of such person.


“Financial Qualified
Purchaser” shall mean any of (a) Arc Financial, (b) Encap
Investments, (c) First Reserve Corporation, (d) Perry Capital, (e) Quantum
Energy Partners, (f) Quantum Resources and (g) Yorktown Partners.



 12
 






 



“Fixture Operating
Equipment” shall mean any of the items described in the first
sentence of the definition of “Operating Equipment” which as a result of being
incorporated into realty or structures or improvements located therein or
thereon, with the intent that they remain there permanently, constitute
fixtures under the laws of the state in which such equipment is located.


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


“Foreign Subsidiary”
shall mean any Subsidiary that is not a Domestic Subsidiary.


“GAAP” shall
mean United States generally accepted accounting principles applied on a
consistent basis.


“Governmental Authority”
shall mean any Federal, state, local or foreign court or governmental agency,
authority, instrumentality or regulatory body.


“Granting Lender”
shall have the meaning assigned to such term in Section 9.04(i).


“Guarantee”
of or by any person shall mean any obligation, contingent or otherwise, of such
person guaranteeing or having the economic effect of guaranteeing any Indebtedness
or other obligation of any other person (the “primary
obligor”) in any manner, whether directly or indirectly, and
including any obligation of such person, direct or indirect, (a) to
purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness or other obligation or to purchase (or to advance or supply
funds for the purchase of) any security for the payment of such Indebtedness or
other obligation, (b) to purchase or lease property, securities or
services for the purpose of assuring the owner of such Indebtedness or other
obligation of the payment of such Indebtedness or other obligation or
(c) to maintain working capital, equity capital or any other financial
statement condition or liquidity of the primary obligor so as to enable the
primary obligor to pay such Indebtedness or other obligation; provided, however, that
the term “Guarantee” shall not include
endorsements for collection or deposit in the ordinary course of business.


“Hazardous Materials”
shall mean (a) petroleum and any petroleum products or Hydrocarbons, coal
ash, radon gas, asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls, chlorofluorocarbons and all other ozone-depleting substances and
(b) any chemical, material, substance or waste that is prohibited, limited
or regulated by or pursuant to any Environmental Law.


“Hedging Agreement”
means any interest rate protection agreement, foreign currency exchange
agreement, commodity price protection agreement or other interest or currency
exchange rate or commodity price hedging arrangement.  The “principal amount”
of the obligations of any person in respect of any Hedging Agreement at any 



 13
 






 



time shall be the maximum
aggregate amount (after giving effect to any netting agreements) that such person
would be required to pay if such Hedging Agreement were terminated at such
time.


“Hedging Obligations”
means the due and punctual payment and performance of all obligations of each
Loan Party under each Hedging Agreement (a) that is in effect on the Closing
Date and set forth in Schedule 1.01(a) hereto, (b) that is in effect on
the Closing Date with a counterparty that is (i) the Agent or the Syndication
Agent, (ii) a Lender as of the Closing Date or (iii) an Affiliate of the Agent,
the Syndication Agent or any such Lender or (c) that is entered into after the
Closing Date with a counterparty that is (i) the Agent or the Syndication
Agent, (ii) a Lender as of the date on which the Hedging Agreement is entered
into or (iii) an Affiliate of the Agent, the Syndication Agent or any such
Lender.


“Holdings”
shall have the meaning assigned to such term in the introductory paragraph to
this Agreement.


“Hydrocarbon Interests”
shall mean all rights, titles, interests and estates now owned or hereafter
acquired in and to oil and gas leases, leasehold interests and licenses, oil,
gas and mineral leases or other liquid or gaseous hydrocarbon licenses, leases,
fee mineral interests, term mineral interests, subleases, mineral servitudes,
farm-outs, royalties, overriding royalty and royalty interests, non-consent
interests arising out of or pursuant to Contracts, net profit interests, net
revenue and profit interests, oil payments, production payments, production
payment interests and similar interests and estates, including all reserved or
residual interests of whatever nature and all reversionary or carried interests
relating to any of the foregoing.  Unless
otherwise indicated herein, each reference to the term “Hydrocarbon
Interests” shall mean Hydrocarbon Interests of the Borrower and
the Subsidiaries.


“Hydrocarbons”
shall mean oil, gas, casinghead gas, drip gasoline, natural gasoline,
condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons, kerosene,
liquefied petroleum gas, refined lubricating oils, diesel fuel and all products
refined, separated, settled or dehydrated therefrom.


“Indebtedness”
of any person shall mean, without duplication, (a) all obligations of such
person for borrowed money or with respect to deposits or advances of any kind,
(b) all obligations of such person evidenced by bonds, debentures, notes
or similar instruments, (c) all obligations of such person under
conditional sale or other title retention agreements relating to property or
assets acquired by such person, (d) all obligations of such person in
respect of the deferred purchase price of property or services (excluding
accounts payable not more than 90 days past due incurred in the ordinary course
of business), (e) all Indebtedness of others secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien on property owned or acquired by such person, whether
or not the Indebtedness secured thereby has been assumed, (f) all
Guarantees by such person of Indebtedness of others, (g) all Capital Lease
Obligations and Synthetic Lease Obligations of such person, (h) all
obligations, contingent or otherwise, of such person as an account 



 14
 






 



party in respect of
letters of credit and letters of guaranty, (i) all obligations, contingent or
otherwise, in respect of bankers’ acceptances, (j) all obligations of such
person with respect to any arrangement, directly or indirectly, whereby such
person or its subsidiaries shall sell or transfer any material asset, and
whereby such person or any of its subsidiaries shall then or immediately
thereafter rent or lease as lessee such asset or any part thereof and (k) all
net payments that such person would have to make in the event of an early
termination under any Hedging Agreement if, on the date Indebtedness of such
person is being determined, such Hedging Agreement became subject to an early
termination as of such date.  The
Indebtedness of any person shall include the Indebtedness of any other person (including
any partnership in which such person is a general partner) to the extent such
person is liable therefor as a result of such person’s ownership interest in or
other relationship with such entity, except to the extent the terms of such
Indebtedness provide that such person is not liable therefor.


“Indemnified Taxes”
shall mean Taxes other than Excluded Taxes.


“Independent Engineer”
shall mean (a) DeGolyer & MacNaughton, (b) Ryder Scott Company Petroleum
Engineers, (c) Netherland, Sewell & Associates, Inc., (d) Collarini
Engineering, Inc. or (e) another independent petroleum engineer reasonably
acceptable to the Agent.


“Intercompany Services
Agreement” shall mean (a) the intercompany services agreement
between the Parent and the Borrower, in substantially the form approved by the
Agent prior to the Closing Date or (b) one or more service agreements, in form
and substance reasonably acceptable to the Agent, pursuant to which the
services provided for under the agreement described in clause (a) are performed
by an entity of established reputation in the oil and gas industry (which may
be a Qualified Purchaser) on terms (including pricing) and conditions then
consistent with standard industry practice for such services.


“Intercreditor Agreement”
shall mean the Intercreditor Agreement, substantially in the form of Exhibit
D, among the Agent, the Second Lien Agent, Holdings and the Borrower.


“Interest Coverage Ratio”
shall mean, for any period, the ratio of (a) Consolidated EBITDAX for such
period to (b) Consolidated Interest Expense for such period.


“Interest Payment Date”
shall mean (a) with respect to any ABR Loan, the last Business Day of each
March, June, September and December, commencing on the last Business Day of
March 2007, and (b) with respect to any Eurodollar Loan, the last day
of the Interest Period applicable to the Borrowing of which such Loan is a part
and, in the case of a Eurodollar Borrowing with an Interest Period of more than
three months’ duration, each day that would have been an Interest Payment Date
had successive Interest Periods of three months’ duration been applicable to
such Borrowing.



 15
 






 



“Interest Period”
shall mean, with respect to any Eurodollar Borrowing, the period
commencing on the date of such Borrowing and ending on the numerically
corresponding day (or, if there is no numerically corresponding day, on the
last day) in the calendar month that is one, two, three or six months
thereafter, as the Borrower may elect; provided, however, that if any Interest Period would end on a day
other than a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless such next succeeding Business Day would fall in
the next calendar month, in which case such Interest Period shall end on the
next preceding Business Day.  Interest
shall accrue from and including the first day of an Interest Period to but
excluding the last day of such Interest Period. For purposes hereof, the date
of a Borrowing initially shall be the date on which such Borrowing is made and
thereafter shall be the effective date of the most recent conversion or
continuation of such Borrowing.


“Leases”
shall mean all leases in respect of real property containing proved, probable
or possible oil or gas reserves to which the Borrower or any Subsidiary is a
party.


“Lenders”
shall mean the persons listed on Schedule 2.01 and any other person
that has become a party hereto pursuant to an Assignment and Acceptance, other
than any such person that ceases to be a party hereto pursuant to an Assignment
and Acceptance.


“Leverage Ratio”
shall mean, on any date, the ratio of (a) Total Debt on such date to (b)
Consolidated EBITDAX for the period of four consecutive fiscal quarters most
recently ended on or prior to such date.


“LIBO Rate”
shall mean, with respect to any Eurodollar Borrowing for any Interest Period,
the rate per annum determined by the Agent at approximately 11:00 a.m. (London
time) on the date that is two Business Days prior to the commencement of such
Interest Period by reference to the British Bankers’ Association Interest
Settlement Rates for deposits in dollars (as set forth by any service selected
by the Agent that has been nominated by the British Bankers’ Association as an
authorized information vendor for the purpose of displaying such rates) for a
period equal to such Interest Period; provided that,
to the extent that an interest rate is not ascertainable pursuant to the
foregoing provisions of this definition, the “LIBO
Rate” shall be the interest rate per annum determined by the
Agent to be the average of the rates per annum at which deposits in dollars are
offered for such relevant Interest Period to major banks in the London
interbank market in London, England by the Agent at approximately 11:00 a.m.
(London time) on the date that is two Business Days prior to the beginning of
such Interest Period.


“Lien” shall
mean, with respect to any asset, (a) any mortgage, deed of trust, lien,
pledge, encumbrance, charge or security interest in or on such asset,
(b) the interest of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement (or any financing lease
having substantially the same economic effect as any of the foregoing) relating
to such asset and (c) in the case of securities, any purchase option, call
or similar right of a third party with respect to such securities.



 16
 






 



“Loan Documents”
shall mean this Agreement, the Security Documents and the promissory notes, if
any, executed and delivered pursuant to Section 2.03(e).


“Loan Document Obligations”
means (a) the due and punctual payment by the Borrower of (i) the principal of,
premium (if any) and interest (including interest accruing during the pendency
of any bankruptcy, insolvency, receivership or other similar proceeding,
regardless of whether allowed or allowable in such proceeding) on the Loans,
when and as due, whether at maturity, by acceleration, upon one or more dates
set for prepayment or otherwise and (ii) all other monetary obligations of the
Borrower to any of the Secured Parties under this Agreement and each of the
other Loan Documents, including obligations to pay fees, expense reimbursement
obligations and indemnification obligations, whether primary, secondary,
direct, contingent, fixed or otherwise (including monetary obligations incurred
during the pendency of any bankruptcy, insolvency, receivership or other
similar proceeding, regardless of whether allowed or allowable in such
proceeding), (b) the due and punctual performance of all other obligations of
the Borrower under or pursuant to this Agreement and each of the other Loan
Documents to which it is a party and (c) the due and punctual payment and
performance of all the obligations of each other Loan Party under or pursuant
to the Security Documents and each of the other Loan Documents to which they
are a party.


“Loan Parties”
shall mean Holdings, the Borrower and the Subsidiary Loan Parties.


“Loans”
shall mean the term loans made by the Lenders to the Borrower pursuant to
Section 2.01.


“Margin Stock”
shall have the meaning assigned to such term in Regulation U.


“Master Conveyance”
shall mean (a) the Master Conveyance dated as of November 1, 2006, between the
Parent and Holdings and (b) the Master Conveyance dated as of November 1, 2006,
between Holdings and the Borrower.


“Material Adverse Effect”
shall mean (a) a materially adverse effect on the business, assets,
liabilities, operations, condition (financial or otherwise) or operating
results of Holdings and its subsidiaries, taken as a whole, (b) a material
impairment of the ability of the Borrower or any other Loan Party to perform
any of its obligations under any Loan Document to which it is or will be a
party or (c) a material impairment of the rights and remedies of or
benefits available to the Lenders under any Loan Document.


“Material Indebtedness”
shall mean Indebtedness (other than the Loans), or obligations in respect of
one or more Hedging Agreements, of any one or more of Holdings, the Borrower or
any Subsidiary in an aggregate principal amount exceeding $5,000,000.


“Maturity Date”
shall mean December 8, 2010.


“MMS” shall
mean the United States Department of Interior Minerals Management Service.



 17
 






 



“MMS Leases”
shall mean the leases designated as such on Schedule 1.01(b).


“Moody’s”
shall mean Moody’s Investors Service, Inc., or any successor thereto.


“Mortgaged Properties”
shall mean (a) all Real Property of any Loan Party on the Closing Date and
listed on Schedule 1.01(b) and (b) any after acquired Real Property of
any Loan Party having a gross purchase price of $1,000,000 or more at the time
of the acquisition thereof.


“Mortgages”
shall mean the mortgages, deeds of trust, leasehold mortgages, assignments of
leases and rents, modifications and other security documents substantially in
the form of Exhibit E or in other forms reasonably acceptable to
the Agent and the Borrower.


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


“Net Cash Proceeds”
shall mean (a) with respect to any Asset Sale, the cash proceeds thereof
(including cash proceeds subsequently received (as and when received) in
respect of noncash consideration initially received), net of
(i) selling and other expenses (including reasonable broker’s fees or
commissions, legal fees, transfer and similar taxes, Hedging Agreement
termination costs and the Borrower’s good faith estimate of income taxes
actually paid or payable in connection with such sale), (ii) amounts
provided as a reserve, in accordance with GAAP, against any liabilities under
any indemnification obligations or purchase price adjustment associated with
such Asset Sale (provided that, to the extent and
at the time any such amounts are released from such reserve, such amounts shall
constitute Net Cash Proceeds) and (iii) any amount payable in respect of
any Indebtedness for borrowed money which is secured by the asset sold in such
Asset Sale and which is required to be repaid with such proceeds (excluding any
such Indebtedness assumed by the purchaser of such asset); provided,
however, that, if (x) the Borrower
shall deliver a certificate of a Financial Officer of the Borrower to the Agent
at the time of receipt thereof setting forth the Borrower’s intent to reinvest
such proceeds to acquire, maintain, explore, develop, construct, improve,
upgrade or repair assets useful in the business of the Borrower and the
Subsidiaries within 180 days of receipt of such proceeds and (y) no
Default or Event of Default shall have occurred and shall be continuing at the
time of the delivery of such certificate or at the proposed time of the
application of such proceeds, such proceeds shall not constitute Net Cash
Proceeds except to the extent not so used at the end of such 180 day period, at
which time such proceeds shall be deemed to be Net Cash Proceeds, (b) with
respect to any issuance or incurrence of Indebtedness or any Equity Issuance,
the cash proceeds thereof (including cash proceeds subsequently received (as
and when received) in respect of noncash consideration initially received), net
of all taxes and customary fees, commissions, costs and other expenses incurred
in connection therewith and (c) with respect to any Extraordinary Receipts, the
cash proceeds thereof (including cash proceeds subsequently received (as and
when received) in respect of noncash consideration initially received).


 



 18













 


“Non-Financial Qualified
Purchaser” shall mean any Qualified Purchaser that is not a
Financial Qualified Purchaser.


“NYMEX”
shall mean the New York Mercantile Exchange.


“Obligations”
means (a) the Loan Document Obligations and (b) the Hedging Obligations.


“Oil and Gas Properties”
shall mean (a) Hydrocarbon Interests, (b) properties and assets now or
hereafter pooled or unitized with Hydrocarbon Interests, (c) all currently
existing or future unitization, pooling agreements and declarations of pooled
units and the units created thereby (including all units created under orders,
regulations and rules of any Governmental Authority) which may affect all or
any portion of the Hydrocarbon Interests, (d) all operating agreements,
contracts and other Contracts, including production sharing contracts and
agreements, which relate to any of the Hydrocarbon Interests or the production,
sale, purchase, exchange or processing of Hydrocarbons from or attributable to
such Hydrocarbon Interests, (e) all Hydrocarbons in and under and which may be
produced and saved or attributable to the Hydrocarbon Interests, including all
oil in tanks, and all rents, issues, profits, proceeds, products, revenues and
other incomes from or attributable to the Hydrocarbon Interests, (f) all tenements,
hereditaments, appurtenances and properties and assets in any manner
appertaining, belonging, affixed or incidental to the Hydrocarbon Interests and
(g) all properties and assets, rights, titles, interests and estates described
or referred to above, including any and all properties and assets, real or
personal, now owned or hereinafter acquired and situated upon, used, held for
use or useful in connection with the operating, working or development of any
of such Hydrocarbon Interests or properties and assets (excluding drilling
rigs, automotive equipment, rental equipment or other personal property or
assets which may be on such premises for the purpose of drilling a well or for
other similar temporary uses) and including any and all oil wells, gas wells,
injection wells or other wells, buildings, structures, fuel separators, liquid
extraction plants, plant compressors, pumps, pumping units, field gathering
systems, tanks and tank batteries, fixtures, valves, fittings, machinery and
parts, engines, boilers, meters, apparatus, equipment, appliances, tools,
implements, cables, wires, towers, casing, tubing and rods, surface leases,
rights-of-way, easements and servitudes together with all additions,
substitutions, replacements, accessions and attachments to any and all of the
foregoing.  Unless otherwise indicated
herein, each reference to the term “Oil and Gas Properties”
shall mean Oil and Gas Properties of the Borrower and the Subsidiaries.


“Operating Equipment”
means all surface or subsurface machinery, equipment, facilities, supplies or
other properties and assets of whatsoever kind or nature now or hereafter
located on any of the properties or assets affected by the Oil and Gas
Properties which are useful for the production, treatment, storage or transportation
of Hydrocarbons, including all oil wells, gas wells, water wells, injection
wells, casing, tubing, rods, pumping units and engines, christmas trees,
derricks, separators, gun barrels, flow lines, pipelines, tanks, gas systems
(for gathering, treating and compression), water systems (for treating,
disposal and injection), supplies, derricks, wells, power plants, poles,
cables, wires, meters, processing plants, compressors, dehydration units,
lines, transformers, 



 19
 






 



starters and controllers,
machine shops, tools, storage yards and equipment stored therein, buildings and
camps, telegraph, telephone and other communication systems, roads, loading
racks, shipping facilities and all additions, substitutes and replacements for,
and accessories and attachments to, any of the foregoing.  “Operating Equipment”
shall not include any items incorporated into realty or structures or
improvements located therein or thereon in such a manner that they no longer
remain personal property under the laws of the State in which such equipment is
located.


“Other Taxes”
shall mean any and all present or future stamp or documentary taxes or any
other excise or property taxes, charges or similar levies arising from any
payment made under any Loan Document or from the execution, delivery or
enforcement of, or otherwise with respect to, any Loan Document.


“Parent”
shall mean Forest Oil Corporation, a corporation organized under the laws of
the State of New York.


“Parent Undertaking”
shall mean the Parent Undertaking, substantially in the form of Exhibit F
hereto, among the Parent, the Agent and the Second Lien Agent.


“PBGC” shall
mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA.


“PDP PV-10%”
shall mean, on any date, 100% of the present value of future revenues less
severance and ad valorem taxes, operating expenses and capital expenditures of
the proved developed producing oil and gas reserves attributable to the Oil and
Gas Properties, as evaluated in the most recently delivered Reserve Report in
respect of proved developed producing oil and gas reserves attributable to the
Oil and Gas Properties, discounted at a rate of 10% and utilizing the monthly
crude oil (WTI) and natural gas (Henry Hub) prices, in each case based upon (i)
the actual monthly price quoted on NYMEX on such date for the corresponding
month through the 60th month from such date and (ii) the arithmetic monthly
average for months 49 through 60 for each month after the 60th month.  The amount of the PDP PV-10% then in effect
shall be (a) calculated on a pro forma basis
for dispositions and acquisitions consummated since the date of the most
recently delivered Reserve Report in respect of proved developed producing oil
and gas reserves attributable to the Oil and Gas Properties to the extent that
a reserve report reasonably acceptable to the Agent in respect of proved
developed producing oil and gas reserves attributable to such disposition or
acquisition is available and (b) adjusted to give effect to the Borrower’s and
the Subsidiaries’ commodity hedges then in effect.


“PDP Total Debt Coverage
Ratio” shall mean, on any date, the ratio of (a) PDP PV-10% as
of such date to (b) Total Debt as of such date.


“PDP First Lien Debt
Coverage Ratio” shall mean, on any date, the ratio of (a) PDP
PV-10% as of such date to (b) the aggregate principal amount of Loans
outstanding under this Agreement as of such date.


“Pension Act”
shall mean the Pension Protection Act of 2006.



 20
 






 



“Perfection Certificate”
shall mean the Perfection Certificate substantially in the form of Exhibit B
to the Collateral Agreement.


“Permitted Acquisition”
shall mean the acquisition by the Borrower or any Subsidiary of all or
substantially all of the assets of a person or a line of business of such
person, or not less than 100% of the Equity Interests (other than directors’
qualifying shares) in a person (referred to herein as the “Acquired
Entity”); provided that
(i) such acquisition was not preceded by an unsolicited tender offer for such
Equity Interests by, or proxy contest initiated by, Holdings, the Borrower or
any Subsidiary, (ii) the Acquired Entity shall be in a similar line of business
as that of the Borrower and the Subsidiaries as conducted during the current
and most recent calendar year and (iii) at the time of such transaction (A)
both before and after giving effect thereto, no Default or Event of Default
shall have occurred and be continuing, (B) the Borrower would be in compliance
with the covenants set forth in Sections 6.10, 6.11 and 6.12 as of the most
recently completed period of four consecutive fiscal quarters ending prior to
such transaction for which the financial statements and certificates required
by Section 5.04(a) or 5.04(b), as the case may be, have been delivered, after
giving pro forma effect to such transaction,
any related incurrences of Indebtedness and any other event occurring after
such period as to which pro forma
recalculation is appropriate (including any other transaction described in this
definition occurring after such period) as if such transaction had occurred as
of the first day of such period, (C) (I) the total consideration paid in
connection with such acquisition and any other acquisitions pursuant to Section
6.04(g) (including any Indebtedness of the Acquired Entity that is assumed by the
Borrower or any Subsidiary following such acquisition and any payments
following such acquisition pursuant to earn-out provisions or similar
obligations) made in the same fiscal year, together with all investments in Oil
and Gas Properties made pursuant to Section 6.04(k) in such fiscal year, shall
not in the aggregate exceed $15,000,000 and (II) the total consideration paid
in connection with such acquisition and any other acquisitions pursuant to
Section 6.04(g) (including any Indebtedness of the Acquired Entity that is
assumed by the Borrower or any Subsidiary following such acquisition and any
payments following such acquisition pursuant to earn-out provisions or similar
obligations) during the term of this Agreement, together with all investments
in Oil and Gas Properties made pursuant to Section 6.04(k) during the term of
this Agreement, shall not in the aggregate exceed $50,000,000, (D) the Borrower
shall have delivered a certificate of a Financial Officer of the Borrower,
certifying as to the foregoing and containing reasonably detailed calculations
in support thereof, in form and substance satisfactory to the Administrative
Agent and (E) the Borrower shall comply, and shall cause the Acquired Entity to
comply, with the applicable provisions of Section 5.12 and the Security
Documents.


“Permitted Investments”
shall mean:


(a) direct obligations of, or obligations the
principal of and interest on which are unconditionally guaranteed by, the
United States of America (or by any agency thereof to the extent such
obligations are backed by the full faith and credit of the United States of
America), in each case maturing within one year from the date of acquisition
thereof;



 21
 






 



(b) investments in commercial paper maturing
within 270 days from the date of acquisition thereof and having, at such date
of acquisition, the highest credit rating obtainable from S&P or from Moody’s;


(c) investments in certificates of deposit,
banker’s acceptances and time deposits maturing within one year from the date
of acquisition thereof issued or guaranteed by or placed with, and money market
deposit accounts issued or offered by, the Agent or any domestic office of any
commercial bank organized under the laws of the United States of America or any
State thereof that has a combined capital and surplus and undivided profits of
not less than $500,000,000;


(d) fully collateralized repurchase agreements
with a term of not more than 30 days for securities described in
clause (a) above and entered into with a financial institution satisfying the
criteria of clause (c) above;


(e) investments in “money market funds” within
the meaning of Rule 2a-7 of the Investment Company Act of 1940, as amended,
substantially all of whose assets are invested in investments of the type
described in clauses (a) through (d) above; and


(f) investments in so-called “auction rate”
securities rated AAA or higher by S&P or Aaa or higher by Moody’s and which
have a reset date not more than 90 days from the date of acquisition thereof.


“Permitted Refinancing
Indebtedness” shall mean any Indebtedness (other than
obligations under Hedging Agreements) issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, defease or refund
(collectively, to “Refinance”) the Indebtedness
(other than obligations under Hedging Agreements) being Refinanced (or previous
refinancings thereof constituting Permitted Refinancing Indebtedness); provided that (a) the principal amount (or accreted value,
if applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount (or accreted value, if applicable) of the Indebtedness so
Refinanced (plus unpaid accrued interest, underwriting discounts,
origination fees and premium thereon), (b) the average life to maturity of such
Permitted Refinancing Indebtedness is greater than or equal to that of the
Indebtedness being Refinanced, (c) if the Indebtedness being Refinanced is
subordinated in right of payment to the Obligations under this Agreement, such
Permitted Refinancing Indebtedness shall be subordinated in right of payment to
such Obligations on terms at least as favorable to the Lenders as those
contained in the documentation governing the Indebtedness being Refinanced, (d)
no Permitted Refinancing Indebtedness shall have different obligors, or greater
guarantees or security, than the Indebtedness being Refinanced and (e) if the
Indebtedness being Refinanced is secured by any collateral (whether equally and
ratably with, or junior to, the Secured Parties or otherwise), such Permitted
Refinancing Indebtedness may be secured by such collateral on terms (including
Lien subordination terms) no less favorable to the Secured Parties than those
contained in the documentation governing the Indebtedness being Refinanced.



 22
 






 



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


“Plan” shall
mean any employee pension benefit plan (other than a Multiemployer Plan)
subject to the provisions of Title IV of ERISA or Section 412 of the
Code or Section 307 of ERISA, and in respect of which the Borrower or any
ERISA Affiliate is (or, if such plan were terminated, would under
Section 4069 of ERISA be deemed to be) an “employer” as defined in
Section 3(5) of ERISA.


“Prime Rate”
shall mean the rate of interest per annum determined from time to time by
Credit Suisse as its prime rate in effect at its principal office in
New York City and notified to the Borrower.


“Probable PV-10%”
shall mean, on any date, 100% of the present value of future revenues less
severance and ad valorem taxes, operating expenses and capital expenditures of
the probable oil and gas reserves attributable to the Oil and Gas Properties,
in each case as evaluated in the most recently delivered Reserve Report in
respect of probable oil and gas reserves attributable to the Oil and Gas
Properties, as the case may be, discounted at a rate of 10% and utilizing the
monthly crude oil (WTI) and natural gas (Henry Hub) prices, in each case based
upon the actual monthly price quoted on NYMEX on such date for the
corresponding month through the 60th month from such date and (ii) the
arithmetic monthly average for months 49 through 60 for each month after the
60th month.  The amount of the Probable
PV-10% then in effect shall be (a) calculated on a pro forma
basis for dispositions and acquisitions consummated since the date of the most
recently delivered Reserve Report in respect of probable oil and gas reserves
attributable to the Oil and Gas Properties to the extent that a reserve report
reasonably acceptable to the Agent in respect of probable oil and gas reserves
attributable to such disposition or acquisition is available and (b) adjusted
to give effect to the Borrower’s and the Subsidiaries’ commodity hedges then in
effect.


“Proved PV-10%”
shall mean, on any date, 100% of the present value of future revenues less
severance and ad valorem taxes, operating expenses and capital expenditures of
the proved oil and gas reserves attributable to the Oil and Gas Properties, as
evaluated in the most recently delivered Reserve Report in respect of proved
oil and gas reserves attributable to the Oil and Gas Properties, discounted at
a rate of 10% and utilizing the monthly crude oil (WTI) and natural gas (Henry
Hub) prices, in each case based upon (i) the actual monthly price quoted on
NYMEX on such date for the corresponding month through the 60th month from such
date and (ii) the arithmetic monthly average for months 49 through 60 for each
month after the 60th month.  The amount
of the Proved PV-10% then in effect shall be (a) calculated on a pro forma basis for dispositions and acquisitions
consummated since the date of the most recently delivered Reserve Report in
respect of proved oil and gas reserves attributable to the Oil and Gas
Properties to the extent that a reserve report reasonably acceptable to the
Agent in respect of proved oil and gas reserves attributable to such
disposition or acquisition is available and (b) adjusted to give effect to the
Borrower’s and the Subsidiaries’ commodity hedges then in effect.



 23
 






 



“Proved Total Debt Coverage
Ratio” shall mean, on any date, the ratio of (a) Proved PV-10%
as of such date to (b) Total Debt as of such date.


“Purchase Date”
shall have the meaning assigned to such term in Section 2.21.


“Qualified Capital Stock”
of any person shall mean any Equity Interest of such person that is not
Disqualified Stock.


“Qualified Purchaser”
shall mean each person listed on Schedule 1.01(c), any wholly-owned
subsidiary of any such person and any fund managed by any such person.


“Real Property”
shall mean, collectively, all right, title and interest of the Borrower or any
Subsidiary in and to any and all parcels of real property owned, leased or
operated by the Borrower or any Subsidiary together with all improvements and
appurtenant fixtures, equipment, personal property, easements and other
property and rights incidental to the ownership, lease or operation thereof,
including all Oil and Gas Properties that constitute real property.


“Register”
shall have the meaning assigned to such term in Section 9.04(d).


“Regulation T”
shall mean Regulation T of the Board as from time to time in effect and
all official rulings and interpretations thereunder or thereof.


“Regulation U”
shall mean Regulation U of the Board as from time to time in effect and
all official rulings and interpretations thereunder or thereof.


“Regulation X”
shall mean Regulation X of the Board as from time to time in effect and
all official rulings and interpretations thereunder or thereof.


“Related Fund” shall mean, with respect
to any Lender that is a fund or commingled investment vehicle that invests in
bank loans, any other fund that invests in bank loans and is managed or advised
by the same investment advisor as such Lender or by an Affiliate of such
investment advisor.


“Related Parties”
shall mean, with respect to any specified person, such person’s Affiliates and
the directors, trustees, officers, employees, agents and advisors of such
person and such person’s Affiliates.


“Release”
shall mean any release, spill, emission, leaking, dumping, injection, pouring,
deposit, disposal, discharge, dispersal, leaching or migration into or through
the environment or within or upon any building, structure, facility or fixture.


“Required Lenders”
shall mean, at any time, Lenders having Loans and unused Commitments
representing more than 50% of the sum of all Loans outstanding and unused
Commitments at such time.



 24
 






 



Reserve Report”
shall mean (a) each of the reserve reports referred to in Section 3.05(c) and
(b) any other reserve report delivered to the Agent or any Lender pursuant to
or in connection with this Agreement.


“Responsible Officer”
of any person shall mean any executive officer or Financial Officer of such
person and any other officer or similar official thereof responsible for the
administration of the obligations of such person in respect of this Agreement,
including a reserve engineer of seniority reasonably acceptable to the Agent.


“Restricted Indebtedness”
shall mean Indebtedness of Holdings, the Borrower or any Subsidiary, the
payment, prepayment, repurchase or defeasance of which is restricted under
Section 6.06(b).


“Restricted Payment”
shall mean any dividend or other distribution (whether in cash, securities or
other property) with respect to any Equity Interests in Holdings, the Borrower
or any Subsidiary, or any payment (whether in cash, securities or other
property), including any sinking fund or similar deposit, on account of the
purchase, redemption, retirement, acquisition, cancellation or termination of
any Equity Interests in Holdings, the Borrower or any Subsidiary.


“Second Lien Agent”
shall mean the “Agent”, as defined in the Second Lien Credit Agreement.


“Second Lien Credit
Agreement” shall mean the Second Lien Credit Agreement dated as
of the date hereof, among the Borrower, Holdings, the lenders from time to time
party thereto and Credit Suisse, as administrative agent and collateral agent.


“Second Lien Lenders”
shall mean “Lenders”, as defined in the Second Lien Credit Agreement.


“Second Lien Loan Documents”
shall mean “Loan Documents”, as defined in the Second Lien Credit Agreement.


“Second Lien Loan Parties”
shall mean “Loan Parties”, as defined in the Second Lien Credit Agreement.


“Second Lien Loans”
shall mean “Loans”, as defined in the Second Lien Credit Agreement.


“Second Lien Obligations”
shall mean “Obligations”, as defined in the Second Lien Credit Agreement.


“Second Lien Secured Party”
shall mean “Secured Party”, as defined in the Second Lien Credit Agreement.


“Secured Parties”
shall mean (a) the Lenders, (b) the Agent, (c) each counterparty to any
Hedging Agreement entered into with a Loan Party the obligations under which
constitute Obligations, (d) the beneficiaries of each indemnification 



 25
 






 



obligation undertaken by
any Loan Party under any Loan Document and (e) the successors and permitted
assigns of each of the foregoing.


“Security Documents”
shall mean the Mortgages, the Collateral Agreement, the Account Control
Agreements, the Intercreditor Agreement and each of the security agreements,
mortgages and other instruments and documents executed and delivered pursuant
to any of the foregoing or pursuant to Section 5.12.


“SPC” shall
have the meaning assigned to such term in Section 9.04(i).


“S&P”
shall mean Standard & Poor’s Ratings Service, a division of the McGraw-Hill Companies,
Inc., or any successor thereto.


“State Tax Sharing
Agreement” shall mean the State Consolidated or Combined Income
Tax Allocation Agreement dated as of November 1, 2006, between the Parent and
Holdings.


“Statutory Reserves”
shall mean a fraction (expressed as a decimal), the numerator of which is the
number one and the denominator of which is the number one minus the
aggregate of the maximum reserve percentages (including any marginal, special,
emergency or supplemental reserves) expressed as a decimal established by the
Board and any other banking authority, domestic or foreign, to which the Agent
or any Lender (including any branch, Affiliate or other fronting office making
or holding a Loan) is subject for Eurocurrency Liabilities (as defined in
Regulation D of the Board). 
Eurodollar Loans shall be deemed to constitute Eurocurrency Liabilities
as defined in Regulation D of the Board) and to be subject to such reserve
requirements without benefit of or credit for proration, exemptions or offsets
that may be available from time to time to any Lender under such
Regulation D.  Statutory Reserves
shall be adjusted automatically on and as of the effective date of any change
in any reserve percentage.


“subsidiary”
shall mean, with respect to any person (herein referred to as the “parent”), any corporation,
partnership, limited liability company, association or other business entity
(a) of which securities or other ownership interests representing more
than 50% of the equity or more than 50% of the ordinary voting power or more
than 50% of the general partnership interests are, at the time any
determination is being made, owned, Controlled or held or (b) that is, at the
time any determination is made, otherwise Controlled, by the parent or one or
more subsidiaries of the parent or by the parent and one or more subsidiaries
of the parent.


“Subsidiary”
shall mean any subsidiary of the Borrower.


“Subsidiary Loan Party”
shall mean each Subsidiary that has executed the Collateral Agreement or a
supplement thereto and a Mortgage in respect of each Mortgaged Property which
is owned by it.


“Syndication Agent”
shall mean JPMorgan Chase Bank, N.A., in its capacity as syndication agent for
the Lenders.



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“Synthetic Lease
Obligations” means all monetary obligations under (a) a
synthetic, off-balance sheet or tax retension lease or (b) an agreement for the
use or possession of property creating obligations that do not (and should not)
appear on the balance sheet of such person but which, upon the insolvency or
bankruptcy of such person, would be characterized as the indebtedness of such
person (without regard to accounting treatment).


“Synthetic Purchase
Agreement” shall mean any swap, derivative or other agreement or
combination of agreements pursuant to which Holdings, the Borrower or any
Subsidiary is or may become obligated to make (a) any payment in connection
with a purchase by any third party from a person other than Holdings, the Borrower
or any Subsidiary of any Equity Interest or Restricted Indebtedness or (b) any
payment (other than on account of a permitted purchase by it of any Equity
Interest or Restricted Indebtedness) the amount of which is determined by
reference to the price or value at any time of any Equity Interest or
Restricted Indebtedness; provided that
no phantom stock or similar plan providing for payments only to current or
former directors, officers or employees of Holdings, the Borrower or the
Subsidiaries (or to their heirs or estates) shall be deemed to be a Synthetic
Purchase Agreement.


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


“Tax Sharing Agreements”
means (a) the Federal Tax Sharing Agreement and (b) the State Tax Sharing
Agreement, in each case in the form approved by the Agent prior to the Closing
Date.


“Total Debt”
shall mean, at any time, the Indebtedness of Holdings and its subsidiaries on a
consolidated basis at such time described under clauses (a), (b), (c), (d),
(e), (f), (g), (h), (i) and (j); provided that “Total Debt” shall exclude any
Indebtedness of Holdings and its subsidiaries composed of outstanding but
undrawn letters of credit or outstanding but undrawn performance bonds.


“Transactions”
shall mean, collectively, (a) the contribution of the Business by the Parent to
Holdings and by Holdings to the Borrower, (b) the execution, delivery and
performance by the Loan Parties of the Loan Documents to which they are a party
and the borrowing of Loans hereunder, (c) the execution, delivery and
performance by the Second Lien Loan Parties of the Second Lien Loan Documents
to which they are party and the borrowing of Second Lien Loans thereunder, (d)
the Distribution, (e) the execution, delivery and performance by the parties
thereto of the Intercompany Services Agreement and the Tax Sharing Agreements
and (f) the payment of fees and expenses in connection with the foregoing.


“Type”, when
used in respect of any Loan or Borrowing, shall refer to the Rate by reference
to which interest on such Loan or on the Loans comprising such Borrowing is
determined. For purposes hereof, the term “Rate” shall
mean the Adjusted LIBO Rate and the Alternate Base Rate.


 



 27













 


“USA PATRIOT Act”
shall mean The Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001 (Title III of Pub. L.
No. 107-56 (signed into law October 26, 2001)).


“wholly owned Subsidiary”
of any person shall mean a subsidiary of such person of which securities
(except for directors’ qualifying shares) or other ownership interests
representing 100% of the Equity Interests are, at the time any determination is
being made, owned, Controlled or held by such person or one or more wholly
owned Subsidiaries of such person or by such person and one or more wholly
owned Subsidiaries of such person.


“Withdrawal Liability”
shall mean liability to a Multiemployer Plan as a result of a complete or
partial withdrawal from such Multiemployer Plan, as such terms are defined in
Part I of Subtitle E of Title IV of ERISA.


SECTION 1.02.  Terms Generally.  The definitions in Section 1.01 shall
apply equally to both the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words “include”, “includes” and “including”
shall be deemed to be followed by the phrase “without limitation”. The word “will”
shall be construed to have the same meaning and effect as the word “shall”; and
the words “asset” and “property” shall be construed as having the same meaning
and effect and to refer to any and all tangible and intangible assets and
properties, including cash, securities, accounts and contract rights. All
references herein to Articles, Sections, Exhibits and Schedules shall be deemed
references to Articles and Sections of, and Exhibits and Schedules to, this
Agreement unless the context shall otherwise require. Except as otherwise
expressly provided herein, (a) any reference in this Agreement to any Loan
Document shall mean such document as amended, restated, supplemented, waived or
otherwise modified from time to time and (b) all terms of an accounting or
financial nature shall be construed in accordance with GAAP, as in effect from
time to time; provided, however, that if Holdings notifies the
Agent that Holdings wishes to amend any covenant in Article VI or any
related definition to eliminate the effect of any change in GAAP occurring
after the date of this Agreement on the operation of such covenant (or if the
Agent notifies Holdings that the Required Lenders wish to amend Article VI
or any related definition for such purpose), then Holding’s compliance with
such covenant shall be determined on the basis of GAAP in effect immediately
before the relevant change in GAAP became effective, until either such notice
is withdrawn or such covenant is amended in a manner satisfactory to Holdings
and the Required Lenders.  Unless the
context requires otherwise (a) any definition of or reference to any agreement,
instrument or other document herein shall be construed as referring to such
agreement, instrument or other document as from time to time amended,
supplemented, waived or otherwise modified (subject to any restrictions on such
amendments, supplements, waivers or modifications set forth herein), (b) any
definition of or reference to any statute, regulation or other law herein shall
be construed (i) as referring to such statute, regulation or other law as from
time to time amended, supplemented or otherwise modified (including by
succession of comparable successor statutes, regulations or other laws) and
(ii) to include all official rulings and interpretations thereunder, (c) any
reference herein to any person shall be construed to 



 28
 






 



include such
person’s successors and assigns and (d) the words “herein”, “hereof” and “hereunder”,
and words of similar import, shall be construed to refer to this Agreement in
its entirety and not to any particular provision hereof.


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


ARTICLE II


The Credits


SECTION 2.01.  Commitments.  On the terms and subject to the conditions
and relying upon the representations and warranties herein set forth, each
Lender agrees, severally and not jointly, to make a Loan to the Borrower on the
Effective Date in a principal amount not to exceed its Commitment.  The Loans made on the Effective Date shall be
Eurodollar Loans with an Interest Period of one month’s duration and shall be
disbursed to the account designated by the Borrower in a writing delivered to
the Agent at least two Business Days prior to the Effective Date.  Amounts paid or prepaid in respect of Loans
may not be reborrowed.


SECTION 2.02.  Loans.  (a) 
Each Loan shall be made as part of a Borrowing consisting of Loans made
by the Lenders ratably in accordance with their Commitments; provided, however, that the failure of any
Lender to make any Loan shall not in itself relieve any other Lender of its
obligation to lend hereunder (it being understood, however, that no Lender
shall be responsible for the failure of any other Lender to make any Loan
required to be made by such other Lender). 
The Loans comprising any Borrowing shall be in an aggregate principal
amount that is an integral multiple of $1,000,000 and not less than $5,000,000.


(b)  Subject to
Sections 2.07 and 2.14, each Borrowing shall be comprised entirely of ABR
Loans or Eurodollar Loans as the Borrower may request pursuant to
Section 2.09.  Each Lender may at
its option make any Eurodollar Loan by causing any domestic or foreign branch
or Affiliate of such Lender to make such Loan; provided
that any exercise of such option shall not affect the obligation of the
Borrower to repay such Loan in accordance with the terms of this
Agreement.  Borrowings of more than one
Type may be outstanding at the same time; provided, however,
that the Borrower shall not be entitled to request any Borrowing that, if made,
would result in more than seven Eurodollar Borrowings outstanding
hereunder at any time. For purposes of the foregoing, Borrowings having
different Interest Periods, regardless of whether they commence on the same
date, shall be considered separate Borrowings.


(c)  Each Lender shall make each
Loan to be made by it hereunder on the proposed date thereof by wire transfer
of immediately available funds to such account in New York City as the Agent
may designate not later than 1:00 p.m., New York City time, and the Agent
shall promptly credit the amounts so received to the account designated by 



 29
 






 



the Borrower
pursuant to Section 2.01 or, if a Borrowing shall not occur on such date
because any condition precedent herein specified shall not have been met,
return the amounts so received to the Lenders.


(d)  Unless the Agent shall have
received notice from a Lender prior to the date of any Borrowing that such
Lender will not make available to the Agent such Lender’s portion of such
Borrowing, the Agent may assume that such Lender has made such portion
available to the Agent on the date of such Borrowing in accordance with
paragraph (c) above and the Agent may, in reliance upon such assumption,
make available to the Borrower on such date a corresponding amount. If the
Agent shall have so made funds available then, to the extent that such Lender
shall not have made such portion available to the Agent, such Lender and the
Borrower severally agree to repay to the Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
such amount is made available to the Borrower to but excluding the date such
amount is repaid to the Agent at (i) in the case of the Borrower, a rate
per annum equal to the interest rate applicable at the time to the Loans
comprising such Borrowing and (ii) in the case of such Lender, a rate determined
by the Agent to represent its cost of overnight or short-term funds
(which determination shall be conclusive absent manifest error). If such Lender
shall repay to the Agent such corresponding amount, such amount shall
constitute such Lender’s Loan as part of such Borrowing for purposes of this
Agreement.


(e)  Nothing in this Section
shall be deemed to relieve any Lender of its obligations in respect of its
Commitment hereunder or to prejudice any rights that the Borrower may have
against any Lender as a result of a default by such Lender under this
Agreement.


SECTION 2.03.  Evidence of Debt; Repayment of
Loans.  (a)  The Borrower hereby unconditionally promises
to pay to the Agent for the account of each Lender the principal amount of each
Loan of such Lender as provided in Section 2.10.


(b)  Each Lender shall maintain
in accordance with its usual practice an account or accounts evidencing the
indebtedness of the Borrower to such Lender resulting from each Loan made by
such Lender from time to time, including the amounts of principal and interest
payable and paid to such Lender from time to time under this Agreement.


(c)  The Agent shall maintain
accounts in which it will record (i) the amount of each Loan made
hereunder, the Type thereof and, if applicable, the Interest Period applicable
thereto, (ii) the amount of any principal or interest due and payable or
to become due and payable from the Borrower to each Lender hereunder and
(iii) the amount of any sum received by the Agent hereunder from the Borrower
or any Guarantor and each Lender’s share thereof.


(d)  The entries made in the
accounts maintained pursuant to paragraphs (b) and (c) above shall be
prima facie evidence of the
existence and amounts of the obligations therein recorded; provided, however,
that the failure of any Lender or the 



 30
 






 



Agent to
maintain such accounts or any error therein shall not in any manner affect the
obligations of the Borrower to repay the Loans in accordance with their terms.


(e)  Any Lender may request that
Loans made by it hereunder be evidenced by a promissory note.  In such event, the Borrower shall execute and
deliver to such Lender a promissory note payable to such Lender and its
registered assigns and in a form and substance reasonably acceptable to the
Agent and the Borrower. Notwithstanding any other provision of this Agreement,
in the event any Lender shall request and receive such a promissory note, the
interests represented by such note shall at all times (including after any
assignment of all or part of such interests pursuant to Section 9.04) be
represented by one or more promissory notes payable to the payee named therein
or its registered assigns.


SECTION 2.04.  Fees.  The Borrower agrees to pay to the Agent, for
its own account, the fees set forth in the Administrative Agent Fee Letter at
the times and in the amounts specified therein.


SECTION 2.05.  Interest on Loans.  (a) 
Subject to the provisions of Section 2.06, the Loans comprising
each ABR Borrowing shall bear interest (computed on the basis of the
actual number of days elapsed over a year of 365 or 366 days, as the case
may be, when the Alternate Base Rate is determined by reference to the Prime
Rate and over a year of 360 days at all other times and calculated from
and including the date of such Borrowing to but excluding the date of repayment
thereof) at a rate per annum equal to the Alternate Base Rate plus the
Applicable Percentage.


(b)  Subject to the provisions of
Section 2.06, the Loans comprising each Eurodollar Borrowing shall bear
interest (computed on the basis of the actual number of days elapsed over a
year of 360 days and calculated from and including the date of such
Borrowing to but excluding the date of repayment thereof) at a rate per annum
equal to the Adjusted LIBO Rate for the Interest Period in effect for such
Borrowing plus the Applicable Percentage.


(c)  Interest on each Loan shall
be payable in arrears on the Interest Payment Dates applicable to such Loan
except as otherwise provided in this Agreement. The applicable Alternate Base
Rate or Adjusted LIBO Rate for each day or each Interest Period, as the case
may be, shall be determined by the Agent, and such determination shall be
conclusive absent manifest error.


SECTION 2.06.  Default Interest.  If the Borrower shall default in the payment
of any principal of or interest on any Loan or any other amount due hereunder
or under any other Loan Document, by acceleration or otherwise, then, until
such defaulted amount shall have been paid in full, to the extent permitted by
law, all amounts outstanding under this Agreement and the other Loan Documents
shall bear interest (after as well as before judgment), payable on demand, (a)
in the case of principal, at the rate otherwise applicable to such Loan
pursuant to Section 2.05 plus 2.00% per annum and (b) in all other
cases, at a rate per annum (computed on the basis of the actual number of days
elapsed over a year of 365 or 366 days, as the case may be, when determined by 



 31
 






 



reference to
the Prime Rate and over a year of 360 days at all other times) equal to the
rate that would be applicable to an ABR Loan plus 2.00% per annum.


SECTION 2.07.  Alternate Rate of Interest.  In the event, and on each occasion, that on
the day two Business Days prior to the commencement of any Interest Period for
a Eurodollar Borrowing the Agent shall have determined that dollar deposits in
the principal amounts of the Loans comprising such Borrowing are not generally
available in the London interbank market, or that the rates at which such
dollar deposits are being offered will not adequately and fairly reflect the
cost to Lenders representing the Required Lenders of making or maintaining
Eurodollar Loans during such Interest Period, or that reasonable means do not
exist for ascertaining the Adjusted LIBO Rate, the Agent shall, as soon as
practicable thereafter, give written or fax notice of such determination to the
Borrower and the Lenders. In the event of any such determination, until the
Agent shall have advised the Borrower and the Lenders that the circumstances
giving rise to such notice no longer exist, any request by the Borrower for a
Eurodollar Borrowing pursuant to Section 2.09 shall be deemed to be a
request for an ABR Borrowing.  Each
determination by the Agent under this Section shall be conclusive absent
manifest error.


SECTION 2.08.  Termination and Reduction of
Commitments.  (a)  The Commitments shall automatically terminate
upon the making of the Loans on the Effective Date.  Notwithstanding the foregoing, all the
Commitments shall automatically terminate at 5:00 p.m., New York City
time, on December 31, 2006, if the making of the Loans shall not have occurred
by such time.


(b)  Upon at least three Business
Days’ prior irrevocable written or fax notice to the Agent, the Borrower may at
any time in whole permanently terminate, or from time to time in part
permanently reduce, the Commitments; provided, however, that each partial reduction of the Commitments
shall be in an integral multiple of, and in a minimum amount of, $1,000,000.


(c)  Each reduction in the
Commitments hereunder shall be made ratably among the Lenders in accordance
with their Commitments.


SECTION 2.09.  Conversion and Continuation of
Borrowings.  The Borrower
shall have the right at any time upon prior irrevocable notice to the Agent
(a) not later than 2:00 p.m., New York City time, one Business Day
prior to conversion, to convert any Eurodollar Borrowing into an ABR Borrowing,
(b) not later than 2:00 p.m., New York City time, three Business Days
prior to conversion or continuation, to convert any ABR Borrowing into a
Eurodollar Borrowing or to continue any Eurodollar Borrowing as a Eurodollar
Borrowing for an additional Interest Period and (c) not later than 2:00
p.m., New York City time, three Business Days prior to conversion, to convert
the Interest Period with respect to any Eurodollar Borrowing to another
permissible Interest Period, subject in each case to the following:



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(i)  each conversion or continuation shall be made
pro rata among the Lenders in accordance
with the principal amounts of the Loans comprising the converted or continued
Borrowing;


(ii)  if less than all the outstanding principal
amount of any Borrowing shall be converted or continued, then each resulting
Borrowing shall satisfy the limitations specified in Sections 2.02(a) and
2.02(b) regarding the principal amount and maximum number of Borrowings of the
relevant Type;


(iii)  each conversion shall be effected by each
Lender and the Agent by recording for the account of such Lender the new Loan
of such Lender resulting from such conversion and reducing the Loan (or portion
thereof) of such Lender being converted by an equivalent principal amount;
accrued interest on any Eurodollar Loan (or portion thereof) being converted
shall be paid by the Borrower at the time of conversion;


(iv)  if any Eurodollar Borrowing is converted at a
time other than the end of the Interest Period applicable thereto, the Borrower
shall pay, upon demand, any amounts due to the Lenders pursuant to
Section 2.15;


(v)  any portion of a Borrowing maturing or
required to be repaid in less than one month may not be converted into or
continued as a Eurodollar Borrowing;


(vi)  any portion of a Eurodollar Borrowing that
cannot be converted into or continued as a Eurodollar Borrowing by reason of
the immediately preceding clause shall be automatically converted at the end of
the Interest Period in effect for such Borrowing into an ABR Borrowing;


(vii)  no Interest Period may be selected for any
Eurodollar Borrowing that would end later than a date on which a repayment of
Loans pursuant to Section 2.10(a) is due and which occurs on or after the
first day of such Interest Period if, after giving effect to such selection,
the aggregate outstanding amount of (A) the Eurodollar Borrowings with Interest
Periods ending on or prior to such date and (B) the ABR Borrowings
would not be at least equal to the principal amount of Borrowings to be paid on
such date; and


(viii)  upon notice to the Borrower from the Agent
given at the request of the Required Lenders, after the occurrence and during
the continuance of an Event of Default, no outstanding Loan may be converted
into, or continued as, a Eurodollar Loan.


Each notice pursuant to this Section shall be
irrevocable and shall refer to this Agreement and specify (i) the identity
and amount of the Borrowing that the Borrower requests be converted or
continued, (ii) whether such Borrowing is to be converted to or continued
as a Eurodollar Borrowing or an ABR Borrowing, (iii) if such notice
requests a conversion, the date of such conversion (which shall be a Business
Day) and (iv) if such 



 33
 






 



Borrowing is to be
converted to or continued as a Eurodollar Borrowing, the Interest Period with
respect thereto. If no Interest Period is specified in any such notice with
respect to any conversion to or continuation as a Eurodollar Borrowing, the
Borrower shall be deemed to have selected an Interest Period of one month’s
duration. The Agent shall advise the Lenders of any notice given pursuant to
this Section and of each Lender’s portion of any converted or continued
Borrowing. If the Borrower shall not have given notice in accordance with this
Section to continue any Borrowing into a subsequent Interest Period (and shall
not otherwise have given notice not later than 2:00 p.m., New York City time,
three Business Days prior to the end of such Interest Period, of its intent to
convert such Borrowing or to prepay such Borrowing at the end of such Interest
Period), such Borrowing shall, at the end of the Interest Period applicable
thereto, automatically be continued as a Eurodollar Borrowing with an Interest
Period of one month’s duration.


SECTION 2.10.  Repayment of Borrowings.  (a) 
The Borrower shall pay to the Agent, for the account of the Lenders, on
the last Business Day of each March, June, September and December occurring
after the Effective Date, commencing on the last Business Day of
March 2007, a principal amount of the Loans equal to 0.25% of the
aggregate principal amount of the Loans made on the Effective Date, together in
each case with accrued and unpaid interest on the principal amount to be paid
to but excluding the date of such payment.


(b)  To the extent not previously
paid, all Loans shall be due and payable on the Maturity Date, together with
accrued and unpaid interest on the principal amount to be paid to but excluding
the date of payment.


(c)  All repayments pursuant to
this Section shall be subject to Section 2.15, but shall otherwise be
without premium or penalty.


SECTION 2.11.  Optional Prepayment; Prepayment
Premium.  (a)  The Borrower shall have the right at any time
and from time to time to prepay any Borrowing, in whole or in part, upon at
least three Business Days’ prior written or fax notice (or telephone notice
promptly confirmed by written or fax notice) in the case of Eurodollar Loans or
upon at least one Business Day prior written or fax notice (or telephone notice
promptly confirmed by written or fax notice) in the case of ABR Loans, to the
Agent before 2:00 p.m., New York City time; provided,
however, that each partial prepayment shall be in an amount that is
an integral multiple of $1,000,000 and not less than $5,000,000.


(b)  Any prepayment of any Loan
made pursuant to this Section or pursuant to Section 2.12 with the proceeds of
any incurrence of Indebtedness at any time on or prior to the first anniversary
of the Closing Date shall be accompanied by a prepayment premium equal to 1% of
the principal amount of such Loan prepaid.


(c)  Optional prepayments of
Loans shall be applied pro rata
against the remaining scheduled installments of principal due in respect of the
Loans.


 



 34













 


(d)  Each notice of prepayment
shall specify the prepayment date and the principal amount of each Borrowing
(or portion thereof) to be prepaid, shall be irrevocable and shall commit the
Borrower to prepay such Borrowing by the amount stated therein on the date
stated therein; provided that a notice of
optional prepayment may state that such notice is conditioned upon the
effectiveness of other credit facilities, in which case such notice may be
revoked by the Borrower (by notice to the Agent on or prior to the specified
effective date) if such condition is not satisfied.  All prepayments under this Section shall be
subject to Section 2.15.  All
prepayments under this Section shall be accompanied by accrued and unpaid
interest on the principal amount to be prepaid to but excluding the date of
payment.


SECTION 2.12.  Mandatory Prepayments.  (a) 
Not later than the third Business Day following the receipt of Net Cash
Proceeds in respect of any Asset Sale, the Borrower shall make an offer to the
Lenders by notice to the Agent to apply 100% of such Net Cash Proceeds to
prepay outstanding Loans in accordance with paragraphs (g) and (h) below.


(b)  If and on each occasion that
an Equity Issuance occurs, the Borrower shall, substantially simultaneously
with (and in any event not later than the third Business Day next following)
the occurrence of such Equity Issuance, make an offer to the Lenders by notice
to the Agent to apply 50% of the Net Cash Proceeds therefrom to prepay
outstanding Loans in accordance with paragraphs (g) and (h) below.


(c)  No later than the date on
which the financial statements with respect to any fiscal year, commencing with
the fiscal year ending December 31, 2007, are delivered pursuant to
Section 5.04(a), the Borrower shall make an offer to the Lenders by notice
to the Agent to prepay outstanding Loans in accordance with paragraphs (g) and
(h) below in an aggregate principal amount equal to 100% of Excess Cash Flow
for such fiscal year; provided that
if the Available Cash as of the last day of such fiscal year would have been
less than $20,000,000 if 100% of Excess Cash Flow for such fiscal year had been
applied to prepay Loans or Second Lien Loans on such last day, the amount
required to be offered to prepay outstanding Loans will be reduced by an amount
equal to such shortfall.


(d)  If any Loan Party or any
subsidiary of a Loan Party shall receive Net Cash Proceeds from the issuance or
incurrence of Indebtedness of any Loan Party or any subsidiary of a Loan Party
(other than any cash proceeds from the issuance of Indebtedness permitted
pursuant to Section 6.01), the Borrower shall, substantially
simultaneously with (and in any event not later than the third Business Day
next following) the receipt of such Net Cash Proceeds by such Loan Party or
such subsidiary, make an offer to the Lenders by notice to the Agent to apply
an amount equal to 100% of such Net Cash Proceeds to prepay outstanding Loans
in accordance with paragraphs (g) and (h) below.


(e)  Not later than the third
Business Day following the receipt of Net Cash Proceeds in respect of any
Extraordinary Receipts, the Borrower shall make an offer to 



 35
 






 



the Lenders by
notice to the Agent to apply 100% of such Net Cash Proceeds to prepay
outstanding Loans in accordance with paragraphs (g) and (h) below.


(f)  Mandatory prepayments of
outstanding Loans under this Agreement shall be applied pro rata
against the remaining scheduled installments of principal due in respect of the
Loans.


(g)  Within three Business Days
after the Agent receives notice of an offer from the Borrower under paragraphs
(a), (b), (c), (d) or (e) of this Section, any Lender may elect, by notice to
the Agent, to accept or decline all (but not a portion) of its pro rata share of such prepayment; provided
that any failure by a Lender to give such notice shall be deemed to an
acceptance of such prepayment (such declined amounts being called the “Declined Amounts”).  On the fourth Business Day after the Agent
receives notice of such an offer from the Borrower, the Borrower shall pay all
amounts which are not Declined Amounts and shall offer the Declined Amounts to
the Lenders not so declining such prepayment (with such non-declining Lenders
having the right to accept or decline any prepayment with Declined Amounts in
the manner specified by the Agent, it being agreed that any such Lender may
accept an amount in excess of its pro rata share of the Declined Amounts up to
the principal amount of its outstanding Loans, subject to pro-ration as set
forth below).  Such non-declining Lenders
must accept or decline the Declined Amounts so offered within one Business Day
at which time the Declined Amounts accepted by such non-declining Lenders shall
be paid by the Borrower to the Lenders accepting such amounts within one
Business Day following acceptance (ratably in accordance with the amounts
accepted by them) and any remaining Declined Amounts shall be applied as may be
required pursuant to the mandatory prepayment provisions of the Second Lien
Credit Agreement.


(h)  (i)  The Borrower shall deliver to the Agent, at
the time of each offer to make a prepayment required under this Section, a
certificate signed by a Financial Officer of the Borrower setting forth in
reasonable detail the calculation of the amount of such prepayment to be offered.  Each offer shall specify the proposed
prepayment date, the Type of each Borrowing being prepaid and the principal
amount of each Borrowing (or portion thereof) to be prepaid. All prepayments of
Borrowings under this Section shall be subject to Section 2.15, but shall
otherwise be without premium or penalty, and shall be accompanied by accrued
and unpaid interest on the principal amount to be prepaid to but excluding the
date of payment.


(ii)  In connection with any optional prepayments
by the Borrower of the Loans pursuant to Section 2.11, any optional
prepayment thereof shall be applied first to ABR Borrowings to the full extent
thereof before application to Eurodollar Borrowings, in each case in a manner
that minimizes the amount of any payments required to be made by the Borrower
pursuant to Section 2.15.


(iii)  In connection with any mandatory prepayments
by the Borrower of the Loans pursuant to this Section, such prepayments shall
be applied on a pro rata basis to the then
outstanding Loans being prepaid irrespective of 



 36
 






 



whether such outstanding Loans are ABR Loans
or Eurodollar Loans; provided that
if no Lender exercises the right to decline a mandatory prepayment of the Loans
pursuant to paragraph (g) of this Section, then, such mandatory prepayment
shall be applied first to Loans that are ABR Loans to the full extent thereof
before application to Loans that are Eurodollar Loans, in each case in a manner
that minimizes the amount of any payments required to be made by the Borrower
pursuant to Section 2.15.


SECTION 2.13.  Reserve Requirements; Change in
Circumstances.  

(a)  Notwithstanding any other provision
of this Agreement, if any Change in Law shall impose, modify or deem applicable
any reserve, special deposit or similar requirement against assets of, deposits
with or for the account of or credit extended by any Lender (except any such
reserve requirement which is reflected in the Adjusted LIBO Rate) or shall
impose on such Lender or the London interbank market any other condition
affecting this Agreement or Eurodollar Loans made by such Lender, and the
result of any of the foregoing shall be to increase the cost to such Lender of
making or maintaining any Eurodollar Loan or to reduce the amount of any sum
received or receivable by such Lender hereunder (whether of principal, interest
or otherwise) by an amount deemed by such Lender to be material, then the
Borrower will pay to such Lender upon demand such additional amount or amounts
as will compensate such Lender for such additional costs incurred or reduction
suffered.


(b)  If any Lender shall have
determined that any Change in Law regarding capital adequacy has or would have
the effect of reducing the rate of return on such Lender’s capital or on the
capital of such Lender’s holding company, if any, as a consequence of this
Agreement or the Loans made by such Lender pursuant hereto to a level below
that which such Lender or such Lender’s holding company could have achieved but
for such Change in Law (taking into consideration such Lender’s policies and
the policies of such Lender’s holding company with respect to capital adequacy)
by an amount deemed by such Lender to be material, then from time to time the
Borrower shall pay to such Lender, such additional amount or amounts as will
compensate such Lender or such Lender’s holding company for any such reduction
suffered.


(c)  A certificate of a Lender
setting forth (i) the amount or amounts necessary to compensate such Lender or
its holding company, as applicable, as specified in paragraph (a) or (b)
above and (ii) in reasonable detail, the manner in which the amount claimed was
determined shall be delivered to the Borrower and shall be conclusive absent
manifest error. The Borrower shall pay such Lender the amount shown as due on
any such certificate delivered by it within 10 days after its receipt of
the same.


(d)  Failure or delay on the part
of any Lender to demand compensation for any increased costs or reduction in
amounts received or receivable or reduction in return on capital shall not
constitute a waiver of such Lender’s right to demand such compensation; provided that the Borrower shall not be under any obligation
to compensate any Lender under paragraph (a) or (b) above with respect to
increased costs or reductions with respect to any period prior to the date that
is 120 days prior to such request if such Lender knew or could reasonably
have been expected to know of the circumstances giving rise to 



 37
 






 



such increased
costs or reductions and of the fact that such circumstances would result in a claim
for increased compensation by reason of such increased costs or reductions; provided  further that
the foregoing limitation shall not apply to any increased costs or reductions
arising out of the retroactive application of any Change in Law within such
120-day period. The protection of this Section shall be available to each
Lender regardless of any possible contention of the invalidity or
inapplicability of the Change in Law that shall have occurred or been imposed.


SECTION 2.14.  Change in Legality.  (a) 
Notwithstanding any other provision of this Agreement, if any
Change in Law shall make it unlawful for any Lender to make or maintain any
Eurodollar Loan or to give effect to its obligations as contemplated hereby
with respect to any Eurodollar Loan, then, by written notice to the Borrower
and to the Agent:


(i)  such Lender may declare that Eurodollar Loans
will not thereafter (for the duration of such unlawfulness) be made by such
Lender hereunder (or be continued for additional Interest Periods) and ABR
Loans will not thereafter (for such duration) be converted into Eurodollar
Loans, whereupon any request for a Eurodollar Borrowing (or to convert an ABR
Borrowing to a Eurodollar Borrowing or to continue a Eurodollar Borrowing for
an additional Interest Period) shall, as to such Lender only, be deemed a
request for an ABR Loan (or a request to continue an ABR Loan as such for an
additional Interest Period or to convert a Eurodollar Loan into an ABR Loan, as
the case may be), unless such declaration shall be subsequently withdrawn; and


(ii)  such Lender may require that all outstanding
Eurodollar Loans made by it be converted to ABR Loans, in which event all such
Eurodollar Loans shall be automatically converted to ABR Loans as of the
effective date of such notice as provided in paragraph (b) below.


In the event any Lender shall exercise its rights
under (i) or (ii) above, all payments and prepayments of principal
that would otherwise have been applied to repay the Eurodollar Loans that would
have been made by such Lender or the converted Eurodollar Loans of such Lender
shall instead be applied to repay the ABR Loans made by such Lender in lieu of,
or resulting from the conversion of, such Eurodollar Loans.


(b)  For purposes of this
Section, a notice to the Borrower by any Lender shall be effective as to each
Eurodollar Loan made by such Lender, if lawful, on the last day of the Interest
Period then applicable to such Eurodollar Loan; in all other cases such notice
shall be effective on the date of receipt by the Borrower.


SECTION 2.15.  Indemnity.  The Borrower shall indemnify each Lender
against any loss or expense that such Lender may sustain or incur as a
consequence of (a) any event, other than a default by such Lender in the
performance of its obligations hereunder, which results in (i) such Lender
receiving or being deemed to receive any amount on account of the principal of
any Eurodollar Loan prior to the end of the Interest 



 38
 






 



Period in
effect therefor (including any Interest Period for which a Borrowing is
automatically continued pursuant to Section 2.09), (ii) the conversion of
any Eurodollar Loan to an ABR Loan, or the conversion of the Interest Period
with respect to any Eurodollar Loan, in each case other than on the last day of
the Interest Period in effect therefor or (iii) any Eurodollar Loan to be
made by such Lender (including any Eurodollar Loan to be made pursuant to a
conversion or continuation under Section 2.09) not being made after notice
of such Loan shall have been given by the Borrower hereunder (any of the events
referred to in this clause (a) being called a “Breakage Event”) or
(b) any default in the making of any payment or prepayment required to be
made hereunder. In the case of any Breakage Event, such loss shall include an
amount equal to the excess, as reasonably determined by such Lender, of
(i) its cost of obtaining funds for the Eurodollar Loan that is the
subject of such Breakage Event for the period from the date of such Breakage
Event to the last day of the Interest Period in effect (or that would have been
in effect) for such Loan over (ii) the amount of interest likely to be
realized by such Lender in redeploying the funds released or not utilized by
reason of such Breakage Event for such period. A certificate of any Lender
setting forth any amount or amounts which such Lender is entitled to receive
pursuant to this Section shall be delivered to the Borrower and shall be
conclusive absent manifest error.


SECTION 2.16.  Pro Rata Treatment.  Except as required under Section 2.12
and 2.14, each Borrowing, each payment or prepayment of principal of any
Borrowing, each payment of interest on the Loans, each reduction of the
Commitments and each conversion of any Borrowing to or continuation of any
Borrowing as a Borrowing of any Type shall be allocated pro rata among the Lenders in accordance
with their Commitments (or, if such Commitments shall have expired or been
terminated, in accordance with the principal amounts of their outstanding
Loans).  Each Lender agrees that in computing
such Lender’s portion of any Borrowing to be made hereunder, the Agent may, in
its discretion, round each Lender’s percentage of such Borrowing to the next
higher or lower whole dollar amount.


SECTION 2.17.  Sharing of Setoffs.  Each Lender agrees that if it shall, through
the exercise of a right of banker’s lien, setoff or counterclaim against the
Borrower or any other Loan Party, or pursuant to a secured claim under
Section 506 of Title 11 of the United States Code or other security
or interest arising from, or in lieu of, such secured claim, received by such
Lender under any applicable bankruptcy, insolvency or other similar law or
otherwise, or by any other means, obtain payment (voluntary or involuntary) in
respect of any Loan or Loans as a result of which the unpaid principal portion
of its Loans shall be proportionately less than the unpaid principal portion of
the Loans of any other Lender, it shall be deemed simultaneously to have
purchased from such other Lender at face value, and shall promptly pay to such
other Lender the purchase price for, a participation in the Loans of such other
Lender, so that the aggregate unpaid principal amount of the Loans and
participations in Loans held by each Lender shall be in the same proportion to
the aggregate unpaid principal amount of all Loans then outstanding as the
principal amount of its Loans prior to such exercise of banker’s lien, setoff
or counterclaim or other event was to the principal amount of all Loans
outstanding prior to such exercise of banker’s lien, setoff or counterclaim or
other event; provided, however, that if any such purchase or
purchases or adjustments shall be made pursuant to 



 39
 






 



this Section
and the payment giving rise thereto shall thereafter be recovered, such
purchase or purchases or adjustments shall be rescinded to the extent of such
recovery and the purchase price or prices or adjustment restored without
interest. The Borrower and Holdings expressly consent to the foregoing
arrangements and agree that any Lender holding a participation in a Loan deemed
to have been so purchased may exercise any and all rights of banker’s lien,
setoff or counterclaim with respect to any and all moneys owing by the Borrower
and Holdings to such Lender by reason thereof as fully as if such Lender had
made a Loan directly to the Borrower in the amount of such participation.


SECTION 2.18.  Payments.  (a) 
The Borrower shall make each payment (including principal of or interest
on any Borrowing or any fees or other amounts) hereunder and under any other
Loan Document not later than 2:00 p.m., New York City time, on the date when
due in immediately available dollars, without setoff, defense or counterclaim.
Any amounts received after such time on any date may, in the discretion of the
Agent, be deemed to have been received on the next succeeding Business
Day.  Each such payment shall be made to
the Agent at its offices at Eleven Madison Avenue, New York, NY 10010. The
Agent shall promptly distribute to each Lender any payments received by the
Agent on behalf of such Lender.


(b)  Except as otherwise
expressly provided herein, whenever any payment (including principal of or
interest on any Borrowing or any fees or other amounts) hereunder or under any
other Loan Document shall become due, or otherwise would occur, on a day that
is not a Business Day, such payment may be made on the next succeeding Business
Day, and such extension of time shall in such case be included in the
computation of interest or fees, if applicable.


SECTION 2.19.  Taxes.  (a) 
Any and all payments by or on account of any obligation of the Borrower
or any other Loan Party hereunder or under any other Loan Document shall be
made free and clear of and without deduction for any Indemnified Taxes or Other
Taxes; provided that, if the
Borrower or any other Loan Party shall be required to deduct any Indemnified
Taxes or Other Taxes from such payments, then (i) the sum payable shall be
increased as necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section) the Agent
or Lender (as the case may be) receives an amount equal to the sum it would
have received had no such deductions been made, (ii) the Borrower or such
Loan Party shall make such deductions and (iii) the Borrower or such Loan
Party shall pay the full amount deducted to the relevant Governmental Authority
in accordance with applicable law.


(b)  In addition, the Borrower
shall pay any Other Taxes to the relevant Governmental Authority in accordance
with applicable law.


(c)  The Borrower shall indemnify
the Agent and each Lender, within 10 days after written demand therefor, for
the full amount of any Indemnified Taxes or Other Taxes paid by the Agent or
such Lender, as the case may be, on or with respect to any payment by or on
account of any obligation of the Borrower or any other Loan Party hereunder or
under any other Loan Document (including Indemnified Taxes or Other 



 40
 






 



Taxes imposed
or asserted on or attributable to amounts payable under this Section) and any
penalties, interest and reasonable expenses arising therefrom or with respect
thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or
legally imposed or asserted by the relevant Governmental Authority. A
certificate as to the amount of such payment or liability delivered to the
Borrower by a Lender or by the Agent on behalf of itself or a Lender shall be
conclusive absent manifest error. 
Notwithstanding anything herein to the contrary, neither the Agent nor
any Lender shall be indemnified for any Taxes hereunder unless such person
shall make written demand on the Borrower for reimbursement of such Taxes no
later than 120 days after the date on which such person makes payment of such
Taxes.  If such person fails to give the
Borrower timely notice as provided in the preceding sentence, the Borrower
shall not have any obligation to pay such claim for reimbursement.


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


(e)  Any Foreign Lender that is
entitled to an exemption from or reduction of withholding tax under the law of
the jurisdiction in which the Borrower is located, or any treaty to which such
jurisdiction is a party, with respect to payments under this Agreement shall
deliver to the Borrower (with a copy to the Agent), at the time or times
prescribed by applicable law, such properly completed and executed
documentation prescribed by applicable law or reasonably requested by the
Borrower as will permit such payments to be made without withholding or at a
reduced rate.  In addition, any Lender,
if requested by the Borrower or the Agent, shall deliver such other
documentation prescribed by applicable law or reasonably requested by the
Borrower or the Agent as will enable the Borrower or the Agent to determine
whether or not such Lender is subject to backup withholding or information
reporting requirements.  Without limiting
the generality of the foregoing, if the Borrower, Holdings or the Parent is
resident for tax purposes in the United States, any Foreign Lender shall
deliver to the Borrower and the Agent (in such number of copies as shall be
reasonably requested by the recipient) on or prior to the date on which such
Foreign Lender becomes a Lender under this Agreement (and from time to time
thereafter upon the request of the Borrower or the Agent, but only if such
Foreign Lender is legally entitled to do so), whichever of the following is
applicable:


(i)  duly completed copies of Internal Revenue
Service Form W-8BEN claiming eligibility for benefits of an income tax treaty
to which the United States is a party;


(ii)  duly completed copies of Internal Revenue
Service Form W-8ECI;


(iii)  in the case of a Foreign Lender claiming the
benefits of the exemption for portfolio interest under section 881(c) of the
Code, (A) a certificate substantially in the form of Exhibit L, which
indicates that such 



 41
 






 



Foreign Lender is not (I) a “bank” within the
meaning of section 881(c)(3)(A) of the Code, (II) a “10 percent shareholder” of
the Borrower, Holdings or the Parent within the meaning of section 871(h)(3)(B)
or section 881(c)(3)(B) of the Code or (III) a “controlled foreign corporation”
described in section 881(c)(3)(C) of the Code and (B) duly completed copies
of  Internal Revenue Service Form W-8BEN;
or


(iv)  any other form prescribed by applicable law
as a basis for claiming exemption from or a reduction in United States federal
withholding tax duly completed together with such supplementary documentation
as may be prescribed by applicable law to permit the Borrower to determine the
withholding or deduction required to be made.


(f)  If the Agent or a Lender
determines, in its sole discretion, that it has received a refund of any Taxes
as to which it has been indemnified by the Borrower or with respect to which
the Borrower has paid additional amounts pursuant to this Section, it shall pay
over such refund to the Borrower (but only to the extent of indemnity payments
made, or additional amounts paid, by the Borrower under this Section with
respect to the Taxes giving rise to such refund), net of all
out-of-pocket expenses of the Agent or such Lender and without interest (other
than any interest paid by the relevant Governmental Authority with respect to
such refund); provided that the Borrower, upon
the request of the Agent or such Lender, agrees to repay the amount paid over
to the Borrower (plus any penalties, interest or other charges imposed
by the relevant Governmental Authority) to the Agent or such Lender if the
Agent or such Lender is required to repay such refund to such Governmental
Authority.  This Section shall not be
construed to require the Agent or any Lender to make available its tax returns
(or any other information relating to its taxes which it deems confidential) to
the Borrower or any other person.


SECTION 2.20.  Assignment of Commitments Under
Certain Circumstances; Duty to Mitigate.  (a)  In
the event (i) any Lender delivers a certificate requesting compensation
pursuant to Section 2.13, (ii) any Lender delivers a notice described
in Section 2.14, (iii) the Borrower is required to pay any additional
amount to any Lender or any Governmental Authority on account of any Lender
pursuant to Section 2.19, (iv) any Lender defaults in its obligations to
fund Loans hereunder or (v) any Lender refuses to consent to any amendment,
waiver or other modification of any Loan Document requested by the Borrower
that requires the consent of a greater percentage of the Lenders than the
Required Lenders and such amendment, waiver or other modification is consented
to by the Required Lenders, the Borrower may, at its sole expense and effort
(including with respect to the processing and recordation fee referred to in
Section 9.04(b)), upon notice to such Lender and the Agent, require such
Lender to transfer and assign, without recourse (in accordance with and subject
to the restrictions contained in Section 9.04), all of its interests,
rights and obligations under this Agreement and the other Loan Documents to an
assignee that shall assume such assigned obligations and, with respect to
clause (iv) above, shall consent to such requested amendment, waiver or other
modification of any Loan Documents (which assignee may be another Lender, if a
Lender accepts such assignment); provided that
(x) such assignment shall not conflict with any law, rule or regulation or
order of any court or other Governmental Authority 



 42
 






 



having
jurisdiction, (y) the Borrower shall have received the prior written
consent of the Agent, which consent shall not unreasonably be withheld or
delayed and (z) the Borrower or such assignee shall have paid to the
affected Lender in immediately available funds an amount equal to the sum of
the principal of and interest accrued to the date of such payment on the
outstanding Loans of such Lender plus all fees and other amounts accrued
for the account of such Lender hereunder with respect thereto (including any
amounts under Sections 2.13 and 2.15 and, if applicable, the prepayment
premium pursuant to Section 2.11(b) (with such assignment being deemed to
be an optional prepayment for purposes of determining the applicability of
Section 2.11(b), such amount to be payable by the Borrower)); provided further that, if prior to any
such transfer and assignment the circumstances or event that resulted in such
Lender’s claim for compensation under Section 2.13, notice under
Section 2.14 or the amounts paid pursuant to Section 2.19, as the
case may be, cease to cause such Lender to suffer increased costs or reductions
in amounts received or receivable or reduction in return on capital, or cease
to have the consequences specified in Section 2.14, or cease to result in
amounts being payable under Section 2.19, as the case may be (including as
a result of any action taken by such Lender pursuant to paragraph (b)
below), or if such Lender shall waive its right to claim further compensation
under Section 2.13 in respect of such circumstances or event or shall
withdraw its notice under Section 2.14 or shall waive its right to further
payments under Section 2.19 in respect of such circumstances or event or
shall consent to the proposed amendment, waiver, consent or other modification,
as the case may be, then such Lender shall not thereafter be required to make
any such transfer and assignment hereunder. Each Lender hereby grants to the
Agent an irrevocable power of attorney (which power is coupled with an
interest) to execute and deliver, on behalf of such Lender as assignor, any
Assignment and Acceptance necessary to effectuate any assignment of such Lender’s
interests hereunder in the circumstances contemplated by this paragraph.


(b)  If (i) any Lender shall
request compensation under Section 2.13, (ii) any Lender delivers a
notice described in Section 2.14 or (iii) the Borrower is required to
pay any additional amount to any Lender or any Governmental Authority on
account of any Lender, pursuant to Section 2.19, then such Lender shall
use reasonable efforts (which shall not require such Lender to incur an
unreimbursed loss or unreimbursed cost or expense or otherwise take any action
inconsistent with its internal policies or legal or regulatory restrictions or
suffer any disadvantage or burden deemed by it to be significant) (x) to
file any certificate or document reasonably requested in writing by the
Borrower or (y) to assign its rights and delegate and transfer its
obligations hereunder to another of its offices, branches or affiliates, if
such filing or assignment would reduce its claims for compensation under Section 2.13
or enable it to withdraw its notice pursuant to Section 2.14 or would
reduce amounts payable pursuant to Section 2.19, as the case may be, in
the future. The Borrower hereby agrees to pay all reasonable costs and expenses
incurred by any Lender in connection with any such filing or assignment,
delegation and transfer.


SECTION 2.21.  Change in Control Put.  The Borrower shall notify the Agent of the
occurrence of a Change in Control within one Business Day thereof, and the
Agent shall promptly thereafter notify the Lenders thereof.  At any time prior to the 30th day 



 43
 






 



following
delivery of the notice by the Agent pursuant to the preceding sentence (the “Purchase Date”), each
Lender shall have the right, by notice to the Borrower and the Agent, to require
the Borrower, on the Purchase Date, to prepay in full (but not in part) the
outstanding principal amount of such Lender’s Loans at a purchase price equal
to 101% of the principal amount thereof, together with accrued and unpaid
interest on the principal amount thereof to but excluding the date of payment,
and all other amounts then due to such Lender (including amounts payable under
Section 2.15) under the Loan Documents.


ARTICLE III


Representations and Warranties


Each of Holdings and the Borrower represents and
warrants as of the Effective Date to the Agent and each of the Lenders that:


SECTION 3.01.  Organization; Powers.  Holdings, the Borrower and each of the
Subsidiaries (a) is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization, (b) has all
requisite power and authority to own its property and assets and to carry on
its business as now conducted and as proposed to be conducted, (c) is
qualified to do business, and is in good standing, in every jurisdiction where
such qualification is required, except where the failure so to qualify could
not reasonably be expected to result in a Material Adverse Effect and
(d) has the power and authority to execute, deliver and perform its
obligations under each of the Loan Documents to which it is a party and each
other agreement or instrument contemplated thereby to which it is or will be a
party and, in the case of the Borrower, to borrow hereunder.


SECTION 3.02.  Authorization.  The Transactions (a) have been duly
authorized by all requisite corporate and, if required, member action and
(b) will not (i) violate (A) in any material respect any
provision of any material law, statute, rule or regulation, or of the
certificate or articles of incorporation or other constitutive documents or
by-laws of Holdings, the Borrower or any Subsidiary, (B) in any material
respect any material order of any Governmental Authority or (C) any
provision of any material indenture, agreement or other instrument to which the
Parent, its subsidiaries, Holdings, the Borrower or any Subsidiary is a party
or by which any of them or any of their property is or may be bound,
(ii) be in conflict with, result in a breach of or constitute (alone or
with notice or lapse of time or both) a default under, or give rise to any
right to accelerate or to require the prepayment, repurchase or redemption of
any obligation under, any such indenture, agreement or other instrument or
(iii) result in the creation or imposition of any Lien upon or with respect
to any property or assets now owned or hereafter acquired by Holdings, the
Borrower or any Subsidiary (other than any Lien permitted by
Section 6.02).


SECTION 3.03.  Enforceability.  This Agreement has been duly executed and
delivered by Holdings and the Borrower and constitutes, and each other Loan
Document when executed and delivered by the each Loan Party party thereto will
constitute, a legal, 



 44
 






 



valid and
binding obligation of such Loan Party enforceable against such Loan Party in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors’ rights generally
and subject to general principles of equity, regardless of whether considered
in a proceeding in equity or at law.


SECTION 3.04.  Governmental Approvals.  No action, consent or approval of,
registration or filing with or any other action by any Governmental Authority
is or will be required in connection with the Transactions, except for
(a) the filing of Uniform Commercial Code financing statements,
(b) recordation of the Mortgages, (c) approvals identified in the Parent
Undertaking as to be obtained after the Effective Date and (d) such as have
been made or obtained and are in full force and effect.


SECTION 3.05.  Financial Statements; Absence of
Undisclosed Liabilities; Reserve Reports.  (a) 
Holdings has heretofore furnished to the Lenders (a) Holdings’
consolidated pro forma statements
of revenue and direct operating expenses for the years ended December 31,
2004 and 2005 and (b) Holdings’ consolidated pro
forma statements of revenue and direct operating expenses for the
nine month period ended on September 30, 2006, in all cases giving effect to
the contribution of the Business to the Borrower and the other Transactions to
occur on or prior to the Effective Date as if they had occurred at the
beginning of the period presented therein. 
Such pro forma statements
have been prepared in good faith by Holdings based on the assumptions used to
prepare the pro forma financial
information contained in the Confidential Information Memorandum (which
assumptions are believed by Holdings on the Closing Date and on the Effective
Date to be reasonable), are based on the best information available to the
Borrower as of the date of delivery thereof, accurately reflect all adjustments
required to be made to give effect to the contribution of the Business and the
Transactions and present fairly, in all material respects, on a pro forma basis, the estimated
consolidated results of operations of Holdings and its consolidated
subsidiaries for such periods.


(b)  Except (i) as disclosed in
the Confidential Information Memorandum, (ii) unrealized losses in respect of
Hedging Agreements and (iii) any plugging and abandonment liabilities, after
giving effect to the contribution of the Business and the other Transactions to
occur on or prior to the Effective Date, none of Holdings, the Borrower or the
Subsidiaries will have, as of the Effective Date, any material contingent
liabilities, unusual long-term commitments or unrealized losses.


(c)  The Borrower has heretofore
furnished to the Lenders a reserve report prepared by DeGolyer &
MacNaughton setting forth as of June 30, 2006, the proved and probable oil
and gas reserves attributable to Oil and Gas Properties included in the
Business, together with a projection of the rate of production and future
revenues less severance and ad valorem taxes, operating expenses and capital
expenditures with respect thereto as of such date.


SECTION 3.06.  No Material Adverse Change.  Since September 30, 2006, no event, change or
condition has occurred that has had, or could reasonably be expected to have, a
Material Adverse Effect.


 



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SECTION 3.07.  Title to Properties; Possession
Under Leases.  (a)  Each of the Borrower and the Subsidiaries has
good and marketable title to, or valid leasehold interests in, all its material
properties and assets (including Mortgaged Property), except for minor defects
in title that do not interfere with its ability to conduct its business as
currently conducted or to utilize such properties and assets for their intended
purposes.  Prior to the Closing Date, the
Parent transferred good and marketable title to, or valid leasehold interests
in, the Real Property included in the Business (other than the MMS Leases) to
the Borrower or one of the Subsidiaries and true and complete copies of the
instruments effecting such transfers were provided to the Agent prior to the
Closing Date.


(b)  Each of the Borrower and the
Subsidiaries has complied in all material respects with all obligations under
all material leases to which it is a party and all such leases are in full
force and effect.  Each of the Borrower
and the Subsidiaries enjoys peaceful and undisturbed possession under all such
material leases.


(c)  As of the Effective Date,
neither Holdings nor the Borrower has received any notice or has any knowledge
of any pending or contemplated condemnation proceeding affecting the Leases or
the Mortgaged Properties or any sale or disposition thereof in lieu of
condemnation.


SECTION 3.08.  Subsidiaries.  Schedule 3.08 sets forth as of
the Effective Date a list of all Subsidiaries and the percentage ownership
interest of Holdings, the Borrower and any Subsidiary therein. The shares of
capital stock or other Equity Interests so indicated on Schedule 3.08
are fully paid and are owned by Holdings or the Borrower, directly or
indirectly, free and clear of all Liens (other than Liens created under the
Loan Documents or the Second Lien Loan Documents).


SECTION 3.09.  Litigation; Compliance with Laws.  (a) 
Except as set forth on Schedule 3.09, there are no actions,
suits or proceedings at law or in equity or by or before any Governmental
Authority now pending or, to the knowledge of Holdings or the Borrower,
threatened against or affecting Holdings or the Borrower or any Subsidiary or
any business, property or rights of any such person (i) that involve any
Loan Document or the Transactions or (ii) as to which there is a
reasonable possibility of an adverse determination and that, if adversely
determined, could reasonably be expected, individually or in the aggregate, to
result in a Material Adverse Effect.


(b)  Since the Closing Date,
there has been no change in the status of the matters disclosed on Schedule 3.09
that, individually or in the aggregate, has resulted in, or materially
increased the likelihood of, a Material Adverse Effect.


(c)  None of Holdings, the
Borrower or any of the Subsidiaries or any of their material properties or
assets is in violation of, nor will the continued operation of their material
properties and assets as currently conducted violate, any law, rule or
regulation (including any zoning, building, Environmental Law, ordinance, code
or approval or any building permits) or any restrictions of record or
agreements affecting any Lease or Mortgaged Property, or is in default with
respect to any judgment, writ, injunction, 



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decree or
order of any Governmental Authority, where such violation or default could
reasonably be expected to result in a Material Adverse Effect.


SECTION 3.10.  Agreements.  (a) 
None of Holdings, the Borrower or any of the Subsidiaries is a party to
any agreement or instrument or subject to any corporate restriction that has
resulted or could reasonably be expected to result in a Material Adverse
Effect.


(b)  None of the Borrower or any
of the Subsidiaries is in default in any manner under any provision of any
indenture or other agreement or instrument evidencing Indebtedness, or any
other material agreement or instrument to which it is a party or by which it or
any of its properties or assets are or may be bound, where such default could
reasonably be expected to result in a Material Adverse Effect.  None of the Borrower or any of the
Subsidiaries is in material default under any Lease.


SECTION 3.11.  Federal Reserve Regulations.  (a) 
None of Holdings, the Borrower or any of the Subsidiaries is engaged
principally, or as one of its important activities, in the business of
extending credit for the purpose of buying or carrying Margin Stock.


(b)  No part of the proceeds of
any Loan will be used, whether directly or indirectly, and whether immediately,
incidentally or ultimately, to purchase or carry Margin Stock, or to
refinance Indebtedness originally incurred for such purpose, or for any purpose
that entails a violation of, or that is inconsistent with, the provisions of
the Regulations of the Board, including Regulation T, U or X.


SECTION 3.12.  Investment Company Act.  None of Holdings, the Borrower
or any Subsidiary is an “investment company” as defined in, or subject to
regulation under, the Investment Company Act of 1940.


SECTION 3.13.  Use of Proceeds.  The Borrower will use the proceeds of the
Loans only for the purposes specified in the recitals to this Agreement.


SECTION 3.14.  Tax Returns.  Each of the Holdings, the Borrower and the
Subsidiaries has filed or caused to be filed all Federal, state, local and
foreign tax returns or materials required to have been filed by it and has paid
or caused to be paid all taxes due and payable by it and all assessments
received by it, except (a) taxes that are being contested in good faith by
appropriate proceedings and for which Holdings, the Borrower or such
Subsidiary, as applicable, shall have set aside on its books adequate reserves
or (b) to the extent that the failure to do so could not reasonably be expected
to result in a Material Adverse Effect.


SECTION 3.15.  No Material Misstatements.  None of (a) the Confidential Information
Memorandum or (b) any other information, report, financial statement,
exhibit or schedule furnished by or on behalf of Holdings or the Borrower to
the Agent or any Lender in connection with the negotiation of any Loan Document
or included therein or delivered pursuant thereto contains any untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements contained therein not 



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materially
misleading in light of the circumstances under which they were made; provided that to the extent any such
information, report, financial statement, exhibit or schedule was based upon or
constitutes a forecast or projection, each of Holdings and the Borrower
represents only that it was prepared in good faith based upon (i) assumptions
that were reasonable at the time made and at the time such information, report,
financial statement, exhibit or schedule was furnished to the Agent or such
Lender and (ii) accounting principles consistent with the accounting principles
used to prepare the Parent’s historical audited financial statements (it being
understood that projections concerning volumes attributable to the Oil and Gas
Properties and production and cost estimates thereof are necessarily based upon
professional opinions, estimates and projections).


SECTION 3.16.  Employee Benefit Plans.  Each Plan or Multiemployer Plan is in
compliance in all material respects with the applicable provisions of ERISA and
the Code and the regulations and published interpretations thereunder. No ERISA
Event has occurred or is reasonably expected to occur that, when taken together
with all other such ERISA Events, could reasonably be expected to result in
material liability of the Borrower or any of its ERISA Affiliates. The present
value of all benefit liabilities under all Plans (based on the assumptions used
for purposes of Statement of Financial Accounting Standards No. 87) did not, as
of the last annual valuation date applicable thereto, exceed the fair market
value of the assets of all Plans (based on the assumptions used for purposes of
Statement of Financial Accounting Standards No. 87) by an amount which, if it
constituted a direct liability of the Borrower, could reasonably be expected to
result in a Material Adverse Effect.


SECTION 3.17.  Environmental Matters.  (a) 
Except as set forth in Schedule 3.17 and except with respect
to any other matters that, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect, none of
Holdings, the Borrower or any of the Subsidiaries (i) has failed to comply
with any Environmental Law or to obtain, maintain or comply with any permit,
license or other approval required under any Environmental Law, (ii) has
become subject to any Environmental Liability, (iii) has received notice
of any claim with respect to any Environmental Liability or (iv) knows of any
basis for any Environmental Liability.


(b)  Since the Closing Date,
there has been no change in the status of the matters disclosed on Schedule 3.17
that, individually or in the aggregate, has resulted in, or materially
increased the likelihood of, a Material Adverse Effect.


SECTION 3.18.  Insurance.  The Borrower and the Subsidiaries have
insurance in such amounts and covering such risks and liabilities as are in
accordance with normal practice in their industry.  As of the Effective Date, the insurance
maintained by, or on behalf of, the Borrower and the Subsidiaries is in full
force and effect and all premiums currently due have been duly paid.


SECTION 3.19.  Security Documents.  (a) 
The Collateral Agreement, upon execution and delivery thereof by the
parties thereto, will create in favor of the Agent, for the ratable benefit of
the Secured Parties, a legal, valid and enforceable security interest 



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in the
Collateral (as defined in the Collateral Agreement) and the proceeds thereof
and (i) when control of the Pledged Collateral (as defined in the Collateral
Agreement) is obtained by the Agent, the Lien created under Collateral
Agreement shall constitute a perfected Lien on, and security interest in, all
right, title and interest of the Loan Parties in such Pledged Collateral and
(ii) when financing statements in appropriate form are filed in the offices
specified on Schedule 3.19(a), the Lien created under the Collateral
Agreement will constitute a perfected Lien on, and security interest in, all
right, title and interest of the Loan Parties in such Collateral (other than
Intellectual Property, as defined in the Collateral Agreement) to the extent
perfection can be obtained by filing Uniform Commercial Code financing
statements, in each case prior and superior in right to any other person (other
than Liens expressly permitted by Section 6.02).


(b)  Upon the recordation of the
Collateral Agreement (or a short-form security agreement in form and substance
reasonably satisfactory to the Borrower and the Agent) with the United States
Patent and Trademark Office and the United States Copyright Office, together
with the financing statements in appropriate form filed in the offices
specified on Schedule 3.19(a), the Lien created under the
Collateral Agreement shall constitute a perfected Lien on, and security
interest in, all right, title and interest of the Loan Parties in the Intellectual
Property (as defined in the Collateral Agreement) in which a security interest
may be perfected by filing in the United States and its territories and
possessions, in each case prior and superior in right to any other person
(other than Liens expressly permitted by Section 6.02), it being
understood that subsequent recordings in the United States Patent and Trademark
Office and the United States Copyright Office may be necessary to perfect a
Lien on registered trademarks and patents, trademark and patent applications
and registered copyrights acquired by the Loan Parties after the Effective
Date.


(c)  The Mortgages are effective
to create in favor of the Agent, for the ratable benefit of the Secured
Parties, a legal, valid and enforceable Lien on all of the Loan Parties’ right,
title and interest in and to the Mortgaged Properties and the proceeds thereof,
and when the Mortgages are filed in the offices specified on Schedule 3.19(c),
the Mortgages shall constitute perfected Liens on, and security interests in,
all right, title and interest of the Loan Parties in such Mortgaged Properties
and the proceeds thereof, in each case prior and superior in right to any other
person (other than Liens expressly permitted by Section 6.02).


(d)  When Account Control Agreements
in respect of deposit accounts and securities accounts of the Loan Parties are
executed and delivered by the applicable Loan Parties, the applicable
depositary banks or securities intermediaries and the Agent, the Account
Control Agreements will constitute fully perfected Liens on, and security
interests in, all right, title and interest of the Loan Parties in such deposit
accounts and securities accounts, in each case prior and superior in right to
any other person.


SECTION 3.20.  Location of Real Property and Leased
Premises.  (a)  Schedule 3.20(a) lists completely
and correctly as of the Effective Date all Real Properties owned by the
Borrower and the Subsidiaries.  As of the
Effective Date, the



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Borrower and
the Subsidiaries own in fee all the Real Properties set forth on Schedule 3.20(a).


(b)  Schedule 3.20(b)
lists completely and correctly all Real Properties leased by the Borrower and
the Subsidiaries as of the Effective Date and the MMS Leases.  As of the Effective Date, the Borrower and
the Subsidiaries have valid leases in all the Real Properties set forth on Schedule 3.20(b).


SECTION 3.21.  Labor Matters.  Except to the extent it could not reasonably
be expected to cause a Material Adverse Effect, as of the Effective Date, there
are no strikes, lockouts or slowdowns against Holdings, the Borrower or any
Subsidiary pending or, to the knowledge of Holdings or the Borrower,
threatened. The hours worked by and payments made to employees of Holdings, the
Borrower and the Subsidiaries have not been in violation of the Fair Labor
Standards Act or any other applicable Federal, state, local or foreign law
dealing with such matters. All payments due from Holdings, the Borrower or any
Subsidiary, or for which any claim may be made against Holdings, the Borrower
or any Subsidiary, on account of wages and employee health and welfare
insurance and other benefits, have been paid or accrued as a liability on the
books of Holdings, the Borrower or such Subsidiary. The consummation of the
Transactions will not give rise to any right of termination or right of
renegotiation on the part of any union under any collective bargaining
agreement to which Holdings, the Borrower or any Subsidiary is bound.


SECTION 3.22.  Solvency.  Immediately after the consummation of the
Transactions to occur on or prior to the Effective Date and immediately
following the making of each Loan and after giving effect to the application of
the proceeds of each Loan, (a) the fair value of the assets of each Loan
Party, at a fair valuation, will exceed its debts and liabilities,
subordinated, contingent or otherwise, (b) the present fair saleable value
of the property of each Loan Party will be greater than the amount that will be
required to pay the probable liability of its debts and other liabilities,
subordinated, contingent or otherwise, as such debts and other liabilities
become absolute and matured, (c) each Loan Party will be able to pay its
debts and liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured and (d) each Loan Party will not
have unreasonably small capital with which to conduct the business in which it
is engaged as such business is now conducted and is proposed to be conducted
following the Effective Date.


SECTION 3.23.  Sanctioned Persons.  None of Holdings, the Borrower or any
Subsidiary or, to the knowledge of the Borrower, any director, officer, agent,
employee or Affiliate of Holdings, the Borrower or any Subsidiary is currently
subject to any U.S. sanctions administered by the Office of Foreign Assets
Control of the U.S. Treasury Department (“OFAC”); and the Borrower will not directly or
indirectly use the proceeds of the Loans or otherwise make available such
proceeds to any person for the purpose of financing the activities of any
person currently subject to any U.S. sanctions administered by OFAC.



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SECTION 3.24.  Gas Imbalances; Prepayments.  Except as set forth in Schedule 3.24,
on a net basis there are no gas imbalances, take-or-pay arrangements or other
prepayments (including deferred production agreements or volumetric production
payments) with respect to the Oil and Gas Properties or production therefrom
that would require the Borrower or any Subsidiary to deliver Hydrocarbons
either generally or produced from the Oil and Gas Properties at some future
time without then or thereafter receiving full payment therefor.


ARTICLE IV


Conditions of Lending


The obligations of the Lenders to make Loans are
subject to the satisfaction of the following conditions:


(a) 
The Agent shall have received from (i) each party hereto (A) a
counterpart of this Agreement signed on behalf of such party or (B) written
evidence reasonably satisfactory to the Agent (which may include a facsimile or
other electronic imaging transmission of a signed signature page of this
Agreement) that such party has signed a counterpart of this Agreement and (ii)
each party to the Intercreditor Agreement (A) a counterpart of the
Intercreditor Agreement signed on behalf of such party or (B) written evidence
reasonably satisfactory to the Agent (which may include a facsimile or other
electronic imaging transmission of a signed signature page of the Intercreditor
Agreement) that such party has signed a counterpart of the Intercreditor
Agreement.


(b) 
The representations and warranties set forth in Article III and in
each other Loan Document shall be true and correct in all material respects on
and as of the date of the Effective Date with the same effect as though made on
and as of such date, except to the extent such representations and warranties
expressly relate to an earlier date.


(c)  At
the time of and immediately after the making of the Loans, no Default or Event
of Default shall have occurred and be continuing.


(d) 
The Agent shall have received written opinions of Vinson & Elkins
LLP, special counsel for Holdings and the Borrower, substantially to the effect
set forth in Exhibit G, in each case (A) dated the Effective
Date and (B) addressed to the Agent and the Lenders.


(e) 
All legal matters incidental to this Agreement, the Borrowings and
extensions of credit hereunder and the other Loan Documents shall be reasonably
satisfactory to the Lenders and to the Agent.


(f) 
The Agent shall have received such documents and certificates as the
Agent or its counsel may reasonably request relating to the organization,
existence and good standing of each Loan Party, the authorization of the 



 51
 






 



Transactions and any other legal matters relating to the Loan Parties,
the Loan Documents or the Transactions, all in form and substance reasonably
satisfactory to the Agent and its counsel.


(g) 
The Agent shall have received a certificate, dated the Effective Date
and signed by a Financial Officer of the Borrower, confirming compliance with
the conditions precedent set forth in paragraphs (b), (c), (i), (n), (o)
and (s) of this Article.


(h) 
The Agent shall have received all fees and other amounts due and payable
on or prior to the Effective Date, including, to the extent invoiced,
reimbursement or payment of all out-of-pocket expenses required to
be reimbursed or paid by the Borrower hereunder or under any other Loan
Document.


(i) 
The Collateral and Guarantee Requirement shall have been satisfied and
the Agent shall have received a completed Perfection Certificate dated the Effective
Date and signed by an executive officer or Financial Officer of the Borrower,
together with all attachments contemplated thereby, including the results of
searches of (A) Uniform Commercial Code financing statements on file with the
Secretary of State of the State of Delaware in the case of Holdings and the
Borrower and with the Secretary of State of the State of New York in the case
of the Parent and (B) real estate filings and Uniform Commercial Code financing
statements on file with the various recording districts of the State of Alaska
in which the Mortgaged Properties are situated, copies of such financing
statements and real estate filings disclosed by such searches and evidence
reasonably satisfactory to the Agent that the Liens indicated by such financing
statements and real estate filings are permitted by Section 6.02 or have been
or will be simultaneously released or terminated.


(j) 
Except for approvals identified in the Parent Undertaking as to be
obtained after the Effective Date, the Agent shall have received evidence that
the Borrower and each applicable Subsidiary is qualified to own oil, gas and
mineral leases and/or rights-of-way on Federal public lands and
State lands in the State of Alaska, in accordance with all applicable laws, rules,
regulations and orders of the Federal Bureau of Land Management and all
applicable Governmental Authorities of the State of Alaska (including the
Division of Oil and Gas with the State of Alaska Department of Natural
Resources).


(k) 
The Agent shall have received a copy of, or a certificate as to coverage
under, the insurance policies required by Section 5.02, each of which
shall be endorsed or otherwise amended to include a customary lender’s loss
payable endorsement and to name the Agent as additional insured, in form and
substance reasonably satisfactory to the Agent.



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(l) 
The Intercompany Services Agreement, the Tax Sharing Agreements and the
Parent Undertaking shall be in full force and effect in the form certified by a
Responsible Officer.


(m)  The
Agent shall have received a final version of the Environmental and Safety Audit
dated as of February 23-26, 2006 prepared by the Parent and the related Status
Report dated as of June 8, 2006.


(n) 
The Hedging Agreements set forth on Schedule 1.01(a) shall be in
full force and effect and shall have the effect of establishing minimum fixed
prices or floors on a notional volume of crude oil and natural gas, calculated
separately, equal to approximately 75% of Anticipated Production thereof that
is not subject to fixed price contracts for each month in the period through
and including the third anniversary of the Effective Date.


(o) 
Immediately after giving effect to the Transactions to occur on or prior
to the Effective Date, Holdings, the Borrower and the Subsidiaries shall have
outstanding no Indebtedness or preferred Equity Interests other than
(a) Indebtedness outstanding under this Agreement, (b) Indebtedness
outstanding under the Second Lien Credit Agreement, (c) Indebtedness set
forth on Schedule 6.01 and (d) Hedging Agreements set forth on Schedule 1.01.


(p) 
The Lenders shall have received the financial statements referred to in
Section 3.05, none of which shall demonstrate a material adverse change in the
financial condition of Holdings and its subsidiaries from (and shall not
otherwise be materially inconsistent with) the financial statements or
forecasts previously provided to the Lenders in the Confidential Information
Memorandum.


(q) 
The Lenders shall have received the Reserve Report referred to in
Section 3.05, and such Reserve Report shall not be materially inconsistent with
the versions thereof previously provided to the Lenders.


(r) 
The Agent shall have received a solvency certificate from a Financial
Officer of Holdings, substantially in the form set forth on Exhibit H,
confirming the solvency of Holdings and its subsidiaries on a consolidated
basis after giving the Transactions to occur on the Effective Date.


(s) 
Except for approvals identified in the Parent Undertaking as to be
obtained after the Effective Date, all material requisite Governmental
Authorities and third parties shall have approved or consented to the transfer
of the Business to the Borrower and the Subsidiaries, the Transactions and the
other transactions contemplated hereby to the extent required, all applicable
appeal periods shall have expired and there shall not be any pending or
threatened litigation, governmental, administrative or judicial 



 53
 






 



action that could reasonably be expected to restrain, prevent or impose
burdensome conditions on the Transactions or the other transactions
contemplated hereby.


(t) 
The Lenders shall have received, to the extent requested, all
documentation and other information required by regulatory authorities under
applicable “know your customer” and anti-money laundering rules and
regulations, including the USA PATRIOT Act.


The making of the Loans shall be deemed to constitute
a representation and warranty by Holdings and the Borrower on the date of their
making as to the matters specified in this Article.


ARTICLE V


Affirmative Covenants


Each of Holdings and the Borrower covenants and agrees
with each Lender that so long as this Agreement shall remain in effect and
until the Commitments have been terminated and the principal of and interest on
each Loan, all fees and all other expenses or amounts payable under any Loan
Document shall have been paid in full, unless the Required Lenders shall
otherwise consent in writing, each of Holdings and the Borrower will, and will
cause each of the Subsidiaries to:


SECTION 5.01. 
Existence;
Compliance with Laws; Businesses and Properties.  (a)  Do
or cause to be done all things necessary to preserve, renew and keep in full
force and effect its legal existence, except as otherwise expressly permitted
under Section 6.05.


(b)  Do
or cause to be done all things necessary to obtain, preserve, renew, extend and
keep in full force and effect its rights, licenses, permits, franchises,
authorizations, patents, copyrights, trademarks and trade names, except for
failures to do so that, in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect; maintain and operate such business in
substantially the manner in which it is presently conducted and operated;
comply in all material respects with all applicable laws, rules, regulations
and decrees and orders of any Governmental Authority (including the
qualification and bonding requirements of MMS and the State of Alaska), whether
now in effect or hereafter enacted; and at all times maintain and preserve all
its property and keep such property in good repair, working order and condition
and from time to time make, or cause to be made, all needful and proper
repairs, renewals, additions, improvements and replacements thereto necessary
in order that the business carried on in connection therewith may be properly
conducted at all times, except for failures to do so that, in the aggregate,
could not reasonably be expected to result in a Material Adverse Effect.


SECTION 5.02. 
Insurance.  (a) 
Keep, or cause to be kept, its material insurable properties adequately
insured at all times by financially sound and reputable insurers; maintain, or
cause to be maintained, such other insurance, to such extent and against such 



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risks, including fire and other risks insured against by extended
coverage, as is customary with companies in the same or similar businesses
operating in the same or similar locations, including public liability
insurance against claims for personal injury or death or property damage occurring
upon, in, about or in connection with the use of any properties owned, occupied
or controlled by it; and maintain such other insurance as may be required by
law.


(b) 
Cause all such policies covering any Collateral to be endorsed or
otherwise amended to include a customary lender’s loss payable endorsement, in
form and substance satisfactory to the Agent, which endorsement shall provide
that, from and after the Closing Date, if the insurance carrier shall have
received written notice from the Agent of the occurrence of an Event of
Default, the insurance carrier shall pay all proceeds otherwise payable to the
Borrower or the Loan Parties under such policies directly to the Agent; cause
all such policies to provide that neither the Borrower, the Agent nor any other
party shall be a coinsurer thereunder and to contain a “Replacement Cost
Endorsement”, without any deduction for depreciation, and such other provisions
as the Agent may reasonably require from time to time to protect their
interests; if requested, promptly deliver certified copies of all such policies
to the Agent; cause each such policy to provide that it shall not be canceled,
modified or not renewed (i) by reason of nonpayment of premium upon not
less than 10 days’ prior written notice thereof by the insurer to the Agent
(giving the Agent the right to cure defaults in the payment of premiums) or
(ii) for any other reason upon not less than 30 days’ prior written
notice thereof by the insurer to the Agent; deliver to the Agent, prior to the
cancellation, modification or nonrenewal of any such policy of insurance, a
copy of a renewal or replacement policy (or other evidence of renewal of a
policy previously delivered to the Agent) together with evidence satisfactory
to the Agent of payment of the premium therefor.


(c) 
With respect to any Mortgaged Property, carry and maintain comprehensive
general liability insurance including the “broad form CGL endorsement” and
coverage on an occurrence basis against claims made for personal injury
(including bodily injury, death and property damage) and umbrella liability
insurance against any and all claims, subject to the terms and conditions of
the insurance policies, in no event for a combined single limit of less than
$1,000,000, naming the Agent as an additional insured, on forms satisfactory to
the Agent.


(d) 
Notify the Agent promptly whenever any separate insurance concurrent in
form or contributing in the event of loss with that required to be maintained
under this Section is taken out by any Loan Party; and, if requested, promptly
deliver to the Agent a duplicate original copy of such policy or policies.


SECTION 5.03. 
Obligations and
Taxes.  Pay its
obligations (other than Indebtedness) promptly and in accordance with their
terms, including in the case of Taxes, by causing such Taxes to be paid in
accordance with the Tax Sharing Agreements, and pay and discharge promptly when
due all taxes, assessments and governmental charges or levies imposed upon it
or upon its income or profits or in respect of its property, before the same
shall become more than 60 days delinquent or in default, as 



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well as all lawful claims for labor, materials and supplies or
otherwise that, if unpaid, might give rise to a Lien upon such properties or
any part thereof; provided, however, that such payment and discharge
shall not be required with respect to any such tax, assessment, charge, levy or
claim so long as the validity or amount thereof shall be contested in good
faith by appropriate proceedings and the Holdings, Borrower or the applicable
Subsidiary shall have set aside on its books adequate reserves with respect
thereto in accordance with GAAP and such contest operates to suspend collection
of the contested obligation, tax, assessment or charge and enforcement of a
Lien and, in the case of a Mortgaged Property, there is no risk of forfeiture
of such property.


SECTION 5.04. 
Financial
Statements, Reports, etc. 
In the case of the Holdings, furnish to the Agent, which shall furnish
to each Lender:


(a) 
within 90 days after the end of each fiscal year (or, in the case
of the fiscal year ending on December 31, 2006, within 120 days after the end
of such fiscal year), its consolidated balance sheet and related statements of
income, members’ equity and cash flows showing the financial condition of
Holdings and its subsidiaries as of the close of such fiscal year and the
results of its operations and the operations of such subsidiaries during such
year, together with comparative figures for the immediately preceding fiscal
year (except for any such preceding fiscal year ended prior to December 31,
2006), all audited by independent public accountants of recognized national
standing and accompanied by an opinion of such accountants (which opinion shall
be without a “going concern” or like qualification or exception and without any
qualification or exception as to the scope of such audit) to the effect that
such consolidated financial statements fairly present, in all material
respects, the financial condition and results of operations of Holdings and its
subsidiaries on a consolidated basis in accordance with GAAP consistently
applied;


(b) 
within 45 days after the end of each of the first three fiscal
quarters of each fiscal year (or, in the case of the fiscal quarter ending on
March 31, 2007, within 60 days after the end of such fiscal quarter), its
consolidated balance sheet and related statements of income, members’ equity
and cash flows showing the financial condition of Holdings and its subsidiaries
as of the close of such fiscal quarter and the results of its operations and
the operations of such Subsidiaries during such fiscal quarter and the then
elapsed portion of the fiscal year, and comparative figures for the same
periods in the immediately preceding fiscal year (except for any such preceding
fiscal year ended prior to December 31, 2006), all certified by one of its
Financial Officers as fairly presenting, in all material respects, the
financial condition and results of operations of Holdings and its subsidiaries
on a consolidated basis in accordance with GAAP consistently applied, subject
to normal year-end audit adjustments and the absence of footnotes;



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(c) 
concurrently with any delivery of financial statements under
paragraph (a) or (b) above, a certificate of a Financial Officer of the
Borrower, substantially in the form of Exhibit I hereto,
(A) certifying that no Event of Default or Default has occurred or, if an
Event of Default or Default has occurred, specifying the nature and extent
thereof and any corrective action taken or proposed to be taken with respect
thereto, (B) setting forth computations in reasonable detail satisfactory
to the Agent demonstrating compliance with the covenants contained in
Sections 6.10, 6.11, 6.12 and, in the case of a certificate delivered with
the financial statements required by paragraph (a) above, 6.13,
(C) setting forth a true and complete list as of the last day of the most
recently completed fiscal quarter of all Hedging Agreement of the Borrower and
the Subsidiaries, the material terms thereof (including the type, term,
effective date, termination date and notional amounts or volumes), the net
mark-to-market value thereof, any new credit support agreements relating
thereto not previously disclosed in writing to the Agent, any margin required
or supplied under any credit support agreement and the counterparty to each
such Hedging Agreement and (D) in the case of a certificate delivered with
the financial statements required by paragraph (a) above, setting forth
the Borrower’s calculation of Excess Cash Flow;


(d) 
within 90 days after the end of each fiscal year (or, in the case of the
fiscal year ending on December 31, 2006, within 120 days after the end of such
fiscal year), an operating and capital expenditure budget for Holdings and its
subsidiaries, in form reasonably satisfactory to the Agent and prepared by the
Borrower for each of the four fiscal quarters of such fiscal year, accompanied
by the statement of a Financial Officer of the Borrower to the effect, to the
best of his knowledge, the budget is a reasonable estimate for the period
covered thereby;


(e) 
promptly after the receipt thereof by Holdings or any of its
subsidiaries, a copy of any “management letter” received by any such person
from its certified public accountants and the management’s response thereto;


(f) 
promptly after the furnishing thereof, copies of any material financial
statement, report or notice furnished to or by any person pursuant to the terms
of any indenture, loan or credit or other similar agreement regarding or with
respect to any Material Indebtedness (including with respect to the Second Lien
Loan Documents) not otherwise furnished to the Lenders pursuant to any other
provision of this Agreement;


(g) 
within 45 days after the end of each fiscal quarter (or, in the case of
the fiscal quarter ending on March 31, 2007, within 60 days after the end of
such fiscal quarter), a report setting forth, for each elapsed calendar month
during the then current fiscal year, the volume of production and sales attributable
to production (and the prices at which such sales were made and the revenues
derived from such sales) for each such calendar month from the Oil and Gas
Properties, and setting forth the related ad valorem, severance 



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and production taxes and lease operating expenses attributable thereto
and incurred for each such calendar month;


(h) 
promptly after the request by any Lender, all documentation and other
information that such Lender reasonably requests in order to comply with its
ongoing obligations under applicable “know your customer” and anti-money
laundering rules and regulations, including the USA PATRIOT Act;


(i) 
promptly following receipt thereof, on and after the effectiveness of
the Pension Act, copies of (i) any documents described in Section 101(k)(1) of
ERISA that the Borrower and any of its ERISA Affiliates has received following
request thereof with respect to any Multiemployer Plan and (ii) any notices
described in Section 101(l)(1) of ERISA that the Borrower or any of its ERISA
Affiliates has received following request thereof with respect to any
Multiemployer Plan; and


(j) 
promptly, from time to time, such other information regarding the
operations, business affairs and financial condition of Holdings, the Borrower
or any Subsidiary, or compliance with the terms of any Loan Document, as the
Agent or any Lender may reasonably request.


SECTION 5.05. 
Litigation and
Other Notices.  Furnish to
the Agent and each Lender prompt written notice of the following:


(a) 
any Event of Default or Default, specifying the nature and extent
thereof and the corrective action (if any) taken or proposed to be taken with
respect thereto;


(b) 
the filing or commencement of, or any threat or notice of intention of
any person to file or commence, any action, suit or proceeding, whether at law
or in equity or by or before any Governmental Authority, against the Borrower
or any Affiliate thereof that could reasonably be expected to result in a
Material Adverse Effect;


(c) 
the occurrence of any ERISA Event that, alone or together with any other
ERISA Events that have occurred, could reasonably be expected to result in
liability of Holdings and its subsidiaries in an aggregate amount exceeding
$5,000,000; and


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


SECTION 5.06. 
Information
Regarding Collateral. 
(a)  Furnish to the Agent prompt
written notice of any change (i) in any Loan Party’s legal name, as
reflected in its organizational documents, (ii) in the jurisdiction of
organization or formation of any Loan Party, (iii) if it is not a
registered organization (as defined in the New York Uniform Commercial Code),
in the location of its chief executive office or its principal place of 



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business, (iv) in any Loan Party’s organizational form or (v) in
any Loan Party’s Federal Taxpayer Identification Number or organizational
identification number assigned by the jurisdiction of organization.  Holdings and the Borrower agree to promptly
provide the Agent with certified organizational documents reflecting any of the
changes described in the first sentence of this paragraph.  Holdings and the Borrower agree not to effect
or permit any change referred to in the preceding sentence unless all filings
have been made under the Uniform Commercial Code or otherwise that are required
in order for the Agent to continue at all times following such change to have a
valid, legal and perfected security interest in all the Collateral. Holdings
and the Borrower also agree promptly to notify the Agent if any material
portion of the Collateral is damaged or destroyed.


(b)  In
the case of the Borrower, upon request by the Agent, at the time of delivery of
annual financial statements pursuant to Section 5.04(a), deliver to the Agent a
certificate of a Financial Officer of the Borrower setting forth the
information required pursuant to Section 2 of the Perfection Certificate
or confirming that there has been no change in such information since the date
of the Perfection Certificate delivered on the Effective Date or the date of
the most recent certificate delivered pursuant to this Section.


SECTION 5.07. 
Maintaining
Records; Access to Properties and Inspections.  Keep proper books of record and account in
which full, true and correct entries in conformity with GAAP and all
requirements of law are made of all dealings and transactions in relation to
its business and activities. Each Loan Party will, and will cause each of its
subsidiaries to, permit any representatives designated by the Agent or any
Lender, upon reasonable prior notice, to visit and inspect the financial
records and the properties of such person at reasonable times and as often as
reasonably requested and to make extracts from and copies of such financial
records, and permit any representatives designated by the Agent or any Lender
to discuss the affairs, finances and condition of such person with the officers
thereof and independent accountants therefor, all at the reasonable cost and
expense of the Borrower.


SECTION 5.08. 
Use of Proceeds.  Use the proceeds of the Loans only for the
purposes specified in the recitals to this Agreement.


SECTION 5.09. 
Employee Benefits.  Furnish to the Agent as soon as possible
after, and in any event within ten days after any responsible officer of
Holdings, the Borrower or any ERISA Affiliate knows or has reason to know that,
any ERISA Event has occurred that, alone or together with any other ERISA
Event, could reasonably be expected to result in liability of Holdings, the
Borrower or any ERISA Affiliate in an aggregate amount exceeding $5,000,000, a
statement of a Financial Officer of Holdings or the Borrower setting forth
details as to such ERISA Event and the action, if any, that Holdings or the
Borrower proposes to take with respect thereto. 
Upon request by a Lender, promptly request (a) the documents described
in Section 101(k)(1) of ERISA with respect to a Multiemployer Plan to which the
Borrower or any of its ERISA Affiliates contributes and (b) notices described
in Section 101(l)(1) of ERISA with respect to a Multiemployer Plan to which the
Borrower or any of its ERISA Affiliates contributes.


 



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SECTION 5.10.  Compliance with Environmental Laws.  Except to the extent it could not reasonably
be expected to cause a Material Adverse Effect, (a) comply, and cause all
lessees and other persons occupying its properties to comply, in all material
respects with all Environmental Laws applicable to its operations and
properties; obtain and renew all material permits, licenses or other approvals
necessary for its operations and properties pursuant to any Environmental Law
and (b) undertake and conduct any remedial action necessary to remove or clean
up any Hazardous Materials from any of its current and former properties in
accordance with Environmental Laws; provided,
however, that none of Holdings,
the Borrower or any Subsidiary shall be required to undertake any remedial
action required by Environmental Laws to the extent that its obligation to do
so is being contested in good faith and by proper proceedings and appropriate
reserves are being maintained with respect to such circumstances in accordance
with GAAP.


SECTION 5.11.  Preparation of Environmental Reports.  If a Default caused by reason of a breach of
Section 3.17 or Section 5.10 shall have occurred and be continuing
for more than 20 days without Holdings, the Borrower or any Subsidiary
commencing activities reasonably likely to remediate the condition giving rise
to such Default, at the written request of the Required Lenders through the
Agent, provide to the Lenders within 45 days after such request, at the
expense of the Loan Parties, an environmental site assessment report regarding
the matters which are the subject of such Default prepared by an environmental
consulting firm reasonably acceptable to the Agent and indicating compliance or
non-compliance with Environmental Laws and the presence or absence of Hazardous
Materials and the estimated cost of any corrective or remedial action in
connection with such Default.


SECTION 5.12.  Further Assurances.  Execute any and all further documents,
financing statements, agreements and instruments, and take all further action
(including filing and recording of Uniform Commercial Code and other financing
statements, fixture filings, mortgages and deeds of trust) that may be required
under applicable law, or that the Required Lenders or the Agent may reasonably
request, to cause the Collateral and Guarantee Requirement to be and remain
satisfied at all times, all at the expense of the Loan Parties.  If any additional Subsidiary is formed or
acquired after the Effective Date, the Borrower will, within 20 days after such
Subsidiary is formed or acquired, notify the Agent and the Lenders thereof and
cause the Collateral and Guarantee Requirement to be satisfied with respect to
such Subsidiary and with respect to any Equity Interest in or Indebtedness of
such Subsidiary owned by or on behalf of any Loan Party.  In addition, from time to time, each of
Holdings and the Borrower will, at its cost and expense, promptly secure the
Obligations by pledging or creating, or causing to be pledged or created,
perfected Liens with respect to its and the Subsidiaries’ assets and properties
as is necessary to cause the Collateral and Guarantee Requirement to be and
remain satisfied at all times. Such security interests and Liens will be
created under the Security Documents and other security agreements, mortgages,
deeds of trust and other instruments and documents in form and substance
satisfactory to the Agent, and the Borrower shall deliver or cause to be
delivered to the Lenders all such instruments and documents (including legal
opinions and lien searches) as the Agent shall reasonably request to evidence
compliance with this Section. The Borrower agrees to provide such 



 60
 






 



evidence as
the Agent shall reasonably request as to the perfection and priority status of
each such security interest and Lien.  In
furtherance of the foregoing, the Borrower will give prompt notice to the Agent
of the acquisition by it or any of the Subsidiaries of any real property (or
any interest in real property) having a value in excess of $1,000,000.


SECTION 5.13.  Compliance with Leases.  Maintain all Leases in full force and effect
(other than as a result of their expiration in accordance with their terms),
free of any material default by the Borrower or the applicable Subsidiary.


SECTION 5.14.  Interest Rate Protection Agreements.  As promptly as practicable and in any event
within 120 days after the Closing Date, enter into, and for a period of not
less than three years after the Closing Date maintain in effect, one or more
Hedging Agreements, the effect of which is to fix or cap the interest rates
applicable to at least 50% of the Indebtedness that is projected to be
outstanding under the Loan Documents and the Second Lien Loan Documents, in
each case on terms and conditions reasonably acceptable, taking into account
current market conditions, to the Agent. 
Each such Hedging Agreement shall be entered into with a person that is
reasonably acceptable to the Agent.


SECTION 5.15.  Commodity Price Hedging Program.  At all times maintain one or more Hedging Agreements
with persons reasonably acceptable to the Agent, the effect of which is to
establish minimum fixed prices or floors within $0.50/Mmbtu and $3.50/Bbl of
the NYMEX strip prices (WTI and Henry Hub) available on the date of entry into
such Hedging Agreements on a notional volume of crude oil and natural gas,
calculated separately, equal to not less than 60% of Anticipated Production
thereof that is not subject to fixed price contracts for each month in a period
not shorter than the then ensuing 12 months.


SECTION 5.16.  Delivery of Reserve Reports.  (a)  On
or prior to September 1 of each year, commencing September 1, 2007, the
Borrower shall furnish to the Agent and the Lenders reserve reports prepared by
or under the supervision of a reserve engineer of seniority reasonably
acceptable to the Agent acting on behalf of the Borrower setting forth as of
June 30 of such year, the proved and probable oil and gas reserves attributable
to the Oil and Gas Properties, together with (i) a projection of the rate of
production and future revenues less severance and ad valorem taxes, operating
expenses and capital expenditures with respect thereto as of such date and (ii)
a writing from a Responsible Officer of the Borrower, substantially in the form
of Exhibit J hereto, certifying that (A) there are no statements or
conclusions in such reserve reports which are based upon or include materially
misleading information or fail to take into account material information
regarding the matters reported therein (it being understood that projections
concerning volumes attributable to the Oil and Gas Properties and production
and cost estimates contained in each reserve report are necessarily based upon
professional opinions, estimates and projections), (B) such reserve reports
were prepared in accordance with the procedures used to prepare the reserve
report as of June 30 of the immediately preceding year (or, in the case of the
reserve report as of June 30, 2007, the reserve reports referred to in Section
3.05(c)) and (C) a writing from a Responsible Officer of the Borrower,
substantially in the form of Exhibit K hereto, certifying that 



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there are no
gas imbalances, take-or-pay arrangements or other prepayments in excess of the
volume specified in Schedule 3.24 or permitted by 6.17(b) with respect
to the Oil and Gas Properties evaluated in such reserve reports which would
require the Borrower or any Subsidiary to deliver Hydrocarbons either generally
or produced from the Oil and Gas Properties at some future time without then or
thereafter receiving full payment therefor.


(b)  On or prior to March 1 of
each year, commencing March 1, 2007, the Borrower shall furnish to the Agent
and the Lenders a reserve report prepared by an Independent Engineer setting
forth as of December 31 of the immediately preceding year, the proved and
probable oil and gas reserves attributable to the Oil and Gas Properties,
together with (i) a projection of the rate of production and future revenues
less severance and ad valorem taxes, operating expenses and capital
expenditures with respect thereto as of such date, (ii) a writing from a
Responsible Officer of the Borrower, substantially in the form of Exhibit J
hereto, certifying that (x) there are no statements or conclusions in such
reserve reports which are based upon or include materially misleading
information or fail to take into account material information regarding the
matters reported therein (it being understood that projections concerning
volumes attributable to the Oil and Gas Properties and production and cost
estimates contained in each reserve report are necessarily based upon
professional opinions, estimates and projections) and (y) such reserve reports
were prepared in accordance with the procedures used to prepare the reserve
report as of December 31 of the immediately preceding year (or, in the case of
the reserve report as of December 31, 2006, the reserve reports referred to in
Section 3.05(c)) and (iii) a writing from a Responsible Officer of the
Borrower, substantially in the form of Exhibit K hereto, certifying that
there are no gas imbalances, take-or-pay arrangements or other prepayments in
excess of the volume specified in Schedule 3.24 or permitted by 6.17(b)
with respect to the Oil and Gas Properties evaluated in such reserve reports
which would require the Borrower or any Subsidiary to deliver Hydrocarbons
either generally or produced from the Oil and Gas Properties at some future
time without then or thereafter receiving full payment therefor.


(c)  If requested by the Required
Lenders, but not more than once during any 12 month period, the Borrower shall
furnish to the Agent and the Lenders as soon as reasonably practicable, a
reserve report prepared by or under the supervision of a reserve engineer of
seniority reasonably acceptable to the Agent acting on behalf of the Borrower
and audited by an Independent Engineer setting forth as of the date specified
in such request, the proved and probable oil and gas reserves attributable to
the Oil and Gas Properties, together with (i) a projection of the rate of
production and future revenues less severance and ad valorem taxes, operating
expenses and capital expenditures with respect thereto as of such date, (ii) a
writing from a Responsible Officer of the Borrower, substantially in the form
of Exhibit J hereto, certifying that (x) there are no statements or
conclusions in such reserve reports which are based upon or include materially
misleading information or fail to take into account material information
regarding the matters reported therein (it being understood that projections
concerning volumes attributable to the Oil and Gas Properties and production
and cost estimates contained in each reserve report are necessarily based upon
professional opinions, estimates and projections) and (y) such reserve reports
were prepared in accordance with the procedures 



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used to
prepare the most recently delivered Reserve Report) and (iii) a writing from a
Responsible Officer of the Borrower, substantially in the form of Exhibit K
hereto, certifying that there are no gas imbalances, take-or-pay arrangements
or other prepayments in excess of the volume specified in Schedule 3.24
or permitted by 6.17(b) with respect to the Oil and Gas Properties evaluated in
such reserve reports which would require the Borrower or any Subsidiary to
deliver Hydrocarbons either generally or produced from the Oil and Gas
Properties at some future time without then or thereafter receiving full
payment therefor.


SECTION 5.17.  Title Information.  (a)  On
or prior to the delivery to the Agent of each Reserve Report required to be
delivered by Section 5.16, the Borrower will deliver to the Agent title
information, in form and substance reasonably acceptable to the Agent, that,
together with title information previously delivered to the Agent, constitutes
title information with respect to Oil and Gas Properties representing at least
80% of Proved PV-10% as of the date of such Reserve Report.


(b)  Within 90 days after notice
from the Agent that material title defects or exceptions exist with respect to
any Oil and Gas Properties for which title information was provided pursuant
paragraph (a) of this Section, the Borrower shall either (i) cure any such
material title defects or exceptions, (ii) create a fully perfected Lien on substitute
Oil and Gas Properties with no material title defects or exceptions theretofore
not composing the Mortgaged Properties that are reasonably acceptable to the
Agent or (iii) deliver title information, in form and substance reasonably
acceptable to the Agent, that, together with the title information previously
delivered to the Agent, constitutes title information with respect to Oil and
Gas Properties representing at least 80% of Proved PV-10% as of the date of the
most recently delivered Reserve Report (it being understood that any Oil and
Gas Property with material title defects or exceptions that have not been cured
within 90 days after notice from the Agent pursuant to this paragraph shall be
excluded from the determination of such Proved PV-10%).


(c)  If the Borrower is unable to
comply with paragraph (b) of this Section, such failure to comply shall not
constitute a Default.  Any Oil and Gas
Property in respect of which paragraph (b) of this Section shall not have been
complied with shall be excluded from the Oil and Gas Properties for purposes of
calculating Proved PV-10%, Probable PV-10% and PDP PV-10% to the extent of such
title defect until such time as the Borrower has complied with the paragraph
(b) of this Section in respect of such Oil and Gas Property.


SECTION 5.18.  Title.  Take such actions as are reasonably requested
by the Agent in order to vest good and marketable title or leasehold interest
in the Real Properties purported to be owned or leased by the Borrower and the
Subsidiaries as of the Closing Date.



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ARTICLE VI


Negative Covenants


Each of Holdings and the Borrower covenants and agrees
with each Lender that, so long as this Agreement shall remain in effect and
until the Commitments have been terminated and the principal of and interest on
each Loan, all fees and all other expenses or amounts payable under any Loan
Document have been paid in full, unless the Required Lenders shall otherwise
consent in writing, neither Holdings nor the Borrower will, nor will they cause
or permit any of the Subsidiaries to:


SECTION 6.01. 
Indebtedness.  Incur, create, assume or permit to exist any
Indebtedness, except:


(a) 
Indebtedness existing on the date hereof and set forth in Schedule 6.01
and any extensions or renewals of such Indebtedness to the extent the principal
amount of such Indebtedness is not increased, neither the final maturity nor
the weighted average life to maturity of such Indebtedness is decreased, such
Indebtedness, if subordinated to the Obligations, remains so subordinated on terms
no less favorable to the Lenders, and the original obligors in respect of such
Indebtedness remain the only obligors thereon;


(b) 
Indebtedness created under the Loan Documents;


(c) 
Indebtedness created under the Second Lien Loan Documents and any Permitted
Refinancing Indebtedness used to Refinance such Indebtedness;


(d) 
intercompany Indebtedness of the Borrower and the Subsidiaries to the
extent permitted by Section 6.04(c); provided
that any such Indebtedness shall not have been transferred or pledged to an
third party;


(e) 
Indebtedness of the Borrower or any Subsidiary incurred to finance the
acquisition, construction or improvement of real property (other than Oil and
Gas Properties), improvements thereto and equipment, and extensions, renewals
and replacements of any such Indebtedness that do not increase the outstanding
principal amount thereof; provided that (i) such Indebtedness is
incurred prior to or within 90 days after such acquisition or the completion of
such construction or improvement and (ii) the aggregate principal amount of
Indebtedness permitted by this paragraph (e), when combined with the aggregate
principal amount of all Capital Lease Obligations and Synthetic Lease
Obligations incurred pursuant to Section  6.01(f) shall not exceed
$15,000,000 at any time outstanding;


(f) 
Capital Lease Obligations and Synthetic Lease Obligations in an
aggregate principal amount, when combined with the aggregate principal amount
of all Indebtedness incurred pursuant to Section 6.01(e), not in excess of
$15,000,000 at any time outstanding;



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(g) 
Indebtedness under performance bonds or with respect to workers’
compensation claims, in each case incurred in the ordinary course of business;


(h) 
Guarantees permitted under Section 6.04;


(i) 
Indebtedness constituting Hedging Agreements permitted by this
Agreement; and


(j) 
other Indebtedness of the Borrower or the Subsidiaries in an aggregate
outstanding principal amount not in excess $10,000,000 at any time.


SECTION 6.02. 
Liens.  Create, incur, assume or permit to exist any
Lien on any property or assets (including Equity Interests in or other
securities of any person, including the Borrower or any Subsidiary) now owned
or hereafter acquired by it, or assign or sell any income or revenues
(including accounts receivable) or rights in respect of any thereof, except:


(a) 
Liens on property or assets of the Borrower and its Subsidiaries
existing on the date hereof and set forth in Schedule 6.02; provided that such Liens shall secure only
those obligations which they secure on the date hereof and extensions, renewals
and replacements thereof permitted hereunder;


(b) 
any Lien created under the Loan Documents;


(c) 
any Lien created under the Second Lien Loan Documents and Liens securing
Permitted Refinancing Indebtedness used to Refinance the Indebtedness under the
Second Lien Loan Documents;


(d) 
Liens for taxes not yet due or which are being contested in compliance
with Section 5.03;


(e) 
carriers’, maritime, warehousemen’s, mechanics’, materialmen’s,
repairmen’s or other like Liens arising in the ordinary course of business or
Liens consisting of joint operating agreements, in each case securing
obligations that are not due and payable or which are being contested in
compliance with Section 5.03;


(f) 
pledges and deposits made in the ordinary course of business in
compliance with workmen’s compensation, unemployment insurance and other social
security laws or regulations;


(g) 
deposits to secure the performance of bids, trade contracts (other than
for Indebtedness), leases (other than Capital Lease Obligations and Synthetic
Lease Obligations), statutory obligations, surety and appeal bonds, 



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performance bonds and other obligations of a like nature incurred in
the ordinary course of business;


(h) 
zoning restrictions, easements, rights-of-way, restrictions on use of
real property and other similar encumbrances incurred in the ordinary course of
business which, in the aggregate, are not substantial in amount and do not
materially detract from the value of the property subject thereto or interfere
with the ordinary conduct of the business of the Borrower or any of its
Subsidiaries;


(i) 
purchase money security interests in real property (other than Oil and
Gas Properties), improvements thereto or equipment hereafter acquired (or, in
the case of improvements, constructed) by the Borrower or any Subsidiary; provided that (i) such security
interests secure Indebtedness permitted by Section 6.01(e), (ii) such
security interests are incurred, and the Indebtedness secured thereby is
created, within 90 days after such acquisition (or construction),
(iii) the Indebtedness secured thereby does not exceed the lesser of the
cost or the fair market value of such real property, improvements or equipment
at the time of such acquisition (or construction) and (iv) such security
interests do not apply to any other property or assets of the Borrower or any
Subsidiary;


(j) 
Liens arising out of judgments or awards that do not constitute an Event
of Default under clause (i) of Article VII; and


(k) 
other Liens securing obligations of the Borrower or the Subsidiaries in
an aggregate principal amount not in excess of $5,000,000 at any time.


SECTION 6.03. 
Sale and
Lease-Back Transactions. 
Enter into any arrangement, directly or indirectly, with any person
whereby it shall sell or transfer any property, real or personal, used or
useful in its business, whether now owned or hereafter acquired, and thereafter
rent or lease such property or other property which it intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.


SECTION 6.04. 
Investments,
Loans and Advances. 
Purchase, hold or acquire any Equity Interests, evidences of
indebtedness or other securities of, make or permit to exist any loans or advances
to, or make or permit to exist any investment or any other interest in, any
other person, except:


(a) 
(i) investments by Holdings, the Borrower and the Subsidiaries existing
on the Closing Date in the Equity Interests of the Borrower and the Subsidiaries
and (ii) additional investments by Holdings, the Borrower and the Subsidiaries
in Equity Interests in the Borrower and the Subsidiaries; provided that any such Equity Interests
held by a Loan Party shall be pledged pursuant to the Collateral Agreement;



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(b) 
Permitted Investments;


(c) 
loans or advances made by Holdings or the Borrower to any Subsidiary and
made by any Subsidiary to Holdings, the Borrower or any other Subsidiary;


(d) 
investments received in connection with the bankruptcy or reorganization
of, or settlement of delinquent accounts and disputes with, customers and
suppliers, in each case in the ordinary course of business;


(e) 
loans and advances in the ordinary course of business to employees so
long as the aggregate principal amount thereof at any time outstanding
(determined without regard to any write-downs or write-offs of such loans and
advances) shall not exceed $1,000,000;


(f) 
Hedging Agreements permitted or required by this Agreement;


(g) 
Permitted Acquisitions;


(h) 
Investments in the form of non-cash consideration received as a result
of asset sales permitted by Section 6.05(b);


(i) 
Guarantees by the Borrower of Indebtedness and other obligations of any
Subsidiary and Guarantees by any Subsidiary of Indebtedness and other obligations
of the Borrower or any other Subsidiary; provided
that a Subsidiary that has not Guaranteed the Obligations pursuant to the
Collateral Agreement shall not Guarantee any Indebtedness or other obligations
of any Loan Party;


(j) 
investments in joint ventures for the purpose of exploration,
development, gathering and processing Hydrocarbons in an amount not to exceed
$10,000,000 in the aggregate during the term of this Agreement;


(k) 
investments in Oil and Gas Properties (A) made during any fiscal year
that, together with the total consideration paid in connection with any
acquisitions pursuant to Section 6.04(g) (including any Indebtedness of the
Acquired Entity that is assumed by the Borrower or any Subsidiary following
such acquisition and any payments following such acquisition pursuant to
earn-out provisions or similar obligations) made in such fiscal year, shall not
in the aggregate exceed $15,000,000 and (B) made during the term of this
Agreement that, together with the total consideration paid in connection with
any acquisitions pursuant to Section 6.04(g) (including any Indebtedness of the
Acquired Entity that is assumed by the Borrower or any Subsidiary following
such acquisition and any payments following such acquisition pursuant to earn-out
provisions or similar obligations) made during the term of this Agreement,
shall not in the aggregate exceed $50,000,000; and



 67
 






 



(l)  in
addition to investments permitted by paragraphs (a) through (g) above,
additional investments, loans and advances by the Borrower and the Subsidiaries
so long as the aggregate amount invested, loaned or advanced pursuant to this
paragraph (h) (determined without regard to any write-downs or write-offs of
such investments, loans and advances) does not exceed $10,000,000 in the
aggregate.


SECTION 6.05. 
Mergers,
Consolidations, Sales of Assets and Acquisitions.  (a) 
Merge into or consolidate with any other person, or permit any other
person to merge into or consolidate with it, or sell, transfer, lease or
otherwise dispose of (in one transaction or in a series of transactions) all or
substantially all the assets (whether now owned or hereafter acquired) of the
Borrower or less than all the Equity Interests of any Subsidiary, or purchase,
lease or otherwise acquire (in one transaction or a series of transactions) all
or any substantial part of the assets of any other person, except that
(i) the Borrower and any Subsidiary may purchase and sell inventory in the
ordinary course of business and (ii) if at the time thereof and immediately
after giving effect thereto no Event of Default or Default shall have occurred
and be continuing (A) any wholly owned Subsidiary may merge into the
Borrower in a transaction in which the Borrower is the surviving corporation,
(B) any wholly owned Subsidiary may merge into or consolidate with any
other wholly owned Subsidiary in a transaction in which the surviving entity is
a wholly owned Subsidiary and no person other than the Borrower or a wholly
owned Subsidiary receives any consideration (provided that if any party to any
such transaction is a Loan Party, the surviving entity of such transaction
shall be a Loan Party) and (C) the Borrower and the Subsidiaries may make
Permitted Acquisitions (including through mergers of Subsidiaries).


(b) 
Make any Asset Sale otherwise permitted under paragraph (a) above
unless (i) such Asset Sale is for consideration at least 75% of which is
cash, (ii) such consideration is at least equal to the fair market value
of the assets being sold, transferred, leased or disposed of and (iii) the
fair market value of all assets sold, transferred, leased or disposed of
pursuant to this paragraph (b) during any fiscal year shall not exceed an
amount equal to 7.5% of the Proved PV-10% as of the end of the fiscal year most
recently ended prior to the date of such sale, transfer, lease or disposition
for which a Reserve Report has been delivered, calculated on a pro forma basis for acquisitions consummated since the end
of such fiscal year in the manner specified in the definition of “Proved PV-10%”.


SECTION 6.06. 
Restricted
Payments; Payment of Certain Indebtedness; Restrictive Agreements.  (a) 
Declare or make, or agree to declare or make, directly or indirectly,
any Restricted Payment or enter into or be a party to any Synthetic Purchase
Agreement, or incur any obligation (contingent or otherwise) to do so; provided, however,
that (i) any Subsidiary may declare and pay dividends or make other
distributions ratably to its equity holders, (ii) the Borrower may make
Restricted Payments to Holdings (x) in an amount not to exceed $100,000 in any
fiscal year, to the extent necessary to pay general corporate and overhead
expenses incurred by Holdings in the ordinary course of business; provided, however,
that all Restricted Payments made to Holdings pursuant to this clause
(ii) are used by Holdings for the purposes specified 



 68
 






 



herein within 20 days of the receipt thereof, (iii) the Borrower
and Holdings may make the Distribution and (iv) the Borrower may make payments
in accordance with the Intercompany Services Agreement or the Tax Sharing
Agreements in accordance with their terms.


(b) 
Neither Holdings nor the Borrower will, nor will they permit any
Subsidiary to, make or agree to pay or make, directly or indirectly, any
payment or other distribution (whether in cash, securities or other property)
of or in respect of principal of or interest on any Indebtedness, or any
payment or other distribution (whether in cash, securities or other property),
including any sinking fund or similar deposit, on account of the purchase,
redemption, retirement, acquisition, cancelation or termination of any
Indebtedness, except:


(i)  payment of Indebtedness
created under the Loan Documents;


(ii)  payment of scheduled
interest and principal payments as and when due in respect of any Indebtedness;


(iii)  mandatory prepayments of
the Second Lien Loans in accordance with the terms of the Second Lien Loan
Documents;


(iv)  payment when and as due of
Indebtedness under Hedging Agreements permitted under this Agreement;


(v)  refinancings of Indebtedness
to the extent permitted by Section 6.01; and


(vi)  payments of secured
Indebtedness that becomes due as a result of the voluntary sale or transfer of
the property or assets securing such Indebtedness.


(c) 
Enter into, incur or permit to exist any agreement or other arrangement
that prohibits, restricts or imposes any condition upon (i) the ability of
Holdings, the Borrower or any Subsidiary to create, incur or permit to exist
any Lien upon any of its property or assets to secure Indebtedness under the
Loan Documents or (ii) the ability of any Subsidiary to pay dividends or
other distributions with respect to any of its Equity Interests or to make or
repay loans or advances to the Borrower or any other Subsidiary; provided that (A) the foregoing shall not apply to
restrictions and conditions imposed by law or by any Loan Document or any
Second Lien Loan Document, (B) the foregoing shall not apply to customary
restrictions and conditions contained in agreements relating to the sale of a
Subsidiary pending such sale, provided such
restrictions and conditions apply only to the Subsidiary that is to be sold and
such sale is permitted hereunder, (C) clause (i) of the foregoing
shall not apply to restrictions or conditions imposed by any agreement relating
to secured Indebtedness permitted by this Agreement if such restrictions or
conditions apply only to the property or assets securing such Indebtedness and
(D) clause (i) of the foregoing shall not apply to customary provisions
in leases and other contracts restricting the assignment thereof.


 


 



 69













 


SECTION 6.07.  Transactions with Affiliates.  Except for transactions between or among Loan
Parties, sell or transfer any property or assets to, or purchase or acquire any
property or assets from, or otherwise engage in any other transactions with,
any of its Affiliates, except that the Borrower or any Subsidiary (a) may
engage in any of the foregoing transactions in the ordinary course of business
at prices and on terms and conditions not less favorable to the Borrower or
such Subsidiary than could be obtained on an arm’s-length basis from unrelated
third parties (including transactions on such terms and conditions with the
Cook Inlet Pipeline Company) and (b) may make distributions and payments in
accordance with the Intercompany Services Agreement as in effect on the Closing
Date and the Tax Sharing Agreements in accordance with their terms (it being
understood that distributions and payments made in accordance with the
Intercompany Services Agreement, as the same may be amended or otherwise
modified from time to time, that comply with clause (a) above shall not violate
this Section).


SECTION 6.08.  Business of Holdings, Borrower and
Subsidiaries; No Foreign Subsidiaries.  (a) 
With respect to Holdings, engage in any business activities or have any
assets or liabilities other than its ownership of the Equity Interests in the
Borrower and other assets and liabilities incidental thereto, including its
liabilities under the Loan Documents and the Second Lien Loan Documents.


(b)  With respect to the Borrower
and the Subsidiaries, engage at any time in any business or business activity
other than the business currently conducted by it and business activities
reasonably related thereto.


(c)  Neither Holdings nor the
Borrower shall acquire or own any Foreign Subsidiary.


SECTION 6.09.  Amendment of Certain Indebtedness
and Agreements.  Neither
Holdings nor the Borrower will, nor will they permit any Subsidiary to, amend,
modify or waive any of its rights under (a) (i) the Intercompany Services
Agreement, (ii) the Tax Sharing Agreements, (iii) the Master Conveyance or (iv)
its certificate of incorporation, by-laws or other organizational documents,
except, in each case, for amendments, modifications or waivers to any of the
foregoing documents that, when taken together will all prior amendments,
modifications and waivers to such document, are not material and adverse to the
Borrower or the Subsidiaries or to the rights or interests of the Lenders or
(b) the Second Lien Loan Documents, except to the extent permitted under the
Intercreditor Agreement.


SECTION 6.10.  Interest Coverage Ratio.  Permit the Interest Coverage Ratio for the
period of four consecutive fiscal quarters ending on the last day of any fiscal
quarter set forth below to be less than the ratio set forth opposite such
fiscal quarter:



 70
 






 



 




	
  Fiscal quarter ending on

  	
   

  	
   

  	
   

  	
  Ratio

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  March 31, 2007

  	
   

  	
  1.65 to 1.00

  	
   

  
	
  June 30, 2007

  	
   

  	
  1.65 to 1.00

  	
   

  
	
  September 30,
  2007

  	
   

  	
  1.65 to 1.00

  	
   

  
	
  December 31,
  2007

  	
   

  	
  1.65 to 1.00

  	
   

  
	
  March 31, 2008

  	
   

  	
  2.15 to 1.00

  	
   

  
	
  June 30, 2008

  	
   

  	
  2.15 to 1.00

  	
   

  
	
  September 30,
  2008

  	
   

  	
  2.15 to 1.00

  	
   

  
	
  December 31,
  2008

  	
   

  	
  2.15 to 1.00

  	
   

  
	
  March 31, 2009

  	
   

  	
  2.75 to 1.00

  	
   

  
	
  June 30, 2009

  	
   

  	
  2.75 to 1.00

  	
   

  
	
  September 30,
  2009

  	
   

  	
  2.75 to 1.00

  	
   

  
	
  December 31,
  2009

  	
   

  	
  2.75 to 1.00

  	
   

  
	
  March 31, 2010

  	
   

  	
  3.25 to 1.00

  	
   

  
	
  June 30, 2010

  	
   

  	
  3.25 to 1.00

  	
   

  
	
  September 30, 2010 and
  thereafter

  	
   

  	
  3.25 to 1.00

  	
   

  






 


SECTION 6.11.  Asset Coverage Ratios.  (a)  Proved Total Debt Coverage Ratio.  Permit the Proved Total Debt Coverage Ratio
as of the last day of any fiscal quarter set forth below to be less than the
ratio set forth below opposite such fiscal quarter:




	
  Fiscal quarter ending on

  	
   

  	
   

  	
   

  	
  Ratio

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  March 31, 2007

  	
   

  	
  1.15 to 1.00

  	
   

  
	
  June 30, 2007

  	
   

  	
  1.15 to 1.00

  	
   

  
	
  September 30,
  2007

  	
   

  	
  1.15 to 1.00

  	
   

  
	
  December 31,
  2007

  	
   

  	
  1.15 to 1.00

  	
   

  
	
  March 31, 2008

  	
   

  	
  1.50 to 1.00

  	
   

  
	
  June 30, 2008

  	
   

  	
  1.50 to 1.00

  	
   

  
	
  September 30,
  2008

  	
   

  	
  1.50 to 1.00

  	
   

  
	
  December 31,
  2008

  	
   

  	
  1.50 to 1.00

  	
   

  
	
  March 31, 2009

  	
   

  	
  1.75 to 1.00

  	
   

  
	
  June 30, 2009

  	
   

  	
  1.75 to 1.00

  	
   

  
	
  September 30,
  2009

  	
   

  	
  1.75 to 1.00

  	
   

  
	
  December 31,
  2009

  	
   

  	
  1.75 to 1.00

  	
   

  
	
  March 31, 2010

  	
   

  	
  2.00 to 1.00

  	
   

  
	
  June 30, 2010

  	
   

  	
  2.00 to 1.00

  	
   

  
	
  September 30, 2010 and
  thereafter

  	
   

  	
  2.00 to 1.00

  	
   

  






 


(b)  PDP Total Debt Coverage Ratio.  Permit the PDP Total Debt Coverage Ratio as
of the last day of any fiscal quarter to be less than 0.50 to 1.00.


(c)  PDP First Lien Debt Coverage Ratio.  Permit the PDP First Lien Debt Coverage Ratio
as of the last day of any fiscal quarter to be less than 0.675 to 1.00.


SECTION 6.12.  Leverage Ratio. 
Permit the Leverage Ratio as of the last day of any fiscal quarter set
forth below to be greater than the ratio set forth opposite such fiscal
quarter:



 71
 






 



 




	
  Fiscal quarter ending on

  	
   

  	
   

  	
   

  	
  Ratio

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  March 31, 2007

  	
   

  	
  5.750 to 1.00

  	
   

  
	
  June 30, 2007

  	
   

  	
  5.750 to 1.00

  	
   

  
	
  September 30,
  2007

  	
   

  	
  5.750 to 1.00

  	
   

  
	
  December 31,
  2007

  	
   

  	
  5.750 to 1.00

  	
   

  
	
  March 31, 2008

  	
   

  	
  5.375 to 1.00

  	
   

  
	
  June 30, 2008

  	
   

  	
  5.000 to 1.00

  	
   

  
	
  September 30,
  2008

  	
   

  	
  4.625 to 1.00

  	
   

  
	
  December 31,
  2008

  	
   

  	
  4.250 to 1.00

  	
   

  
	
  March 31, 2009

  	
   

  	
  4.000 to 1.00

  	
   

  
	
  June 30, 2009

  	
   

  	
  3.750 to 1.00

  	
   

  
	
  September 30,
  2009

  	
   

  	
  3.500 to 1.00

  	
   

  
	
  December 31,
  2009

  	
   

  	
  3.250 to 1.00

  	
   

  
	
  March 31, 2010

  	
   

  	
  3.150 to 1.00

  	
   

  
	
  June 30, 2010

  	
   

  	
  3.150 to 1.00

  	
   

  
	
  September 30, 2010 and
  thereafter

  	
   

  	
  3.000 to 1.00

  	
   

  






 


SECTION 6.13.  Capital Expenditures.  (a)  1P Capital Expenditures.  Permit the aggregate amount of 1P Capital
Expenditures made by the Borrower and the Subsidiaries in any fiscal year set
forth below to the exceed the amount set forth below opposite such period:




	
  Fiscal year ending on

  	
   

  	
   

  	
   

  	
  Amount

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  December 31,
  2007

  	
   

  	
  $

  	
  45,000,000

  	
   

  
	
  December 31,
  2008

  	
   

  	
  $

  	
  62,500,000

  	
   

  
	
  December 31,
  2009

  	
   

  	
  $

  	
  27,500,000

  	
   

  
	
  December 31, 2010

  	
   

  	
  $

  	
  19,400,000

  	
   

  






 


; provided that (i) to the extent the aggregate amount of 1P
Capital Expenditures made by the Borrower and the Subsidiaries during any
fiscal year set forth above is less than the amount set forth opposite such
fiscal year, such shortfall (to the extent not used to make 2P Capital
Expenditures as contemplated by paragraph (b) of this Section) may be carried forward
and used to make 1P Capital Expenditures in the immediately subsequent fiscal
year and (ii) the amount that was offered to the Lenders and the Second Lien
Lenders to prepay outstanding Loans pursuant to Section 2.12(c) and outstanding
Second Lien Loans pursuant to Section 2.12(c) of the Second Lien Credit
Agreement but was not accepted by either the Lenders or the Second Lien Lenders
in respect of any fiscal year may be carried forward and used to make 1P
Capital Expenditures in the immediately subsequent fiscal year to the extent
not used to make 2P Capital Expenditures as contemplated by paragraph (b) of
this Section.


(b)  2P Capital Expenditures.  Permit the aggregate amount of 2P Capital
Expenditures made by the Borrower and the Subsidiaries in any fiscal year to be
greater than $5,000,000; provided that
(i) to the extent the aggregate amount of 1P Capital 



 72
 






 



Expenditures made by the Borrower and the Subsidiaries during any
fiscal year is less than the amount permitted to be made under paragraph (a) of
this Section, and such shortfall is not used to make 1P Capital Expenditures in
the immediately subsequent fiscal year, 50% of such shortfall may be used to
make 2P Capital Expenditures in such immediately subsequent fiscal year and
(ii) the amount that was offered to the Lenders and the Second Lien Lenders to
prepay outstanding Loans pursuant to Section 2.12(c) and outstanding Second
Lien Loans pursuant to Section 2.12(c) of the Second Lien Credit Agreement but
was not accepted by either the Lenders or the Second Lien Lenders in respect of
any fiscal year may be carried forward and used to make 2P Capital Expenditures
in the immediately subsequent fiscal year to the extent not used to make 1P
Capital Expenditures as contemplated by paragraph (a) of this Section.


SECTION 6.14. 
Fiscal Year.  With respect to Holdings and the Borrower,
change their fiscal year-end to a date other than December 31.


SECTION 6.15. 
Certain Equity
Interests.  (a)  In the case of Holdings, issue any Equity
Interest that is not Qualified Capital Stock.


(b)  In
the case of the Borrower, issue any Equity Interests to any person other than
Holdings.


(c)  In
the case of any Subsidiary, issue any Equity Interests to any person other than
the Borrower or another Subsidiary.


SECTION 6.16.  Hedging Agreements.  (a) 
Enter into any Hedging Agreement, other than (i) Hedging Agreements
required by Sections 5.14 and 5.15 and (ii) subject to paragraph (b),
Hedging Agreements entered into in the ordinary course of business (and not for
speculative purposes) to hedge or mitigate risks to which the Borrower or any
Subsidiary is exposed in the conduct of its business or the management of its
liabilities.


(b) 
Maintain at any time one or more Hedging Agreements with persons
reasonably acceptable to the Agent or fixed price contracts, the effect of
which is to establish maximum fixed prices or caps on a notional volume of
crude oil and natural gas, calculated separately, greater than 80% of
Anticipated Production thereof for each month in the then ensuing 12 month
period.


(c) 
For purposes of this Section, a basis differential hedging agreement
will not be considered to be a Hedging Agreement.


SECTION 6.17. 
Take-or-Pay or
Other Prepayments. 
(a)    Except as set forth in Schedule
3.24, allow take-or-pay arrangements or prepayments (including deferred
production agreements or volumetric production payments) with respect to the
Oil and Gas Properties or production therefrom that could require the Borrower
or any Subsidiary to deliver Hydrocarbons either generally or produced from the
Oil and Gas Properties at some future time without then or thereafter receiving
full payment therefor.


(b) 
Allow, on a net basis, any gas imbalances that would require the
Borrower or any Subsidiary to deliver Hydrocarbons either generally or produced
from the Oil and 



 73
 






 



Gas Properties in excess of 200 MMcf at some future time without then
or thereafter receiving full payment therefor.


ARTICLE
VII


Events of Default


In case of the happening of any of the following
events (“Events of Default”):


(a) 
any representation or warranty made or deemed made in or in connection
with any Loan Document or the borrowings hereunder, or any representation,
warranty, statement or information contained in any report, certificate,
financial statement or other instrument furnished in connection with or
pursuant to any Loan Document or the Transactions, shall prove to have been
false or misleading in any material respect when so made, deemed made or
furnished;


(b) 
default shall be made in the payment of any principal of any Loan when
and as the same shall become due and payable, whether at the due date thereof
or at a date fixed for prepayment thereof or by acceleration thereof or
otherwise;


(c) 
default shall be made in the payment of any interest on any Loan or any
fee or any other amount (other than an amount referred to in (b) above)
due under any Loan Document when and as the same shall become due and payable
and such default shall continue unremedied for a period of three Business Days;


(d) 
default shall be made in the due observance or performance by Holdings,
the Borrower or any Subsidiary of any covenant, condition or agreement
contained in Section 2.21, 5.01(a), 5.05 or 5.08 or in Article VI
(other than Section 6.16(b));


(e) 
default shall be made in the due observance or performance by Holdings,
the Borrower or any Subsidiary of any covenant, condition or agreement
contained in any Loan Document (other than those specified in (b), (c) or (d)
above) and such default shall continue unremedied for a period of 30 days
after notice thereof from the Agent or any Lender to the Borrower;


(f) 
(i)  Holdings, the Borrower or any Subsidiary shall fail to
pay any principal, interest or other amount due in respect of any Material
Indebtedness when and as the same shall become due and payable or (ii) any
other event or condition shall occur that results in any Material Indebtedness
becoming due prior to its scheduled maturity or that enables or permits (with
or without the giving of notice, the lapse of time or both) the holder or
holders of any Material Indebtedness or any trustee or agent on its or their
behalf to cause any Material Indebtedness to become due, or to require the 



 74
 






 



prepayment, repurchase, redemption or defeasance thereof prior to its
scheduled maturity or that results in the termination or permits any
counterparty to terminate any Hedging Agreement the obligations under which
constitute Material Indebtedness; provided
that this clause (ii) shall not apply to (A) secured Indebtedness that
becomes due as a result of the voluntary sale or transfer of the property or
assets securing such Indebtedness and (B) Indebtedness that becomes due as a
result of a condition described in clause (c) of the definition of “Change in
Control” as long as the Borrower shall have advised the Lenders at the time of
the Change in Control offer that such event constitutes an event of default
under such Material Indebtedness;


(g)  an
involuntary proceeding shall be commenced or an involuntary petition shall be
filed in a court of competent jurisdiction seeking (i) relief in respect
of Holdings, the Borrower or any Subsidiary, or of a substantial part of the
property or assets of Holdings, the Borrower or a Subsidiary, under
Title 11 of the United States Code, as now constituted or hereafter
amended, or any other Federal, state or foreign bankruptcy, insolvency,
receivership or similar law, (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for Holdings, the
Borrower or any Subsidiary or for a substantial part of the property or assets
of Holdings, the Borrower or a Subsidiary or (iii) the winding-up or
liquidation of Holdings, the Borrower or any Subsidiary; and such proceeding or
petition shall continue undismissed for 60 days or an order or decree
approving or ordering any of the foregoing shall be entered;


(h) 
Holdings, the Borrower or any Subsidiary shall (i) voluntarily
commence any proceeding or file any petition seeking relief under Title 11
of the United States Code, as now constituted or hereafter amended, or any
other Federal, state or foreign bankruptcy, insolvency, receivership or similar
law, (ii) consent to the institution of, or fail to contest in a timely
and appropriate manner, any proceeding or the filing of any petition described
in (g) above, (iii) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for Holdings,
the Borrower or any Subsidiary or for a substantial part of the property or assets
of Holdings, the Borrower or any Subsidiary, (iv) file an answer admitting
the material allegations of a petition filed against it in any such proceeding,
(v) make a general assignment for the benefit of creditors,
(vi) become unable, admit in writing its inability or fail generally to
pay its debts as they become due or (vii) take any action for the purpose
of effecting any of the foregoing;


(i) 
one or more judgments shall be rendered against Holdings, the Borrower,
any Subsidiary or any combination thereof and the same shall remain
undischarged for a period of 30 consecutive days during which execution
shall not be effectively stayed, or any action shall be legally taken by a
judgment creditor to levy upon assets or properties of Holdings, the 



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Borrower or any Subsidiary to enforce any such judgment and such
judgment either (i) is for the payment of money in an aggregate amount in
excess of $5,000,000 or (ii) is for injunctive relief and could reasonably
be expected to result in a Material Adverse Effect;


(j)  an
ERISA Event shall have occurred that, in the opinion of the Required Lenders,
when taken together with all other such ERISA Events, could reasonably be
expected to result in liability of the Borrower and its ERISA Affiliates in an
aggregate amount exceeding $5,000,000;


(k) 
any Guarantee under the Collateral Agreement for any reason shall cease
to be in full force and effect (other than in accordance with the terms of the
Loan Documents), or any Guarantor shall deny in writing that it has any
liability under the Collateral Agreement (other than as a result of the
discharge of such Guarantor in accordance with the terms of the Loan
Documents);


(l) 
any security interest purported to be created by any Security Document
shall cease to be, or shall be asserted by the Borrower or any other Loan Party
not to be, a valid, perfected, first priority (except as otherwise expressly
provided in this Agreement or such Security Document) security interest in the
securities, assets or properties covered thereby, except as a result of the
sale, transfer or other disposition of such assets in a transaction permitted
by the Loan Documents;


(m) 
any Loan Document or, except during any period during which the Borrower
and the Subsidiaries are capable of performing with their own employees and
assets all the activities performed for them under the Intercompany Services
Agreement, the Intercompany Services Agreement shall cease to be in full force
and effect;


(n) 
the Parent Undertaking shall terminate prior to satisfaction of the
Parent’s obligations thereunder or there shall occur a material breach under
the Parent Undertaking;


then, and in every such event (other than an event
with respect to Holdings or the Borrower described in paragraph (g) or (h)
above), and at any time thereafter during the continuance of such event, the
Agent shall, at the request of the Required Lenders, by notice to the Borrower,
take either or both of the following actions, at the same or different times: (i) terminate
forthwith the Commitments and (ii) declare the Loans then outstanding to
be forthwith due and payable in whole or in part, whereupon the principal of
the Loans so declared to be due and payable, together with accrued interest
thereon and any unpaid accrued fees and all other liabilities of the Borrower
accrued hereunder and under any other Loan Document, shall become forthwith due
and payable, without presentment, demand, protest or any other notice of any
kind, all of which are hereby expressly waived by the Borrower, anything contained
herein or in any other Loan Document to the contrary notwithstanding; and in
any event with respect to Holdings or 



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the Borrower described in paragraph (g) or (h)
above, the Commitments shall automatically terminate and the principal of the
Loans then outstanding, together with accrued interest thereon and any unpaid
accrued fees and all other liabilities of the Borrower accrued hereunder and
under any other Loan Document, shall automatically become due and payable,
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived by the Borrower, anything contained herein or
in any other Loan Document to the contrary notwithstanding.


ARTICLE
VIII


The Agent


Each of the Lenders hereby irrevocably appoints the
Agent as its administrative agent and collateral agent and authorizes the Agent
to take such actions on its behalf and to exercise such powers as are delegated
to the Agent by the terms of the Loan Documents, together with such actions and
powers as are reasonably incidental thereto. 
Without limiting the generality of the foregoing, the Agent is hereby
expressly authorized to execute any and all documents (including releases) with
respect to the Collateral and the rights of the Secured Parties with respect
thereto, as contemplated by and in accordance with the provisions of this
Agreement and the Security Documents.


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


The Agent shall not have any duties or obligations
except those expressly set forth in the Loan Documents.  Without limiting the generality of the
foregoing, (a) the Agent shall not be subject to any fiduciary or other
implied duties, regardless of whether a Default has occurred and is continuing,
(b) the Agent shall not have any duty to take any discretionary action or
exercise any discretionary powers, except discretionary rights and powers
expressly contemplated hereby that the Agent is instructed in writing to
exercise by the Required Lenders (or such other number or percentage of the
Lenders as shall be necessary under the circumstances as provided in Section
9.08) and (c) except as expressly set forth in the Loan Documents, the Agent
shall not have any duty to disclose, nor shall it be liable for the failure to
disclose, any information relating to Holdings, the Borrower or any of the
Subsidiaries that is communicated to or obtained by the bank serving as the
Agent or any of its Affiliates in any capacity. 
The Agent shall not be liable for any action taken or not taken by it
with the consent or at the request of the Required Lenders (or such other
number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 9.08) or in the absence of its own gross
negligence or willful misconduct.  The
Agent shall not be deemed to have knowledge of any Default unless and until
written notice thereof is given to the Agent by Holdings, the Borrower or a
Lender, and the Agent shall not be responsible for or have any duty to
ascertain or inquire into (i) any statement, warranty or representation made in
or in connection with any Loan Document, (ii) the contents of any certificate,
report or other 



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document delivered
thereunder or in connection therewith, (iii) the performance or observance of
any of the covenants, agreements or other terms or conditions set forth in any
Loan Document, (iv) the validity, enforceability, effectiveness or genuineness
of any Loan Document or any other agreement, instrument or document, or (v) the
satisfaction of any condition set forth in Article IV or elsewhere in any Loan
Document, other than to confirm receipt of items expressly required to be
delivered to the Agent.


The Agent shall be entitled to rely upon, and shall
not incur any liability for relying upon, any notice, request, certificate,
consent, statement, instrument, document or other writing believed by it to be
genuine and to have been signed or sent by the proper person.  The Agent may also rely upon any statement
made to it orally or by telephone and believed by it to have been made by the
proper person, and shall not incur any liability for relying thereon.  The Agent may consult with legal counsel (who
may be counsel for the Borrower), independent accountants and other experts
selected by it, and shall not be liable for any action taken or not taken by it
in accordance with the advice of any such counsel, accountants or experts.


The Agent may perform any and all its duties and
exercise its rights and powers by or through any one or more sub-agents
appointed by it.  The Agent and any such
sub-agent may perform any and all its duties and exercise its rights and powers
by or through their Related Parties. The exculpatory provisions of the
preceding paragraphs shall apply to any such sub-agent and to the Related
Parties of the Agent and any such sub-agent, and shall apply to their
activities in connection with the syndication of the credit facilities
contemplated hereby as well as activities as the Agent.  Without limiting the generality of the
foregoing, JPMorgan Chase Bank, N.A. shall act as sub-collateral agent for
purposes of the BLM Leases (the “BLM Sub-Collateral Agent”).  The BLM Sub-Collateral Agent shall act at the
direction of the Collateral Agent and shall have no liability to Holdings, the
Borrower, any Lender or any of their Related Persons for any actions taken by
it in accordance with such direction.


Subject to the appointment and acceptance of a
successor Agent as provided below, the Agent may resign at any time by
notifying the Lenders and the Borrower. Upon any such resignation, the Required
Lenders shall have the right, in consultation with the Borrower, to appoint a
successor. If no successor shall have been so appointed by the Required Lenders
and shall have accepted such appointment within 30 days after the retiring
Agent gives notice of its resignation, then the retiring Agent may, on behalf
of the Lenders, appoint a successor Agent which shall be a bank with an office
in New York, New York, or an Affiliate of any such bank. Upon the acceptance of
its appointment as Agent hereunder by a successor, such successor shall succeed
to and become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations hereunder. The fees payable by the Borrower to a successor Agent
shall be the same as those payable to its predecessor unless otherwise agreed
between the Borrower and such successor. After an Agent’s resignation
hereunder, the provisions of this Article and Section 9.05 shall continue
in effect for the benefit of such retiring Agent, its sub-agents and their
Related Parties in respect of any actions taken or omitted to be taken by any
of them while acting as Agent.


 



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Each Lender acknowledges that it has, independently
and without reliance upon the Agent or any other Lender and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the Agent or
any other Lender and based on such documents and information as it shall from
time to time deem appropriate, continue to make its own decisions in taking or
not taking action under or based upon this Agreement or any other Loan
Document, any related agreement or any document furnished hereunder or
thereunder.


Notwithstanding anything herein to the contrary,
neither the Syndication Agent nor any arranger, bookrunner or documentation
agent listed on the cover page hereof shall have, in any such capacity, any
duty or responsibility under any Loan Document.


ARTICLE IX


Miscellaneous


SECTION 9.01.  Notices.  Notices and other communications provided for
herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed by certified or registered mail or sent by fax, as follows:


(a)  if to the Borrower or Holdings, to it at 707
Seventeeth Street, Suite 3600, Denver, Colorado 80202, Attention of Cyrus
Marter, Vice President and Secretary  (Fax No. (303) 812-1445), with
a copy to 707 Seventeeth Street, Suite 3600, Denver, Colorado 80202, Attention
of Michael Kennedy, Treasurer (Fax No. (303) 812-1510);


(b)  if to the Agent, to Credit Suisse, Eleven
Madison Avenue, New York, NY 10010, Attention of Agency Group (Fax No.
(212) 325-8304); and


(c)  if to a Lender, to it at its address (or fax
number) set forth on Schedule 2.01 or in the Assignment and
Acceptance pursuant to which such Lender shall have become a party hereto.


All notices and other communications given to any
party hereto in accordance with the provisions of this Agreement shall be
deemed to have been given on the date of receipt if delivered by hand or
overnight courier service or sent by fax or on the date five Business Days
after dispatch by certified or registered mail if mailed, in each case
delivered, sent or mailed (properly addressed) to such party as provided in
this Section or in accordance with the latest unrevoked direction from such
party given in accordance with this Section. As agreed to among Holdings, the
Borrower, the Agent and the applicable Lenders from time to time, notices and
other communications may also be delivered by e-mail to the e-mail address of a
representative of the applicable person provided from time to time by such
person.


SECTION 9.02.  Survival of Agreement.  All covenants, agreements, representations
and warranties made by the Borrower or Holdings herein and in the 



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certificates
or other instruments prepared or delivered in connection with or pursuant to
this Agreement or any other Loan Document shall be considered to have been
relied upon by the Lenders and shall survive the making by the Lenders of the
Loans, regardless of any investigation made by the Lenders or on their behalf,
and shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any fee or any other amount payable under this
Agreement or any other Loan Document is outstanding and unpaid and so long as
the Commitments have not been terminated. The provisions of Sections 2.13,
2.15, 2.19, 9.05 and, until the first anniversary of the Maturity Date, 9.16
shall remain operative and in full force and effect regardless of the
expiration of the term of this Agreement, the consummation of the transactions
contemplated hereby, the repayment of any of the Loans, the expiration of the
Commitments, the invalidity or unenforceability of any term or provision of
this Agreement or any other Loan Document or any investigation made by or on
behalf of the Agent or any Lender.


SECTION 9.03.  Binding Effect.  This Agreement shall become effective when it
shall have been executed by the Borrower, Holdings and the Agent and when the
Agent shall have received counterparts hereof which, when taken together, bear
the signatures of each of the other parties hereto.


SECTION 9.04.  Successors and Assigns.  (a) 
Whenever in this Agreement any of the parties hereto is referred to,
such reference shall be deemed to include the permitted successors and assigns
of such party; and all covenants, promises and agreements by or on behalf of
the Borrower, Holdings, the Agent or the Lenders that are contained in this
Agreement shall bind and inure to the benefit of their successors and assigns.


(b)  Each Lender may assign to
one or more assignees all or a portion of its interests, rights and obligations
under this Agreement (including all or a portion of its Commitment and the
Loans at the time owing to it), with notice to the Borrower by the Agent and,
except in the case of an assignment to a Lender, to an Affiliate of a Lender or
to a Related Fund (which will require prior written notice to the Agent), the
prior written consent of the Agent (not to be unreasonably withheld or
delayed); provided, however,
that (i) the amount of the Commitment or Loans of the assigning Lender
subject to each such assignment (determined as of the date the Assignment and
Acceptance with respect to such assignment is delivered to the Agent) shall be
in an integral multiple of, and not less than, $1,000,000 (or, if less, the
entire remaining amount of such Lender’s Commitment or Loans); provided that the principal amount of concurrent assignments
to any assignee and its Related Funds shall be aggregated for purposes of
determining compliance with the foregoing minimum assignment amount,
(ii) the parties to each such assignment shall execute and deliver to the
Agent an Assignment and Acceptance via an electronic settlement system
acceptable to the Agent (or, if previously agreed with the Agent, manually),
and shall pay to the Agent a processing and recordation fee of $3,500 (which
fee may be waived or reduced in the sole discretion of the Agent),
(iii) the assignee, if it shall not be a Lender, shall deliver to the Agent
an Administrative Questionnaire and all applicable tax forms and (iv) failure
to deliver notice to the Borrower shall not affect the effectiveness of such
assignment.  Upon acceptance and 



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recording
pursuant to paragraph (e) of this Section, from and after the effective
date specified in each Assignment and Acceptance, (A) the assignee thereunder
shall be a party hereto and, to the extent of the interest assigned by such
Assignment and Acceptance, have the rights and obligations of a Lender under this
Agreement and (B) the assigning Lender thereunder shall, to the extent of
the interest assigned by such Assignment and Acceptance, be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender’s
rights and obligations under this Agreement, such Lender shall cease to be a
party hereto but shall continue to be entitled to the benefits of
Sections 2.13, 2.15, 2.19 and 9.05, as well as to any fees accrued for its
account and not yet paid).


(c)  By executing and delivering
an Assignment and Acceptance, the assigning Lender thereunder and the assignee
thereunder shall be deemed to confirm to and agree with each other and the
other parties hereto as follows:  (i) such assigning Lender
warrants that it is the legal and beneficial owner of the interest being
assigned thereby free and clear of any adverse claim and that its Commitment
and the outstanding balances of its Loans, in each case without giving effect
to assignments thereof which have not become effective, are as set forth in
such Assignment and Acceptance, (ii) except as set forth in
(i) above, such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with this Agreement, or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement, any other Loan Document or any other instrument or document furnished
pursuant hereto, or the financial condition of the Borrower or any Subsidiary
or the performance or observance by the Borrower or any Subsidiary of any of
its obligations under this Agreement, any other Loan Document or any other
instrument or document furnished pursuant hereto; (iii) such assignee
represents and warrants that it is legally authorized to enter into such
Assignment and Acceptance; (iv) such assignee confirms that it has
received a copy of this Agreement, together with copies of the most recent
financial statements referred to in Section 3.05(a) or delivered pursuant
to Section 5.04 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (v) such assignee will independently and
without reliance upon the Agent, such assigning Lender or any other Lender and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement; (vi) such assignee appoints and authorizes the Agent
to take such action as agent on its behalf and to exercise such powers under
this Agreement as are delegated to the Agent by the terms hereof, together with
such powers as are reasonably incidental thereto; and (vii) such assignee
agrees that it will perform in accordance with their terms all the obligations
which by the terms of this Agreement are required to be performed by it as a
Lender.


(d)  The Agent, acting for this
purpose as an agent of the Borrower, shall maintain at one of its offices in
The City of New York a copy of each Assignment and Acceptance delivered to it
and a register for the recordation of the names and addresses of the Lenders,
and the Commitment of, and principal amount of the Loans owing to, each Lender
pursuant to the terms hereof from time to time (the “Register”).  The
entries in the 



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Register shall
be conclusive and the Borrower, the Agent and the Lenders may treat each person
whose name is recorded in the Register pursuant to the terms hereof as a Lender
hereunder for all purposes of this Agreement, notwithstanding notice to the
contrary.  The Register shall be
available for inspection by the Borrower, the Agent and any Lender, at any
reasonable time and from time to time upon reasonable prior notice.


(e)  Upon its receipt of, and
consent to, a duly completed Assignment and Acceptance executed by an assigning
Lender and an assignee, an Administrative Questionnaire completed in respect of
the assignee (unless the assignee shall already be a Lender hereunder), the
processing and recordation fee referred to in paragraph (b) above, if
applicable, and the written consent of the Agent and any applicable tax forms,
the Agent shall promptly (i) accept such Assignment and Acceptance and
(ii) record the information contained therein in the Register. No
assignment shall be effective unless it has been recorded in the Register as
provided in this paragraph (e).


(f)  Each Lender may without the
consent of the Borrower or the Agent sell participations to one or more banks
or other persons in all or a portion of its rights and obligations under this
Agreement (including all or a portion of its Commitment and the Loans owing to
it); provided, however,
that (i) such Lender’s obligations under this Agreement shall remain
unchanged, (ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, (iii) the
participating banks or other persons shall be entitled to the benefit of the
cost protection provisions contained in Sections 2.13, 2.15 and 2.19 to
the same extent as if they were Lenders (but, with respect to any particular
participant, to no greater extent than the Lender that sold the participation
to such participant) and (iv) the Borrower, the Agent and the Lenders
shall continue to deal solely and directly with such Lender in connection with
such Lender’s rights and obligations under this Agreement, and such Lender
shall retain the sole right to enforce the obligations of the Borrower relating
to the Loans and to approve any amendment, modification or waiver of any
provision of this Agreement (other than amendments, modifications or waivers
decreasing any fees payable to such participating bank or person hereunder or
the amount of principal of or the rate at which interest is payable on the
Loans in which such participating bank or person has an interest, extending any
scheduled principal payment date or date fixed for the payment of interest on
the Loans in which such participating bank or person has an interest,
increasing or extending the Commitments in which such participating bank or
person has an interest or releasing any Guarantor (other than in connection
with the sale of such Guarantor in a transaction permitted by
Section 6.05) or all or substantially all of the Collateral).  A participant that would be a Foreign Lender
if it were a Lender shall not be entitled to the benefits of Section 2.19
unless the Borrower is notified of the participation sold to such participant
and such participant agrees, for the benefit of the Borrower, to comply with
Section 2.19(e) as though it were a Lender.


(g)  Any Lender or participant
may, in connection with any assignment or participation or proposed assignment
or participation pursuant to this Section, disclose to the assignee or
participant or proposed assignee or participant any information relating to the
Borrower furnished to such Lender by or on behalf of the Borrower; provided that, prior to any such disclosure of information
designated by the Borrower as confidential, 



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each such
assignee or participant or proposed assignee or participant shall execute an
agreement whereby such assignee or participant shall agree (subject to
customary exceptions) to preserve the confidentiality of such confidential
information on terms no less restrictive than those applicable to the Lenders
pursuant to Section 9.16.


(h)  Any Lender may at any time
assign all or any portion of its rights under this Agreement to secure extensions
of credit to such Lender or in support of obligations owed by such Lender; provided that no such assignment shall release a Lender from
any of its obligations hereunder or substitute any such assignee for such
Lender as a party hereto.


(i)  Notwithstanding anything to
the contrary contained herein, any Lender (a “Granting Lender”) may grant to a special purpose funding
vehicle (an “SPC”),
identified as such in writing from time to time by the Granting Lender to the
Agent and the Borrower, the option to provide to the Borrower all or any part
of any Loan that such Granting Lender would otherwise be obligated to make to
the Borrower pursuant to this Agreement; provided
that (i) nothing herein shall constitute a commitment by any SPC to
make any Loan and (ii) if an SPC elects not to exercise such option or
otherwise fails to provide all or any part of such Loan, the Granting Lender
shall be obligated to make such Loan pursuant to the terms hereof.  The making of a Loan by an SPC hereunder
shall utilize the Commitment of the Granting Lender to the same extent, and as
if, such Loan were made by such Granting Lender.  Each party hereto hereby agrees that no SPC
shall be liable for any indemnity or similar payment obligation under this
Agreement (all liability for which shall remain with the Granting Lender).  In furtherance of the foregoing, each party
hereto hereby agrees (which agreement shall survive the termination of this
Agreement) that, prior to the date that is one year and one day after the
payment in full of all outstanding commercial paper or other senior
indebtedness of any SPC, it will not institute against, or join any other
person in instituting against, such SPC any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings under the laws of the United
States or any State thereof.  In
addition, notwithstanding anything to the contrary contained in this Section,
any SPC may (i) with notice to, but without the prior written consent of,
the Borrower and the Agent and without paying any processing fee therefor,
assign all or a portion of its interests in any Loans to the Granting Lender or
to any financial institutions (consented to by the Borrower and Agent)
providing liquidity and/or credit support to or for the account of such SPC to
support the funding or maintenance of Loans and (ii) disclose on a
confidential basis any non-public information relating to its Loans to any
rating agency, commercial paper dealer or provider of any surety, guarantee or
credit or liquidity enhancement to such SPC.


(j)  Neither Holdings nor the
Borrower shall assign or delegate any of its rights or duties hereunder without
the prior written consent of the Agent and each Lender, and any attempted
assignment without such consent shall be null and void.


SECTION 9.05.  Expenses; Indemnity.  (a) 
The Borrower and Holdings agree, jointly and severally, to pay all
reasonable out-of-pocket expenses incurred by the Agent, the co-lead arrangers
listed on the cover page of this Agreement, the Syndication Agent or the
Affiliates of the foregoing in connection with the arrangement and syndication
of 



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the credit
facilities contemplated hereby and the preparation and administration of this
Agreement and the other Loan Documents or in connection with any amendments, modifications
or waivers of the provisions hereof or thereof or incurred by the Agent or any
Lender in connection with the enforcement or protection of its rights in
connection with this Agreement and the other Loan Documents, including the
fees, charges and disbursements of Cravath, Swaine & Moore LLP and
Guess & Rudd P.C., counsel for the Agent, and, in connection with any such
enforcement or protection, the fees, charges and disbursements of any other
counsel for the Agent or any Lender.


(b)  The Borrower and Holdings
agree, jointly and severally, to indemnify the Agent, each co-lead arranger
listed on the cover page of this Agreement, the Syndication Agent, each Lender
and each Related Party of any of the foregoing persons (each such person being
called an “Indemnitee”)
against, and to hold each Indemnitee harmless from, any and all losses, claims,
damages, liabilities and related expenses, including reasonable fees, charges
and disbursements of any counsel for any Indemnitee, incurred by or asserted
against any Indemnitee arising out of, in any way connected with, or as a
result of (i) the execution or delivery of this Agreement or any other
Loan Document or any agreement or instrument contemplated hereby or thereby,
the performance by the parties thereto of their obligations thereunder or the
consummation of the Transactions and the other transactions contemplated hereby
or thereby (including the syndication of the credit facilities contemplated
hereby), (ii) the use of the proceeds of the Loans, (iii) any claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether or not any Indemnitee is a party thereto (and regardless of whether
such matter is initiated by a third party or by the Borrower, any other Loan
Party or any of their Affiliates) or (iv) any actual or alleged presence or
Release of Hazardous Materials on, at, under or from any property currently or
formerly owned or operated by the Borrower or any of the Subsidiaries, or any
Environmental Liability related in any way to the Borrower or the Subsidiaries;
provided that such indemnity shall not,
as to any Indemnitee, be available to the extent that such losses, claims,
damages, liabilities or related expenses are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted primarily
from the gross negligence or wilful misconduct of such Indemnitee.


(c)  To the extent that Holdings
and the Borrower fail to pay any amount required to be paid by them to the
Agent under paragraph (a) or (b) of this Section, each Lender severally agrees
to pay to the Agent such Lender’s pro rata share
(determined as of the time that the applicable unreimbursed expense or
indemnity payment is sought) of such unpaid amount; provided
that the unreimbursed expense or indemnified loss, claim, damage, liability or
related expense, as the case may be, was incurred by or asserted against the
Agent in its capacity as such.  For
purposes hereof, a Lender’s “pro rata
share” shall be determined based upon its share of the
outstanding Loans and unused Commitments at the time.


(d)  To the extent permitted by
applicable law, neither Holdings nor the Borrower shall assert, and each hereby
waives, any claim against any Indemnitee, on any theory of liability, for
special, indirect, consequential or punitive damages (as opposed to direct or
actual damages) arising out of, in connection with, or as a result of, this
Agreement or 



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any agreement
or instrument contemplated hereby, the Transactions, any Loan or the use of the
proceeds thereof.


(e)  The provisions of this
Section shall remain operative and in full force and effect regardless of the
expiration of the term of this Agreement, the consummation of the transactions
contemplated hereby, the repayment of any of the Loans, the expiration of the
Commitments, the invalidity or unenforceability of any term or provision of
this Agreement or any other Loan Document, or any investigation made by or on
behalf of the Agent or any Lender.  All
amounts due under this Section shall be payable on written demand therefor.


SECTION 9.06.  Right of Setoff.  If an Event of Default shall have occurred
and be continuing, each Lender is hereby authorized at any time and from time
to time, except to the extent prohibited by law, to set off and apply any and
all deposits (general or special, time or demand, provisional or final) at any
time held and other indebtedness at any time owing by such Lender to or for the
credit or the account of the Borrower or Holdings against any of and all the
obligations of the Borrower or Holdings now or hereafter existing under this
Agreement and other Loan Documents held by such Lender, irrespective of whether
or not such Lender shall have made any demand under this Agreement or such
other Loan Document and although such obligations may be unmatured.  The rights of each Lender under this Section
are in addition to other rights and remedies (including other rights of setoff)
which such Lender may have.


SECTION 9.07.  Applicable Law.  THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
(OTHER THAN AS EXPRESSLY SET FORTH IN OTHER LOAN DOCUMENTS) SHALL BE CONSTRUED
IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.


SECTION 9.08.  Waivers; Amendment.  (a)  No
failure or delay of the Agent or any Lender in exercising any power or right
hereunder or under any other Loan Document shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power, preclude
any other or further exercise thereof or the exercise of any other right or
power.  The rights and remedies of the
Agent and the Lenders hereunder and under the other Loan Documents are
cumulative and are not exclusive of any rights or remedies that they would
otherwise have.  No waiver of any
provision of this Agreement or any other Loan Document or consent to any
departure by the Borrower or any other Loan Party therefrom shall in any event
be effective unless the same shall be permitted by paragraph (b) below,
and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. 
No notice or demand on the Borrower or Holdings in any case shall
entitle the Borrower or Holdings to any other or further notice or demand in
similar or other circumstances.


(b)  Neither this Agreement nor
any other Loan Document nor any provision hereof may be waived, amended or
modified except, in the case of this Agreement, pursuant to an agreement or
agreements in writing entered into by the Borrower, Holdings and the Required
Lenders or, in the case of any other Loan Document, pursuant 



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to an
agreement or agreements in writing entered into by the Agent and the Loan
Parties that are parties thereto, in each case with the consent of the Required
Lenders; provided, however,
that no such agreement shall (i) decrease the principal amount of, or
extend the maturity of or any scheduled principal payment date or date for the
payment of any interest on any Loan, or waive or excuse any such payment or any
part thereof, or decrease the rate of interest on any Loan, without the prior
written consent of each Lender directly adversely affected
thereby, (ii) increase or extend the Commitment or decrease the
amount, or extend the date for payment of, any fees of any Lender without the
prior written consent of each Lender directly affected
thereby, (iii) amend or modify the pro rata
requirements of Section 2.16, any other provision of any Loan Document
requiring that Loans be made by, or payments of Commitment reductions be
allocated among, the Lenders on a pro rata basis,
the provisions of Section 9.04(j) or the provisions of this Section or release
substantially all the Guarantors (determined based on the fair market value of
the Guarantors) (other than in connection with the sale of any Guarantor in a
transaction permitted by Section 6.05) or all or substantially all of the
Collateral, without the prior written consent of each
Lender, (iv) modify the protections afforded to an SPC pursuant to the
provisions of Section 9.04(i) without the written consent of such SPC or
(v) reduce the percentage contained in the definition of the term “Required
Lenders” or any other provision of any Loan Document specifying the number or
percentage of Lenders required to waive, amend or modify any rights thereunder
or make any determination or grant any consent thereunder, without the prior
written consent of each Lender; provided  further that no such agreement shall amend, modify or
otherwise affect the rights or duties of the Agent or under any other Loan
Document without the prior written consent of the Agent.


SECTION 9.09.  Interest Rate Limitation.  Notwithstanding anything herein to the
contrary, if at any time the interest rate applicable to any Loan, together
with all fees, charges and other amounts which are treated as interest on such
Loan under applicable law (collectively the “Charges”), shall exceed the maximum
lawful rate (the “Maximum
Rate”) which may be contracted for, charged, taken, received or
reserved by the Lender holding such Loan in accordance with applicable law, the
rate of interest payable in respect of such Loan, together with all Charges
payable in respect thereof, shall be limited to the Maximum Rate and, to the
extent lawful, the interest and Charges that would have been payable in respect
of such Loan but were not payable as a result of the operation of this Section
shall be cumulated and the interest and Charges payable to such Lender in
respect of other Loans or periods shall be increased (but not above the Maximum
Rate therefor) until such cumulated amount, together with interest thereon at
the Federal Funds Effective Rate to the date of repayment, shall have been
received by such Lender.


SECTION 9.10.  Entire Agreement.  This Agreement, the Administrative Agent Fee
Letter and the other Loan Documents constitute the entire contract between the
parties relative to the subject matter hereof. 
Any other previous agreement among the parties with respect to the
subject matter hereof is superseded by this Agreement and the other Loan
Documents.  Nothing in this Agreement or
in the other Loan Documents, expressed or implied, is intended to confer upon
any person (other than the parties hereto and thereto, their successors and
assigns permitted hereunder, the Indemnitees and, to the 



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extent
expressly contemplated hereby, the Related Parties of each of the Agent and the
Lenders) any rights, remedies, obligations or liabilities under or by reason of
this Agreement or the other Loan Documents.


SECTION 9.11.  WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.  EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.


SECTION 9.12.  Severability.  In the event any one or more of the
provisions contained in this Agreement or in any other Loan Document should be
held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein and therein
shall not in any way be affected or impaired thereby (it being understood that
the invalidity of a particular provision in a particular jurisdiction shall not
in and of itself affect the validity of such provision in any other
jurisdiction).  The parties shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.


SECTION 9.13.  Counterparts.  This Agreement may be executed in
counterparts (and by different parties hereto on different counterparts), each
of which shall constitute an original but all of which when taken together
shall constitute a single contract, and shall become effective as provided in
Section 9.03.  Delivery of an
executed signature page to this Agreement by facsimile transmission or other
electronic imaging means shall be as effective as delivery of a manually signed
counterpart of this Agreement.


SECTION 9.14.  Headings.  Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of
this Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.


SECTION 9.15.  Jurisdiction; Consent to Service of Process.  (a) 
Each of Holdings and the Borrower hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of any
New York State court or Federal court of the United States of America
sitting in New York City, and any appellate court from any thereof, in any
action or proceeding arising out of or relating to this Agreement or the other
Loan Documents, or for recognition or enforcement of any judgment, and 



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each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in such
New York State or, to the extent permitted by law, in such Federal
court.  Each of the parties hereto agrees
that a final judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law.  Nothing in this
Agreement shall affect any right that any party may otherwise have to bring any
action or proceeding relating to this Agreement or the other Loan Documents
against the any other party or their properties in the courts of any
jurisdiction.


(b)  Each of Holdings and the
Borrower hereby irrevocably and unconditionally waives, to the fullest extent
it may legally and effectively do so, any objection which it may now or
hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this Agreement or the other Loan Documents in any
New York State or Federal court (it being understood that such waiver
shall not require any suit, action or proceeding initiated in any court to be
remanded or removed to any New York State court or any Federal court of the
United States of America sitting in New York City).  Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.


(c)  Each party to this Agreement
irrevocably consents to service of process in the manner provided for notices
in Section 9.01.  Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.


SECTION 9.16.  Confidentiality.  Each of the Agent and the Lenders agrees to
maintain the confidentiality of the Information (as defined below), except that
Information may be disclosed (a) to its and its Affiliates’ officers,
directors, employees and agents, including accountants, legal counsel and other
advisors (it being understood that the persons to whom such disclosure is made
will be informed of the confidential nature of such Information and instructed
to keep such Information confidential), (b) to the extent requested by any
regulatory authority or quasi-regulatory authority (such as the National
Association of Insurance Commissioners), (c) to the extent required by
applicable laws or regulations or by any subpoena or similar legal process, (d)
in connection with the exercise of any remedies hereunder or under the other
Loan Documents or any suit, action or proceeding relating to the enforcement of
its rights hereunder or thereunder, (e) subject to an agreement containing
provisions substantially the same as those of this Section, to (i) any
actual or prospective assignee of or participant in any of its rights or
obligations under this Agreement and the other Loan Documents or (ii) any
actual or prospective counterparty (or its advisors) to any swap or derivative
transaction relating to the Borrower or any Subsidiary or any of their
respective obligations, (f) with the consent of the Borrower or
(g) to the extent such Information becomes publicly available other than
as a result of a breach of this Section. 
For the purposes of this Section, “Information” shall mean all information
received from the Borrower or Holdings and related to the Borrower or Holdings
or their business, other than any such information that was available to the
Agent or any Lender on a 



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nonconfidential
basis prior to its disclosure by the Borrower or Holdings; provided that, in the case of Information
received from the Borrower or Holdings after the date hereof, such information
is clearly identified at the time of delivery as confidential.  Any person required to maintain the
confidentiality of Information as provided in this Section shall be considered
to have complied with its obligation to do so if such person has exercised the
same degree of care to maintain the confidentiality of such Information as such
person would accord its own confidential information.


SECTION 9.17.  Termination or Release. 
(a)  Each Security Document, the
guarantees made therein and the security interests granted thereunder shall
terminate when all the Loan Document Obligations have been indefeasibly paid in
full in cash and the Commitments have expired or been terminated.


(b)  A Subsidiary Loan Party
shall automatically be released from its obligations under the Loan Documents,
the guarantee of such Subsidiary Loan Party made under the Collateral Agreement
shall automatically be released and the security interests granted in the
Collateral of such Subsidiary Loan Party under the Security Documents shall
automatically be released upon the consummation of any transaction permitted by
this Agreement as a result of which such Subsidiary Loan Party ceases to be a
Subsidiary pursuant to the terms of this Agreement.


(c)  Upon any sale or other
transfer by any Loan Party of any Collateral that is permitted under this
Agreement to any person (other than a Loan Party or an Affiliate of a Loan
Party), or upon the effectiveness of any written consent pursuant to Section
9.08 to the release of any security interest granted in any Collateral of such
Loan Party under to the Security Documents, the security interests granted in
such Collateral under the Security Documents shall be automatically released.


(d)  In connection with any
termination or release pursuant to this Section, the Agent shall execute and
deliver to the applicable Loan Party, at such Loan Party’s expense, all
documents that such Loan Party shall reasonably request to evidence such
release or termination.  Any execution
and delivery of documents pursuant to this Section shall be without recourse to
or warranty by the Agent.


SECTION 9.18.  USA PATRIOT Act Notice.  Each Lender and the Agent (for itself and not
on behalf of any Lender) hereby notifies Holdings and the Borrower that
pursuant to the requirements of the USA PATRIOT Act, it is required to obtain,
verify and record information that identifies Holdings and the Borrower, which
information includes the name and address of Holdings and the Borrower and
other information that will allow such Lender or the Agent, as applicable, to
identify Holdings and the Borrower in accordance with the USA PATRIOT Act.


SECTION 9.19.  No Fiduciary Relationship.  Each of Holdings and the Borrower, on behalf
of itself and the Subsidiaries, agrees that in connection with all aspects of
the transactions contemplated hereby or by the other Loan Documents and any
communications in connection therewith, the Borrower, the Subsidiaries and
their Affiliates, on the one hand, and the Agent, the Lenders and their
Affiliates, on the other 



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hand, will
have a business relationship that does not create, by implication or otherwise,
any fiduciary duty on the part of the Agent the Lenders or their Affiliates,
and no such duty will be deemed to have arisen in connection with any such
transaction or communications.


SECTION 9.20.  Intercreditor Agreement.  Reference is made to the Intercreditor
Agreement.  Each Lender (a) acknowledges
that it has received a copy of the Intercreditor Agreement, (b) acknowledges
and agrees to Credit Suisse acting as the Agent and the Second Lien Agent, (c)
agrees that it will be bound by and will take no actions contrary to the
provisions of the Intercreditor Agreement and (d) authorizes and instructs
Credit Suisse to enter into the Intercreditor Agreement as collateral agent for
such Lender.


SECTION 9.21.  Security Documents; Parent
Undertaking.  Reference is
made to the Security Documents.  Each
Lender authorizes and instructs Credit Suisse to enter into (a) the Security
Documents as collateral agent for such Lender and (b) the Parent Undertaking as
administrative agent for such Lender.


SECTION 9.22.  Parent Liability.  Except for the Parent Undertaking, the
Lenders agree for themselves and their successors and assigns, that no claim
arising against Holdings, the Borrower or any Subsidiary under any Loan
Document shall be asserted against the Parent (or any stockholder, manager,
officer, director, employee or agent of the Parent) and no judgment, order or
execution entered in any suit, action or proceeding, whether legal or
equitable, on this Agreement or any of the other Loan Documents shall be
obtained or enforced against the Parent (or any stockholder, manager, officer,
director, employee or agent of the Parent) or its assets for the purpose of
obtaining satisfaction and payment of Indebtedness or any claims arising under
this Agreement or any other Loan Document, any right to proceed against the
Parent (or any stockholder, manager, officer, director, employee or agent of
the Parent) individually or its assets being hereby expressly waived, renounced
and remitted by the Lenders for themselves and their successors and
assigns.  Nothing in this Section,
however, shall be construed so as to prevent the Agent or any Lender from
commencing any action, suit or proceeding with respect to or causing legal
papers to be served upon the Parent for the purpose of (i) obtaining
jurisdiction over Holdings or the Borrower or (ii) obtaining judgment, order or
execution against the Parent, in each case (A) arising out of any fraud or intentional
misrepresentation by the Parent in connection with the Loan Documents, the
arrangement of the credit facility provided for herein or the Transactions, (B)
for recovery of moneys received by the Parent in violation of the terms of this
Agreement or constituting property of the Borrower or insurance proceeds in
respect of Collateral and (C) as a result of the exercise of rights under the
Parent Undertaking.


 



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IN WITNESS WHEREOF, the
parties hereto have caused this First Lien Credit Agreement to be duly executed
by their respective authorized officers as of the day and year first above
written.


	
  

  	
   

  	
   

  	
  FOREST ALASKA OPERATING
  LLC,

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  

  	
   

  	
   

  	
  FOREST ALASKA HOLDING LLC,

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  

  	
   

  	
   

  	
  CREDIT SUISSE, Cayman Islands branch,

  as Administrative Agent, Collateral Agent

  and Lender,

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  

  	
   

  	
   

  	
  JPMORGAN CHASE BANK, N.A., as

  Syndication Agent and Lender,

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Title: