exv4w1



 





Exhibit 4.1









PETROQUEST ENERGY, INC.




PETROQUEST ENERGY, L.L.C.




10 3/8% Senior Notes Due 2012




SUBSIDIARY GUARANTORS










INDENTURE




Dated as of May 11, 2005










THE BANK OF NEW YORK TRUST COMPANY, N.A.











 









 








CROSS-REFERENCE TABLE




	 	 	 	 	 	 	 	 	 
	TIA	 	 	 	Indenture	 
	Section	 	 	 	Section	 
	 	310	(a)(1)	 	 
	 	 	7.10	 
	 	 	(a)(2)	 	 
	 	 	7.10	 
	 	 	(a)(3)	 	 
	 	 	N.A.	 
	 	 	(a)(4)	 	 
	 	 	N.A.	 
	 	 	(b)	 	 
	 	 	7.08; 7.10	 
	 	 	(c)	 	 
	 	 	N.A.	 
	 	311	(a)	 	 
	 	 	7.11	 
	 	 	(b)	 	 
	 	 	7.11	 
	 	 	(c)	 	 
	 	 	N.A.	 
	 	312	(a)	 	 
	 	 	2.05	 
	 	 	(b)	 	 
	 	 	11.03	 
	 	 	(c)	 	 
	 	 	11.03	 
	 	313	(a)	 	 
	 	 	7.06	 
	 	 	(b)(1)	 	 
	 	 	N.A.	 
	 	 	(b)(2)	 	 
	 	 	7.06	 
	 	 	(c)	 	 
	 	 	11.02	 
	 	 	(d)	 	 
	 	 	7.06	 
	 	314	(a)	 	 
	 	 	4.02;	 
	 	 	 	 	 
	 	 	11.02	 
	 	 	(b)	 	 
	 	 	N.A.	 
	 	 	(c)(1)	 	 
	 	 	11.04	 
	 	 	(c)(2)	 	 
	 	 	11.04	 
	 	 	(c)(3)	 	 
	 	 	N.A.	 
	 	 	(d)	 	 
	 	 	N.A.	 
	 	 	(e)	 	 
	 	 	11.05	 
	 	 	(f)	 	 
	 	 	4.15	 
	 	315	(a)	 	 
	 	 	7.01	 
	 	 	(b)	 	 
	 	 	7.05; 11.02	 
	 	 	(c)	 	 
	 	 	7.01	 
	 	 	(d)	 	 
	 	 	7.01	 
	 	 	(e)	 	 
	 	 	6.11	 
	 	316(a)(last sentence)	 	 
	 	 	11.06	 
	 	 	(a)(1)(A)	 	 
	 	 	6.05	 
	 	 	(a)(1)(B)	 	 
	 	 	6.04	 
	 	 	(a)(2)	 	 
	 	 	N.A.	 
	 	 	(b)	 	 
	 	 	6.07	 
	 	317	(a)(1)	 	 
	 	 	6.08	 
	 	 	(a)(2)	 	 
	 	 	6.09	 
	 	 	(b)	 	 
	 	 	2.04	 
	 	318	(a)	 	 
	 	 	11.01	 
	 	 	 	 	N.A. means Not Applicable.
	 	 	 	 












	Note:	 	This Cross-Reference Table shall not, for any purpose, be deemed to be part of the Indenture.






 









 








TABLE OF CONTENTS




	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	 	 	ARTICLE 1
	 	 	 	 
	 	 	 	 	 	 	 
	 	 	Definitions and Incorporation by Reference
	 	 	 	 
	 	 	 	 	 	 	 
	SECTION 1.01.	 	Definitions.
	 	 	1	 
	SECTION 1.02.	 	Other Definitions.
	 	 	34	 
	SECTION 1.03.	 	Incorporation by Reference of Trust Indenture Act
	 	 	35	 
	SECTION 1.04.	 	Rules of Construction
	 	 	35	 
	 	 	 	 	 	 	 
	 	 	ARTICLE 2
	 	 	 	 
	 	 	 	 	 	 	 
	 	 	The Securities
	 	 	 	 
	 	 	 	 	 	 	 
	SECTION 2.01.	 	Form and Dating
	 	 	36	 
	SECTION 2.02.	 	Execution and Authentication
	 	 	37	 
	SECTION 2.03.	 	Registrar and Paying Agent
	 	 	37	 
	SECTION 2.04.	 	Paying Agent To Hold Money in Trust
	 	 	37	 
	SECTION 2.05.	 	Securityholder Lists
	 	 	38	 
	SECTION 2.06.	 	Transfer and Exchange
	 	 	38	 
	SECTION 2.07.	 	Replacement Securities
	 	 	38	 
	SECTION 2.08.	 	Outstanding Securities
	 	 	39	 
	SECTION 2.09.	 	Temporary Securities
	 	 	39	 
	SECTION 2.10.	 	Cancellation
	 	 	39	 
	SECTION 2.11.	 	Defaulted Interest
	 	 	39	 
	SECTION 2.12.	 	CUSIP Numbers, ISINs, etc
	 	 	40	 
	SECTION 2.13.	 	Issuance of Additional Securities
	 	 	40	 
	 	 	 	 	 	 	 
	 	 	ARTICLE 3
	 	 	 	 
	 	 	 	 	 	 	 
	 	 	Redemption
	 	 	 	 
	SECTION 3.01.	 	Notices to Trustee
	 	 	41	 
	SECTION 3.02.	 	Selection of Securities To Be Redeemed
	 	 	41	 
	SECTION 3.03.	 	Notice of Redemption
	 	 	41	 
	SECTION 3.04.	 	Effect of Notice of Redemption
	 	 	42	 
	SECTION 3.05.	 	Deposit of Redemption Price
	 	 	42	 
	SECTION 3.06.	 	Securities Redeemed in Part
	 	 	42	 






 









 






	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	 	 	ARTICLE 4
	 	 	 	 
	 	 	 	 	 	 	 
	 	 	Covenants
	 	 	 	 
	 	 	 	 	 	 	 
	SECTION 4.01.	 	Payment of Securities
	 	 	42	 
	SECTION 4.02.	 	SEC Reports
	 	 	43	 
	SECTION 4.03.	 	Limitation on Indebtedness
	 	 	43	 
	SECTION 4.04.	 	Limitation on Restricted Payments
	 	 	46	 
	SECTION 4.05.	 	Limitation on Restrictions on Distributions from Restricted Subsidiaries
	 	 	50	 
	SECTION 4.06.	 	Limitation on Sales of Assets and Subsidiary Stock
	 	 	52	 
	SECTION 4.07.	 	Limitation on Affiliate Transactions
	 	 	55	 
	SECTION 4.08.	 	Limitation on Line of Business
	 	 	56	 
	SECTION 4.09.	 	Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries
	 	 	57	 
	SECTION 4.10.	 	Change of Control
	 	 	57	 
	SECTION 4.11.	 	Limitation on Liens
	 	 	58	 
	SECTION 4.12.	 	Limitation on Sale/Leaseback Transactions
	 	 	59	 
	SECTION 4.13.	 	Future Guarantors
	 	 	59	 
	SECTION 4.14.	 	Compliance Certificate
	 	 	59	 
	SECTION 4.15.	 	Further Instruments and Acts
	 	 	60	 
	 	 	 	 	 	 	 
	 	 	ARTICLE 5
	 	 	 	 
	 	 	 	 	 	 	 
	 	 	Successor Company
	 	 	 	 
	SECTION 5.01..	 	Merger and Consolidation
	 	 	60	 
	 	 	 	 	 	 	 
	 	 	ARTICLE 6
	 	 	 	 
	 	 	 	 	 	 	 
	 	 	Defaults and Remedies
	 	 	 	 
	SECTION 6.01.	 	Events of Default
	 	 	62	 
	SECTION 6.02.	 	Acceleration
	 	 	64	 
	SECTION 6.03.	 	Other Remedies
	 	 	64	 
	SECTION 6.04.	 	Waiver of Past Defaults
	 	 	65	 
	SECTION 6.05.	 	Control by Majority
	 	 	65	 
	SECTION 6.06.	 	Limitation on Suits
	 	 	65	 
	SECTION 6.07.	 	Rights of Holders to Receive Payment
	 	 	66	 
	SECTION 6.08.	 	Collection Suit by Trustee
	 	 	66	 
	SECTION 6.09.	 	Trustee May File Proofs of Claim
	 	 	66	 
	SECTION 6.10.	 	Priorities
	 	 	66	 
	SECTION 6.11.	 	Undertaking for Costs
	 	 	67	 
	SECTION 6.12.	 	Waiver of Stay or Extension Laws
	 	 	67	 






- ii -









 






	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	 	 	ARTICLE 7
	 	 	 	 
	 	 	 	 	 	 	 
	 	 	Trustee
	 	 	 	 
	SECTION 7.01.	 	Duties of Trustee
	 	 	67	 
	SECTION 7.02.	 	Rights of Trustee
	 	 	68	 
	SECTION 7.03.	 	Individual Rights of Trustee
	 	 	69	 
	SECTION 7.04.	 	Trustee’s Disclaimer
	 	 	69	 
	SECTION 7.05.	 	Notice of Defaults
	 	 	69	 
	SECTION 7.06.	 	Reports by Trustee to Holders
	 	 	69	 
	SECTION 7.07.	 	Compensation and Indemnity
	 	 	70	 
	SECTION 7.08.	 	Replacement of Trustee
	 	 	70	 
	SECTION 7.09.	 	Successor Trustee by Merger
	 	 	71	 
	SECTION 7.10.	 	Eligibility; Disqualification
	 	 	71	 
	SECTION 7.11.	 	Preferential Collection of Claims Against Company
	 	 	72	 
	 	 	 	 	 	 	 
	 	 	ARTICLE 8
	 	 	 	 
	 	 	 	 	 	 	 
	 	 	Discharge of Indenture; Defeasance
	 	 	 	 
	SECTION 8.01.	 	Discharge of Liability on Securities; Defeasance
	 	 	72	 
	SECTION 8.02.	 	Conditions to Defeasance
	 	 	73	 
	SECTION 8.03.	 	Application of Trust Money
	 	 	74	 
	SECTION 8.04.	 	Repayment to Issuers
	 	 	74	 
	SECTION 8.05.	 	Indemnity for Government Obligations
	 	 	74	 
	SECTION 8.06.	 	Reinstatement
	 	 	74	 
	 	 	 	 	 	 	 
	 	 	ARTICLE 9
	 	 	 	 
	 	 	 	 	 	 	 
	 	 	Amendments
	 	 	 	 
	SECTION 9.01.	 	Without Consent of Holders
	 	 	75	 
	SECTION 9.02.	 	With Consent of Holders
	 	 	76	 
	SECTION 9.03.	 	Compliance with Trust Indenture Act
	 	 	77	 
	SECTION 9.04.	 	Revocation and Effect of Consents and Waivers
	 	 	77	 
	SECTION 9.05.	 	Notation on or Exchange of Securities
	 	 	77	 
	SECTION 9.06.	 	Trustee To Sign Amendments
	 	 	77	 
	SECTION 9.07.	 	Payment for Consent
	 	 	77	 
	 	 	 	 	 	 	 
	 	 	ARTICLE 10
	 	 	 	 
	 	 	 	 	 	 	 
	 	 	Subsidiary Guaranties
	 	 	 	 
	SECTION 10.01.	 	Guaranties
	 	 	78	 
	SECTION 10.02.	 	Limitation on Liability
	 	 	79	 
	SECTION 10.03.	 	Successors and Assigns
	 	 	80	 






- iii -









 






	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	SECTION 10.04.	 	No Waiver
	 	 	80	 
	SECTION 10.05.	 	Modification
	 	 	80	 
	SECTION 10.06.	 	Release of Subsidiary Guarantor
	 	 	80	 
	SECTION 10.07.	 	Contribution
	 	 	81	 
	 	 	 	 	 	 	 
	 	 	ARTICLE 11
	 	 	 	 
	 	 	 	 	 	 	 
	 	 	Miscellaneous
	 	 	 	 
	 	 	 	 	 	 	 
	SECTION 11.01.	 	Trust Indenture Act Controls
	 	 	81	 
	SECTION 11.02.	 	Notices
	 	 	81	 
	SECTION 11.03.	 	Communication by Holders with Other Holders
	 	 	82	 
	SECTION 11.04.	 	Certificate and Opinion as to Conditions Precedent
	 	 	82	 
	SECTION 11.05.	 	Statements Required in Certificate or Opinion
	 	 	82	 
	SECTION 11.06.	 	When Securities Disregarded
	 	 	83	 
	SECTION 11.07.	 	Rules by Trustee, Paying Agent and Registrar
	 	 	83	 
	SECTION 11.08.	 	Legal Holidays
	 	 	83	 
	SECTION 11.09.	 	Governing Law
	 	 	83	 
	SECTION 11.10.	 	No Recourse Against Others
	 	 	83	 
	SECTION 11.11.	 	Successors
	 	 	83	 
	SECTION 11.12.	 	Multiple Originals
	 	 	84	 
	SECTION 11.13.	 	Table of Contents; Headings
	 	 	84	 
	 	 	 	 	 	 	 
	Rule 144A/Regulation S Appendix	 	 	 	 
	 	 	 	 	 	 	 
	Exhibit 1 – Form of Initial Security	 	 	 	 
	 	 	 	 	 	 	 
	Exhibit A – Form of Exchange Security or Private Exchange Security	 	 	 	 







- iv -









 







     INDENTURE dated as of May 11, 2005, among PETROQUEST ENERGY, INC., a
Delaware corporation (the “Company”), PETROQUEST ENERGY, L.L.C., a
Louisiana limited liability company (“PELLC” and, together with the
Company, the “Issuers”), the SUBSIDIARY GUARANTORS identified herein and
THE BANK OF NEW YORK TRUST COMPANY, N.A., a national banking association
(the “Trustee”).



          Each party agrees as follows for the benefit of the other parties and for the equal and
ratable benefit of the Holders of the Issuers’ Initial Securities, Exchange Securities, Private
Exchange Securities and other securities issued under this Indenture (collectively, the
“Securities”).




ARTICLE 1




Definitions and Incorporation by Reference




          SECTION 1.01. Definitions.




          “Additional Assets” means:





     (1) any property, plant or equipment used in a Related Business;




     (2) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of
the acquisition of such Capital Stock by the Company or another Restricted Subsidiary; or




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


provided, however, that any such Restricted Subsidiary described in clause (2) or
(3) above is primarily engaged in a Related Business.




          “Additional Securities” means Securities issued under this Indenture after the Issue Date and
in compliance with Section 2.13 and 4.03, it being understood that any Securities issued in
exchange for or replacement of any Initial Security issued on the Issue Date shall not be an
Additional Security, including any such Securities issued pursuant to a Registration Rights
Agreement.




          “Adjusted ACNTA” means, as of any date of determination, ACNTA; provided,
however, that for purposes of this definition, (1) instead of utilizing prices utilized in
the relevant year end reserve report, Adjusted ACNTA will be calculated using the Three-Year Strip
Price as of such date of determination, (2) ACNTA shall be calculated to give effect to any
acquisitions or dispositions of proved reserves to be consummated on such date of determination and
(3) the reference in the definition of












 



2







ACNTA to “Material Change” shall be deemed to be a reference to a “Significant Change”.




          “Adjusted ACNTA to Indebtedness Ratio” means, at any date of determination, the ratio of (a)
Adjusted ACNTA as of such date of determination to (b) the aggregate amount of Indebtedness of the
Company and its Restricted Subsidiaries as of such date of determination.




          “Adjusted Consolidated Net Tangible Assets” or “ACNTA” means (without duplication), as of the
date of determination:





     (a) the sum of:




     (1) discounted future net revenue from proved crude oil and natural gas reserves of
the Company and its Restricted Subsidiaries calculated in accordance with SEC guidelines
before any state or federal income taxes, as estimated in a reserve report prepared as of
the end of the fiscal year ending prior to the date of determination (or, if the date of
determination is within 45 days after the end of the immediately preceding fiscal year and
no reserve report as of the end of such fiscal year has at the time been prepared, as of
the end of the second preceding fiscal year), which reserve report is prepared or audited
by independent petroleum engineers, as increased by, as of the date of determination, the
discounted future net revenue calculated in accordance with SEC guidelines (utilizing the
prices utilized in such year end reserve report) of:




     (A) estimated proved crude oil and natural gas reserves of the Company and its
Restricted Subsidiaries attributable to acquisitions consummated since the date of
such reserve report, and




     (B) estimated crude oil and natural gas reserves of the Company and its
Restricted Subsidiaries attributable to extensions, discoveries and other additions
and upward determinations of estimates of proved crude oil and natural gas reserves
(including previously estimated development costs incurred during the period and
the accretion of discount since the prior period end) due to exploration,
development or exploitation, production or other activities which reserves were not
reflected in such reserve report;




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




     (C) estimated proved crude oil and natural gas reserves of the Company and its
Restricted Subsidiaries reflected in such reserve report produced or disposed of
since the date of such reserve report, and



     (D) reductions in the estimated oil and natural gas reserves of the Company
and its Restricted Subsidiaries reflected in such reserve report since the date of
such reserve report attributable to downward












 





3




determinations of estimates of proved
crude oil and natural gas reserves due to exploration, development or exploitation,
production or other activities conducted or otherwise occurring since the date of
such reserve report;


provided, however, that, in the case of each of the determinations made
pursuant to clauses (A) through (D), such increases and decreases shall be estimated by the
Company’s engineers in accordance with customary reserve engineering practices, except that
if as a result of such acquisitions, dispositions, discoveries, extensions or revisions,
there is a Material Change, then such increases and decreases in the discounted future net
revenue shall be confirmed in writing by an independent petroleum engineer;




     (2) the capitalized costs that are attributable to crude oil and natural gas
properties of the Company and its Restricted Subsidiaries to which no proved crude oil and
natural gas reserves are attributed, based on the Company’s books and records as of a date
no earlier than the end of the most recent fiscal quarter for which internal financial
statements of the Company have been made available prior to the date of determination;




     (3) the Net Working Capital as of the end of the most recent fiscal quarter for which
internal financial statements of the Company have been made available prior to the date of
determination; and




     (4) the greater of (i) the net book value as of a date no earlier than the end of the
most recent fiscal quarter for which internal financial statements of the Company have been
made available prior to the date of determination and (ii) the appraised value, as
estimated by independent appraisers, of other tangible assets of the Company and its
Restricted Subsidiaries as of a date within the immediately preceding twelve months
(provided, however, that the Company shall not be required to obtain such
an appraisal of such assets if no such appraisal has, been performed); minus




     (b) to the extent not otherwise taken into account in the immediately preceding clause
(a), the sum of




     (1) minority interests;




     (2) any natural gas balancing liabilities of the Company and its Restricted
Subsidiaries as of the effective date of the reserve report referred to in (a)(1) above;




     (3) the discounted future net revenue, as of the effective date of such reserve
report, calculated in accordance with SEC guidelines (utilizing the same prices utilized in
the Company’s year-end reserve report), attributable to participation interests, overriding
royalty interests or other interests of third parties in reserves, pursuant to
participation, partnership, vendor financing or












 




4



other agreements then in effect, or which
otherwise are required to be delivered to third parties;




     (4) the discounted future net revenue, as of the effective date of such reserve
report, calculated in accordance with SEC guidelines (utilizing the same prices utilized in
the Company’s year-end reserve report), attributable to reserves that are required to be
delivered to third parties to fully satisfy the obligations of the Company and its
Restricted Subsidiaries with respect to Volumetric Production Payments on the schedules
specified with respect thereto; and




     (5) the discounted future net revenue, as of the effective date of such reserve
report, calculated in accordance with SEC guidelines, attributable to reserves subject to
Dollar-Denominated Production Payments that, based on the estimates of production included
in determining the discounted future net revenue specified in the immediately preceding
clause (a)(1) (utilizing the same prices utilized in the Company’s year-end reserve
report), would be necessary to satisfy fully the obligations of the Company and its
Restricted Subsidiaries with respect to Dollar-Denominated Production Payments on the
schedules specified with respect thereto.



          Whether the Company uses the successful efforts method of accounting or the full cost (or
similar method) method of accounting, ACNTA shall be calculated as if the Company were using the
full cost method of accounting.




          “Affiliate” of any specified Person means any other Person, directly or indirectly,
controlling or controlled by or under direct or indirect common control with such specified Person.
For the purposes of this definition, “control” when used with respect to any Person means the power
to direct the management and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms “controlling” and
“controlled” have meanings correlative to the foregoing. For purposes of Section 4.04, Section 4.06
and Section 4.07 only, “Affiliate” shall also mean any beneficial owner of Capital Stock
representing 10% or more of the total voting power of the Voting Stock (on a fully diluted basis)
of the Company or of rights or warrants to purchase such Capital Stock (whether or not currently
exercisable) and any Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof.




          “Asset Disposition” means any sale, lease, transfer or other disposition (or series of related
sales, leases, transfers or dispositions) by the Company or any Restricted Subsidiary, including
any disposition by means of a merger, consolidation or similar transaction (each referred to for
the purposes of this definition as a “disposition”), of:



     (1) any shares of Capital Stock of a Restricted Subsidiary (other than directors’
qualifying shares or shares required by applicable law to be held by a Person other than
the Company or a Restricted Subsidiary);













 







5





     (2) any other assets (other than Capital Stock) of the Company or any Restricted
Subsidiary outside of the ordinary course of business of the Company or such Restricted
Subsidiary


(other than, in the case of clauses (1) and (2) above,





     (A) a disposition by a Restricted Subsidiary to the Company or by the Company
or a Restricted Subsidiary to a Restricted Subsidiary;




     (B) for purposes of Section 4.06 only, (i) a disposition that constitutes a
Restricted Payment (or would constitute a Restricted Payment but for the exclusions
from the definition thereof) and that is not prohibited by Section 4.04 and (ii) a
disposition of all or substantially all the assets of the Company in accordance
with Section 5.01;




     (C) any single transaction or series of related transactions that: (a)
involves assets having a Fair Market Value of less than $2.0 million; or (b)
results in Net Available Cash to the Company and its Restricted Subsidiaries of
less than $2.0 million;




     (D) the trade or exchange (“Permitted Asset Exchange”) by the Company or any
Restricted Subsidiary of any oil and gas lease, oil or gas property or interest
therein and any related assets owned or held by the Company or such Restricted
Subsidiary for (a) any oil and gas lease, oil or gas property or interest therein
and any related assets owned or held by another Person or (b) the Capital Stock of
another Person that becomes a Restricted Subsidiary as a result of such trade or
exchange or the Capital Stock of another Person that is a joint venture,
partnership or other similar entity, in each case all or substantially all of whose
assets consist of crude oil or natural gas properties, including in the case of
either of clauses (a) or (b), any cash or cash equivalents necessary in order to
achieve an exchange of equivalent value; provided, however, that
the value of the property or Capital Stock received by the Company or any
Restricted Subsidiary in such trade or exchange (including any cash or cash
equivalents) is substantially equal to the Fair Market Value of the property
(including any cash or cash equivalents so traded or exchanged);




     (E) the surrender or waiver of contract rights or the settlement, release or
surrender of contract, tort or other claims of any kind;




     (F) any Production Payment and Reserve Sales created, issued or assumed in
connection with the financing of the acquisition of oil and gas
properties that are subject thereto (and within 90 days after such
acquisition), so long as owner or purchaser of such Production Payment and Reserve
Sale has recourse solely to such oil and gas properties and to the proceeds
thereof, subject to the obligation of the grantor or transferor of such Production
Payment and Reserve Sale to operate and maintain the













 






6



related oil and gas properties
in a prudent manner or other customary standard, to deliver the associated
production (if required) and to indemnify with respect to environmental, title and
other matters customary in the Oil and Gas Business;




     (G) any issuance or sale of Capital Stock of the Company;




     (H) a disposition of cash or Temporary Cash Investments; and




     (I) the creation of a Lien (but not the sale or other disposition of the
property subject to such Lien)).



          For the avoidance of doubt, any disposition of oil, natural gas or other hydrocarbons or other
mineral products; any abandonment, relinquishment, farm-in, farm-out, lease, sub-lease or other
disposition of developed or undeveloped or both developed and underdeveloped oil and gas
properties; the provision of services, equipment and other assets for the operation and development
of the Company’s and its Restricted Subsidiaries’ oil and natural gas wells (notwithstanding that
any such transaction may be recorded as an asset sale in accordance with full cost accounting
guidelines); any assignment of a working, overriding royalty or net profits interest to an employee
or consultant of the Company or any of its Restricted Subsidiaries in connection with the
generation of prospects or the exploration or development of oil and natural gas projects; and the
liquidation of any assets received in settlement of claims owed to the Company or any Restricted
Subsidiary, in each such case in the ordinary course of business of the Company or its
Subsidiaries, shall not constitute an Asset Disposition.




          “Attributable Debt” in respect of a Sale/Leaseback Transaction means, as at the time of
determination, the present value (discounted at the interest rate borne by the Securities,
compounded annually) of the total obligations of the lessee for rental payments during the
remaining term of the lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended); provided, however, that if such Sale/Leaseback
Transaction results in a Capital Lease Obligation, the amount of Indebtedness represented thereby
shall be determined in accordance with the definition of “Capital Lease Obligation”.




          “Average Life” means, as of the date of determination, with respect to any Indebtedness, the
quotient obtained by dividing:





     (1) the sum of the products of the numbers of years from the date of determination to
the dates of each successive scheduled principal payment of or
redemption or similar payment with respect to such Indebtedness multiplied by the
amount of such payment by




     (2) the sum of all such payments.



          “Board of Directors” means the Board of Directors of the Company or any committee thereof duly
authorized to act on behalf of such Board.













 






7



          “Business Day” means each day which is not a Legal Holiday.




          “Capital Lease Obligation” means an obligation that is required to be classified and accounted
for as a capital lease for financial reporting purposes in accordance with GAAP, and the amount of
Indebtedness represented by such obligation shall be the capitalized amount of such obligation
determined in accordance with GAAP; and the Stated Maturity thereof shall be the date of the last
payment of rent or any other amount due under such lease prior to the first date upon which such
lease may be terminated by the lessee without payment of a penalty. For purposes of Section 4.11, a
Capital Lease Obligation shall be deemed to be secured by a Lien on the property being leased.




          “Capital Stock” of any Person means any and all shares, interests (including partnership
interests), rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred Stock, but
excluding any debt securities convertible into such equity.




          “Change of Control” means any one of the following events:





     (1) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange
Act) is or becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that for purposes of this clause (1) such person shall be deemed to
have “beneficial ownership” of all shares that any such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of time) directly
or indirectly, of more than 35% of the total voting power of the Voting Stock of the
Company;



     (2) unless the Company and PetroQuest L.L.C. have merged with each other or unless
PetroQuest L.L.C. has been disposed of in its entirety in compliance with Section 4.09, the
Company ceases to be the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act), directly or indirectly, of 100% of the total voting power of the Voting
Stock of PetroQuest L.L.C.;



     (3) individuals who on the Issue Date constituted the Board of Directors (together
with any new directors whose election by such Board of Directors or whose nomination for
election by the shareholders of the Company was approved by a vote of a majority of the
directors of the Company then still in office who were either directors on the Issue Date or whose election or nomination for election
was previously so approved) cease for any reason to constitute a majority of the Board of
Directors then in office;



     (4) the adoption of a plan relating to the liquidation or dissolution of the Company;
or



     (5) the merger or consolidation of the Company with or into another Person or the
merger of another Person with or into the Company, or the sale of all or substantially all
the assets of the Company (determined on a consolidated











 






8


basis) to another Person other than
a transaction following which (i) in the case of a merger or consolidation transaction,
holders of securities that represented 100% of the Voting Stock of the Company immediately
prior to such transaction (or other securities into which such securities are converted as
part of such merger or consolidation transaction) own directly or indirectly at least a
majority of the voting power of the Voting Stock of the surviving Person in such merger or
consolidation transaction immediately after such transaction and (ii) in the case of a sale
of assets transaction, each transferee becomes an obligor in respect of the Securities and
a Subsidiary of the transferor of such assets.



          “Code” means the Internal Revenue Code of 1986, as amended.




          “Consolidated Coverage Ratio” as of any date of determination means the ratio of (a) the
aggregate amount of EBITDA for the period of the most recent four consecutive fiscal quarters prior
to the date of such determination for which internal financial statements are available to (b)
Consolidated Interest Expense for such four fiscal quarters; provided, however,
that:





     (1) if the Company or any Restricted Subsidiary has Incurred any Indebtedness since
the beginning of such period that remains outstanding or if the transaction giving rise to
the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or
both, EBITDA and Consolidated Interest Expense for such period shall be calculated after
giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been
Incurred on the first day of such period;




     (2) if the Company or any Restricted Subsidiary has repaid, repurchased, defeased or
otherwise discharged any Indebtedness since the beginning of such period or if any
Indebtedness is to be repaid, repurchased, defeased or otherwise discharged (in each case
other than Indebtedness Incurred under any revolving credit facility unless such
Indebtedness has been permanently repaid) on the date of the transaction giving rise to the
need to calculate the Consolidated Coverage Ratio, EBITDA and Consolidated Interest Expense
for such period shall be calculated on a pro forma basis as if such discharge had occurred
on the first day of such period and as if the Company or such Restricted Subsidiary had not
earned the interest income actually earned during such period in respect of cash or
Temporary Cash Investments used to repay, repurchase, defease or otherwise discharge
such Indebtedness;




     (3) if since the beginning of such period the Company or any Restricted Subsidiary
shall have made any Asset Disposition, EBITDA for such period shall be reduced by an amount
equal to EBITDA (if positive) directly attributable to the assets which are the subject of
such Asset Disposition for such period, or increased by an amount equal to EBITDA (if
negative), directly attributable thereto for such period and Consolidated Interest Expense
for such period shall be reduced by an amount equal to the Consolidated Interest Expense
directly attributable to any Indebtedness of the Company or any Restricted Subsidiary













 





9



repaid, repurchased, defeased or otherwise discharged with respect to the Company and its
continuing Restricted Subsidiaries in connection with such Asset Disposition for such
period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated
Interest Expense for such period directly attributable to the Indebtedness of such
Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries
are no longer liable for such Indebtedness after such sale);




     (4) if since the beginning of such period the Company or any Restricted Subsidiary (by
merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any
Person which becomes a Restricted Subsidiary) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction requiring a calculation to
be made hereunder, which constitutes producing oil and gas properties or all or
substantially all of an operating unit of a business, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving pro forma effect thereto
(including the Incurrence of any Indebtedness) as if such Investment or acquisition had
occurred on the first day of such period; and




     (5) if since the beginning of such period any Person (that subsequently became a
Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary
since the beginning of such period) shall have made any Asset Disposition, any Investment
or acquisition of assets that would have required an adjustment pursuant to clause (3) or
(4) above if made by the Company or a Restricted Subsidiary during such period, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving pro forma
effect thereto as if such Asset Disposition, Investment or acquisition had occurred on the
first day of such period.



          For purposes of this definition, whenever pro forma effect is to be given to an acquisition of
assets, the amount of income or earnings relating thereto and the amount of Consolidated Interest
Expense associated with any Indebtedness Incurred in connection therewith, the pro forma
calculations shall be determined in good faith by a responsible financial or accounting Officer of
the Company. If any Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest on such Indebtedness shall be calculated as if the rate in effect on the date of determination had
been the applicable rate for the entire period (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining term in excess of
12 months).




          If any Indebtedness is Incurred under a revolving credit facility and is being given pro forma
effect, the interest on such Indebtedness shall be calculated based on the average daily balance of
such Indebtedness for the four fiscal quarters subject to the pro forma calculation to the extent
that such Indebtedness was Incurred solely for working capital purposes.













 





10



          “Consolidated Interest Expense” means, for any period, the total interest expense of the
Company and its consolidated Restricted Subsidiaries, plus, to the extent not included in such
total interest expense, and to the extent incurred by the Company or its Restricted Subsidiaries,
without duplication:





     (1) interest expense attributable to Capital Lease Obligations;




     (2) amortization of debt discount and debt issuance cost;




     (3) capitalized interest;




     (4) non-cash interest expense;




     (5) commissions, discounts and other fees and charges owed with respect to letters of
credit and bankers’ acceptance financing;




     (6) net payments pursuant to Interest Rate Agreements;




     (7) dividends accrued in respect of all Disqualified Stock of the Company and all
Preferred Stock of any Restricted Subsidiary, in each case held by Persons other than the
Company or a Restricted Subsidiary (other than dividends payable solely in Capital Stock
(other than Disqualified Stock) of the Company); provided, however, that
such dividends shall be multiplied by a fraction the numerator of which is one and the
denominator of which is one minus the effective combined tax rate of the issuer of such
Preferred Stock (expressed as a decimal) for such period (as estimated by the chief
financial or accounting Officer of the Company in good faith);




     (8) interest incurred in connection with Investments in discontinued operations;




     (9) interest accruing on any Indebtedness of any other Person to the extent such
Indebtedness is Guaranteed by (or secured by the assets of) the Company or any Restricted
Subsidiary; and




     (10) the cash contributions to any employee stock ownership plan or similar trust to
the extent such contributions are used by such plan or trust to pay interest or fees to any
Person (other than the Company) in connection with Indebtedness Incurred by such plan or
trust.



          “Consolidated Net Income” means, for any period, the net income of the Company and its
consolidated Subsidiaries; provided, however, that there shall not be included in
such Consolidated Net Income:





     (1) any net income of any Person (other than the Company) if such Person is not a
Restricted Subsidiary, except that:













 






11


     (A) subject to the exclusion contained in clause (4) below, the Company’s
equity in the net income of any such Person for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Person during or with respect to such period to the Company or
a Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution paid to a Restricted Subsidiary, to the
limitations contained in clause (3) below); and




     (B) the Company’s equity in a net loss of any such Person for such period
shall be included in determining such Consolidated Net Income;




     (2) any net income (or loss) of any Person acquired by the Company or a Subsidiary in
a pooling of interests transaction (or any transaction accounted for in a manner similar to
a pooling of interests) for any period prior to the date of such acquisition;




     (3) any net income of any Restricted Subsidiary if such Restricted Subsidiary is
subject to restrictions, directly or indirectly, on the payment of dividends or the making
of distributions by such Restricted Subsidiary, directly or indirectly, to the Company,
except that:




     (A) subject to the exclusion contained in clause (4) below, the Company’s
equity in the net income of any such Restricted Subsidiary for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Restricted Subsidiary during such period to the
Company or another Restricted Subsidiary as a dividend or other distribution
(subject, in the case of a dividend or other distribution paid to another
Restricted Subsidiary, to the limitation contained in this clause); and




     (B) the Company’s equity in a net loss of any such Restricted Subsidiary for
such period shall be included in determining such Consolidated Net Income;





     (4) any gain (or loss), together with any provision for taxes related to such gain (or
loss), realized upon the sale or other disposition of any assets of the Company, its
consolidated Subsidiaries or any other Person (including pursuant to any sale-and-leaseback
arrangement) which is not sold or otherwise disposed of in the ordinary course of business
and any gain (or loss) together with any provision for taxes related to such gain (or
loss), realized upon the sale or other disposition of any Capital Stock of any Person;




     (5) any unrealized non-cash gains or losses or charges in respect of hedge or
non-hedge derivatives (including those resulting from the application of FAS 133);













 





12


     (6) any non-cash compensation charge arising from any grant of stock, stock options or
other equity based awards;




     (7) extraordinary or non-recurring gains or losses, together with any provision for
taxes related to such extraordinary or non-recurring gains or losses; and




     (8) the cumulative effect of a change in accounting principles,


in each case, for such period. Notwithstanding the foregoing, for the purposes of Section 4.04
only, there shall be excluded from Consolidated Net Income any repurchases, repayments or
redemptions of Investments, proceeds realized on the sale of Investments or return of capital to
the Company or a Restricted Subsidiary to the extent such repurchases, repayments, redemptions,
proceeds or returns increase the amount of Restricted Payments permitted under Section
4.04(a)(3)(E).




          “Consolidated Net Worth” means the total of the amounts shown on the balance sheet of the
Company and its consolidated Subsidiaries, determined on a consolidated basis in accordance with
GAAP, as of the end of the most recent fiscal quarter of the Company for which internal financial
statements are available prior to the taking of any action for the purpose of which the
determination is being made, as the sum of:





     (1) the par or stated value of all outstanding Capital Stock of the Company plus




     (2) paid-in capital or capital surplus relating to such Capital Stock plus




     (3) any retained earnings or earned surplus


less (A) any accumulated deficit and (B) any amounts attributable to Disqualified Stock.




          “Credit Agreement” means the Amended and Restated Credit Agreement dated as of May 14, 2003,
by and among the Company, PetroQuest L.L.C., and JPMorgan Chase Bank, N.A., successor by merger to
Bank One, NA, as the agent together with the related documents thereto (including the term loans and revolving loans
thereunder, any guarantees and security documents), as amended, extended, renewed, restated,
replaced, supplemented or otherwise modified (in whole or in part, and without limitation as to
amount, terms, conditions, covenants and other provisions) from time to time, and any agreement
(and related document), including an indenture or any receivables financing document, governing
Indebtedness Incurred to Refinance, replace or supplement, in whole or in part, the borrowings and
commitments then outstanding or permitted to be outstanding under such Credit Agreement or a
successor Credit Agreement, including any such agreements which increase the aggregate amount of
Indebtedness outstanding or permitted to be outstanding under such Credit Agreement.




          “Currency Agreement” means any foreign exchange contract, currency swap agreement or other
similar agreement with respect to currency values.














 





13



          “Default” means any event which is, or after notice or passage of time or both would be, an
Event of Default.




          “Disqualified Stock” means, with respect to any Person, any Capital Stock which by its terms
(or by the terms of any security into which it is convertible or for which it is exchangeable at
the option of the holder) or upon the happening of any event:





     (1) matures or is mandatorily redeemable (other than redeemable only for Capital Stock
of such Person which is not itself Disqualified Stock) pursuant to a sinking fund
obligation or otherwise;




     (2) is convertible or exchangeable at the option of the holder for Indebtedness or
Disqualified Stock; or




     (3) is mandatorily redeemable or must be purchased upon the occurrence of certain
events or otherwise, in whole or in part;


in each case on or prior to the first anniversary of the Stated Maturity of the Securities;
provided, however, that any Capital Stock that would not constitute Disqualified
Stock but for provisions thereof giving holders thereof the right to require such Person to
purchase or redeem such Capital Stock upon the occurrence of an “asset sale” or “change of control”
occurring prior to the first anniversary of the Stated Maturity of the Securities shall not
constitute Disqualified Stock if:





     (A) the “asset sale” or “change of control” provisions applicable to such
Capital Stock are not more favorable to the holders of such Capital Stock than the
terms applicable to the Securities in Section 4.06 and Section 4.10; and




     (B) any such requirement only becomes operative after compliance with such
terms applicable to the Securities, including the purchase of any Securities
tendered pursuant thereto.



The amount of any Disqualified Stock that does not have a fixed redemption, repayment or repurchase
price shall be calculated in accordance with the terms of such Disqualified Stock as if such
Disqualified Stock were redeemed, repaid or repurchased on any date on which the amount of such
Disqualified Stock is to be determined pursuant to this Indenture; provided,
however, that if such Disqualified Stock could not be required to be redeemed, repaid or
repurchased at the time of such determination, the redemption, repayment or repurchase price shall
be the book value of such Disqualified Stock as reflected in the most recent financial statements
of such Person.




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












 





14


          “EBITDA” for any period means the sum of Consolidated Net Income, plus the following to the
extent deducted in calculating such Consolidated Net Income:





     (1) all income tax expense of the Company and its consolidated Restricted
Subsidiaries;




     (2) Consolidated Interest Expense;




     (3) depreciation, depletion and amortization expense of the Company and its
consolidated Restricted Subsidiaries (excluding amortization expense attributable to a
prepaid item that was paid in cash in a prior period); and




     (4) all other non-cash charges of the Company and its consolidated Restricted
Subsidiaries (excluding any such non-cash charge to the extent that it represents an
accrual of or reserve for cash expenditures in any future period but including non-cash
charges resulting from the application of FAS 143) less all non-cash items of income of the
Company and its consolidated Restricted Subsidiaries (other than accruals of revenue by the
Company and its consolidated Restricted Subsidiaries in the ordinary course of business);


in each case for such period and less, to the extent included in calculating such Consolidated Net
Income and in excess of any costs or expenses attributable thereto and deducted in calculating such
Consolidated Net Income, the sum of:





     (A) the amount of deferred revenues that are amortized during such period and
are attributable to reserves that are subject to Volumetric Production Payments;
and




     (B) amounts recorded in accordance with GAAP as repayments of principal and
interest pursuant to Dollar-Denominated Production Payments.




          Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and
the depreciation, depletion and amortization and non-cash charges of, a Restricted Subsidiary shall
be added to Consolidated Net Income to compute EBITDA only to the extent (and in the same
proportion, including by reason of minority interests) that the net income or loss of such
Restricted Subsidiary was included in calculating Consolidated Net Income and only if a
corresponding amount would be permitted at the date of determination to be dividended to the
Company by such Restricted Subsidiary without prior approval (that has not been obtained), pursuant
to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes,
rules and governmental regulations applicable to such Restricted Subsidiary or its stockholders.




          “Employee Stock Purchase Plan” means any employee stock ownership plan or trust or any
employee stock purchase plan or other similar arrangement for the benefit of employees of the
Company or of some or all of its Restricted Subsidiaries or of both the Company and some or all of
its Restricted Subsidiaries.










 






15




          “Equity Offering” means:





     (1) any underwritten public offering of Capital Stock (other than Disqualified Stock)
of the Company registered under the Securities Act (other than on Form S-8 or any successor
thereto but including any such offering in connection with an employee stock ownership
plan) and other than any issuance of securities under any benefit plan of the Company
(other than any issuance of securities under any benefit plan of the Company (other than an
employee stock ownership plan); and




     (2) any unregistered offering of Capital Stock (other than Disqualified Stock) of the
Company, so long as, at the time of the consummation thereof, the Company has a class of
Capital Stock registered pursuant to Section 12(b) or 12(g) under the Exchange Act.



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




          “Exchange Securities” means the debt securities of the Issuers issued pursuant to this
Indenture in exchange for, and in an aggregate principal amount equal to, the Securities, in
compliance with the terms of the Registration Rights Agreement.




          “Existing Second Lien Term Loan” means the Senior Second Lien Secured Credit Agreement dated
as of November 6, 2003, among the Company, PetroQuest L.L.C. and MacQuarie Americas Corp., as
administrative agent, together with the related documents thereto (including the term loans and
revolving loans thereunder, any guarantees and security documents), as amended, extended, renewed,
restated, supplemented or otherwise modified (in whole or in part, and without limitation as to
amount, terms, conditions, covenants and other provisions) from time to time.




          “Fair Market Value” means, with respect to any Asset Disposition, Sale/Leaseback Transaction
or Restricted Payment (or Investment or Permitted Investment), the price that would be negotiated
in an arm’s-length transaction between a willing seller and a willing and able buyer, neither of
which is under any compulsion to complete the transaction, as such price is determined in good
faith by:





     (1) if the value of such Asset Disposition, Sale/Leaseback Transaction or Restricted
Payment (or Investment or Permitted Investment) is less than $10.0 million, an Officer of
the Company; and




     (2) if the value of such Asset Disposition, Sale/Leaseback Transaction or Restricted
Payment (or Investment or Permitted Investment) is $10.0 million or greater, the Board of
Directors of the Company.



          “Foreign Subsidiary” means any Restricted Subsidiary of the Company that is not organized
under the laws of the United States of America or any State thereof or the District of Columbia.




 









 








16




          “GAAP” means generally accepted accounting principles in the United States of America as in
effect as of the Issue Date, including those set forth in:





     (1) the opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants;




     (2) statements and pronouncements of the Financial Accounting Standards Board;




     (3) such other statements by such other entity as approved by a significant segment of
the accounting profession; and




     (4) the rules and regulations of the SEC governing the inclusion of financial
statements (including pro forma financial statements) in periodic reports required to be
filed pursuant to Section 13 of the Exchange Act, including opinions and pronouncements in
staff accounting bulletins and similar written statements from the accounting staff of the
SEC.



          “Guarantee” means any obligation, contingent or otherwise, of any Person directly or
indirectly guaranteeing any Indebtedness of any Person and any obligation, direct or indirect,
contingent or otherwise, of such Person:





     (1) to purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness of such Person (whether arising by virtue of partnership arrangements, or
by agreements to keep-well, to purchase assets, goods, securities or services, to
take-or-pay or to maintain financial statement conditions or otherwise); or




     (2) entered into for the purpose of assuring in any other manner the obligee of such
Indebtedness of the payment thereof or to protect such obligee against loss in respect
thereof (in whole or in part);



provided, however, that the term “Guarantee” shall not include endorsements for
collection or deposit in the ordinary course of business. The term “Guarantee” used as a verb has a
corresponding meaning.




          “Guaranty Agreement” means a supplemental indenture, in a form satisfactory to the Trustee,
pursuant to which a Subsidiary Guarantor guarantees the Issuers’ obligations with respect to the
Securities on the terms provided for in this Indenture.




          “Hedging Obligations” of any Person means the obligations of such Person pursuant to any
Interest Rate Agreement, Currency Agreement or Oil and Natural Gas Hedging Contract.




          “Holder” or “Securityholder” means the Person in whose name a Security is registered on the
Registrar’s books.




 









 








17




          “Incur” means issue, assume, Guarantee, incur or otherwise become liable for;
provided, however, that any Indebtedness of a Person existing at the time such
Person becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition or otherwise)
shall be deemed to be Incurred by such Person at the time it becomes a Restricted Subsidiary. The
term “Incurrence” when used as a noun shall have a correlative meaning. Solely for purposes of
determining compliance with Section 4.03:





     (1) amortization of debt discount or the accretion of principal with respect to a
non-interest bearing or other discount security;




     (2) the payment of regularly scheduled interest in the form of additional Indebtedness
of the same instrument or the payment of regularly scheduled dividends on Capital Stock in
the form of additional Capital Stock of the same class and with the same terms; and




     (3) the obligation to pay a premium in respect of Indebtedness arising in connection
with the issuance of a notice of redemption or making of a mandatory offer to purchase such
Indebtedness



shall not be deemed to be the Incurrence of Indebtedness.




          “Indebtedness” means, with respect to any Person on any date of determination (without
duplication):





     (1) the principal in respect of (A) indebtedness of such Person for money borrowed and
(B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the
payment of which such Person is responsible or liable,
including, in each case, any premium on such indebtedness to the extent such premium
has become due and payable;




     (2) all Capital Lease Obligations of such Person and all Attributable Debt in respect
of Sale/ Leaseback Transactions entered into by such Person;




     (3) all obligations of such Person issued or assumed as the deferred purchase price of
property, all conditional sale obligations of such Person and all obligations of such
Person under any title retention agreement (but excluding any accounts payable or other
liability to trade creditors arising in the ordinary course of business);




     (4) all obligations of such Person for the reimbursement of any obligor on any letter
of credit, bankers’ acceptance or similar credit transaction (other than obligations with
respect to letters of credit securing obligations (other than obligations described in
clauses (1) through (3) above) entered into in the ordinary course of business of such
Person to the extent such letters of credit are not drawn upon or, if and to the extent
drawn upon, such drawing is reimbursed no later than the tenth Business Day following
payment on the letter of credit);



 









 





18





     (5) the amount of all obligations of such Person with respect to the redemption,
repayment or other repurchase of any Disqualified Stock of such Person or, with respect to
any Preferred Stock of any Subsidiary of such Person (unless such Subsidiary is an Issuer),
the principal amount of such Preferred Stock to be determined in accordance with this
Indenture (but excluding, in each case, any accrued dividends);




     (6) all obligations of the type referred to in clauses (1) through (5) of other
Persons and all dividends of other Persons for the payment of which, in either case, such
Person is responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise, including by means of any Guarantee;




     (7) all obligations of the type referred to in clauses (1) through (6) of other
Persons secured by any Lien on any property or asset of such Person (whether or not such
obligation is assumed by such Person), the amount of such obligation being deemed to be the
lesser of the fair market value of such property or assets and the amount of the obligation
so secured;




     (8) to the extent not otherwise included in this definition, Hedging Obligations of
such Person; and




     (9) any guarantee by such Person of production or payment with respect to a Production
Payment, but excluding guarantees with respect to operation and maintenance of the related
oil and gas properties in a prudent manner, delivery of the associated production (if
required) and other such contractual obligations.



Notwithstanding the foregoing, in connection with the purchase by the Company or any Restricted
Subsidiary of any business, the term “Indebtedness” shall exclude post-closing payment adjustments
to which the seller may become entitled to the extent such payment is determined by a final closing
balance sheet or such payment depends on the performance of such business after the closing;
provided, however, that, at the time of closing, the amount of any such payment is
not determinable and, to the extent such payment thereafter becomes fixed and determined, the
amount is paid within 60 days thereafter. In addition, except as expressly provided in clause (9)
above, Production Payments and Reserve Sales shall not constitute “Indebtedness.”




          The amount of Indebtedness of any Person at any date shall be the outstanding balance at such
date of all obligations as described above; provided, however, that in the case of
Indebtedness sold at a discount, the amount of such Indebtedness at any time shall be the accreted
value thereof at such time.




          “Independent Qualified Party” means an investment banking firm, accounting firm or appraisal
firm of national standing; provided, however, that such firm is not an Affiliate of
the Company.




          “Interest Rate Agreement” means any interest rate swap agreement, interest rate cap agreement
or other financial agreement or arrangement with respect to exposure to interest rates.





 









 








19




          “Investment” in any Person means any direct or indirect advance, loan (other than advances to
customers in the ordinary course of business that are recorded as accounts receivable on the
balance sheet of the lender) or other extensions of credit (including by way of Guarantee or
similar arrangement) or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such
Person. If the Company or any Restricted Subsidiary issues, sells or otherwise disposes of any
Capital Stock of a Person that is a Restricted Subsidiary such that, after giving effect thereto,
such Person is no longer a Restricted Subsidiary, any Investment by the Company or any Restricted
Subsidiary in such Person remaining after giving effect thereto shall be deemed to be a new
Investment at such time. The acquisition by the Company or any Restricted Subsidiary of a Person
that holds an Investment in a third Person shall be deemed to be an Investment by the Company or
such Restricted Subsidiary in such third Person at such time. Except as otherwise provided for
herein, the amount of an Investment shall be its Fair Market Value at the time the Investment is
made and without giving effect to subsequent changes in value.




          For purposes of the definition of “Unrestricted Subsidiary”, the definition of “Restricted
Payment” and Section 4.04:





     (1) “Investment” shall include the portion (proportionate to the Company’s equity
interest in such Subsidiary) of the Fair Market Value of the net
assets of any Subsidiary of the Company at the time that such Subsidiary is designated
an Unrestricted Subsidiary; provided, however, that upon a redesignation of
such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have
a permanent “Investment” in an Unrestricted Subsidiary equal to an amount (if positive)
equal to (A) the Company’s “Investment” in such Subsidiary at the time of such
redesignation less (B) the portion (proportionate to the Company’s equity interest in such
Subsidiary) of the Fair Market Value of the net assets of such Subsidiary at the time of
such redesignation; and




     (2) any property transferred to or from an Unrestricted Subsidiary shall be valued at
its Fair Market Value at the time of such transfer.



          “Issue Date” means May 11, 2005.




          “Legal Holiday” means a Saturday, a Sunday or a day on which banking institutions are not
required to be open in the State of New York or the State of Texas.




          “Lien” means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind
(including any conditional sale or other title retention agreement or lease in the nature thereof).




          “Material Change” means an increase or decrease (excluding changes that result solely from
changes in prices and changes resulting from the incurrence of




 









 








20




previously estimated development
costs) of more than 50% during a fiscal quarter in the discounted future net revenues from proved
oil and natural gas reserves of the Company and the Restricted Subsidiaries, calculated in
accordance with clause (a)(1) of the definition of ACNTA; provided, however, that
the following shall be excluded from the calculation of Material Change:





     (1) any acquisitions during the fiscal quarter of oil and natural gas reserves that
have been estimated by independent petroleum engineers and with respect to which a report
or reports of such engineers exist; and




     (2) any disposition of properties existing at the beginning of such fiscal quarter
that have been disposed of in compliance with Section 4.06.



          “Moody’s” means Moody’s Investors Service, Inc. and any successor to its rating agency
business.




          “Net Available Cash” from an Asset Disposition means cash payments received therefrom
(including any cash payments received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise and proceeds from the sale or other disposition of any
securities received as consideration, but only as and when received, but excluding any other
consideration received in the form of assumption by the
acquiring Person of Indebtedness or other obligations relating to such properties or assets or
received in any other non-cash form), in each case net of:





     (1) all legal, title, recording, engineering, environmental, accounting, investment
banking, brokerage and relocation expenses, commissions and other fees and expenses
incurred, and all Federal, state, provincial, foreign and local taxes required to be paid
or accrued as a liability under GAAP, as a consequence of such Asset Disposition;




     (2) all payments made on any Indebtedness which is secured by any assets subject to
such Asset Disposition, in accordance with the terms of any Lien upon or other security
agreement of any kind with respect to such assets, or which must by its terms, or in order
to obtain a necessary consent to such Asset Disposition, or by applicable law, be repaid
out of the proceeds from such Asset Disposition;




     (3) all distributions and other payments required to be made to minority interest
holders in Restricted Subsidiaries as a result of such Asset Disposition;




     (4) the deduction of appropriate amounts as a reserve, in accordance with GAAP,
against any liabilities associated with the property or other assets disposed in such Asset
Disposition and retained by the Company or any Restricted Subsidiary after such Asset
Disposition; and




     (5) any portion of the purchase price from an Asset Disposition placed in escrow,
whether as a reserve for adjustment of the purchase price, for satisfaction of indemnities
in respect of such Asset Disposition or otherwise in connection with that Asset
Disposition; provided, however, that upon the termination of that



 









 





21





escrow,
Net Available Cash shall be increased by any portion of funds in the escrow that are
released to the Company or any Restricted Subsidiary.



          “Net Cash Proceeds”, with respect to any issuance or sale of Capital Stock or Indebtedness,
means the cash proceeds of such issuance or sale net of attorneys’ fees, accountants’ fees,
underwriters’ or placement agents’ fees, discounts or commissions and brokerage, consultant and
other fees actually incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.




          “Net Working Capital” of the Company means:





     (1) all current assets of the Company and its Restricted Subsidiaries, except current
assets from commodity price risk management activities arising in the ordinary course of
business; minus




     (2) all current liabilities of the Company and its Restricted Subsidiaries, except
current liabilities included in Indebtedness (including the Securities), current
liabilities from commodity price risk management activities arising in the ordinary course
of business, current liabilities recorded with respect to stock-
based compensation and current liabilities that constitute estimated abandonment costs
pursuant to FAS 143;



in each case, determined in accordance with GAAP.




          “Non-Recourse Purchase Money Indebtedness” means Indebtedness (other than Capital Lease
Obligations) of the Company or any Restricted Subsidiary Incurred in connection with the
acquisition by the Company or such Restricted Subsidiary of assets used in the Oil and Gas Business
(including office buildings and other real property used by the Company or such Restricted
Subsidiary in conducting its operations) with respect to which:





     (1) the holders of such Indebtedness agree that they will look solely to the assets so
acquired that secure such Indebtedness, and except for the interest of the Company or such
Restricted Subsidiary, neither the Company nor any Restricted Subsidiary (a) is directly or
indirectly liable for such Indebtedness or (b) provides credit support, including any
undertaking, Guarantee, agreement or instrument that would constitute Indebtedness (other
than the grant of a Lien on such acquired assets); and




     (2) no default or event of default with respect to such Indebtedness would cause, or
permit (after notice or passage of time or otherwise), any holder of any other Indebtedness
of the Company or a Restricted Subsidiary to declare a default or event of default on such
other Indebtedness or cause the payment, repurchase, redemption, defeasance or other
acquisition or retirement for value thereof to be accelerated or payable prior to any
scheduled principal payment, scheduled sinking fund payment or maturity.



 









 





22




          “Obligations” means, with respect to any Indebtedness, all obligations for principal, premium,
interest, penalties, fees, indemnifications, reimbursements, and other amounts payable pursuant to
the documentation governing such Indebtedness.




          “Offering Circular” means that Confidential Offering Circular of the Issuers dated May 6, 2005
relating to the Securities sold on the Issue Date.




          “Officer” means the Chairman of the Board, the Chief Executive Officer, the President, any
Vice President, the Treasurer or the Secretary of the Company.




          “Officers’ Certificate” means a certificate signed by two Officers, which certificate shall be
deemed to be, and the Trustee may rely on its being, executed and delivered by the Officers signing
it on behalf of both the Issuers.




          “Oil and Gas Business” means:





     (1) the acquisition, exploration, exploitation, development, operation and disposition
of interests in oil, natural gas, other hydrocarbon and mineral properties;




     (2) the gathering, marketing, distribution, treating, processing, storage, refining,
selling and transporting of any production from such interests or properties and the
marketing of oil, natural gas, other hydrocarbons and minerals obtained from unrelated
Persons;




     (3) any business or activity relating to or arising from exploration for or
exploitation, development, production, treatment, processing, storage, refining,
transportation, gathering or marketing of oil, natural gas, other hydrocarbons and minerals
and products produced in association therewith;




     (4) any other related energy business, including power generation and electrical
transmission business where fuel required by such business is supplied, directly or
indirectly, from oil, natural gas, other hydrocarbons and minerals produced substantially
from properties in which the Company or the Restricted Subsidiaries, directly or
indirectly, participate;




     (5) any business relating to oil field sales and service; and




     (6) any activity necessary, appropriate or incidental to the activities described in
the preceding clauses (1) through (5) of this definition.



          “Oil and Natural Gas Hedging Contract” means any oil and natural gas hedging agreement and
other agreement or arrangement designed to protect the Company or any Restricted Subsidiary against
fluctuations in oil and natural gas prices.




          “Oil and Gas Liens” means:




 









 








23





     (1) Liens on any specific property or any interest therein, construction thereon or
improvement thereto to secure all or any part of the costs (other than Indebtedness)
incurred for surveying, exploration, drilling, extraction, development, operation,
production, construction, alteration, repair or improvement of, in, under or on such
property and the plugging and abandonment of wells located thereon (it being understood
that, in the case of oil and gas producing properties, or any interest therein, costs
incurred for “development” shall include costs incurred for all facilities relating to such
properties or to projects, ventures or other arrangements of which such properties form a
part or that relate to such properties or interests);




     (2) Liens on an oil or gas producing property to secure obligations Incurred or
Guarantees of obligations incurred (in each case, other than Indebtedness) in connection
with or necessarily incidental to commitments for the
purchase or sale of, or the transportation or distribution of, the products derived
from such property;




     (3) Liens arising under partnership agreements, oil and gas leases, overriding royalty
agreements, net profits agreements, production payment agreements, royalty trust
agreements, incentive compensation programs on terms that are reasonably customary in the
Oil and Gas Business for geologists, geophysicists and other providers of technical
services to the Company or a Restricted Subsidiary, farm-out agreements, farm-in
agreements, division orders, contracts for the sale, purchase, exchange, transportation,
gathering or processing of oil, gas or other hydrocarbons, unitizations and pooling
designations, declarations, orders and agreements, development agreements, operating
agreements, gas balancing or deferred production agreements, production sharing agreements,
area of mutual interests agreements, injection, repressuring and recycling agreements, salt
water or other disposal agreements, seismic or geophysical permits or agreements, and other
agreements that are customary in the Oil and Gas Business; provided,
however, that in all instances such Liens are limited to the assets that are the
subject of the relevant agreement, program, order or contract;




     (4) Liens securing Production Payments and Reserve Sales; provided,
however, that such Liens are limited to the property that is subject to such
Production Payments and Reserve Sales, and such Production Payments and Reserve Sales
either:




     (a) were in existence on the Issue Date,




     (b) were created in connection with the acquisition of property after the
Issue Date and such Lien was Incurred in connection with the financing of, and
within 90 days after, the acquisition of the property subject thereto, or



 









 





24





     (c) constitute Asset Sales made in compliance with Section 4.06; and




     (5) Liens on pipelines or pipelines facilities that arise by operation of law.



          “Opinion of Counsel” means a written opinion from legal counsel who is acceptable to the
Trustee. The counsel may be an employee of or counsel to the Issuers or the Trustee.




          “Permitted Business Investments” means Investments made in the ordinary course of, and of a
nature that is or shall have become customary in, the Oil and Gas Business, including through
agreements, transactions, interests or arrangements that permit one to share risk or costs, comply
with regulatory requirements regarding local
ownership or satisfy other objectives customarily achieved through the conduct of the Oil and
Gas Business jointly with third parties, including:





     (1) ownership of oil, natural gas, other related hydrocarbon and mineral properties or
any interest therein or gathering, transportation, processing, storage or related systems;
and




     (2) the entry into operating agreements, joint ventures, processing agreements,
working interests, royalty interests, mineral leases, farm-in agreements, farm-out
agreements, development agreements, production sharing agreements, area of mutual interest
agreements, contracts for the sale, transportation or exchange of oil and natural gas and
related hydrocarbons and minerals, unitization agreements, pooling arrangements, joint
bidding agreements, service contracts, partnership agreements (whether general or limited),
or other similar or customary agreements (including for limited liability companies),
transactions, properties, interests or arrangements, and Investments and expenditures in
connection therewith or pursuant thereto, in each case made or entered into in the ordinary
course of the Oil and Gas Business, excluding however, Investments in corporations.



          “Permitted Investment” means an Investment by the Company or any Restricted Subsidiary in:





     (1) the Company, a Restricted Subsidiary or a Person that shall, upon the making of
such Investment, become a Restricted Subsidiary; provided, however, that
the primary business of such Person or Restricted Subsidiary is a Related Business;




     (2) another Person if, as a result of such Investment, such other Person is merged or
consolidated with or into, or transfers or conveys all or substantially all its assets to,
the Company or a Restricted Subsidiary; provided, however, that such
Person’s primary business is a Related Business;




     (3) cash and Temporary Cash Investments;



 









 





25





     (4) receivables owing to the Company or any Restricted Subsidiary if created or
acquired in the ordinary course of business and payable or dischargeable in accordance with
customary trade terms; provided, however, that such trade terms may include
such concessionary trade terms as the Company or any such Restricted Subsidiary deems
reasonable under the circumstances;




     (5) payroll, commissions, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses for accounting
purposes and that are made in the ordinary course of business;




     (6) loans or advances to employees made in the ordinary course of business consistent
with past practices of the Company or such Restricted Subsidiary;




     (7) stock, obligations or securities received in settlement of debts created in the
ordinary course of business and owing to the Company or any Restricted Subsidiary or in
satisfaction of judgments;




     (8) any Person to the extent such Investment represents the non-cash portion of the
consideration received for (A) an Asset Disposition as permitted pursuant to Section 4.06
or (B) a disposition of assets not constituting an Asset Disposition;




     (9) any Person where such Investment was acquired by the Company or any of its
Restricted Subsidiaries (A) in exchange for any other Investment or accounts receivable
held by the Company or any such Restricted Subsidiary in connection with or as a result of
a bankruptcy, workout, reorganization or recapitalization of the issuer of such other
Investment or accounts receivable or (B) as a result of a foreclosure by the Company or any
of its Restricted Subsidiaries with respect to any secured Investment or other transfer of
title with respect to any secured Investment in default;




     (10) any Person to the extent such Investments consist of prepaid expenses, negotiable
instruments held for collection and lease, utility and workers’ compensation, performance
and other similar deposits made in the ordinary course of business by the Company or any
Restricted Subsidiary;




     (11) any Person to the extent such Investments consist of Hedging Obligations
otherwise permitted under Section 4.03;




     (12) any Person to the extent such Investment exists on the Issue Date, and any
extension, modification or renewal of any such Investments existing on the Issue Date, but
only to the extent not involving additional advances, contributions or other Investments of
cash or other assets or other increases thereof (other than as a result of the accrual or
accretion of interest or original issue discount or the issuance of pay-in-kind securities,
in each case, pursuant to the terms of such Investment as in effect on the Issue Date;



 









 





26





     (13) Guarantees of performance or other obligations (other than Indebtedness) arising
in the ordinary course in the Oil and Gas Business, including obligations under oil and
natural gas exploration, development, joint operating and related agreements and licenses
or concessions related to the Oil and Gas Business;




     (14) any Person to the extent such Investments are made solely with or in exchange for
Capital Stock (other than Disqualified Stock) of the Company;




     (15) Permitted Business Investments; and




     (16) Persons to the extent such Investments, when taken together with all other
Investments made pursuant to this clause (16) and outstanding on the date such Investment
is made, do not exceed $10.0 million.



          “Permitted Liens” means, with respect to any Person:





     (1) pledges or deposits by such Person under worker’s compensation laws, unemployment
insurance laws or similar legislation, or good faith deposits in connection with bids,
tenders, contracts (other than for the payment of Indebtedness) or leases to which such
Person is a party, or deposits to secure public or statutory obligations of such Person or
deposits of cash or United States government bonds to secure surety or appeal bonds or
bonds of a similar nature to which such Person is a party, or deposits as security for
contested taxes or import duties or for the payment of rent, in each case Incurred in the
ordinary course of business;




     (2) Liens incurred in the ordinary course of business (other than in connection with
Indebtedness) or imposed by law, such as carriers’, warehousemen’s and mechanics’ Liens, in
each case for sums not yet due or being contested in good faith by appropriate proceedings
or other Liens arising out of judgments or awards against such Person with respect to which
such Person shall then be proceeding with an appeal or other proceedings for review, Liens
to the extent arising by virtue of any statutory or common law provision relating to
banker’s Liens, rights of set-off or similar rights and remedies as to deposit accounts or
other funds maintained with a creditor depository institution; provided,
however, that (A) such deposit account is not a dedicated cash collateral account
and is not subject to restrictions against access by the Company in excess of those set
forth by regulations promulgated by the Federal Reserve Board and (B) such deposit account
is not intended by the Company or any Restricted Subsidiary to provide collateral to the
depository institution;




     (3) Liens for taxes, assessments and governmental charges not yet subject to penalties
for non-payment or which are being contested in good faith by appropriate proceedings;




     (4) Liens in favor of issuers of surety bonds or letters of credit issued pursuant to
the request of and for the account of such Person in the ordinary



 









 





27





course of its business;
provided, however, that such letters of credit do not constitute
Indebtedness;




     (5) minor survey exceptions, minor encumbrances, easements or reservations of, or
rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other restrictions as to the use
of property or Liens incidental to the conduct of the
business of such Person or to the ownership of its properties which were not Incurred
in connection with Indebtedness and which do not in the aggregate materially adversely
affect the value of said properties or materially impair their use in the operation of the
business of such Person;




     (6) Liens securing Indebtedness Incurred to finance the construction, purchase or
lease of, or repairs, improvements or additions to, property, plant or equipment of such
Person; provided, however, that the Lien may not extend to any other
property owned by such Person or any of its Restricted Subsidiaries at the time the Lien is
Incurred (other than assets and property affixed or appurtenant thereto), and the
Indebtedness (other than any interest thereon) secured by the Lien may not be Incurred more
than 180 days after the later of the acquisition, completion of construction, repair,
improvement, addition or commencement of full operation of the property subject to the
Lien;




     (7) Liens to secure Indebtedness and related Obligations permitted under Section
4.03(b)(1);




     (8) Liens existing on the Issue Date;




     (9) Liens on property or shares of Capital Stock of another Person at the time such
other Person becomes a Subsidiary of such Person; provided, however, that
the Liens may not extend to any other property owned by such Person or any of its
Restricted Subsidiaries (other than assets and property affixed or appurtenant thereto);




     (10) Liens on property at the time such Person or any of its Subsidiaries acquires the
property, including any acquisition by means of a merger or consolidation with or into such
Person or a Subsidiary of such Person; provided, however, that the Liens
may not extend to any other property owned by such Person or any of its Restricted
Subsidiaries (other than assets and property affixed or appurtenant thereto);




     (11) Liens securing Indebtedness or other obligations of a Subsidiary of such Person
owing to such Person or a Restricted Subsidiary of such Person;




     (12) Liens securing Hedging Obligations so long as such Hedging Obligations are
permitted to be Incurred under this Indenture;




     (13) Oil and Gas Liens;



 









 





28





     (14) Liens to secure any Refinancing (or successive Refinancings) as a whole, or in
part, of any Indebtedness secured by any Lien referred to in the foregoing clause (6), (8),
(9) or (10); provided, however, that:




     (A) such new Lien shall be limited to all or part of the same property and
assets that secured or, under the written agreements pursuant to which the original
Lien arose, could secure the original Lien (plus improvements and accessions to,
such property or proceeds or distributions thereof); and




     (B) the Indebtedness secured by such Lien at such time is not increased to any
amount greater than the sum of (i) the outstanding principal amount or, if greater,
committed amount of the Indebtedness described under clause (6), (8), (9) or (10)
at the time the original Lien became a Permitted Lien and (ii) an amount necessary
to pay any fees and expenses, including premiums, related to such refinancing,
refunding, extension, renewal or replacement.



Notwithstanding the foregoing, “Permitted Liens” shall not include any Lien described in clause
(6), (9) or (10) above to the extent such Lien applies to any Additional Assets acquired directly
or indirectly from Net Available Cash pursuant to Section 4.06. For purposes of this definition,
the term “Indebtedness” shall be deemed to include interest on, and fees and expenses incurred in
connection with, such Indebtedness.




          “Person” means any individual, corporation, partnership, limited liability company, joint
venture, association, joint-stock company, trust, unincorporated organization, government or any
agency or political subdivision thereof or any other entity.




          “PetroQuest L.L.C.” or “PELLC” means PetroQuest Energy, L.L.C., a Louisiana limited liability
company, and its successors.




          “Preferred Stock”, as applied to the Capital Stock of any Person, means Capital Stock of any
class or classes (however designated) which is preferred as to the payment of dividends or
distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or
dissolution of such Person, over shares of Capital Stock of any other class of such Person.




          “principal” of a Security means the principal of the Security plus the premium, if any,
payable on the Security which is due or overdue or is to become due at the relevant time.




          “Production Payments” means, collectively, Dollar-Denominated Production Payments and
Volumetric Production Payments.




          “Production Payments and Reserve Sales” means the grant or transfer to any Person of a
Dollar-Denominated Production Payment, Volumetric Production Payment, royalty, overriding royalty,
net profits interest, master limited partnership




 









 








29




interest or other interest in oil and natural gas properties, reserves or the right to receive
all or a portion of the production or the proceeds from the sale of production attributable to
such properties or reserves.




          “Refinance” means, in respect of any Indebtedness, to refinance, extend, renew, refund, repay,
prepay, purchase, redeem, defease or retire, or to issue other Indebtedness in exchange or
replacement for, such Indebtedness. “Refinanced” and “Refinancing” shall have correlative meanings.




          “Refinancing Indebtedness” means Indebtedness that Refinances any Indebtedness of the Company
or any Restricted Subsidiary existing on the Issue Date or Incurred in compliance with this
Indenture, including Indebtedness that Refinances Refinancing Indebtedness; provided,
however, that:





     (1) such Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced;




     (2) such Refinancing Indebtedness has an Average Life at the time such Refinancing
Indebtedness is Incurred that is equal to or greater than the Average Life of the
Indebtedness being Refinanced;




     (3) such Refinancing Indebtedness has an aggregate principal amount (or if Incurred
with original issue discount, an aggregate issue price) that is equal to or less than the
aggregate principal amount (or if Incurred with original issue discount, the aggregate
accreted value) then outstanding (plus fees and expenses, including any premium (including
any premium paid in connection with a tender offer for such Indebtedness) and defeasance
costs) under the Indebtedness being Refinanced; and




     (4) if the Indebtedness being Refinanced is subordinate in right of payment to the
Securities, such Refinancing Indebtedness is subordinate in right of payment to the
Securities at least to the same extent as the Indebtedness being Refinanced; provided
further, however, that Refinancing Indebtedness shall not include (A)
Indebtedness of a Subsidiary that Refinances Indebtedness of the Company or (B)
Indebtedness of the Company or a Restricted Subsidiary that Refinances Indebtedness of an
Unrestricted Subsidiary.



          “Related Business” means any Oil and Gas Business in which the Company or any of the
Restricted Subsidiaries was engaged on the Issue Date and any business related, ancillary or
complementary to such business.




          “Restricted Payment” with respect to any Person means:





     (1) the declaration or payment of any dividends or any other distributions of any sort
in respect of its Capital Stock (including any payment in respect of its Capital Stock in
connection with any merger or consolidation involving such Person) or similar payment to
the direct or indirect holders of its Capital Stock
(other than (A) dividends or distributions payable solely in its Capital Stock (other



 









 





30





than Disqualified Stock), (B) dividends or distributions payable solely to the Company or a
Restricted Subsidiary and (C) pro rata dividends or other distributions made by a
Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or owners of an
equivalent interest in the case of a Subsidiary that is an entity other than a
corporation));




     (2) the purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value of any Capital Stock of the Company held by any Person (other than by
a Restricted Subsidiary) or of any Capital Stock of a Restricted Subsidiary held by any
Affiliate of the Company (other than by a Restricted Subsidiary), including in connection
with any merger or consolidation and including the exercise of any option to exchange any
Capital Stock (other than into Capital Stock of the Company that is not Disqualified
Stock);




     (3) the purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value, prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment of any Subordinated Obligations of the Issuers or of any Subsidiary Guarantor
(other than (A) from the Company or a Restricted Subsidiary or (B) the purchase,
repurchase, redemption, defeasance or other acquisition or retirement of Subordinated
Obligations purchased in anticipation of satisfying a sinking fund obligation, principal
installment or final maturity, in each case due within one year of the date of such
purchase, repurchase, redemption, defeasance or other acquisition or retirement); or




     (4) the making of any Investment (other than a Permitted Investment) in any Person.



          “Restricted Subsidiary” means any Subsidiary of the Company, including PetroQuest L.L.C., that
is not an Unrestricted Subsidiary.




          “Sale/Leaseback Transaction” means an arrangement relating to property owned by the Company or
a Restricted Subsidiary on the Issue Date or thereafter acquired by the Company or a Restricted
Subsidiary whereby the Company or a Restricted Subsidiary transfers such property to a Person and
the Company or a Restricted Subsidiary leases it from such Person.




          “SEC” means the U.S. Securities and Exchange Commission.




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




          “Senior Indebtedness” means with respect to any Person:





     (1) Indebtedness of such Person, whether outstanding on the Issue Date or thereafter
Incurred; and




     (2) all other Obligations of such Person (including interest accruing on or after the
filing of any petition in bankruptcy or for reorganization relating to such



 









 





31





Person whether
or not post-filing interest is allowed in such proceeding) in respect of Indebtedness
described in clause (1) above



unless, in the case of clauses (1) and (2), in the instrument creating or evidencing the same or
pursuant to which the same is outstanding, it is provided that such Indebtedness or other
obligations are subordinate in right of payment to the Securities or the Subsidiary Guaranty of
such Person, as the case may be; provided, however, that Senior Indebtedness shall
not include:





     (A) any obligation of such Person to the Company or any Subsidiary;




     (B) any liability for Federal, state, local or other taxes owed or owing by
such Person;




     (C) any accounts payable or other liability to trade creditors arising in the
ordinary course of business;




     (D) any Indebtedness or other Obligation of such Person which is subordinate
or junior in right of payment to any other Indebtedness or other Obligation of such
Person; or




     (E) that portion of any Indebtedness which at the time of Incurrence is
Incurred in violation of this Indenture.



          “Significant Change” means an increase or decrease (excluding changes that result solely from
changes in prices and changes resulting from the incurrence of previously estimated development
costs) of more than 10% during a fiscal quarter in the discounted future net revenues from proved
oil and natural gas reserves of the Company and the Restricted Subsidiaries, calculated in
accordance with clause (a)(1) of the definition of ACNTA (except that, instead of utilizing prices
used in the relevant year end reserve report, prices shall be calculated using the Three-Year Strip
Price as of the date of determination); provided, however, that the following shall
be excluded from the calculation of Significant Change:





     (1) any acquisitions during the fiscal quarter of oil and natural gas reserves that
have been estimated by independent petroleum engineers and with respect to which a report
or reports of such engineers exist; and




     (2) any disposition of properties existing at the beginning of such fiscal quarter
that have been disposed of in compliance with Section 4.06.



          “Significant Subsidiary” means any Restricted Subsidiary that would be a “Significant
Subsidiary” of the Company within the meaning of Rule 1-02 under Regulation S-X promulgated by the
SEC.




          “Standard & Poor’s” means Standard & Poor’s, a division of The McGraw-Hill Companies, Inc.,
and any successor to its rating agency business.





 









 








32




          “Stated Maturity” means, with respect to any security, the date specified in such security as
the fixed date on which the final payment of principal of such security is due and payable,
including pursuant to any mandatory redemption provision (but excluding any provision providing for
the repurchase of such security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).




          “Subordinated Obligation” means, with respect to a Person, any Indebtedness of such Person
(whether outstanding on the Issue Date or thereafter Incurred) which is subordinate or junior in
right of payment to the Securities or a Subsidiary Guaranty of such Person, as the case may be,
pursuant to a written agreement to that effect.




          “Subsidiary” means, with respect to any Person, any corporation, association, partnership or
other business entity of which more than 50% of the total voting power of shares of Voting Stock is
at the time owned or controlled, directly or indirectly, by:





     (1) such Person;




     (2) such Person and one or more Subsidiaries of such Person; or




     (3) one or more Subsidiaries of such Person.



          “Subsidiary Guarantor” means each Restricted Subsidiary of the Company that executes this
Indenture as a guarantor on the Issue Date and each other Restricted Subsidiary of the Company that
thereafter guarantees the Securities pursuant to the terms of this Indenture.




          “Subsidiary Guaranty” means a Guarantee by a Subsidiary Guarantor of the Issuers’ obligations
with respect to the Securities.




          “Temporary Cash Investments” means any of the following:





     (1) any investment in direct obligations of the United States of America or any agency
thereof or obligations guaranteed by the United States of America or any agency thereof;




     (2) investments in demand and time deposit accounts, certificates of deposit and money
market deposits maturing within 270 days of the date of
acquisition thereof issued by a bank or trust company which is organized under the
laws of the United States of America, any State thereof or any foreign country recognized
by the United States of America, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $50.0 million (or the foreign currency
equivalent thereof) and has outstanding debt which is rated “A” (or such similar equivalent
rating) or higher by at least one nationally recognized statistical rating organization (as
defined in Rule 436 under the



 









 





33





Securities Act) or any money-market fund sponsored by a
registered broker dealer or mutual fund distributor;




     (3) repurchase obligations with a term of not more than 180 days for underlying
securities of the types described in clause (1) above entered into with a bank meeting the
qualifications described in clause (2) above;




     (4) investments in commercial paper, maturing not more than 180 days after the date of
acquisition, issued by a corporation (other than an Affiliate of the Company) organized and
in existence under the laws of the United States of America or any foreign country
recognized by the United States of America with a rating at the time as of which any
investment therein is made of “P-1” (or higher) according to Moody’s or “A-1” (or higher)
according to Standard and Poor’s;




     (5) investments in securities with maturities of nine months or less from the date of
acquisition issued or fully guaranteed by any state, commonwealth or territory of the
United States of America, or by any political subdivision or taxing authority thereof, and
rated at least “A” by Standard & Poor’s or “A” by Moody’s; and




     (6) investments in money market funds that invest substantially all their assets in
securities of the types described in clauses (1) through (5) above.



          “Three-Year Strip Price” means, as of any date of determination, (a) for the 36-month period
commencing with the month immediately following the month in which the date of determination
occurs, the monthly futures contract prices for crude oil (WTI Cushing) and natural gas (Henry Hub)
for the 36 succeeding months as quoted on New York Mercantile Exchange (or its successor) and (b)
for periods after such 36-month period, the average of such quoted prices for the period from and
including 25th month in such 36-month period through the 36th month in such period;
provided, however, that to the extent there are any Oil and Natural Gas Hedging
Contracts in effect as of the date of determination with respect to the Company and its Restricted
Subsidiaries, the prices specified in such Contracts for any periods after the date of
determination will be used instead of the Three-Year Strip Price for such periods.




          “Trustee” means The Bank of New York Trust Company, N.A. until a successor replaces it and,
thereafter, means the successor.




          “Trust Indenture Act” or “TIA” means the Trust Indenture Act of 1939 (15 U.S.C. §§
77aaa-77bbbb) as in effect on the Issue Date.




          “Trust Officer” means the Chairman of the Board, the President or any other officer or
assistant officer of the Trustee assigned by the Trustee to administer its corporate trust matters.




          “Uniform Commercial Code” means the New York Uniform Commercial Code as in effect from time to
time.





 









 








34




          “Unrestricted Subsidiary” means:





     (1) PetroQuest Oil & Gas L.L.C. and any Subsidiary of the Company that at the time of
determination shall be designated an Unrestricted Subsidiary by the Board of Directors in
the manner provided below; and




     (2) any Subsidiary of an Unrestricted Subsidiary.



The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or
newly formed Subsidiary but excluding PetroQuest L.L.C.) to be an Unrestricted Subsidiary unless
such Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or holds any
Lien on any property of, the Company or any other Subsidiary of the Company that is not a
Subsidiary of the Subsidiary to be so designated; provided, however, that either
(A) the Subsidiary to be so designated has total assets of $1,000 or less or (B) if such Subsidiary
has assets greater than $1,000, such designation would be permitted under Section 4.04.




          The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided, however, that immediately after giving effect to such
designation (A) the Company could Incur $1.00 of additional Indebtedness under Section 4.03(a) and
(B) no Default shall have occurred and be continuing. Any such designation by the Board of
Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the
resolution of the Board of Directors giving effect to such designation and an Officers’ Certificate
certifying that such designation complied with the foregoing provisions.




          “U.S. Government Obligations” means direct obligations (or certificates representing an
ownership interest in such obligations) of the United States of America (including any agency or
instrumentality thereof) for the payment of which the full faith and credit of the United States of
America is pledged and which are not callable at the issuer’s option.




          “Volumetric Production Payments” means production payment obligations recorded as deferred
revenue in accordance with GAAP, together with all undertakings and obligations in connection
therewith.




          “Voting Stock” of a Person means all classes of Capital Stock of such Person then outstanding
and normally entitled (without regard to the occurrence of any contingency) to vote in the election
of directors, managers or trustees thereof.




          “Wholly Owned Subsidiary” means a Restricted Subsidiary all the Capital Stock of which (other
than directors’ qualifying shares) is owned by the Company or one or more other Wholly Owned
Subsidiaries.




          SECTION 1.02. Other Definitions.





 









 








35




	 	 	 	 	 
	 	 	Defined in	 
	Term	 	Section	 
	“Affiliate Transaction”
	 	 	4.07	(a)
	“Bankruptcy Law”
	 	 	6.01	 
	“Change of Control Offer”
	 	 	4.10	(b)
	“covenant defeasance option”
	 	 	8.01	(b)
	“Custodian”
	 	 	6.01	 
	“Event of Default”
	 	 	6.01	 
	“Guaranteed Obligations”
	 	 	10.01	 
	“Initial Lien”
	 	 	4.11	 
	“legal defeasance option”
	 	 	8.01	(b)
	“Offer”
	 	 	4.06	(b)
	“Offer Amount”
	 	 	4.06	(c)(2)
	“Offer Period”
	 	 	4.06	(c)(2)
	“Paying Agent”
	 	 	2.03	 
	“Purchase Date”
	 	 	4.06	(c)(1)
	“Registrar”
	 	 	2.03	 
	“Successor Company”
	 	 	5.01	(a)(1)






          SECTION 1.03. Incorporation by Reference of Trust Indenture Act. This Indenture is
subject to the mandatory provisions of the TIA which are incorporated by reference in and made a
part of this Indenture. The following TIA terms have the following meanings:




          “Commission” means the SEC;




          “indenture securities” means the Securities and the Subsidiary Guaranties;




          “indenture security holder” means a Securityholder;




          “indenture to be qualified” means this Indenture;




          “indenture trustee” or “institutional trustee” means the Trustee; and




          “obligor” on the indenture securities means the Issuers, each Subsidiary Guarantor and any
other obligor on the indenture securities.




          All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA
reference to another statute or defined by SEC rule have the meanings assigned to them by such
definitions.




          SECTION 1.04. Rules of Construction. Unless the context otherwise requires:





     (1) a term has the meaning assigned to it;




     (2) an accounting term not otherwise defined has the meaning assigned to it in
accordance with GAAP;



 









 





36





     (3) “or” is not exclusive;




     (4) “including” means including without limitation;




     (5) words in the singular include the plural and words in the plural include the
singular;




     (6) unsecured Indebtedness shall not be deemed to be subordinate or junior to secured
Indebtedness merely by virtue of its nature as unsecured Indebtedness;




     (7) secured Indebtedness shall not be deemed to be subordinate or junior to any other
secured Indebtedness merely because it has a junior priority with respect to the same
collateral;




     (8) the principal amount of any noninterest bearing or other discount security at any
date shall be the principal amount thereof that would be shown on a balance sheet of the
issuer dated such date prepared in accordance with GAAP;




     (9) the principal amount of any Preferred Stock shall be (A) the maximum liquidation
value of such Preferred Stock or (B) the maximum mandatory redemption or mandatory
repurchase price with respect to such Preferred Stock, whichever is greater; and




     (10) all references to the date the Securities were originally issued shall refer to
the Issue Date.



ARTICLE 2




The Securities




          SECTION 2.01. Form and Dating. Provisions relating to the Initial Securities, the
Private Exchange Securities and the Exchange Securities are set forth in the Rule 144A/Regulation
S/IAI Appendix attached hereto (the “Appendix”) which is hereby incorporated in, and expressly made
part of, this Indenture. The Initial Securities and the Trustee’s certificate of authentication
shall be substantially in the form of Exhibit 1 to the Appendix which is hereby incorporated in,
and expressly made a part of, this Indenture. The Exchange Securities, the Private Exchange
Securities and the Trustee’s certificate of authentication shall be substantially in the form of
Exhibit A, which is hereby incorporated in and expressly made a part of this Indenture. The
Securities may have notations, legends or endorsements required by law, stock exchange rule,
agreements to which the Issuers are subject, if any, or usage (provided that any such notation,
legend or endorsement is in a form acceptable to the Company).
Each Security



 









 








37




shall be dated the
date of its authentication. The terms of the Securities set forth in the Appendix and Exhibit A
are part of the terms of this Indenture.




          SECTION 2.02. Execution and Authentication. Two Officers shall sign the Securities
for each of the Issuers by manual or facsimile signature.




          If an Officer whose signature is on a Security no longer holds that office at the time the
Trustee authenticates the Security, the Security shall be valid nevertheless.




          A Security shall not be valid until an authorized signatory of the Trustee manually signs the
certificate of authentication on the Security. The signature shall be conclusive evidence that the
Security has been authenticated under this Indenture.




          The Trustee may appoint an authenticating agent reasonably acceptable to the Company to
authenticate the Securities. Unless limited by the terms of such appointment, an authenticating
agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture
to authentication by the Trustee includes authentication by such agent. An authenticating agent
has the same rights as any Registrar, Paying Agent or agent for service of notices and demands.




          SECTION 2.03. Registrar and Paying Agent. The Issuers shall maintain an office or
agency where Securities may be presented for registration of transfer or for exchange (the
“Registrar”) and an office or agency where Securities may be presented for payment (the “Paying
Agent”). The Registrar shall keep a register of the Securities and of their transfer and exchange.
The Issuers may have one or more co-registrars and one or more additional paying agents. The term
“Paying Agent” includes any additional paying agent.




          The Issuers shall enter into an appropriate agency agreement with any Registrar, Paying Agent
or co-registrar not a party to this Indenture, which shall
incorporate the terms of the TIA. The agreement shall implement the provisions of this
Indenture that relate to such agent. The Company shall notify the Trustee of the name and address
of any such agent. If the Issuers fail to maintain a Registrar or Paying Agent, the Trustee shall
act as such and shall be entitled to appropriate compensation therefor pursuant to Section 7.07.
The Company or any Wholly Owned Subsidiary incorporated or organized within The United States of
America may act as Paying Agent, Registrar, co-registrar or transfer agent.




          The Issuers initially appoint the Trustee as Registrar and Paying Agent in connection with the
Securities.




          SECTION 2.04. Paying Agent To Hold Money in Trust. Prior to each due date of the
principal and interest on any Security, the Issuers shall deposit with the Paying Agent a sum
sufficient to pay such principal and interest when so becoming due. The Issuers shall require each
Paying Agent (other than the Trustee) to agree in writing that the Paying Agent shall hold in trust
for the benefit of Securityholders or the Trustee all money held by the Paying Agent for the
payment of principal of or interest on the Securities and shall notify the Trustee of any default
by the Issuers in making any such




 









 








38




payment. If the Company or a Subsidiary acts as Paying Agent, it
shall segregate the money held by it as Paying Agent and hold it as a separate trust fund. The
Issuers at any time may require a Paying Agent to pay all money held by it to the Trustee and to
account for any funds disbursed by the Paying Agent. Upon complying with this Section, the Paying
Agent shall have no further liability for the money delivered to the Trustee.




          SECTION 2.05. Securityholder Lists. The Trustee shall preserve in as current a form
as is reasonably practicable the most recent list available to it of the names and addresses of
Securityholders. If the Trustee is not the Registrar, the Company shall furnish to the Trustee, in
writing at least five Business Days before each interest payment date and at such other times as
the Trustee may request in writing, a list in such form and as of such date as the Trustee may
reasonably require of the names and addresses of Securityholders.




          SECTION 2.06. Transfer and Exchange. The Securities shall be issued in registered
form and shall be transferable only upon the surrender of a Security for registration of transfer.
When a Security is presented to the Registrar or a co-registrar with a request to register a
transfer, the Registrar shall register the transfer as requested if the requirements of this
Indenture and Section 8-401(1) of the Uniform Commercial Code are met. When Securities are
presented to the Registrar or a co-registrar with a request to exchange them for an equal principal
amount of Securities of other denominations, the Registrar shall make the exchange as requested if
the same requirements are met. To permit registration of transfers and exchanges, the Issuers
shall execute and the Trustee shall authenticate Securities at the Registrar’s or co-registrar’s
request. The Company may require payment of a sum sufficient to pay all taxes, assessments or
other governmental charges in connection with any transfer or exchange pursuant to this Section
(other than any such transfer taxes, assessments or similar governmental charge payable upon
exchange or transfer pursuant to Sections 3.06, 4.10
and 9.05). The Issuers shall not be required to make and the Registrar need not register
transfers or exchanges of Securities selected for redemption (except, in the case of Securities to
be redeemed in part, the portion thereof not to be redeemed) or any Securities for a period of 15
days before a selection of Securities to be redeemed or 15 days before an interest payment date.




          Prior to the due presentation for registration of transfer of any Security, the Issuers, the
Subsidiary Guarantors, the Trustee, the Paying Agent, the Registrar or any co-registrar may deem
and treat the person in whose name a Security is registered as the absolute owner of such Security
for the purpose of receiving payment of principal of and interest on such Security and for all
other purposes whatsoever, whether or not such Security is overdue, and none of the Issuers, the
Subsidiary Guarantors, the Trustee, the Paying Agent, the Registrar or any co-registrar shall be
affected by notice to the contrary.




          SECTION 2.07. Replacement Securities. If a mutilated Security is surrendered to the
Registrar or if the Holder of a Security claims that the Security has been lost, destroyed or
wrongfully taken, the Issuers shall issue and the Trustee shall authenticate a replacement Security
if the requirements of Section 8-405 of the Uniform Commercial Code are met and the Holder
satisfies any other reasonable requirements of




 









 








39




the Issuers, the Subsidiary Guarantors and the
Trustee. If required by the Trustee or the Issuers, such Holder shall furnish an indemnity bond
sufficient in the judgment of the Issuers and the Trustee to protect the Issuers, the Subsidiary
Guarantors, the Trustee, the Paying Agent, the Registrar and any co-registrar from any loss which
any of them may suffer if a Security is replaced. The Issuers and the Trustee may charge the
Holder for their expenses in replacing a Security.




          Every replacement Security is an additional Obligation of the Issuers.




          SECTION 2.08. Outstanding Securities. Securities outstanding at any time are all
Securities authenticated by the Trustee except for those canceled by it, those delivered to it for
cancellation and those described in this Section as not outstanding. A Security does not cease to
be outstanding because the Company or an Affiliate of the Company holds the Security.




          If a Security is replaced pursuant to Section 2.07, it ceases to be outstanding unless the
Trustee and the Issuers receive proof satisfactory to them that the replaced Security is held by a
protected purchaser (as defined in Section 8-303 of the Uniform Commercial Code).




          If the Paying Agent segregates and holds in trust, in accordance with this Indenture, on a
redemption date or maturity date money sufficient to pay all principal and interest payable on that
date with respect to the Securities (or portions thereof) to be redeemed or maturing, as the case
may be, then on and after that date such Securities (or portions thereof) cease to be outstanding
and interest on them ceases to accrue.




          SECTION 2.09. Temporary Securities. Until definitive Securities are ready for
delivery, the Issuers may prepare and the Trustee shall authenticate temporary Securities.
Temporary Securities shall be substantially in the form of definitive Securities but may have
variations that the Issuers consider appropriate for temporary Securities. Without unreasonable
delay, the Issuers shall prepare and the Trustee shall authenticate definitive Securities and
deliver them in exchange for temporary Securities.




          SECTION 2.10. Cancellation. The Issuers at any time may deliver Securities to the
Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any
Securities surrendered to them for registration of transfer, exchange or payment. The Trustee and
no one else shall cancel and destroy (subject to the record retention requirements of the Exchange
Act) all Securities surrendered for registration of transfer, exchange, payment or cancellation and
deliver a certificate of such destruction to the Company unless the Company directs the Trustee to
deliver canceled Securities to the Company. The Issuers may not issue new Securities to replace
Securities they have redeemed, paid or delivered to the Trustee for cancellation.




          SECTION 2.11. Defaulted Interest. If the Issuers default in a payment of interest on
the Securities, the Issuers shall pay defaulted interest at the rate per annum shown on the
Security (plus interest on such defaulted interest to the extent lawful) in any lawful manner. The
Issuers may pay the defaulted interest to the persons who are




 









 








40




Securityholders on a subsequent
special record date. The Company shall fix or cause to be fixed any such special record date and
payment date to the reasonable satisfaction of the Trustee and shall promptly mail to each
Securityholder a notice that states the special record date, the payment date and the amount of
defaulted interest to be paid.




          SECTION 2.12. CUSIP Numbers, ISINs, etc. The Issuers in issuing the Securities may
use “CUSIP” numbers, ISINs and “Common Code” numbers (in each case if then generally in use) and,
if so, the Trustee shall use “CUSIP” numbers, ISINs and “Common Code” numbers in notices of
redemption as a convenience to Holders; provided, however, that any such notice may
state that no representation is made as to the correctness of such numbers either as printed on the
Securities or as contained in any notice of a redemption and that reliance may be placed only on
the other identification numbers printed on the Securities, and any such redemption shall not be
affected by any defect in or omission of such numbers. The Company shall advise the Trustee in
writing of any change in any “CUSIP” numbers, ISINs or “Common Code” numbers applicable to the
Securities.




          SECTION 2.13. Issuance of Additional Securities. After the Issue Date, the Issuers
shall be entitled, subject to their compliance with Section 4.03, to issue Additional Securities
under this Indenture, which Securities shall have identical terms as the Initial Securities issued
on the Issue Date, other than with respect to the date of issuance and issue price. All the
Securities issued under this Indenture shall be treated as a single class for all purposes of this
Indenture including waivers, amendments, redemptions and offers to purchase.




          With respect to any Additional Securities, the Company and PELLC shall set forth in
resolutions of the Board of Directors and the governing body of PELLC, respectively, and an
Officers’ Certificate, a copy of each which shall be delivered to the Trustee, the following
information:





     (1) the aggregate principal amount of such Additional Securities to be authenticated
and delivered pursuant to this Indenture and the provision of Section 4.03 that the Issuers
are relying on to issue such Additional Securities;




     (2) the issue price, the issue date and the CUSIP number of such Additional
Securities; provided, however, that no Additional Securities may be issued
at a price that would cause such Additional Securities to have “original issue discount”
within the meaning of Section 1273 of the Code; and




     (3) whether such Additional Securities shall be Initial Securities or shall be issued
in the form of Exchange Securities as set forth in Exhibit A.




 










 






41




ARTICLE 3




Redemption




          SECTION 3.01. Notices to Trustee. If the Issuers elect to redeem Securities pursuant
to paragraph 5 of the Securities, the Company shall, on its behalf and
on behalf of PELLC, notify the Trustee in writing of the redemption date, the principal amount
of Securities to be redeemed and the paragraph of the Securities pursuant to which the redemption
will occur.




          The Company shall give the notice to the Trustee provided for in this Section at least 45 days
before the redemption date unless the Trustee consents to a shorter period. Such notice shall be
accompanied by an Officers’ Certificate and an Opinion of Counsel from the Company to the effect
that such redemption will comply with the conditions herein.




          SECTION 3.02. Selection of Securities To Be Redeemed. If fewer than all the
Securities are to be redeemed, the Trustee shall select the Securities to be redeemed pro rata to
the extent practicable. The Trustee shall make the selection from outstanding Securities not
previously called for redemption. Securities and portions of them the Trustee selects shall be in
principal amounts of $1,000 or a whole multiple of $1,000. Provisions of this Indenture that
apply to Securities called for redemption also apply to portions of Securities called for
redemption. The Trustee shall notify the Company promptly of the Securities or portions of
Securities to be redeemed.




          SECTION 3.03. Notice of Redemption. At least 30 days but not more than 60 days before
a date for redemption of Securities, the Issuers shall mail a notice of redemption by first-class
mail to each Holder of Securities to be redeemed at such Holder’s registered address.





     The notice shall identify the Securities to be redeemed and shall state:




     (1) the redemption date;




     (2) the redemption price;




     (3) the name and address of the Paying Agent;




     (4) that Securities called for redemption must be surrendered to the Paying Agent to
collect the redemption price;




     (5) if fewer than all the outstanding Securities are to be redeemed, the
identification and principal amounts of the particular Securities to be redeemed;



 









 





42





     (6) that, unless the Issuers default in making such redemption payment, interest on
Securities (or portion thereof) called for redemption ceases to accrue on and after the
redemption date;




     (7) the “CUSIP” number, ISIN or “Common Code” number, if any, printed on the
Securities being redeemed; and




     (8) that no representation is made as to the correctness or accuracy of the “CUSIP”
number, ISIN, or “Common Code” number, if any, listed in such notice or printed on the
Securities.



          At the Company’s request, the Trustee shall give the notice of redemption in the Issuers’
names and at the Issuers’ expense. In such event, the Issuers shall provide the Trustee with the
information required by this Section.




          SECTION 3.04. Effect of Notice of Redemption. Once notice of redemption is mailed,
Securities called for redemption become due and payable on the redemption date and at the
redemption price stated in the notice and from and after such redemption date (unless the Company
defaults in the payment of the redemption price and accrued and unpaid interest), such Securities
will cease to bear interest. Upon surrender to the Paying Agent, such Securities shall be paid at
the redemption price stated in the notice, plus accrued interest to the redemption date (subject to
the right of Holders of record on the relevant record date to receive interest due on the related
interest payment date), and such Securities shall be canceled by the Trustee. Failure to give
notice or any defect in the notice to any Holder shall not affect the validity of the notice to any
other Holder.




          SECTION 3.05. Deposit of Redemption Price. Prior to the redemption date, the Issuers
shall deposit with the Paying Agent (or, if the Company or a Subsidiary is the Paying Agent, shall
segregate and hold in trust) money sufficient to pay the redemption price of and accrued interest
on all Securities to be redeemed on that date other than Securities or portions of Securities
called for redemption which have been delivered by the Company to the Trustee for cancellation.




          SECTION 3.06. Securities Redeemed in Part. Upon surrender of a Security that is
redeemed in part, the Issuers shall execute and the Trustee shall authenticate for the Holder (at
the Issuers’ expense) a new Security equal in principal amount to the unredeemed portion of the
Security surrendered.




ARTICLE 4




Covenants




          SECTION 4.01. Payment of Securities. The Issuers shall pay the principal of and
interest on the Securities on the dates and in the manner provided in the




 









 








43



Securities and in this
Indenture. Principal and interest shall be considered paid on the date due if on such date the
Trustee or the Paying Agent holds in accordance with this Indenture money in immediately available
funds sufficient to pay all principal and interest then due.




          The Issuers shall pay interest on overdue principal at the rate specified therefor in the
Securities, and it shall pay interest on overdue installments of interest at the same rate to the
extent lawful.




          SECTION 4.02. SEC Reports. Whether or not the Company is subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Issuers shall file with the SEC
(subject to the next sentence) and provide the Trustee and
Securityholders with such annual and other reports as are specified in Sections 13 and 15(d)
of the Exchange Act and applicable to a U.S. Person subject to such Sections, such reports to be so
filed and provided at the times specified for the filings of such reports under such Sections and
containing all the information, audit reports and exhibits required for such reports. If at any
time, the Issuers are not subject to the periodic reporting requirements of the Exchange Act for
any reason, the Issuers shall nevertheless continue filing the reports specified in the preceding
sentence with the SEC within the time periods required unless the SEC shall not accept such a
filing. The Issuers agree that they shall not take any action for the purpose of causing the SEC
not to accept any such filings. If, notwithstanding the foregoing, the SEC shall not accept such
filings for any reason, the Issuers shall post the reports specified in the preceding sentence on
the Company’s website within the time periods that would apply if the Issuers were required to file
those reports with the SEC. At any time that any of the Company’s Subsidiaries are Unrestricted
Subsidiaries, then, unless the operations, assets, liabilities and cash flows of the Unrestricted
Subsidiaries are, in aggregate, immaterial, the quarterly and annual financial information required
by the preceding paragraph shall include a reasonably detailed presentation, either on the face of
the financial statements or in the footnotes thereto, and in “Management’s Discussion and Analysis
of Financial Condition and Results of Operations”, of the financial condition and results of
operations of the Company and its Restricted Subsidiaries separate from the financial condition and
results of operations of the Unrestricted Subsidiaries of the Company.




          In addition, the Issuers shall furnish to the Holders of the Securities and to prospective
investors, upon the requests of such Holders, any information required to be delivered pursuant to
Rule 144A(d)(4) under the Securities Act so long as the Securities are not freely transferable
under the Securities Act.




          SECTION 4.03. Limitation on Indebtedness. (a) The Company shall not, and shall not
permit any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness;
provided, however, that the Issuers and the Subsidiary Guarantors shall be entitled
to Incur Indebtedness if, on the date of such Incurrence and after giving effect thereto on a pro
forma basis (1) the Consolidated Coverage Ratio exceeds 2.5 to 1 and (2) the Adjusted ACNTA to
Indebtedness Ratio exceeds 2.0 to 1.





 









 








44




          (b) Notwithstanding Section 4.03(a), the Company and the Restricted Subsidiaries shall be
entitled to Incur any or all of the following Indebtedness:





     (1) Indebtedness Incurred by the Issuers and Subsidiary Guarantors pursuant to any
Credit Agreement; provided, however, that, immediately after giving effect
to any such Incurrence, the aggregate principal amount of all Indebtedness Incurred under
this clause (1) and then outstanding does not exceed the greater of (A) $75.0 million less
the sum of all principal payments with respect to such Indebtedness pursuant to Section
4.06(a)(3)(A) and (B) 20% of ACNTA;




     (2) Indebtedness owed to and held by the Company or a Restricted Subsidiary;
provided, however, that (A) any subsequent issuance or transfer of
any Capital Stock which results in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than to the
Company or a Restricted Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Indebtedness by the obligor thereon, (B) if either Issuer is the obligor
on such Indebtedness and the holder of such Indebtedness is neither an Issuer nor a
Subsidiary Guarantor, such Indebtedness is expressly subordinated in right of payment to
all obligations with respect to the Securities, and (C) if a Subsidiary Guarantor is the
obligor on such Indebtedness and the holder of such Indebtedness is neither an Issuer nor a
Subsidiary Guarantor, such Indebtedness is expressly subordinated in right of payment to
all obligations of such Subsidiary Guarantor with respect to its Subsidiary Guaranty;
provided further, however, that nothing in the foregoing clauses (B) or (C)
prohibit the repayment of such Indebtedness at maturity or otherwise in compliance with the
terms of this Indenture;




     (3) the Securities (other than any Additional Securities);




     (4) Indebtedness outstanding on the Issue Date (other than Indebtedness described in
Section 4.03(b) (1), (2) or (3));




     (5) Indebtedness of a Restricted Subsidiary Incurred and outstanding on or prior to
the date on which such Subsidiary was acquired by the Company (other than Indebtedness
Incurred in connection with, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related transactions pursuant
to which such Subsidiary became a Subsidiary or was acquired by the Company);
provided, however, that on the date of such acquisition and after giving
pro forma effect thereto, the Issuers would have been entitled to Incur at least $1.00 of
additional Indebtedness pursuant to Section 4.03(a);




     (6) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to Section
4.03(a) or pursuant to Section 4.03(b)(3), (4), (5) or this



 









 





45





Section 4.03(b)(6);
provided, however, that to the extent such Refinancing Indebtedness
directly or indirectly Refinances Indebtedness of a Subsidiary Incurred pursuant to
4.03(b)(5), such Refinancing Indebtedness shall be Incurred only by such Subsidiary;
provided further, however, that the Existing Second Lien Term Loan shall
not be Refinanced pursuant to this Section 4.03(b)(6);




     (7) Hedging Obligations consisting of Interest Rate Agreements directly related to
Indebtedness permitted to be Incurred by the Company and the Restricted Subsidiaries
pursuant to this Indenture;




     (8) Hedging Obligations consisting of Oil and Natural Gas Hedging Contracts and
Currency Agreements entered into in the ordinary course of business for the purpose of
limiting risks that arise in the ordinary course of business of the Company and its
Restricted Subsidiaries;




     (9) obligations in respect of completion, performance, bid and surety bonds and
completion guarantees, insurance obligations or bonds and other similar bonds and
obligations provided by the Company or any Restricted Subsidiary in the ordinary course of
business or letters of credit providing support for any such obligations or bonds;




     (10) Non-Recourse Purchase Money Indebtedness;




     (11) Indebtedness arising from the honoring by a bank or other financial institution
of a check, draft or similar instrument drawn against insufficient funds in the ordinary
course of business; provided, however, that such Indebtedness is
extinguished promptly following its Incurrence;




     (12) Indebtedness consisting of the Subsidiary Guaranty of a Subsidiary Guarantor and
any Guarantee by an Issuer or a Subsidiary Guarantor of Indebtedness Incurred pursuant to
Section 4.03(b)(3), (4), (7), (8) or (9) or pursuant to Section 4.03(b)(6) to the extent
the Refinancing Indebtedness Incurred thereunder directly or indirectly Refinances
Indebtedness Incurred pursuant to Section 4.03(a) or pursuant to Section 4.03(b)(3) or (4);




     (13) In-kind obligations relating to oil and natural gas balancing obligations arising
in the ordinary course of business; and




     (14) Indebtedness of the Company or of any of its Subsidiary Guarantors in an
aggregate principal amount which, when taken together with all other Indebtedness of the
Company and its Subsidiary Guarantors outstanding on the date of such Incurrence (other
than Indebtedness permitted by Section 4.03(b)(1) through (13) above or Section 4.03(a))
does not exceed $15.0 million.



 









 





46




          (c) Notwithstanding Section 4.03(b), neither the Issuers nor any Subsidiary Guarantor shall
Incur any Indebtedness pursuant to Section 4.03(b) if the proceeds thereof are used, directly or
indirectly, to Refinance any Subordinated Obligations of the Issuers or any Subsidiary Guarantor
unless such Indebtedness shall be subordinated to the Securities or the applicable Subsidiary
Guaranty to at least the same extent as such Subordinated Obligations.




          (d) For purposes of determining compliance with this Section 4.03:





     (1) any Indebtedness remaining outstanding under the Credit Agreement after the
application of the net proceeds from the sale of the Securities on the Issue Date shall be
treated as Incurred on the Issue Date under Section 4.03(b)(1);




     (2) in the event that an item of Indebtedness (or any portion thereof) meets the
criteria of more than one of the types of Indebtedness described above, the Company, in its
sole discretion, shall classify such item of Indebtedness (or any portion thereof) at the
time of Incurrence and shall only be required to include the amount and type of such
Indebtedness in one of the above clauses; provided, however, that any
Indebtedness originally classified as Incurred pursuant to
Section 4.03(b)(13) may later be reclassified as having been Incurred pursuant to
Section 4.03(a) to the extent that such reclassified Indebtedness could be Incurred
pursuant to Section 4.03(a) at the time of such reclassification; provided further,
however, that any Indebtedness originally classified as Incurred pursuant to any
clause of Section 4.03(b) may later be reclassified as having been Incurred pursuant to any
other clause of Section 4.03(b) above to the extent that such reclassified Indebtedness
could be Incurred pursuant to such other clause of Section 4.03(b) at the time of
reclassification; and




     (3) the Company shall be entitled to divide and classify an item of Indebtedness in
more than one of the types of Indebtedness described above.



          SECTION 4.04. Limitation on Restricted Payments. (a) The Company shall not, and
shall not permit any Restricted Subsidiary, directly or indirectly, to make a Restricted Payment if
at the time the Company or such Restricted Subsidiary makes such Restricted Payment:





     (1) a Default shall have occurred and be continuing (or would result therefrom);




     (2) the Company is not entitled to Incur an additional $1.00 of Indebtedness pursuant
to Section 4.03(a); or




     (3) the aggregate amount of such Restricted Payment and all other Restricted Payments
since the Issue Date would exceed the sum of (without duplication):



 









 





47





     (A) 50% of the Consolidated Net Income accrued during the period (treated as
one accounting period) from April 1, 2005 to the end of the most recent fiscal
quarter for which internal financial statements of the Company are available at the
time of determination (or, in case such Consolidated Net Income shall be a deficit,
minus 100% of such deficit); plus




     (B) 100% of the aggregate Net Cash Proceeds and 100% of the Fair Market Value
of securities or other property other than cash (including Capital Stock of Persons
engaged in the Oil and Gas Business that become Restricted Subsidiaries or assets
used in the Oil and Gas Business) received by the Company subsequent to the Issue
Date from the issue or sale of Capital Stock of the Company (other than
Disqualified Stock), other than Capital Stock sold to a Subsidiary of the Company
and other than an issuance or sale to an employee stock ownership plan or to a
trust established by the Company or any of its Subsidiaries for the benefit of
their employees; plus




     (C) 100% of the aggregate Net Cash Proceeds received by the Company subsequent
to the Issue Date from the issue or sale of any Capital Stock of the Company (other
than Disqualified Stock) to an
Employee Stock Purchase Plan; provided, however, that if an
Employee Stock Purchase Plan Incurs any Indebtedness to finance the purchase of
such Capital Stock, such aggregate amount shall be limited to the excess of such
Net Cash Proceeds over the amount of such Indebtedness plus an amount equal to any
increase in the Consolidated Net Worth of the Company resulting from principal
repayments made by an Employee Stock Purchase Plan with respect to such
Indebtedness after the Issue Date; plus




     (D) the amount by which Indebtedness is reduced on the Company’s consolidated
balance sheet upon the conversion or exchange (other than by a Subsidiary of the
Company) subsequent to the Issue Date of any Indebtedness convertible or
exchangeable for Capital Stock (other than Disqualified Stock) of the Company (plus
the amount of any accrued interest then outstanding on such Indebtedness to the
extent the obligation to pay such interest is extinguished less the amount of any
cash, or the Fair Market Value of any property, distributed by the Company upon
such conversion or exchange); provided, however, that the foregoing
amount shall not exceed the Net Cash Proceeds received by the Company or any
Restricted Subsidiary from the sale of such Indebtedness (excluding Net Cash
Proceeds from sales to a Subsidiary of the Company or to an employee stock
ownership plan or to a trust established by the Company or any of its Subsidiaries
for the benefit of their employees); plus



 









 





48





     (E) an amount equal to the sum of (i) the net reduction in the Investments
(other than Permitted Investments) made by the Company or any Restricted Subsidiary
in any Person resulting from repurchases, repayments or redemptions of such
Investments by such Person, proceeds realized on the sale of such Investment and
proceeds representing the return of capital (excluding dividends and
distributions), in each case received by the Company or any Restricted Subsidiary,
and (ii) to the extent such Person is an Unrestricted Subsidiary, the portion
(proportionate to the Company’s equity interest in such Subsidiary) of the Fair
Market Value of the net assets of such Unrestricted Subsidiary at the time such
Unrestricted Subsidiary is designated a Restricted Subsidiary; provided,
however, that to the extent the foregoing sum exceeds, in the case of any
such Person or Unrestricted Subsidiary, the amount of Investments (excluding
Permitted Investments) previously made (and treated as a Restricted Payment) by the
Company or any Restricted Subsidiary in such Person or Unrestricted Subsidiary,
such excess shall not be included in this clause (E) unless the amount represented
by such excess has not been and shall not be taken into account in one of the
foregoing clauses (A)-(D); plus




     (F) $5.0 million.




     (b) Section 4.04(a) shall not prohibit:




     (1) the making of any Restricted Payment (including a dividend) within 60 days after
the date the Company or Restricted Subsidiary became legally or contractually obligated to
make such Restricted Payment (including the declaration of a dividend), if at the date of
becoming so legally or contractually bound, such Restricted Payment would have complied
with the provisions of this Indenture (and such Restricted Payment shall be deemed to be
made on the date of becoming so legally or contractually bound for purposes of any
calculation required by this Section 4.04); provided, however, that such
Restricted Payments shall be included in the calculation of the amount of Restricted
Payments unless otherwise excluded pursuant to Section 4.04(b)(2)-(9);




     (2) the redemption, repurchase, retirement, defeasance or other acquisition of any
Subordinated Obligation of the Company or any Subsidiary Guarantor or of any Capital Stock
of the Company or any Restricted Subsidiary in exchange for, or out of the Net Cash
Proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company)
of, Capital Stock of the Company (other than Disqualified Stock); provided,
however, that (A) the amount of any such Net Cash Proceeds that are utilized for
any such redemption, repurchase, retirement, defeasance or other acquisition shall be
excluded from Section 4.04(a)(3)(B) and (C) and (B) such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded in the calculation of the
amount of Restricted Payments;



 









 





49





     (3) the defeasance, redemption, repurchase, retirement or other acquisition of any
Subordinated Obligations of the Company or of any Subsidiary Guarantor with the Net Cash
Proceeds from an Incurrence of any Subordinated Obligations permitted to be Incurred under
Section 4.03; provided, however, that such defeasance, redemption,
repurchase, retirement or other acquisition shall be excluded in the calculation of
Restricted Payments;




     (4) so long as no Default has occurred and is continuing, the repurchase, redemption
or other acquisition or retirement for value of any Capital Stock of the Company or any
Restricted Subsidiary of the Company held by any employees, former employees, directors or
former directors of Company or any of its Restricted Subsidiaries (or heirs, estates or
other permitted transferees of such employees or directors) pursuant to any agreements
(including employment agreements), management equity subscription agreement or stock option
agreements or plans (or amendments thereto), approved by the Board of Directors, under
which such individuals purchase or sell or are granted the right to purchase or sell shares
of Capital Stock; provided, however, that the aggregate price paid for all
such repurchased, redeemed, acquired or retired Capital Stock shall not exceed $2.0 million
in any twelve-month period; provided further, however, that such
repurchase, redemption or other acquisition or retirement for value shall be excluded in
the calculation of the amount of Restricted Payments;




     (5) repurchases or other acquisitions for value of Capital Stock deemed to occur upon
the exercise or exchange of stock options, warrants or other convertible securities if such
Capital Stock represents a portion of the exercise or exchange price thereof or made in
lieu of withholding taxes in connection with any such exercise or exchange;
provided, however, that such repurchases or other acquisitions for value
shall be excluded in the calculation of the amount of Restricted Payments;




     (6) so long as no Default has occurred and is continuing, upon the occurrence of a
Change of Control or an Asset Disposition and within 60 days after the completion of the
offer to repurchase the Securities under Section 4.10 or Section 4.06 (including the
purchase of all Securities tendered), any purchase, repurchase, redemption, defeasance,
acquisition or other retirement for value of Subordinated Obligations required under the
terms thereof as a result of such Change of Control or Asset Disposition at a purchase or
redemption price not to exceed 101% of the outstanding principal amount thereof, plus
accrued and unpaid interest thereon, if any; provided, however, that such
purchase, repurchase, redemption, defeasance, acquisition or other retirement for value
shall be excluded in the calculation of the amount of Restricted Payments;




     (7) so long as no Default has occurred or is continuing, the purchase by the Company
of fractional shares arising out of stock dividends, splits or business combinations;
provided, however, that such purchases shall be excluded in the calculation
of the amount of Restricted Payments;



 









 





50





     (8) the declaration and payments of dividends on Disqualified Stock issued pursuant to
Section 4.03; provided, however, that at the time of declaration of such
dividend, no Default shall have occurred and be continuing (or result therefrom);
provided further, however, that such dividends shall be excluded in the
calculation of the amount of Restricted Payments; or




     (9) payments of intercompany subordinated Indebtedness, the Incurrence of which was
permitted under Section 4.03(b)(2); provided, however, that no Default has
occurred and is continuing or would otherwise result therefrom; provided further,
however, that such payments shall be excluded in the calculation of the amount of
Restricted Payments.



          The amount of all Restricted Payments (other than cash) shall be the Fair Market Value on the
date the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by
the Company or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment
is made or deemed made.




          For purposes of determining compliance with this Section 4.04, if a Restricted Payment meets
the criteria of more than one of the types of Restricted Payments described in Section
4.04(b)(1)-(9), the Company, in its sole discretion, shall be entitled to order and classify such
Restricted Payment in any manner in compliance with this Section 4.04.




          In computing Consolidated Net Income under Section 4.04(a)(3)(A) above, (1) the Company shall
use audited financial statements for the portions of the relevant period for which audited
financial statements are available on the date of determination and unaudited financial statements
and other current financial data based on the books and records of the Company for the remaining
portion of such period and (2) the Company shall be permitted to rely in good faith on the
financial statements and other financial data derived from the books and records of the Company
that are available on the date of determination.




          SECTION 4.05. Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company shall not, and shall not permit any Restricted Subsidiary to, create
or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction
on the ability of any Restricted Subsidiary to (a) pay dividends or make any other distributions on
its Capital Stock to the Company or a Restricted Subsidiary or pay any Indebtedness owed to the
Issuers, (b) make any loans or advances to the Issuers or (c) transfer any of its property or
assets to the Issuers, except:




          (1) with respect to clauses (a), (b) and (c),





     (A) any encumbrance or restriction pursuant to an agreement (including the
Credit Agreement) in effect at or entered into on the Issue Date;



 









 





51





     (B) any encumbrance or restriction with respect to a Restricted Subsidiary
pursuant to an agreement relating to any Indebtedness Incurred by such Restricted
Subsidiary on or prior to the date on which such Restricted Subsidiary was acquired
by the Company (other than Indebtedness Incurred as consideration in, or to provide
all or any portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such Restricted
Subsidiary became a Restricted Subsidiary or was acquired by the Company) and
outstanding on such date;




     (C) any encumbrance or restriction pursuant to an agreement effecting a
Refinancing of Indebtedness Incurred pursuant to an agreement referred to in clause
(A) or (B) of clause (1) of this Section 4.05 or this clause (C) or contained in
any amendment to an agreement referred to in clause (A) or (B) of clause (1) of
this Section 4.05 or this clause (C); provided, however, that the
encumbrances and restrictions with respect to such Restricted Subsidiary contained
in any such refinancing agreement or amendment are not materially less favorable,
taken as a whole, to the Securityholders than encumbrances and restrictions with
respect to such Restricted Subsidiary contained in such predecessor agreements;




     (D) any encumbrance or restriction with respect to a Restricted Subsidiary
imposed pursuant to an agreement entered into for the sale or
disposition of Capital Stock or assets of such Restricted Subsidiary pending
the closing of such sale or disposition; and




     (E) any encumbrance or restriction on the disposition or distribution of
assets or property, including cash or other deposits, under agreements entered into
in the ordinary course of the Oil and Gas Business of the types described in clause
(2) of the definition of Permitted Business Investments.



          (2) with respect to clause (c) only,





     (A) any encumbrance or restriction consisting of customary subletting,
nonassignment or transfer provisions in leases, licenses, similar agreements,
operating agreements or other agreements customary in the Oil and Gas Business to
the extent such provisions restrict the transfer of the lease, license or similar
agreement or the property subject thereto; and




     (B) any encumbrance or restriction contained in security agreements or
mortgages securing Indebtedness to the extent such encumbrance or restriction
restricts the transfer of the property subject to such security agreements or
mortgages.



 









 





52




          SECTION 4.06. Limitation on Sales of Assets and Subsidiary Stock. (a) The Company
shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, consummate
any Asset Disposition unless:





     (1) the Company or such Restricted Subsidiary receives consideration at the time of
such Asset Disposition at least equal to the Fair Market Value of the shares and assets
subject to such Asset Disposition;




     (2) at least 75% of the consideration thereof received by the Company or such
Restricted Subsidiary is in the form of cash or cash equivalents; and




     (3) an amount equal to 100% of the Net Available Cash from such Asset Disposition is
applied by the Company (or such Restricted Subsidiary, as the case may be)




     (A) first, to the extent the Company elects (or is required by the
terms of any Indebtedness), to prepay, repay, redeem or purchase Senior
Indebtedness of either of the Issuers or of a Subsidiary Guarantor or any
Indebtedness (other than any Disqualified Stock) of any Restricted Subsidiary that
is neither PetroQuest L.L.C. nor a Subsidiary Guarantor (in each case other than
Indebtedness owed to the Company or an Affiliate of the Company) within one year
from the later of the date of such Asset Disposition or the receipt of such Net
Available Cash;




     (B) second, to the extent of the balance of such Net Available Cash
after application in accordance with clause (A), to the extent the Company
elects, to acquire Additional Assets or to make capital expenditures in the
Oil and Natural Gas Business within one year from the later of the date of such
Asset Disposition or the receipt of such Net Available Cash; and




     (C) third, to the extent of the balance of such Net Available Cash
after application in accordance with Section 4.06(a)(3)(A) and (B), to make an
offer to the holders of the Securities (and to holders of other Senior Indebtedness
of the Issuers or of a Subsidiary Guarantor designated by the Company) to purchase
Securities (and such other Senior Indebtedness of the Issuers or of a Subsidiary
Guarantor) pursuant to and subject to the conditions contained in this Indenture;
provided, however, that in connection with any prepayment,
repayment or purchase of Indebtedness pursuant to Section 4.06(a)(3)(A) or this
Section 4.06(a)(3)(C), the Company or such Restricted Subsidiary shall permanently
retire such Indebtedness and shall cause the related loan commitment (if any) to be
permanently reduced in an amount equal to the principal amount so prepaid, repaid
or purchased.



          Notwithstanding the foregoing provisions of this Section, the Company and the Restricted
Subsidiaries shall not be required to apply any Net Available Cash in





 









 








53



accordance with this Section
except to the extent that the aggregate Net Available Cash from all Asset Dispositions which is not
applied in accordance with this Section exceeds $10.0 million. Pending application of Net
Available Cash pursuant to this Section, such Net Available Cash shall be invested in Temporary
Cash Investments or applied to temporarily reduce revolving credit indebtedness.




          For the purposes of this Section, the following are deemed to be cash or cash equivalents:





     (1) the assumption or discharge of Senior Indebtedness of the Issuers or of a
Subsidiary Guarantor (other than obligations in respect of Disqualified Stock of the
Issuers) or any Indebtedness of any Restricted Subsidiary that is neither PetroQuest L.L.C.
nor a Subsidiary Guarantor (other than obligations in respect of Disqualified Stock of such
Restricted Subsidiary) and the release of the Issuers, Subsidiary Guarantor or such
Restricted Subsidiary from all liability on such Indebtedness in connection with such Asset
Disposition; and




     (2) securities received by the Company or any Restricted Subsidiary from the
transferee that are promptly converted by the Company or such Restricted Subsidiary into
cash, to the extent of cash received in that conversion.



          (b) In the event of an Asset Disposition that requires the purchase of Securities (and other
Senior Indebtedness of the Issuers or of a Subsidiary Guarantor) pursuant to Section 4.06(a)(3)(C),
the Issuers shall purchase Securities tendered pursuant to an offer by the Issuers for the
Securities (and such other Senior Indebtedness) at a purchase price of 100% of their principal
amount (or, in the event such other Senior Indebtedness was issued with significant original issue
discount, 100% of the accreted
value thereof) without premium, plus accrued but unpaid interest (or, in respect of such other
Senior Indebtedness, such lesser price, if any, as may be provided for by the terms of such Senior
Indebtedness) in accordance with the procedures (including prorating in the event of
oversubscription) set forth in Section 4.06(c). If the aggregate purchase price of the securities
tendered exceeds the Net Available Cash allotted to their purchase, the Issuers shall select the
securities to be purchased on a pro rata basis but in round denominations, which in the case of the
Securities shall be denominations of $1,000 principal amount or multiples thereof. The Issuers
shall not be required to make such an offer to purchase Securities pursuant to this Section if the
Net Available Cash available therefor (and for the purchase of such other Senior Indebtedness) is
less than $10.0 million (which lesser amount shall be carried forward for purposes of determining
whether such an offer is required with respect to the Net Available Cash from any subsequent Asset
Disposition). Upon completion of such an offer to purchase, Net Available Cash shall be deemed to
be reduced by the aggregate amount of such offer.




          (c) (1) Promptly, and in any event within 10 days after the Issuers become obligated to make
an Offer, the Issuers shall deliver to the Trustee and send, by first-class mail to each Holder, a
written notice stating that the Holder may elect to have his Securities purchased by the Issuers
either in whole or in part (subject to prorating as described in Section 4.06(b) in the event the
Offer is oversubscribed) in integral multiples




 









 








54



of $1,000 of principal amount, at the applicable
purchase price. The notice shall specify a purchase date not less than 30 days nor more than 60
days after the date of such notice (the “Purchase Date”) and shall contain such information
concerning the business of the Company which the Company in good faith believes will enable such
Holders to make an informed decision (which at a minimum will include (A) the most recently filed
Annual Report on Form 10-K (including audited consolidated financial statements) of the Company,
the most recent subsequently filed Quarterly Report on Form 10-Q and any Current Report on Form 8-K
of the Company filed subsequent to such Quarterly Report, other than Current Reports describing
Asset Dispositions otherwise described in the offering materials (or corresponding successor
reports), (B) a description of material developments in the Company’s business subsequent to the
date of the latest of such Reports, and (C) if material, appropriate pro forma
financial information) and all instructions and materials necessary to tender Securities pursuant
to the Offer, together with the information contained in clause (3).




          (2) Not later than the date upon which written notice of an Offer is delivered to the Trustee
as provided below, the Company shall deliver to the Trustee an Officers’ Certificate as to (A) the
amount of the Offer (the “Offer Amount”), including information as to any other Senior Indebtedness
included in the Offer, (B) the allocation of the Net Available Cash from the Asset Dispositions
pursuant to which such Offer is being made and (C) the compliance of such allocation with the
provisions of Section 4.06(a) and (b). On such date, the Issuers shall also irrevocably deposit
with the Trustee or with a Paying Agent (or, if either Issuer is acting as Paying Agent, segregate
and hold in trust) in Temporary Cash Investments, maturing on or before the last day prior to the
Purchase Date or on the Purchase Date if funds are immediately available by open of business, an
amount equal to the Offer Amount to be held for payment in accordance with the provisions of this
Section. If the Offer includes other Senior
Indebtedness, the deposit described in the preceding sentence may be made with any other
paying agent pursuant to arrangements satisfactory to the Trustee. Upon the expiration of the
period for which the Offer remains open (the “Offer Period”), the Company shall deliver to the
Trustee for cancellation the Securities or portions thereof which have been properly tendered to
and are to be accepted by the Issuers. The Trustee shall, on the Purchase Date, mail or deliver
payment (or cause the delivery of payment) to each tendering Holder in the amount of the purchase
price. In the event that the aggregate purchase price of the Securities delivered by the Company
to the Trustee is less than the Offer Amount applicable to the Securities, the Trustee shall
deliver the excess to the Issuers immediately after the expiration of the Offer Period.




          (3) Holders electing to have a Security purchased shall be required to surrender the
Security, with an appropriate form duly completed, to the Issuers at the address specified in the
notice at least three Business Days prior to the Purchase Date. Holders shall be entitled to
withdraw their election if the Trustee or the Company receives not later than one Business Day
prior to the Purchase Date, a telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Security which was delivered for purchase by the Holder and a
statement that such Holder is withdrawing his election to have such Security purchased. Holders
whose




 









 








55



Securities are purchased only in part shall be issued new Securities equal in principal
amount to the unpurchased portion of the Securities surrendered.




          (4) At the time the Company delivers Securities to the Trustee which are to be accepted for
purchase, the Company shall also deliver an Officers’ Certificate stating that such Securities are
to be accepted by the Company pursuant to and in accordance with the terms of this Section. A
Security shall be deemed to have been accepted for purchase at the time the Trustee, directly or
through an agent, mails or delivers payment therefor to the surrendering Holder.




          (d) The Issuers shall comply, to the extent applicable, with the requirements of Section 14(e)
of the Exchange Act and any other securities laws or regulations in connection with the repurchase
of Securities pursuant to this Section. To the extent that the provisions of any securities laws
or regulations conflict with provisions of this Section, the Issuers shall comply with the
applicable securities laws and regulations and shall not be deemed to have breached its obligations
under this Section by virtue of its compliance with such securities laws or regulations.




          SECTION 4.07. Limitation on Affiliate Transactions. (a) The Company shall not, and
shall not permit any Restricted Subsidiary to, enter into or permit to exist any transaction
(including the purchase, sale, lease or exchange of any property, employee compensation
arrangements or the rendering of any service) with, or for the benefit of, any Affiliate of the
Company (an “Affiliate Transaction”) unless:





     (1) the terms of the Affiliate Transaction are no less favorable to the Company or
such Restricted Subsidiary than those that could be obtained at the time of the Affiliate
Transaction in arm’s-length dealings with a Person who is not an Affiliate;




     (2) if such Affiliate Transaction involves an amount in excess of $5.0 million, the
terms of the Affiliate Transaction are set forth in writing and a majority of the directors
of the Company disinterested with respect to such Affiliate Transaction have determined in
good faith that the criteria set forth in clause (1) are satisfied and have approved the
relevant Affiliate Transaction as evidenced by a resolution of the Board of Directors; and




     (3) if such Affiliate Transaction involves an amount in excess of $15.0 million, the
Board of Directors shall also have received a written opinion from an Independent Qualified
Party to the effect that such Affiliate Transaction is fair, from a financial standpoint,
to the Company and its Restricted Subsidiaries or is not less favorable to the Company and
its Restricted Subsidiaries than could reasonably be expected to be obtained at the time in
an arm’s-length transaction with a Person who was not an Affiliate.




     (b) The provisions of Section 4.07(a) shall not prohibit:



 









 





56





     (1) any Investment (other than a Permitted Investment) or other Restricted Payment, in
each case permitted to be made pursuant to Section 4.04(a);




     (2) any employment agreement or other employee compensation plan or arrangement in
existence on the Issue Date or entered into thereafter in the ordinary course of business
including any issuance of securities, or other payments, awards or grants in cash,
securities or otherwise pursuant to, or the funding of, employment arrangements, stock
options and stock ownership plans approved by the Board of Directors;




     (3) loans or advances to employees in the ordinary course of business in accordance
with the past practices of the Company or its Restricted Subsidiaries, but in any event not
to exceed $1.0 million in the aggregate outstanding at any one time;




     (4) the payment of reasonable fees to directors of the Company and its Restricted
Subsidiaries who are not employees of the Company or its Restricted Subsidiaries;




     (5) any transaction with the Company, a Restricted Subsidiary or joint venture or
similar entity (excluding an Unrestricted Subsidiary) which would constitute an Affiliate
Transaction solely because the Company or a Restricted Subsidiary owns an equity interest
in or otherwise controls such Restricted Subsidiary, joint venture or similar entity;




     (6) indemnities of officers, directors and employees of the Company or any Restricted
Subsidiary consistent with applicable charter, by-law or statutory provisions;




     (7) the issuance or sale of any Capital Stock (other than Disqualified Stock) of the
Company;




     (8) any transaction with an Unrestricted Subsidiary to the extent such transaction is
in the ordinary course of business of the Company and its Restricted Subsidiaries and of
such Unrestricted Subsidiary; and




     (9) any transaction with Affiliates pursuant to arrangements in existence on the Issue
Date pursuant to which those Affiliates own, or are entitled to acquire, working,
overriding royalty or other similar interests in particular properties operated by the
Company or any Restricted Subsidiary or in which any of the Company or one or more
Restricted Subsidiaries also own an interest.



          SECTION 4.08. Limitation on Line of Business. The Company shall not, and shall not
permit any Restricted Subsidiary, to engage in any material respect in any business other than a
Related Business.





 









 








57




          SECTION 4.09. Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. The Company





     (1) shall not, and shall not permit any Restricted Subsidiary to, sell, lease,
transfer or otherwise dispose of any Capital Stock of any Restricted Subsidiary to any
Person (other than the Company or a Wholly Owned Subsidiary), and




     (2) shall not permit any Restricted Subsidiary to issue any of its Capital Stock
(other than, if necessary, shares of its Capital Stock constituting directors’ or other
legally required qualifying shares) to any Person (other than to the Company or a Wholly
Owned Subsidiary),




unless




     (A) immediately after giving effect to such issuance, sale or other
disposition, neither the Company nor any of its Subsidiaries own any Capital Stock
of such Restricted Subsidiary; or




     (B) immediately after giving effect to such issuance, sale or other
disposition, such Restricted Subsidiary would no longer constitute a Restricted
Subsidiary and any Investment in such Person remaining after giving effect thereto
is treated as a new Investment by the Company and such Investment would be
permitted to be made under Section 4.04 if made on the date of such issuance, sale
or other disposition.



          For purposes of this Section 4.09, the creation of a Lien on any Capital Stock of a Restricted
Subsidiary to secure Indebtedness of the Company or any of its Restricted Subsidiaries shall not be
deemed to be a violation of this Section 4.09; provided, however, that any sale or
other disposition by the secured party of such Capital Stock following foreclosure of its Lien
shall be subject to this Section 4.09.




          SECTION 4.10. Change of Control. (a) Upon the occurrence of a Change of Control,
each Holder shall have the right to require that the Issuers purchase
such Holder’s Securities at a purchase price in cash equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of
holders of record on the relevant record date to receive interest on the relevant interest payment
date), in accordance with the terms contemplated in Section 4.10(b).




          (b) Within 30 days following any Change of Control, the Issuers shall mail a notice to each
Holder with a copy to the Trustee (the “Change of Control Offer”) stating:





     (1) that a Change of Control has occurred and that such Holder has the right to
require the Issuers to purchase such Holder’s Securities at a purchase



 









 





58





price in cash equal
to 101% of the principal amount thereof on the date of purchase, plus accrued and unpaid
interest, if any, to the date of purchase (subject to the right of Holders of record on the
relevant record date to receive interest on the relevant interest payment date);




     (2) the circumstances and relevant facts regarding such Change of Control (including
information with respect to pro forma historical income, cash flow and
capitalization, in each case after giving effect to such Change of Control);




     (3) the purchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); and




     (4) the instructions, as determined by the Company, consistent with this Section, that
a Holder must follow in order to have its Securities purchased.



          (c) Holders electing to have a Security purchased will be required to surrender the Security,
with an appropriate form duly completed, to the Issuers at the address specified in the notice at
least three Business Days prior to the purchase date. Holders will be entitled to withdraw their
election if the Trustee or the Company receives not later than one Business Day prior to the
purchase date, a telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Security which was delivered for purchase by the Holder and a
statement that such Holder is withdrawing his election to have such Security purchased.




          (d) On the purchase date, all Securities purchased by the Issuers under this Section shall be
delivered by the Company to the Trustee for cancellation, and the Issuers shall pay the purchase
price plus accrued and unpaid interest, if any, to the Holders entitled thereto.




          (e) Notwithstanding the foregoing provisions of this Section, the Issuers shall not be
required to make a Change of Control Offer following a Change of Control if a third party makes the
Change of Control Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in this Section applicable to a Change of Control Offer made by the Issuers
and purchases all Securities validly tendered and not withdrawn under such Change of Control Offer.




          (f) The Issuers shall comply, to the extent applicable, with the requirements of Section 14(e)
of the Exchange Act and any other securities laws or regulations in connection with the repurchase
of Securities pursuant to this Section. To the extent that the provisions of any securities laws
or regulations conflict with provisions of this Section, the Issuers shall comply with the
applicable securities laws and regulations and shall not be deemed to have breached its obligations
under this Section by virtue of its compliance with such securities laws or regulations.




          SECTION 4.11. Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur or permit to exist any Lien (the “Initial
Lien”) of any nature whatsoever on any of its properties (including




 









 








59



Capital Stock of a Restricted
Subsidiary), whether owned at the Issue Date or thereafter acquired, securing any Indebtedness,
other than Permitted Liens, without effectively providing that the Securities shall be secured
equally and ratably with (or prior to) the obligations so secured for so long as such obligations
are so secured.




          Any Lien created for the benefit of the Holders of the Securities pursuant to the preceding
sentence shall provide by its terms that such Lien shall be automatically and unconditionally
released and discharged upon the release and discharge of the Initial Lien.




          SECTION 4.12. Limitation on Sale/Leaseback Transactions. The Company shall not, and
shall not permit any Restricted Subsidiary to, enter into any Sale/ Leaseback Transaction with
respect to any property unless:





     (1) the Company or such Restricted Subsidiary would be entitled to (A) Incur
Indebtedness in an amount equal to the Attributable Debt with respect to such
Sale/Leaseback Transaction pursuant to Section 4.03 and (B) create a Lien on such property
securing such Attributable Debt without equally and ratably securing the Securities
pursuant to Section 4.11;




     (2) the net proceeds received by the Company or any Restricted Subsidiary in
connection with such Sale/Leaseback Transaction are at least equal to the Fair Market Value
of such property; and




     (3) the Company applies the proceeds of such transaction in compliance with Section
4.06.



          SECTION 4.13. Future Guarantors. The Company shall cause each domestic Restricted
Subsidiary to, and each Foreign Subsidiary that enters into a Guarantee of any Indebtedness of an
Issuer or of a Restricted Subsidiary (other than a Foreign Subsidiary that Guarantees Indebtedness
Incurred by another Foreign Subsidiary) to, in each case, at the same time, execute and deliver to
the Trustee a Guaranty Agreement pursuant to which such Restricted Subsidiary shall Guarantee
payment of the Securities on the same terms and conditions as those set forth in this Indenture.




          SECTION 4.14. Compliance Certificate. The Company shall deliver to the Trustee within
120 days after the end of each fiscal year of the Company an Officers’
Certificate stating that in the course of the performance by the signers of their duties as
Officers of the Company they would normally have knowledge of any Default and whether or not the
signers know of any Default that occurred during such period. If they do, the certificate shall
describe the Default, its status and what action the Company is taking or proposes to take with
respect thereto. The Company also shall comply with TIA § 314(a)(4), the certificate referred to
in such section of the TIA to be delivered to the Trustee within 120 days after the end of each
fiscal year of the Company. For purposes of this Section 4.14, the “fiscal year” of the Company
means a calendar year ending December 31.





 









 








60




          SECTION 4.15. Further Instruments and Acts. Upon request of the Trustee, the Issuers
will execute and deliver such further instruments and do such further acts as may be reasonably
necessary or proper to carry out more effectively the purpose of this Indenture.




ARTICLE 5




Successor Company




          SECTION 5.01. Merger and Consolidation. (a) The Company shall not consolidate with
or merge with or into, or convey, transfer or lease, in one transaction or a series of
transactions, directly or indirectly, all or substantially all its assets to, any Person, unless:





     (1) the resulting, surviving or transferee Person (the “Successor Company”) shall be a
Person organized and existing under the laws of the United States of America, any State
thereof or the District of Columbia and the Successor Company (if not an the Company) shall
expressly assume, by an indenture supplemental thereto, executed and delivered to the
Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the
Securities and this Indenture;




     (2) immediately after giving pro forma effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any Subsidiary as a
result of such transaction as having been Incurred by such Successor Company or such
Subsidiary at the time of such transaction), no Default shall have occurred and be
continuing;




     (3) immediately after giving pro forma effect to such transaction, the Successor
Company would be able to Incur an additional $1.00 of Indebtedness pursuant to Section
4.03(a);




     (4) the Company shall have delivered to the Trustee an Officers’ Certificate and an
Opinion of Counsel, each stating that such consolidation, merger or transfer and such
supplemental indenture (if any) comply with this Indenture; and




     (5) the Company shall have delivered to the Trustee an Opinion of Counsel to the
effect that the Holders will not recognize income, gain or loss for Federal income tax
purposes as a result of such transaction and will be subject to Federal income tax on the
same amounts, in the same manner and at the same times as would have been the case if such
transaction had not occurred;



 









 





61



provided, however, that clause (3) shall not be applicable to (A) a Restricted
Subsidiary consolidating with, merging into or transferring all or part of its properties and
assets to the Company, (B) the Company merging with an Affiliate of the Company solely for the
purpose and with the sole effect of reincorporating the Company in another jurisdiction in the
United States or (C) as long as PetroQuest L.L.C. is at the time a Restricted Subsidiary of the
Company, the consolidation or merger of the Company with or into PetroQuest L.L.C. or the transfer
of all or part of the properties of the Company to PetroQuest L.L.C.




          For purposes of this Section 5.01, the sale, lease, conveyance, assignment, transfer or other
disposition of all or substantially all of the properties and assets of one or more Subsidiaries of
the Company, which properties and assets, if held by the Company instead of such Subsidiaries,
would constitute all or substantially all of the properties and assets of the Company on a
consolidated basis, shall be deemed to be the transfer of all or substantially all of the
properties and assets of the Company.




          The Successor Company shall be the successor to the Company and shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under this Indenture, and
the predecessor Company, except in the case of a lease, shall be released from the obligation to
pay the principal of and interest on the Securities.




          (b) The Company shall not permit PetroQuest L.L.C. or any Subsidiary Guarantor to consolidate
with or merge with or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all of its assets to any Person unless:





     (1) the resulting, surviving or transferee Person (if not PetroQuest L.L.C. or such
Subsidiary, as the case may be) shall be a Person organized and existing under the laws of
the jurisdiction under which PetroQuest L.L.C. or such Subsidiary was organized or under
the laws of the United States of America, or any State thereof or the District of Columbia,
and such Person (if not PetroQuest L.L.C. or such Subsidiary Guarantor) shall expressly
assume, by a supplemental indenture (if such Person is consolidating or merging with, or
acquiring all or substantially all the assets of, PetroQuest L.L.C.) or by a Guaranty
Agreement (if such Person is consolidating or merging with, or acquiring all or
substantially all the assets of, any Subsidiary Guarantor), all the obligations of
PetroQuest L.L.C. under this Indenture or of such Subsidiary, if any, under its Subsidiary
Guaranty, as the case may be; provided, however, that the foregoing shall not apply
in the case of a Subsidiary Guarantor (x) that has been disposed of in its entirety to
another Person (other than to the Company or an Affiliate of the Company),
whether through a merger, consolidation or sale of Capital Stock or assets or (y)
that, as a result of the disposition of all or a portion of its Capital Stock, ceases to be
a Subsidiary, in both cases, if in connection therewith the Company provides an Officers’
Certificate to the Trustee to the effect that the Company shall comply with its obligations
under Section 4.06 in respect of such disposition;



 









 





62





     (2) immediately after giving effect to such transaction or transactions on a pro forma
basis (and treating any Indebtedness which becomes an obligation of the resulting,
surviving or transferee Person as a result of such transaction as having been issued by
such Person at the time of such transaction), no Default shall have occurred and be
continuing; and




     (3) the Company delivers to the Trustee an Officers’ Certificate and an Opinion of
Counsel, each stating that such consolidation, merger or transfer and such supplemental
indenture or Guaranty Agreement, if any, complies with this Indenture.



ARTICLE 6




Defaults and Remedies




          SECTION 6.01. Events of Default. An “Event of Default” occurs if:





     (1) the Issuers default in any payment of interest on any Security when the same
becomes due and payable, and such default continues for a period of 30 days;




     (2) the Issuers (A) default in the payment of the principal of any Security when the
same becomes due and payable at its Stated Maturity, upon optional redemption, upon
declaration of acceleration or otherwise, or (B) fail to purchase Securities when required
pursuant to this Indenture or the Securities;




     (3) the Company fails to comply with Section 5.01;




     (4) the Company or PELLC fails to comply with Section 4.02, 4.03, 4.04, 4.05, 4.06,
4.07, 4.08, 4.09, 4.10, 4.11, 4.12 or 4.13 (other than a failure to purchase Securities
when required under Section 4.06 or 4.10) and such failure continues for 30 days after the
notice specified below;




     (5) the Company, PELLC or any Subsidiary Guarantor fails to comply with any of its
agreements contained in the Securities or this Indenture (other than those referred to in
clause (1), (2), (3) or (4) above) and such failure continues for 60 days after the notice
specified below;




     (6) Indebtedness of the Company, PELLC, any Subsidiary Guarantor or any Significant
Subsidiary is not paid within any applicable grace period after
final maturity or is accelerated by the holders thereof because of a default and the
total amount of such Indebtedness unpaid or accelerated exceeds $5 million, or its foreign
currency equivalent at the time;



 









 





63





     (7) the Company, PELLC, any Subsidiary Guarantor or any Significant Subsidiary
pursuant to or within the meaning of any Bankruptcy Law:




     (A) commences a voluntary case;




     (B) consents to the entry of an order for relief against it in an involuntary
case;




     (C) consents to the appointment of a Custodian of it or for any substantial
part of its property; or




     (D) makes a general assignment for the benefit of its creditors;




or takes any comparable action under any foreign laws relating to insolvency;




     (8) a court of competent jurisdiction enters an order or decree under any Bankruptcy
Law that:




     (A) is for relief against the Company, PELLC, any Subsidiary Guarantor or any
Significant Subsidiary in an involuntary case;




     (B) appoints a Custodian of the Company, PELLC, any Subsidiary Guarantor or
any Significant Subsidiary or for any substantial part of its property; or




     (C) orders the winding up or liquidation of the Company, PELLC, any Subsidiary
Guarantor or any Significant Subsidiary;




or any similar relief is granted under any foreign laws and the order or decree remains
unstayed and in effect for 60 days;




     (9) any judgment or decree for the payment of money in excess of $5 million or its
foreign currency equivalent at the time such judgment or decree is entered against the
Company, PELLC, any Subsidiary Guarantor or any Significant Subsidiary, remains outstanding
for a period of 60 consecutive days following the entry of such judgment or decree and is
not discharged, waived or the execution thereof stayed; or




     (10) any Subsidiary Guaranty ceases to be in full force and effect (other than in
accordance with the terms of such Subsidiary Guaranty) or any Subsidiary Guarantor denies
or disaffirms its obligations under its Subsidiary Guaranty (other than in accordance with
the terms of such Subsidiary Guaranty).



          The foregoing will constitute Events of Default whatever the reason for any such Event of
Default and whether it is voluntary or involuntary or is effected by





 









 








64





operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body.



          The term “Bankruptcy Law” means Title 11, United States Code, or any similar Federal
or state law for the relief of debtors. The term “Custodian” means any receiver, trustee,
assignee, liquidator, custodian or similar official under any Bankruptcy Law.




          A Default under clauses (4) or (5) is not an Event of Default until the Trustee or the holders
of at least 25% in principal amount of the outstanding Securities notify the Company of the Default
and the Company does not cure such Default within the time specified after receipt of such notice.
Such notice must specify the Default, demand that it be remedied and state that such notice is a
“Notice of Default”.




          The Company shall deliver to the Trustee, within 30 days after the occurrence thereof, written
notice in the form of an Officers’ Certificate of any Event of Default under clause (6) or (10) and
any event which with the giving of notice or the lapse of time would become an Event of Default
under clause (4), (5) or (9), its status and what action the Company is taking or proposes to take
with respect thereto.




          SECTION 6.02. Acceleration. If an Event of Default (other than an Event of Default
specified in Section 6.01(7) or (8) with respect to an Issuer) occurs and is continuing, the
Trustee by notice to the Company, or the Holders of at least 25% in principal amount of the
Securities by notice to the Company and the Trustee, may declare the principal of and accrued but
unpaid interest on all the Securities to be due and payable. Upon such a declaration, such
principal and interest shall be due and payable immediately. If an Event of Default specified in
Section 6.01(7) or (8) with respect to an Issuer occurs, the principal of and interest on all the
Securities shall ipso facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any Securityholders. The Holders of a majority in
principal amount of the Securities by notice to the Trustee may rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree and if all existing
Events of Default have been cured or waived except nonpayment of principal or interest that has
become due solely because of acceleration. No such rescission shall affect any subsequent Default
or impair any right consequent thereto.




          SECTION 6.03. Other Remedies. If an Event of Default occurs and is continuing, the
Trustee may pursue any available remedy to collect the payment of principal of or interest on the
Securities or to enforce the performance of any provision of the Securities or this Indenture.




          The Trustee may maintain a proceeding even if it does not possess any of the Securities or
does not produce any of them in the proceeding. A delay or omission by the Trustee or any
Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair
the right or remedy or constitute a waiver of or
acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All
available remedies are cumulative.





 









 








65




          SECTION 6.04. Waiver of Past Defaults. The Holders of a majority in principal amount
of the Securities by notice to the Trustee may waive an existing Default and its consequences
except (a) a Default in the payment of the principal of or interest on a Security, (b) a Default
arising from the failure to redeem or purchase any Security when required pursuant to this
Indenture or (c) a Default in respect of a provision that under Section 9.02 cannot be amended
without the consent of each Securityholder affected. When a Default is waived, it is deemed cured,
but no such waiver shall extend to any subsequent or other Default or impair any consequent right.




          SECTION 6.05. Control by Majority. The Holders of a majority in principal amount of
the Securities may direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or of exercising any trust or power conferred on the Trustee. However,
the Trustee may refuse to follow any direction that conflicts with law or this Indenture or,
subject to Section 7.01, that the Trustee determines is unduly prejudicial to the rights of other
Securityholders or would involve the Trustee in personal liability; provided,
however, that the Trustee may take any other action deemed proper by the Trustee that is
not inconsistent with such direction. Prior to taking any action hereunder, the Trustee shall be
entitled to indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.




          SECTION 6.06. Limitation on Suits. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Securityholder may pursue any remedy with
respect to this Indenture or the Securities unless:





     (1) the Holder gives to the Trustee written notice stating that an Event of Default is
continuing;




     (2) the Holders of at least 25% in principal amount of the Securities make a written
request to the Trustee to pursue the remedy;




     (3) such Holder or Holders offer to the Trustee reasonable security or indemnity
against any loss, liability or expense;




     (4) the Trustee does not comply with the request within 60 days after receipt of the
request and the offer of security or indemnity; and




     (5) the Holders of a majority in principal amount of the Securities do not give the
Trustee a direction inconsistent with the request during such 60-day period.



     A Securityholder may not use this Indenture to prejudice the rights of another Securityholder
or to obtain a preference or priority over another Securityholder. In the event that the
Definitive Securities are not issued to any beneficial owner promptly after the Registrar has
received a request from the Holder of a Global Security to issue
such Definitive Securities to such beneficial owner of its nominee, the Issuers expressly



 









 





66



agree and acknowledge, with respect to the right of any Holder to pursue a remedy pursuant to this
Indenture, the right of such beneficial holder of Securities to pursue such remedy with respect to
the portion of the Global Security that represents such beneficial holder’s Securities as if such
Definitive Securities had been issued.




          SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding any other
provision of this Indenture, the right of any Holder to receive payment of principal of and
interest on the Securities held by such Holder, on or after the respective due dates expressed in
the Securities, or to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of such Holder.




          SECTION 6.08. Collection Suit by Trustee. If an Event of Default specified in Section
6.01(1) or (2) occurs and is continuing, the Trustee may recover judgment in its own name and as
trustee of an express trust against the Issuers for the whole amount then due and owing (together
with interest on any unpaid interest to the extent lawful) and the amounts provided for in Section
7.07.




          SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file such proofs of
claim and other papers or documents as may be necessary or advisable in order to have the claims of
the Trustee and the Securityholders allowed in any judicial proceedings relative to the Issuers,
their creditors or their property and, unless prohibited by law or applicable regulations, may vote
on behalf of the Holders in any election of a trustee in bankruptcy or other Person performing
similar functions, and any Custodian in any such judicial proceeding is hereby authorized by each
Holder to make payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any amount due it for the
reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and its
counsel, and any other amounts due the Trustee under Section 7.07.




          SECTION 6.10. Priorities. If the Trustee collects any money or property pursuant to
this Article 6, it shall pay out the money or property in the following order:





     FIRST: to the Trustee for amounts due under Section 7.07;




     SECOND: to Securityholders for amounts due and unpaid on the Securities for principal
and interest, ratably, without preference or priority of any kind, according to the amounts
due and payable on the Securities for principal and interest, respectively; and




     THIRD: to the Issuers as provided in a written direction from the Company.



          The Trustee may fix a record date and payment date for any payment to Securityholders pursuant
to this Section. At least 15 days before such record date, the Company shall mail to each
Securityholder and the Trustee a notice that states the record date, the payment date and amount to
be paid.




 









 








67




          SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of any right or
remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party litigant in the suit
of an undertaking to pay the costs of the suit, and the court in its discretion may assess
reasonable costs, including reasonable attorneys’ fees, against any party litigant in the suit,
having due regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to
Section 6.07 or a suit by Holders of more than 10% in aggregate principal amount of the Securities.




          SECTION 6.12. Waiver of Stay or Extension Laws. The Issuers (to the extent they may
lawfully do so) shall not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, which may affect the covenants or the performance of this Indenture; and the
Issuers (to the extent that they may lawfully do so) hereby expressly waive all benefit or
advantage of any such law, and shall not hinder, delay or impede the execution of any power herein
granted to the Trustee, but shall suffer and permit the execution of every such power as though no
such law had been enacted.




ARTICLE 7




Trustee




          SECTION 7.01. Duties of Trustee.  (a) If an Event of Default has occurred and is
continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use
the same degree of care in their exercise as a prudent Person would exercise or use under the
circumstances in the conduct of such Person’s own affairs.




          (b) Except during the continuance of an Event of Default:





     (1) the Trustee undertakes to perform such duties and only such duties as are
specifically set forth in this Indenture and no implied covenants or obligations shall be
read into this Indenture against the Trustee; and




     (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to
the truth of the statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this Indenture.



          (c) The Trustee may not be relieved from liability for its own negligent action, its own
negligent failure to act or its own wilful misconduct, except that:





 









 








68





     (1) this paragraph does not limit the effect of paragraph (b) of this Section;




     (2) the Trustee shall not be liable for any error of judgment made in good faith by a
Trust Officer unless it is proved that the Trustee was negligent in ascertaining the
pertinent facts; and




     (3) the Trustee shall not be liable with respect to any action it takes or omits to
take in good faith in accordance with a direction received by it pursuant to Section 6.05.




     (4) No provision of this Indenture shall require the Trustee to expend or risk its own
funds or otherwise incur financial liability in the performance of any of its duties
hereunder or in the exercise of any of its rights or powers, if it shall have reasonable
grounds to believe that repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it.



          (d) Every provision of this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b) and (c) of this Section.




          (e) The Trustee shall not be liable for interest on any money received by it except as the
Trustee may agree in writing with the Company.




          (f) Money held in trust by the Trustee need not be segregated from other funds except to the
extent required by law.




          (g) Every provision of this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this Section and to the
provisions of the TIA.




          SECTION 7.02. Rights of Trustee. (a) The Trustee may rely on any document believed
by it to be genuine and to have been signed or presented by the proper person. The Trustee need
not investigate any fact or matter stated in the document.




          (b) Before the Trustee acts or refrains from acting, it may require an Officers’ Certificate
or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take
in good faith in reliance on the Officers’ Certificate or Opinion of Counsel.




          (c) The Trustee may act through agents and shall not be responsible for the misconduct or
negligence of any agent appointed with due care.




          (d) The Trustee shall not be liable for any action it takes or omits to take in good faith
which it believes to be authorized or within its rights or powers.




          (e) The Trustee may consult with counsel, and the advice or opinion of counsel with respect to
legal matters relating to this Indenture and the Securities shall be full and complete
authorization and protection from liability in respect to any action



 









 





69



taken, omitted or suffered by
it hereunder in good faith and in accordance with the advice or opinion of such counsel.




          (f) The Trustee shall not be deemed to have notice of any Default or Event of Default, except
a Default under Sections 6.01(i) or 6.01(ii), unless written notice of any event which is in fact
such a Default or Event of Default is received by a Trust Officer at its office described in
Section 11.02 herein from either of the Issuers or the Holders of 25% in aggregate principal amount
of the outstanding Securities, and such notice references the specific Default or Event of Default,
the Securities and this Indenture and, in the absence of any such notice, the Trustee may
conclusively assume that no such Default or Event of Default exists.




          SECTION 7.03. Individual Rights of Trustee. The Trustee in its individual or any
other capacity may become the owner or pledgee of Securities and may otherwise deal with the
Company or its Affiliates with the same rights it would have if it were not Trustee. Any Paying
Agent, Registrar, co-registrar or co-paying agent may do the same with like rights. However, the
Trustee must comply with Sections 7.10 and 7.11.




          SECTION 7.04. Trustee’s Disclaimer. The Trustee shall not be responsible for and
makes no representation as to the validity or adequacy of this Indenture or the Securities, it
shall not be accountable for the Issuers’ use of the proceeds from the Securities, and it shall not
be responsible for any statement of the Issuers in this Indenture or in any document issued in
connection with the sale of the Securities or in the Securities other than the Trustee’s
certificate of authentication.




          SECTION 7.05. Notice of Defaults. If a Default occurs, is continuing and is known to
the Trustee, the Trustee shall mail to each Securityholder notice of the Default within 90 days
after it occurs. Notwithstanding the immediately preceding sentence, except in the case of a
Default in the payment of principal of or interest on any Security (including payments pursuant to
the mandatory redemption provisions of such Security, if any), the Trustee may withhold the notice
if and so long as a committee of its Trust Officers in good faith determines that withholding the
notice is not opposed to the interests of the Securityholders.




          SECTION 7.06. Reports by Trustee to Holders. As promptly as practicable after each
May 15 beginning with May 15, 2006, and in any event prior to July 15 in each year, the Trustee
shall mail to each Securityholder a brief report dated as of July 15 that complies with TIA §
313(a). During the same time period specified above, the Trustee also shall comply with TIA §
313(b), which section relates to the release or substitution of certain property from the lien of
this Indenture and advances made by the Trustee.




          A copy of each report at the time of its mailing to Securityholders shall be filed with the
SEC and each stock exchange (if any) on which the Securities are listed. The Company agrees to
notify promptly the Trustee whenever the Securities become listed on any stock exchange and of any
delisting thereof.





 









 








70




          SECTION 7.07. Compensation and Indemnity. The Issuers shall pay to the Trustee from
time to time reasonable compensation for its services. The Trustee’s
compensation shall not be limited by any law on compensation of a trustee of an express trust.
The Issuers shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses
incurred or made by it, including costs of collection, in addition to the compensation for its
services. Such expenses shall include the reasonable compensation and expenses, disbursements and
advances of the Trustee’s agents, counsel, accountants and experts. The Issuers shall indemnify
the Trustee against any and all loss, liability or expense (including attorneys’ fees) incurred by
it in connection with the administration of this trust and the performance of its duties hereunder.
The Trustee shall notify the Issuers promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Issuers shall not relieve the Issuers of their obligations
hereunder. The Issuers shall defend the claim and the Trustee may have separate counsel and the
Issuers shall pay the fees and expenses of such counsel. The Issuers need not reimburse any
expense or indemnify against any loss, liability or expense incurred by the Trustee through the
Trustee’s own wilful misconduct, negligence or bad faith.




          To secure the Issuers’ payment obligations in this Section, the Trustee shall have a lien
prior to the Securities on all money or property held or collected by the Trustee other than money
or property held in trust to pay principal of and interest on particular Securities.




          The Issuers’ payment obligations pursuant to this Section shall survive the discharge of this
Indenture. When the Trustee incurs expenses after the occurrence of a Default specified in Section
6.01(7) or (8) with respect to an Issuer, the expenses are intended to constitute expenses of
administration under the Bankruptcy Law.




          SECTION 7.08. Replacement of Trustee. The Trustee may resign at any time by so
notifying the Company. The Holders of a majority in principal amount of the Securities may remove
the Trustee by so notifying the Trustee and may appoint a successor Trustee. The Company shall
remove the Trustee if:





     (1) the Trustee fails to comply with Section 7.10;




     (2) the Trustee is adjudged bankrupt or insolvent;




     (3) a receiver or other public officer takes charge of the Trustee or its property; or




     (4) the Trustee otherwise becomes incapable of acting.



          If the Trustee resigns, is removed by the Company or by the Holders of a majority in principal
amount of the Securities and such Holders do not reasonably promptly appoint a successor Trustee,
or if a vacancy exists in the office of Trustee for any reason (the Trustee in such event being
referred to herein as the retiring Trustee), the Company shall promptly appoint a successor
Trustee.





 









 








71




          A successor Trustee shall deliver a written acceptance of its appointment to the retiring
Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall
become effective, and the successor Trustee shall have all the rights,
powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a
notice of its succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien provided for in
Section 7.07.




          If a successor Trustee does not take office within 60 days after the retiring Trustee resigns
or is removed, the retiring Trustee or the Holders of 10% in principal amount of the Securities may
petition any court of competent jurisdiction for the appointment of a successor Trustee.




          If the Trustee fails to comply with Section 7.10, any Securityholder may petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.




          Notwithstanding the replacement of the Trustee pursuant to this Section, the Issuers’
obligations under Section 7.07 shall continue for the benefit of the retiring Trustee.




          SECTION 7.09. Successor Trustee by Merger. If the Trustee consolidates with, merges
or converts into, or transfers all or substantially all its corporate trust business or assets to,
another corporation or banking association, the resulting, surviving or transferee corporation
without any further act shall be the successor Trustee.




          In case at the time such successor or successors by merger, conversion or consolidation to the
Trustee shall succeed to the trusts created by this Indenture any of the Securities shall have been
authenticated but not delivered, any such successor to the Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Securities so authenticated; and in
case at that time any of the Securities shall not have been authenticated, any successor to the
Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the
name of the successor to the Trustee; and in all such cases such certificates shall have the full
force which it is anywhere in the Securities or in this Indenture provided that the certificate of
the Trustee shall have.




          SECTION 7.10. Eligibility; Disqualification. The Trustee shall at all times satisfy
the requirements of TIA § 310(a). The Trustee shall have a combined capital and surplus of at
least $50,000,000 as set forth in its most recent published annual report of condition. The
Trustee shall comply with TIA § 310(b); provided, however, that there shall be
excluded from the operation of TIA § 310(b)(1) any indenture or indentures under which other
securities or certificates of interest or participation in other securities of the Issuers are
outstanding if the requirements for such exclusion set forth in TIA § 310(b)(1) are met.





 










 






72




          SECTION 7.11. Preferential Collection of Claims Against Company. The Trustee shall
comply with TIA § 311(a), excluding any creditor relationship listed in
TIA § 311(b). A Trustee who has resigned or been removed shall be subject to TIA § 311(a) to
the extent indicated.




ARTICLE 8




Discharge of Indenture; Defeasance




          SECTION 8.01. Discharge of Liability on Securities; Defeasance.
(a) When (1) the Company delivers to the Trustee all outstanding Securities (other than
Securities replaced pursuant to Section 2.07) for cancellation or (2) all outstanding Securities
have become due and payable, whether at maturity or on a redemption date as a result of the mailing
of a notice of redemption pursuant to Article 3 hereof and the Issuers irrevocably deposit with the
Trustee funds sufficient to pay at maturity or upon redemption all outstanding Securities,
including interest thereon to maturity or such redemption date (other than Securities replaced
pursuant to Section 2.07), and if in either case the Issuers pay all other sums payable hereunder
by the Issuers, then this Indenture shall, subject to Section 8.01(c), cease to be of further
effect. The Trustee shall acknowledge satisfaction and discharge of this Indenture on demand of
the Company accompanied by an Officers’ Certificate and an Opinion of Counsel and at the cost and
expense of the Company.




          (b) Subject to Sections 8.01(c) and 8.02, the Issuers at any time may terminate (1) all their
obligations under the Securities and this Indenture (“legal defeasance option”) or (2) their
obligations under Sections 4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12 or 4.13
and the operation of Sections 6.01(4), 6.01(6), 6.01(7), 6.01(8), 6.01(9) and 6.01(10) (but, in the
case of Sections 6.01(7) and (8), with respect only to Significant Subsidiaries and Subsidiary
Guarantors) and the limitations contained in Section 5.01(a)(3) (“covenant defeasance option”).
The Issuers may exercise their legal defeasance option notwithstanding its prior exercise of its
covenant defeasance option.




          If the Issuers exercise their legal defeasance option, payment of the Securities may not be
accelerated because of an Event of Default with respect thereto. If the Issuers exercise their
covenant defeasance option, payment of the Securities may not be accelerated because of an Event of
Default specified in Sections 6.01(4), 6.01(6), 6.01(7), 6.01(8), 6.01(9) and 6.01(10) (but, in the
case of Sections 6.01(7) and (8), with respect only to Significant Subsidiaries and Subsidiary
Guarantors) or because of the failure of the Company to comply with Section 5.01(a)(3). If the
Issuers exercise their legal defeasance option or their covenant defeasance option, each Subsidiary
Guarantor, if any, shall be released from all its obligations with respect to its Subsidiary
Guaranty.




 









 








73




          Upon satisfaction of the conditions set forth herein and upon request of the Company, the
Trustee shall acknowledge in writing the discharge of those obligations that the Company
terminates.




          (c) Notwithstanding clauses (a) and (b) above, the Issuers’ obligations in Sections 2.03,
2.04, 2.05, 2.06, 2.07, 2.08, 7.07 and 7.08 and in this Article 8 shall survive until the
Securities have been paid in full. Thereafter, the Issuers’ obligations in Sections 7.07, 8.04 and
8.05 shall survive.




          SECTION 8.02. Conditions to Defeasance. The Issuers may exercise their legal
defeasance option or their covenant defeasance option only if:





      (1) the Issuers irrevocably deposit in trust with the Trustee money or U.S. Government
Obligations for the payment of principal of and interest on the Securities to maturity or
redemption, as the case may be;




      (2) the Company delivers to the Trustee a certificate from a nationally recognized
firm of independent accountants expressing their opinion that the payments of principal and
interest when due and without reinvestment on the deposited U.S. Government Obligations
plus any deposited money without investment will provide cash at such times and in such
amounts as will be sufficient to pay principal and interest when due on all the Securities
to maturity or redemption, as the case may be;




      (3) 123 days pass after the deposit is made and during the 123-day period no Default
specified in Sections 6.01(7) or (8) with respect to the Issuers occurs which is continuing
at the end of the period;




      (4) the deposit does not constitute a default under any other agreement binding on the
Issuers;




      (5) the Company delivers to the Trustee an Opinion of Counsel to the effect that the
trust resulting from the deposit does not constitute, or is qualified as, a regulated
investment company under the Investment Company Act of 1940;




      (6) in the case of the legal defeasance option, the Company shall have delivered to
the Trustee an Opinion of Counsel stating that since the date of this Indenture (A) the
Company has received from, or there has been published by, the Internal Revenue Service a
ruling, or (B) there has been a change in the applicable Federal income tax law, in either
case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the
Securityholders will not recognize income, gain or loss for Federal income tax purposes as
a result of such deposit and defeasance and will be subject to Federal income tax on the
same amounts, in the same manner and at the same times as would have been the case if such
defeasance had not occurred;



 









 





74





          (7) in the case of the covenant defeasance option, the Company shall have delivered to
the Trustee an Opinion of Counsel to the effect that the Securityholders will not recognize
income, gain or loss for Federal income tax purposes as a result of such deposit and
defeasance and will be subject to Federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such covenant defeasance had
not occurred; and




          (8) the Company delivers to the Trustee an Officers’ Certificate and an Opinion of
Counsel, each stating that all conditions precedent to the defeasance and discharge of the
Securities as contemplated by this Article 8 have been complied with.



          Before or after a deposit, the Issuers may make arrangements satisfactory to the Trustee for
the redemption of Securities at a future date in accordance with Article 3.




          SECTION 8.03. Application of Trust Money. The Trustee shall hold in trust money or
U.S. Government Obligations deposited with it pursuant to this Article 8. It shall apply the
deposited money and the money from U.S. Government Obligations through the Paying Agent and in
accordance with this Indenture to the payment of principal of and interest on the Securities.




          SECTION 8.04. Repayment to Issuers. The Trustee and the Paying Agent shall promptly
turn over to the Issuers upon request any excess money or securities held by them at any time.




          Subject to any applicable abandoned property law, the Trustee and the Paying Agent shall pay
to the Issuers upon request any money held by them for the payment of principal or interest that
remains unclaimed for two years, and, thereafter, Securityholders entitled to the money must look
to the Issuers for payment as general creditors.




          SECTION 8.05. Indemnity for Government Obligations. The Issuers shall pay and shall
indemnify the Trustee against any tax, fee or other charge imposed on or assessed against deposited
U.S. Government Obligations or the principal and interest received on such U.S. Government
Obligations.




          SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable to apply any
money or U.S. Government Obligations in accordance with this Article 8 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, each Issuer’s and each Subsidiary
Guarantor’s obligations under this Indenture, and the Securities shall be revived and reinstated as
though no deposit had occurred pursuant to this Article 8 until such time as the Trustee or Paying
Agent is permitted to apply all such money or U.S. Government Obligations in accordance with this
Article 8; provided, however, that, if the Issuers have made any payment of
interest on or principal of any Securities because of the reinstatement of its obligations, the
Issuers shall be subrogated




 









 








75




to the rights of the Holders of such Securities to receive such payment
from the money or U.S. Government Obligations held by the Trustee or Paying Agent.




ARTICLE 9




Amendments




          SECTION 9.01. Without Consent of Holders. The Issuers, the Subsidiary Guarantors and
the Trustee may amend this Indenture or the Securities without notice to or consent of any
Securityholder:





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




          (2) to comply with Article 5;




          (3) to provide for uncertificated Securities in addition to or in place of
certificated Securities; provided, however, that the uncertificated
Securities are issued in registered form for purposes of Section 163(f) of the Code or in a
manner such that the uncertificated Securities are described in Section 163(f)(2)(B) of the
Code;




          (4) to add Guarantees with respect to the Securities, including any Subsidiary
Guaranties, or to secure the Securities;




          (5) to add to the covenants of the Company, PELLC or any Subsidiary Guarantor for the
benefit of the Holders or to surrender any right or power herein conferred upon the
Company, PELLC or any Subsidiary Guarantor;




          (6) to comply with any requirements of the SEC in connection with qualifying, or
maintaining the qualification of, this Indenture under the TIA;




          (7) to make any change that does not adversely affect the rights of any Securityholder
and any change to conform this Indenture to any terms explicitly described in the
“Description of the Notes” section of the Offering Circular; or




          (8) to make any amendment to the provisions of this Indenture relating to the transfer
and legending of Securities; provided, however, that (a) compliance with
this Indenture as so amended would not result in Securities being transferred in violation
of the Securities Act or any other applicable securities law and (b) such amendment does
not materially and adversely affect the rights of Holders to transfer Securities.



          After an amendment under this Section becomes effective, the Company shall mail to
Securityholders a notice briefly describing such amendment. The failure to




 









 








76




give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment
under this Section.




          SECTION 9.02. With Consent of Holders. The Issuers, the Subsidiary Guarantors and the
Trustee may amend this Indenture or the Securities with the written consent of the Holders of at
least a majority in principal amount of the Securities then outstanding (including consents
obtained in connection with a tender offer or exchange
for the Securities) and any past default or compliance with any provisions may also be waived
with the consent of the Holders of at least a majority in principal amount of the Securities then
outstanding. However, without the consent of each Securityholder affected thereby, an amendment or
waiver may not:





          (1) reduce the amount of Securities whose Holders must consent to an amendment;




          (2) reduce the rate of or extend the time for payment of interest on any Security;




          (3) reduce the principal of or change the Stated Maturity of any Security;




          (4) change the provisions applicable to the redemption of any Security contained in
Article 3 hereto or paragraph 5 of the Securities;




          (5) make any Security payable in money other than that stated in the Security;




          (6) make any changes in the ranking or priority of any Security that would adversely
affect the Securityholders;




          (7) make any change in Section 6.04 or 6.07 or the second sentence of this Section; or




          (8) make any change in, or release other than in accordance with this Indenture, any
Subsidiary Guaranty that would adversely affect the Securityholders.



          It shall not be necessary for the consent of the Holders under this Section to approve the
particular form of any proposed amendment, but it shall be sufficient if such consent approves the
substance thereof.




          After an amendment under this Section becomes effective, the Company shall mail to
Securityholders a notice briefly describing such amendment. The failure to give such notice to all
Securityholders, or any defect therein, shall not impair or affect the validity of an amendment
under this Section.




 









 








77




          SECTION 9.03. Compliance with Trust Indenture Act. Every amendment to this Indenture
or the Securities shall comply with the TIA as then in effect.




          SECTION 9.04. Revocation and Effect of Consents and Waivers. A consent to an
amendment or a waiver by a Holder of a Security shall bind the Holder and every subsequent Holder
of that Security or portion of the Security that evidences the same debt as the consenting Holder’s
Security, even if notation of the consent or waiver is not made on the Security. However, any such
Holder or subsequent Holder may revoke the consent or waiver as to such Holder’s Security or
portion of the Security if the Trustee receives the notice of revocation before the date the
amendment or waiver becomes effective. After an amendment or waiver becomes effective, it shall bind every
Securityholder. An amendment or waiver becomes effective upon the execution of such amendment or
waiver by the Trustee.




          The Company may, but shall not be obligated to, fix a record date for the purpose of
determining the Securityholders entitled to give their consent or take any other action described
above or required or permitted to be taken pursuant to this Indenture. If a record date is fixed,
then notwithstanding the immediately preceding paragraph, those Persons who were Securityholders at
such record date (or their duly designated proxies), and only those Persons, shall be entitled to
give such consent or to revoke any consent previously given or to take any such action, whether or
not such Persons continue to be Holders after such record date. No such consent shall be valid or
effective for more than 120 days after such record date.




          SECTION 9.05. Notation on or Exchange of Securities. If an amendment changes the
terms of a Security, the Trustee may require the Holder of the Security to deliver it to the
Trustee. The Trustee may place an appropriate notation on the Security regarding the changed terms
and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the
Issuers in exchange for the Security shall issue and the Trustee shall authenticate a new Security
that reflects the changed terms. Failure to make the appropriate notation or to issue a new
Security shall not affect the validity of such amendment.




          SECTION 9.06. Trustee To Sign Amendments. The Trustee shall sign any amendment
authorized pursuant to this Article 9 if the amendment does not adversely affect the rights,
duties, liabilities or immunities of the Trustee. If it does, the Trustee may but need not sign
it. In signing such amendment the Trustee shall be entitled to receive indemnity reasonably
satisfactory to it and to receive, and (subject to Section 7.01) shall be fully protected in
relying upon, an Officers’ Certificate and an Opinion of Counsel stating that such amendment is
authorized or permitted by this Indenture.




          SECTION 9.07. Payment for Consent. Neither the Issuers nor any Affiliate of the
Issuers shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of this Indenture or the Securities unless such
consideration is offered to all Holders and is paid




 









 








78




to all Holders that so consent, waive or agree to amend in the time frame set forth in solicitation documents relating to such consent, waiver or
agreement.




ARTICLE 10




Subsidiary Guaranties




          SECTION 10.01. Guaranties. Each Subsidiary Guarantor hereby unconditionally and
irrevocably guarantees, jointly and severally, to each Holder and to the Trustee and its successors
and assigns (a) the full and punctual payment of principal
of and interest on the Securities when due, whether at maturity, by acceleration, by
redemption or otherwise, and all other monetary obligations of the Issuers under this Indenture and
the Securities and (b) the full and punctual performance within applicable grace periods of all
other obligations of the Issuers under this Indenture and the Securities (all the foregoing being
hereinafter collectively called the “Guaranteed Obligations”). Each Subsidiary Guarantor further
agrees that the Guaranteed Obligations may be extended or renewed, in whole or in part, without
notice or further assent from such Subsidiary Guarantor and that such Subsidiary Guarantor will
remain bound under this Article 10 notwithstanding any extension or renewal of any Obligation.




          Each Subsidiary Guarantor waives presentation to, demand of, payment from and protest to the
Issuers of any of the Guaranteed Obligations and also waives notice of protest for nonpayment.
Each Subsidiary Guarantor waives notice of any default under the Securities or the Guaranteed
Obligations. The obligations of each Subsidiary Guarantor hereunder shall not be affected by (1)
the failure of any Holder or the Trustee to assert any claim or demand or to enforce any right or
remedy against the Issuers or any other Person (including any Subsidiary Guarantor) under this
Indenture, the Securities or any other agreement or otherwise; (2) any extension or renewal of any
thereof; (3) any rescission, waiver, amendment or modification of any of the terms or provisions of
this Indenture, the Securities or any other agreement; (4) the release of any security held by any
Holder or the Trustee for the Guaranteed Obligations or any of them; (5) the failure of any Holder
or the Trustee to exercise any right or remedy against any other guarantor of the Guaranteed
Obligations; or (6) except as set forth in Section 10.06, any change in the ownership of such
Subsidiary Guarantor.




          Each Subsidiary Guarantor further agrees that its Subsidiary Guaranty herein constitutes a
guarantee of payment, performance and compliance when due (and not a guarantee of collection) and
waives any right to require that any resort be had by any Holder or the Trustee to any security
held for payment of the Guaranteed Obligations.




          Except as expressly set forth in Sections 8.01(b), 10.02 and 10.06, the obligations of each
Subsidiary Guarantor hereunder shall not be subject to any reduction, limitation, impairment or
termination for any reason, including any claim of waiver, release, surrender, alteration or
compromise, and shall not be subject to any defense of




 









 








79




setoff, counterclaim, recoupment or termination whatsoever or by reason of the invalidity, illegality or unenforceability of the
Guaranteed Obligations or otherwise. Without limiting the generality of the foregoing, the
obligations of each Subsidiary Guarantor herein shall not be discharged or impaired or otherwise
affected by the failure of any Holder or the Trustee to assert any claim or demand or to enforce
any remedy under this Indenture, the Securities or any other agreement, by any waiver or
modification of any thereof, by any default, failure or delay, willful or otherwise, in the
performance of the obligations, or by any other act or thing or omission or delay to do any other
act or thing which may or might in any manner or to any extent vary the risk of such Subsidiary
Guarantor or would otherwise operate as a discharge of such Subsidiary Guarantor as a matter of law
or equity.




          Each Subsidiary Guarantor further agrees that its Guarantee herein shall continue to be
effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of
principal of or interest on any Obligation is rescinded or must otherwise be restored by any Holder
or the Trustee upon the bankruptcy or reorganization of an Issuer or otherwise.




          In furtherance of the foregoing and not in limitation of any other right which any Holder or
the Trustee has at law or in equity against any Subsidiary Guarantor by virtue hereof, upon the
failure of the Issuers to pay the principal of or interest on any Obligation when and as the same
shall become due, whether at maturity, by acceleration, by redemption or otherwise, or to perform
or comply with any other Obligation, each Subsidiary Guarantor hereby promises to and shall, upon
receipt of written demand by the Trustee, forthwith pay, or cause to be paid, in cash, to the
Holders or the Trustee an amount equal to the sum of (A) the unpaid amount of such Guaranteed
Obligations, (B) accrued and unpaid interest on such Guaranteed Obligations (but only to the extent
not prohibited by law) and (C) all other monetary Guaranteed Obligations of the Issuers to the
Holders and the Trustee.




          Each Subsidiary Guarantor further agrees that, as between it, on the one hand, and the Holders
and the Trustee, on the other hand, (i) the maturity of the Guaranteed Obligations hereby may be
accelerated as provided in Article 6 for the purposes of such Subsidiary Guarantor’s Subsidiary
Guaranty herein, notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the Guaranteed Obligations guaranteed hereby, and (ii) in the event of
any declaration of acceleration of such Guaranteed Obligations as provided in Article 6, such
Guaranteed Obligations (whether or not due and payable) shall forthwith become due and payable by
such Subsidiary Guarantor for the purposes of this Section.




          Each Subsidiary Guarantor also agrees to pay any and all costs and expenses (including
reasonable attorneys’ fees) incurred by the Trustee or any Holder in enforcing any rights under
this Section.




          SECTION 10.02. Limitation on Liability. Any term or provision of this Indenture to
the contrary notwithstanding, the maximum aggregate amount of the Guaranteed Obligations guaranteed
hereunder by any Subsidiary Guarantor shall not




 









 








80




exceed the maximum amount that can be hereby guaranteed without rendering this Indenture, as it relates to such Subsidiary Guarantor, voidable
under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally.




          SECTION 10.03. Successors and Assigns. This Article 10 shall be binding upon each
Subsidiary Guarantor and its successors and assigns and shall enure to the benefit of the
successors and assigns of the Trustee and the Holders and, in the event of any transfer or
assignment of rights by any Holder or the Trustee, the rights and privileges conferred upon that
party in this Indenture and in the Securities shall automatically extend to and be vested in such
transferee or assignee, all subject to the terms and conditions of this Indenture.




          SECTION 10.04. No Waiver. Neither a failure nor a delay on the part of either the
Trustee or the Holders in exercising any right, power or privilege under this Article 10 shall
operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or
further exercise of any right, power or privilege. The rights, remedies and benefits of the
Trustee and the Holders herein expressly specified are cumulative and not exclusive of any other
rights, remedies or benefits which either may have under this Article 10 at law, in equity, by
statute or otherwise.




          SECTION 10.05. Modification. No modification, amendment or waiver of any provision of
this Article 10, nor the consent to any departure by any Subsidiary Guarantor therefrom, shall in
any event be effective unless the same shall be in writing and signed by the Trustee, and then such
waiver or consent shall be effective only in the specific instance and for the purpose for which
given. No notice to or demand on any Subsidiary Guarantor in any case shall entitle such
Subsidiary Guarantor to any other or further notice or demand in the same, similar or other
circumstances.




          SECTION 10.06. Release of Subsidiary Guarantor. A Subsidiary Guarantor will be
released from its obligations under this Article 10 (other than any obligation that may have arisen
under Section 10.07)





      (1) upon the sale (including any sale pursuant to any exercise of remedies by a holder
of Indebtedness of the Issuers or of such Subsidiary Guarantor) or other disposition
(including by way of consolidation or merger) of a Subsidiary Guarantor,




      (2) upon the sale or disposition of all or substantially all the assets of such
Subsidiary Guarantor,




      (3) upon the designation of such Subsidiary Guarantor as an Unrestricted Subsidiary in
accordance with the terms of this Indenture,




      (4) at such time as such Subsidiary Guarantor does not have any Indebtedness
outstanding that would have required such Subsidiary Guarantor to



 









 





81








enter into a Guaranty Agreement pursuant to Section 4.13 and the Company provides an Officers’ Certificate to the
Trustee certifying that no such Indebtedness is outstanding and that the Company elects to
have such Subsidiary Guarantor released from this Article 10, or





          (5) upon defeasance of the Securities pursuant to Article 8, or




          (6) upon the full satisfaction of the Issuers’ obligations under this Indenture;




provided, however, that in the case of clauses (1) and (2) above, (i) such
sale or other disposition is made to a Person other than the Issuers or an Affiliate of the
Issuers, (ii) such sale or disposition is otherwise permitted by this Indenture and (iii)
the Company provides an Officers’ Certificate to the Trustee to the effect that the Company
will comply with its obligations under Section 4.06.



At the request of the Company, the Trustee shall execute and deliver an appropriate instrument
evidencing such release.




          SECTION 10.07. Contribution. Each Subsidiary Guarantor that makes a payment under its
Subsidiary Guaranty shall be entitled upon payment in full of all Guaranteed Obligations under this
Indenture to a contribution from each other Subsidiary Guarantor in an amount equal to such other
Subsidiary Guarantor’s pro rata portion of such payment based on the respective net assets of all
the Subsidiary Guarantors at the time of such payment determined in accordance with GAAP.




ARTICLE 11




Miscellaneous




          SECTION 11.01. Trust Indenture Act Controls. If any provision of this Indenture
limits, qualifies or conflicts with another provision which is required to be included in this
Indenture by the TIA, the required provision shall control.




          SECTION 11.02. Notices. Any notice or communication shall be in writing and delivered
in person or mailed by first-class mail addressed as follows:




	 	 	 
	

	 	if to the Issuers or any Subsidiary Guarantor:
	 
	 	 
	

	 	PetroQuest Energy, Inc.

400 E. Kaliste Saloom Road, Suite 6000

Lafayette, Louisiana 70508
	 
	 	 
	

	 	Attention of Chief Financial Officer






 









 






82




	 	 	 
	

	 	if to the Trustee:
	 
	 	 
	

	 	The Bank of New York Trust Company, N.A.

600 North Pearl Street, Suite 420

Dallas, Texas 75201

Attention of Patrick Giordano






          The Issuers, any Subsidiary Guarantor or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.




          Any notice or communication mailed to a Securityholder shall be mailed to the Securityholder
at the Securityholder’s address as it appears on the registration books of the Registrar and shall
be sufficiently given if so mailed within the time prescribed.




          Failure to mail a notice or communication to a Securityholder or any defect in it shall not
affect its sufficiency with respect to other Securityholders. If a notice or communication is
mailed in the manner provided above, it is duly given, whether or not the addressee receives it.




          SECTION 11.03. Communication by Holders with Other Holders. Securityholders may
communicate pursuant to TIA § 312(b) with other Securityholders with respect to their rights under
this Indenture or the Securities. The Issuers, any Subsidiary Guarantor, the Trustee, the
Registrar and anyone else shall have the protection of TIA § 312(c).




          SECTION 11.04. Certificate and Opinion as to Conditions Precedent. Upon any request
or application by the Issuers to the Trustee to take or refrain from taking any action under this
Indenture, the Company shall furnish to the Trustee on its own behalf and on behalf of PELLC:





      (1) an Officers’ Certificate in form and substance reasonably satisfactory to the
Trustee stating that, in the opinion of the signers, all conditions precedent, if any,
provided for in this Indenture relating to the proposed action have been complied with; and




      (2) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee
stating that, in the opinion of such counsel, all such conditions precedent have been
complied with.



          SECTION 11.05. Statements Required in Certificate or Opinion. Each certificate or
opinion with respect to compliance with a covenant or condition provided for in this Indenture
shall include:








      (1) a statement that the individual making such certificate or opinion has read such
covenant or condition;





 









 








83





          (2) a brief statement as to the nature and scope of the examination or investigation
upon which the statements or opinions contained in such certificate or opinion are based;




          (3) a statement that, in the opinion of such individual, he has made such examination
or investigation as is necessary to enable him to express an informed opinion as to whether
or not such covenant or condition has been complied with; and




          (4) a statement as to whether or not, in the opinion of such individual, such covenant
or condition has been complied with.



          SECTION 11.06. When Securities Disregarded. In determining whether the Holders of the
required principal amount of Securities have concurred in any direction, waiver or consent,
Securities owned by the Company or by any Person directly or indirectly controlling or controlled
by or under direct or indirect common control with
the Company shall be disregarded and deemed not to be outstanding, except that, for the
purpose of determining whether the Trustee shall be protected in relying on any such direction,
waiver or consent, only Securities which the Trustee knows are so owned shall be so disregarded.
Also, subject to the foregoing, only Securities outstanding at the time shall be considered in any
such determination.




          SECTION 11.07. Rules by Trustee, Paying Agent and Registrar. The Trustee may make
reasonable rules for action by or a meeting of Securityholders. The Registrar and the Paying Agent
may make reasonable rules for their functions.




          SECTION 11.08. Legal Holidays. If a payment date is a Legal Holiday, payment shall be
made on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the
intervening period. If a regular record date is a Legal Holiday, the record date shall not be
affected.




          SECTION 11.09. Governing Law. This Indenture and the Securities shall be governed by,
and construed in accordance with, the laws of the State of New York.




          SECTION 11.10. No Recourse Against Others. A director, officer, employee,
incorporator or stockholder, as such, of the Issuers or any Subsidiary Guarantor shall not have any
liability for any obligations of the Issuers under the Securities or this Indenture or of such
Subsidiary Guarantor under its Subsidiary Guaranty or this Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. By accepting a Security, each
Securityholder shall waive and release all such liability. The waiver and release shall be part of
the consideration for the issue of the Securities.




          SECTION 11.11. Successors. All agreements of the Issuers in this Indenture and the
Securities shall bind their successors. All agreements of the Trustee in this Indenture shall bind
its successors.




 









 








84




          SECTION 11.12. Multiple Originals. The parties may sign any number of copies of this
Indenture. Each signed copy shall be an original, but all of them together represent the same
agreement. One signed copy is enough to prove this Indenture.




          SECTION 11.13. Table of Contents; Headings. The table of contents, cross-reference
sheet and headings of the Articles and Sections of this Indenture have been inserted for
convenience of reference only, are not intended to be considered a part hereof and shall not modify
or restrict any of the terms or provisions hereof.




 









 








85




          IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed as of the date
first written above.




	 	 	 	 	 	 	 
	 	 	PETROQUEST ENERGY, INC.,
	 
	 	 	 	 	 	 
	

	 	 	 	By	 	 
	

	 	 	 	 	 	     /s/ Charles T. Goodson

	

	 	 	 	 	 	 
	

	 	 	 	 	 	Name: Charles T. Goodson

Title: Chairman, President and 

          Chief Executive Officer
	 
	 	 	 	 	 	 
	 	 	PETROQUEST ENERGY, L.L.C.,
	 
	 	 	 	 	 	 
	

	 	 	 	By	 	 
	

	 	 	 	 	 	     /s/ Charles T. Goodson

	

	 	 	 	 	 	 
	

	 	 	 	 	 	Name: Charles T. Goodson

Title: Chairman, President and

          Chief Executive Officer
	 
	 	 	 	 	 	 
	 	 	PITTRANS INC.,
	 
	 	 	 	 	 	 
	

	 	 	 	By	 	 
	

	 	 	 	 	 	     /s/ Charles T. Goodson

	

	 	 	 	 	 	 
	

	 	 	 	 	 	Name: Charles T. Goodson

Title: Chairman, President and

          Chief Executive Officer
	 
	 	 	 	 	 	 
	 	 	TDC ENERGY L.L.C.,
	 
	 	 	 	 	 	 
	

	 	 	 	By	 	 
	

	 	 	 	 	 	     /s/ Charles T. Goodson

	

	 	 	 	 	 	 
	

	 	 	 	 	 	Name: Charles T. Goodson

Title: Chairman, President and

          Chief Executive Officer
	 
	 	 	 	 	 	 
	 	 	THE BANK OF NEW YORK TRUST COMPANY, N.A.,
	 
	 	 	 	 	 	 
	

	 	 	 	By	 	 
	

	 	 	 	 	 	     /s/ Patrick T. Giordano

	

	 	 	 	 	 	 
	

	 	 	 	 	 	Name: Patrick T. Giordano

Title: Vice President






 









 






RULE 144A/REGULATION S APPENDIX




FOR OFFERINGS TO QUALIFIED INSTITUTIONAL BUYERS PURSUANT



TO RULE 144A AND TO CERTAIN PERSONS IN OFFSHORE



TRANSACTIONS IN RELIANCE ON REGULATION S.




PROVISIONS RELATING TO INITIAL SECURITIES,



PRIVATE EXCHANGE SECURITIES



AND EXCHANGE SECURITIES





	 	1.  	Definitions.






	 	1.1  	Definitions.





     For the purposes of this Appendix the following terms shall have the meanings indicated below:



          “Applicable Procedures” means, with respect to any transfer or transaction involving a
Temporary Regulation S Global Security or beneficial interest therein, the rules and procedures of
the Depository for such a Temporary Regulation S Global Security, to the extent applicable to such
transaction and as in effect from time to time.




          “Definitive Security” means a certificated Initial Security or Exchange Security or Private
Exchange Security bearing, if required, the appropriate restricted securities legend set forth in
Section 2.3(e).




          “Depository” means The Depository Trust Company, its nominees and their respective successors.




          “Distribution Compliance Period”, with respect to any Securities, means the period of 40
consecutive days beginning on and including the later of (i) the day on which such Securities are
first offered to Persons other than distributors (as defined in Regulation S under the Securities
Act) in reliance on Regulation S and (ii) the issue date with respect to such Securities.




          “Exchange Securities” means (1) the 10-3/8% Senior Notes Due 2012 issued pursuant to the
Indenture in connection with a Registered Exchange Offer pursuant to a Registration Rights
Agreement and (2) Additional Securities, if any, issued pursuant to a registration statement filed
with the SEC under the Securities Act.




          “IAI” means an institutional “accredited investor”, as defined in Rule 501(a)(1), (2), (3) and
(7) of Regulation D under the Securities Act.




          “Initial Purchasers” means (1) with respect to the Initial Securities issued on the Issue
Date, Credit Suisse First Boston LLC, JPMorgan Securities, Inc. and Raymond James & Associates,
Inc. and (2) with respect to each issuance of Additional Securities, the Persons purchasing such
Additional Securities under the related Purchase Agreement.




 









 







2





          “Initial Securities” means (1) $125 million aggregate principal amount of 10-3/8% Senior Notes
Due 2012 issued on the Issue Date and (2) Additional Securities, if any, issued in a transaction
exempt from the registration requirements of the Securities Act.




          “Private Exchange” means the offer by the Issuers, pursuant to a Registration Rights
Agreement, to the Initial Purchasers to issue and deliver to each Initial Purchaser, in exchange
for the Initial Securities held by the Initial Purchaser as part of its initial distribution, a
like aggregate principal amount of Private Exchange Securities.




          “Private Exchange Securities” means any 10-3/8% Senior Notes Due 2012 issued in connection
with a Private Exchange.




          “Purchase Agreement” means (1) with respect to the Initial Securities issued on the Issue
Date, the Purchase Agreement dated May 6, 2005, among the Issuers, the Subsidiary Guarantors and
the Initial Purchasers, and (2) with respect to each issuance of Additional Securities, the
purchase agreement or underwriting agreement among the Issuers, the Subsidiary Guarantors and the
Persons purchasing such Additional Securities.




          “QIB” means a “qualified institutional buyer” as defined in Rule 144A.




          “Registered Exchange Offer” means the offer by the Issuers, pursuant to a Registration Rights
Agreement, to certain Holders of Initial Securities, to issue and deliver to such Holders, in
exchange for the Initial Securities, a like aggregate principal amount of Exchange Securities
registered under the Securities Act.




          “Registration Rights Agreement” means (1) with respect to the Initial Securities issued on the
Issue Date, the Registration Rights Agreement dated May 6, 2005, among the Issuers, the Subsidiary
Guarantors and the Initial Purchasers and (2) with respect to each issuance of Additional
Securities issued in a transaction exempt from the registration requirements of the Securities Act,
the registration rights agreement, if any, among the Issuers, the Subsidiary Guarantors and the
Persons purchasing such Additional Securities under the related Purchase Agreement.




          “Rule 144A Securities” means all Securities offered and sold to QIBs in reliance on Rule 144A.




          “Securities” means the Initial Securities, the Exchange Securities and the Private Exchange
Securities, treated as a single class.




          “Securities Act” means the Securities Act of 1933.




          “Securities Custodian” means the custodian with respect to a Global Security (as appointed by
the Depository), or any successor Person thereto and shall initially be the Trustee.




 









 







3






          “Shelf Registration Statement” means the registration statement issued by the Issuers in
connection with the offer and sale of Initial Securities or Private Exchange Securities pursuant to
a Registration Rights Agreement.




          “Transfer Restricted Securities” means Securities that bear or are required to bear the legend
relating to restrictions on transfer relating to the Securities Act set forth in Section 2.3(e)
hereto.





	 	1.2  	Other Definitions.





	 	 	 
	 	 	Defined in
	Term	 	Section:
	“Agent Members”
	 	2.1(b)
	“Global Securities”
	 	2.1(a)
	“IAI Global Security”
	 	2.1(a)
	“Permanent Regulation S Global Security”
	 	2.1(a)
	“Regulation S”
	 	2.1(a)
	“Regulation S Global Security”
	 	2.1(a)
	“Rule 144A”
	 	2.1(a)
	“Rule 144A Global Security”
	 	2.1(a)
	“Temporary Regulation S Global Security”
	 	2.1(a)







	 	2.  	The Securities.





            2.1 (a) Form and Dating. The Initial Securities will be offered and sold by the
Issuers pursuant to a Purchase Agreement. The Initial Securities will be resold initially only to
(i) QIBs in reliance on Rule 144A under the Securities Act (“Rule 144A”) and (ii) Persons other
than U.S. Persons (as defined in Regulation S) in reliance on Regulation S under the Securities Act
(“Regulation S”). Initial Securities may thereafter be transferred to, among others, QIBs, IAIs
and purchasers in reliance on Regulation S, subject to the restrictions on transfer set forth
herein. Initial Securities initially resold pursuant to Rule 144A shall be issued initially in the
form of one or more permanent global Securities in definitive, fully registered form (collectively,
the “Rule 144A Global Security”); Initial Securities initially resold to IAIs shall be issued
initially in the form of one or more permanent global Securities in definitive, fully registered
form (collectively, the “IAI Global Security”); and Initial Securities initially resold pursuant to
Regulation S shall be issued initially in the form of one or more temporary global securities in
fully registered form (collectively, the “Temporary Regulation S Global Security”), in each case
without interest coupons and with the global securities legend and the applicable restricted
securities legend set forth in Exhibit 1 hereto, which shall be deposited on behalf of the
purchasers of the Initial Securities represented thereby with the Securities Custodian and
registered in the name of the Depository or a nominee of the Depository, duly executed by the
Issuers and authenticated by the Trustee as provided in this Indenture. Except as set forth in
this Section 2.1(a), beneficial ownership interests in the Temporary Regulation S Global Security
will not be exchangeable for interests in the Rule 144A Global Security, the IAI



 









 





4







Global Security, a permanent global security (the “Permanent Regulation S Global
Security”, and together with the Temporary Regulation S Global Security, the “Regulation S
Global Security”) or any other Security prior to the expiration of the Distribution Compliance
Period and then, after the expiration of the Distribution Compliance Period, may be exchanged for
interests in a Rule 144A Global Security, an IAI Global Security or the Permanent Regulation S
Global Security only upon certification in form reasonably satisfactory to the Trustee that (i)
beneficial ownership interests in such Temporary Regulation S Global Security are owned either by
non-U.S. persons or U.S. persons who purchased such interests in a transaction that did not require
registration under the Securities Act and (ii) in the case of an exchange for an IAI Global
Security, certification that the interest in the Temporary Regulation S Global Security is being
transferred to an institutional “accredited investor” under the Securities Act that is an
institutional accredited investor acquiring the securities for its own account or for the account
of an institutional accredited investor.




          Beneficial interests in Temporary Regulation S Global Securities or IAI Global Securities may
be exchanged for interests in Rule 144A Global Securities if (1) such exchange occurs in connection
with a transfer of Securities in compliance with Rule 144A and (2) the transferor of the beneficial
interest in the Temporary Regulation S Global Security or the IAI Global Security, as applicable,
first delivers to the Trustee a written certificate (in a form satisfactory to the Trustee) to the
effect that the beneficial interest in the Temporary Regulation S Global Security or the IAI Global
Security, as applicable, is being transferred to a Person (a) who the transferor reasonably
believes to be a QIB, (b) purchasing for its own account or the account of a QIB in a transaction
meeting the requirements of Rule 144A, and (c) in accordance with all applicable securities laws of
the States of the United States and other jurisdictions.




          Beneficial interests in Temporary Regulation S Global Securities and Rule 144A Global
Securities may be exchanged for an interest in IAI Global Securities if (1) such exchange occurs in
connection with a transfer of the securities in compliance with an exemption under the Securities
Act and (2) the transferor of the Regulation S Global Security or Rule 144A Global Security, as
applicable, first delivers to the trustee a written certificate (substantially in the form of
Exhibit 2) to the effect that (A) the Regulation S Global Security or Rule 144A Global Security, as
applicable, is being transferred (a) to an “accredited investor” within the meaning of
501(a)(1),(2),(3) and (7) under the Securities Act that is an institutional investor acquiring the
securities for its own account or for the account of such an institutional accredited investor, in
each case in a minimum principal amount of the securities of $250,000, for investment purposes and
not with a view to or for offer or sale in connection with any distribution in violation of the
Securities Act and (B) in accordance with all applicable securities laws of the States of the
United States and other jurisdictions.




          Beneficial interests in a Rule 144A Global Security or an IAI Global Security may be
transferred to a Person who takes delivery in the form of an interest in a Regulation S Global
Security, whether before or after the expiration of the Distribution Compliance Period, only if the
transferor first delivers to the Trustee a written certificate




 









 







5







(in the form provided in the Indenture) to the effect that such transfer is being made in accordance with Rule 903 or 904 of
Regulation S or Rule 144 (if applicable).




          The Rule 144A Global Security, the IAI Global Security, the Temporary Regulation S Global
Security and the Permanent Regulation S Global Security are collectively referred to herein as
“Global Securities”. The aggregate principal amount of the Global Securities may from time to time
be increased or decreased by adjustments made on the records of the Trustee and the Depository or
its nominee as hereinafter provided.




          (b) Book-Entry Provisions. This Section 2.1(b) shall apply only to a Global Security
deposited with or on behalf of the Depository.




          The Issuers shall execute and the Trustee shall, in accordance with this Section 2.1(b),
authenticate and deliver initially one or more Global Securities that (a) shall be registered in
the name of the Depository for such Global Security or Global Securities or the nominee of such
Depository and (b) shall be delivered by the Trustee to such Depository or pursuant to such
Depository’s instructions or held by the Trustee as custodian for the Depository.




          Members of, or participants in, the Depository (“Agent Members”) shall have no rights under
this Indenture with respect to any Global Security held on their behalf by the Depository or by the
Trustee as the custodian of the Depository or under such Global Security, and the Issuers, the
Trustee and any agent of the Issuers or the Trustee shall be entitled to treat the Depository as
the absolute owner of such Global Security for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall prevent the Issuers, the Trustee or any agent of the Issuers or the
Trustee from giving effect to any written certification, proxy or other authorization furnished by
the Depository or impair, as between the Depository and its Agent Members, the operation of
customary practices of such Depository governing the exercise of the rights of a holder of a
beneficial interest in any Global Security.




          (c) Definitive Securities. Except as provided in this Section 2.1 or Section 2.3 or
2.4, owners of beneficial interests in Global Securities shall not be entitled to receive physical
delivery of Definitive Securities.




          2.2 Authentication. The Trustee shall authenticate and deliver: (1) on the Issue
Date, an aggregate principal amount of $125 million of 10-3/8% Senior Notes Due 2012, (2) any
Additional Securities for an original issue in an aggregate principal amount specified in the
written order of the Issuers pursuant to Section 2.02 of the Indenture and (3) Exchange Securities
or Private Exchange Securities for issue only in a Registered Exchange Offer or a Private Exchange,
respectively, pursuant to a Registration Rights Agreement, for a like principal amount of Initial
Securities, in each case upon a written order of the Issuers signed by two Officers or by an
Officer and either an Assistant Treasurer or an Assistant Secretary of each of the Issuers. Such
order shall specify the amount of the Securities to be authenticated and the date on which the
original issue of Securities is to be authenticated and, in the case of any issuance of




 









 







6







Additional Securities pursuant to Section 2.13 of the Indenture, shall certify that such issuance is in
compliance with Section 4.03 of the Indenture.





	 	2.3  	Transfer and Exchange.





          (a) Transfer and Exchange of Definitive Securities. When Definitive Securities are
presented to the Registrar with a request:





	 	(x)  	to register the transfer of such Definitive Securities; or
	 
	 	(y)  	to exchange such Definitive Securities for an equal principal
amount of Definitive Securities of other authorized denominations,





the Registrar shall register the transfer or make the exchange as requested if its reasonable
requirements for such transaction are met; provided, however, that the Definitive
Securities surrendered for transfer or exchange:





          (i) shall be duly endorsed or accompanied by a written instrument of transfer in form
reasonably satisfactory to the Company and the Registrar, duly executed by the Holder
thereof or its attorney duly authorized in writing; and




          (ii) if such Definitive Securities are required to bear a restricted securities
legend, they are being transferred or exchanged pursuant to an effective registration
statement under the Securities Act, pursuant to Section 2.3(b) or pursuant to clause (A),
(B) or (C) below, and are accompanied by the following additional information and
documents, as applicable:




          (A) if such Definitive Securities are being delivered to the Registrar by a
Holder for registration in the name of such Holder, without transfer, a
certification from such Holder to that effect; or




          (B) if such Definitive Securities are being transferred to the Company, a
certification to that effect; or




          (C) if such Definitive Securities are being transferred (x) pursuant to an
exemption from registration in accordance with Rule 144A, Regulation S or Rule 144
under the Securities Act; or (y) in reliance upon another exemption from the
requirements of the Securities Act: (i) a certification to that effect (in the
form set forth on the reverse of the Security) and (ii) if the Company so requests,
an opinion of counsel or other evidence reasonably satisfactory to it as to the
compliance with the restrictions set forth in the legend set forth in Section
2.3(e)(i).



          (b) Restrictions on Transfer of a Definitive Security for a Beneficial Interest in a
Global Security. A Definitive Security may not be exchanged for a beneficial interest in a
Rule 144A Global Security, an IAI Global Security or a Permanent Regulation S Global Security
except upon satisfaction of the requirements set forth




 









 







7







below. Upon receipt by the Trustee of a Definitive Security, duly endorsed or accompanied by appropriate instruments of transfer, in form
satisfactory to the Trustee, together with:





          (i) certification, in the form set forth on the reverse of the Security, that
such Definitive Security is either (A) being transferred to a QIB in accordance
with Rule 144A, (B) being transferred to an IAI or (C) being transferred after
expiration of the Distribution Compliance Period by a Person who initially
purchased such Security in reliance on Regulation S to a buyer who elects to hold
its interest in such Security in the form of a beneficial interest in the Permanent
Regulation S Global Security; and




          (ii) written instructions directing the Trustee to make, or to direct the
Securities Custodian to make, an adjustment on its books and records with respect
to such Rule 144A Global Security (in the case of a transfer pursuant to clause
(b)(i)(A)), IAI Global Security (in the case of a transfer pursuant to clause
(b)(1)(B)) or Permanent Regulation S Global Security (in the case of a transfer
pursuant to clause (b)(i)(B)) to reflect an increase in the aggregate principal
amount of the Securities represented by the Rule 144A Global Security, IAI Global
Security or Permanent Regulation S Global Security, as applicable, such
instructions to contain information regarding the Depository account to be credited
with such increase,



then the Trustee shall cancel such Definitive Security and cause, or direct the Securities
Custodian to cause, in accordance with the standing instructions and procedures existing between
the Depository and the Securities Custodian, the aggregate principal amount of Securities
represented by the Rule 144A Global Security, IAI Global Security or Permanent Regulation S Global
Security, as applicable, to be increased by the aggregate principal amount of the Definitive
Security to be exchanged and shall credit or cause to be credited to the account of the Person
specified in such instructions a beneficial interest in the Rule 144A Global Security, IAI Global
Security or Permanent Regulation S Global Security, as applicable, equal to the principal amount of
the Definitive Security so canceled. If no Rule 144A Global Securities, IAI Global Securities or
Permanent Regulation S Global Securities, as applicable, are then outstanding, the Issuers shall
issue and the Trustee shall authenticate, upon written order of the Issuers in the form of an
Officers’ Certificate of the Issuers, a new Rule 144A Global Security, IAI Global Security or
Permanent Regulation S Global Security, as applicable, in the appropriate principal amount.





(c) Transfer and Exchange of Global Securities.




          (i) The transfer and exchange of Global Securities or beneficial interests
therein shall be effected through the Depository, in accordance with this Indenture
(including applicable restrictions on transfer set forth herein, if any) and the
procedures of the Depository



 









 




8








therefor. A transferor of a beneficial interest in a
Global Security shall deliver to the Registrar a written order given in accordance
with the Depository’s procedures containing information regarding the participant
account of the Depository to be credited with a beneficial interest in the
Global Security. The Registrar shall, in accordance with such instructions
instruct the Depository to credit to the account of the Person specified in such
instructions a beneficial interest in the Global Security and to debit the account
of the Person making the transfer the beneficial interest in the Global Security
being transferred.




          (ii) If the proposed transfer is a transfer of a beneficial interest in one
Global Security to a beneficial interest in another Global Security, the Registrar
shall reflect on its books and records the date and an increase in the principal
amount of the Global Security to which such interest is being transferred in an
amount equal to the principal amount of the interest to be so transferred, and the
Registrar shall reflect on its books and records the date and a corresponding
decrease in the principal amount of the Global Security from which such interest is
being transferred.




          (iii) Notwithstanding any other provisions of this Appendix (other than the
provisions set forth in Section 2.4), a Global Security may not be transferred as a
whole except by the Depository to a nominee of the Depository or by a nominee of
the Depository to the Depository or another nominee of the Depository or by the
Depository or any such nominee to a successor Depository or a nominee of such
successor Depository.




          (iv) In the event that Global Security is exchanged for Definitive Securities
to Section 2.4 of this Appendix, prior to the consummation of a Registered Exchange
Offer or the effectiveness of a Shelf Registration Statement with respect to such
Securities, such Securities may be exchanged only in accordance with such
procedures as are substantially consistent with the provisions of this Section 2.3
(including the certification requirements set forth on the reverse of the Initial
Securities intended to ensure that such transfers comply with Rule 144A, Regulation
S or another applicable exemption under the Securities Act, as the case may be) and
such other procedures as may from time to time be adopted by the Company.



          (d) Restrictions on Transfer of Temporary Regulation S Global Securities. During the
Distribution Compliance Period, beneficial ownership interests in Temporary Regulation S Global
Securities may only be sold, pledged or transferred in accordance with the Applicable Procedures
and only (i) to the Issuers, (ii) in an offshore transaction in accordance with Regulation S (other
than a transaction resulting in an exchange for an interest in a Permanent Regulation S Global
Security), (iii) pursuant to an effective registration statement under the Securities Act, in each
case in accordance with any applicable securities laws of any State of the United States.




 









 







9






(e) Legend.





          (i) Except as permitted by the following paragraphs (ii), (iii) and (iv), each
Security certificate evidencing the Global Securities (and all
Securities issued in exchange therefor or in substitution thereof), in the
case of Securities offered otherwise than in reliance on Regulation S shall bear a
legend in substantially the following form:




THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED (THE “SECURITIES ACT”), AND THIS SECURITY MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY
NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION
FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE
144A THEREUNDER.




THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE ISSUERS THAT (A)
THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED,
ONLY (I) TO THE ISSUERS, (II) IN THE UNITED STATES TO A PERSON WHOM THE
SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (III) TO AN “ACCREDITED INVESTOR” WITHIN THE
MEANING OF RULE 501(A)(1),(2),(3) OR (7) UNDER THE SECURITIES ACT THAT,
PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS
SECURITY (THE FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH
TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF SECURITIES LESS
THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (IV) OUTSIDE THE UNITED
STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (V) PURSUANT TO EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR



 









 





10





(VI)PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT,
IN EACH OF CASES (I) THROUGH (VI) IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE
RESTRICTIONS REFERRED TO IN (A) ABOVE.




         Each certificate evidencing a Security offered in reliance on Regulation S
shall, in addition to the foregoing, bear a legend in substantially the following
form:




THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION
ORIGINALLY EXEMPT FROM REGISTRATION UNDER THE U.S. SECURITIES ACT OF 1933,
AS AMENDED (THE “SECURITIES ACT”), AND MAY NOT BE TRANSFERRED IN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY U.S. PERSON
EXCEPT PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND ALL APPLICABLE STATE SECURITIES
LAWS. TERMS USED ABOVE HAVE THE MEANINGS GIVEN TO THEM IN REGULATION S
UNDER THE SECURITIES ACT.




         Each Definitive Security shall also bear the following additional legend:




IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR
AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH
TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER
COMPLIES WITH THE FOREGOING RESTRICTIONS.




         (ii) Upon any sale or transfer of a Transfer Restricted Security (including
any Transfer Restricted Security represented by a Global Security) pursuant to Rule
144 under the Securities Act, the Registrar shall permit the transferee thereof to
exchange such Transfer Restricted Security for a certificated Security that does
not bear the legend set forth above and rescind any restriction on the transfer of
such Transfer Restricted Security, if the transferor thereof certifies in writing
to the Registrar that such sale or transfer was made in reliance on Rule 144 (such
certification to be in the form set forth on the reverse of the Security).



 









 





11





         (iii) After a transfer of any Initial Securities or Private Exchange
Securities pursuant to and during the period of the effectiveness of a Shelf
Registration Statement with respect to such Initial Securities or Private Exchange
Securities, as the case may be, all requirements pertaining to legends on such
Initial Security or such Private Exchange
Security will cease to apply, the requirements requiring any such Initial
Security or such Private Exchange Security issued to certain Holders be issued in
global form will cease to apply, and a certificated Initial Security or Private
Exchange Security or an Initial Security or Private Exchange Security in global
form, in each case without restrictive transfer legends, will be available to the
transferee of the Holder of such Initial Securities or Private Exchange Securities
upon exchange of such transferring Holder’s certificated Initial Security or
Private Exchange Security or directions to transfer such Holder’s interest in the
Global Security, as applicable.




         (iv) Upon the consummation of a Registered Exchange Offer with respect to the
Initial Securities, all requirements pertaining to such Initial Securities that
Initial Securities issued to certain Holders be issued in global form will still
apply with respect to Holders of such Initial Securities that do not exchange their
Initial Securities, and Exchange Securities in certificated or global form, in each
case without the restricted securities legend set forth in Exhibit 1 hereto will be
available to Holders that exchange such Initial Securities in such Registered
Exchange Offer.




         (v) Upon the consummation of a Private Exchange with respect to the Initial
Securities, all requirements pertaining to such Initial Securities that Initial
Securities issued to certain Holders be issued in global form will still apply with
respect to Holders of such Initial Securities that do not exchange their Initial
Securities, and Private Exchange Securities in global form with the global
securities legend and the applicable restricted securities legend set forth in
Exhibit 1 hereto will be available to Holders that exchange such Initial Securities
in such Private Exchange.



          (f) Cancellation or Adjustment of Global Security. At such time as all beneficial
interests in a Global Security have either been exchanged for Definitive Securities, redeemed,
purchased or canceled, such Global Security shall be returned to the Depository for cancellation or
retained and canceled by the Trustee. At any time prior to such cancellation, if any beneficial
interest in a Global Security is exchanged for certificated Securities, redeemed, purchased or
canceled, the principal amount of Securities represented by such Global Security shall be reduced
and an adjustment shall be made on the books and records of the Trustee (if it is then the
Securities Custodian for such Global Security) with respect to such Global Security, by the Trustee
or the Securities Custodian, to reflect such reduction.




          (g) No Obligation of the Trustee.




 










 








12





          (i) The Trustee shall have no responsibility or obligation to any beneficial
owner of a Global Security, a member of, or a participant in the Depository or
other Person with respect to the accuracy of the records of the Depository or its
nominee or of any participant or member thereof, with respect to any ownership
interest in the Securities or with respect to
the delivery to any participant, member, beneficial owner or other Person
(other than the Depository) of any notice (including any notice of redemption) or
the payment of any amount, under or with respect to such Securities. All notices
and communications to be given to the Holders and all payments to be made to
Holders under the Securities shall be given or made only to or upon the order of
the registered Holders (which shall be the Depository or its nominee in the case of
a Global Security). The rights of beneficial owners in any Global Security shall
be exercised only through the Depository subject to the applicable rules and
procedures of the Depository. The Trustee may rely and shall be fully protected in
relying upon information furnished by the Depository with respect to its members,
participants and any beneficial owners.




          (ii) The Trustee shall have no obligation or duty to monitor, determine or
inquire as to compliance with any restrictions on transfer imposed under this
Indenture or under applicable law with respect to any transfer of any interest in
any Security (including any transfers between or among Depository participants,
members or beneficial owners in any Global Security) other than to require delivery
of such certificates and other documentation or evidence as are expressly required
by, and to do so if and when expressly required by, the terms of this Indenture,
and to examine the same to determine substantial compliance as to form with the
express requirements hereof.




	 	2.4  	Definitive Securities.





          (a) A Global Security deposited with the Depository or with the Trustee as Securities
Custodian for the Depository pursuant to Section 2.1 shall be transferred to the beneficial owners
thereof in the form of Definitive Securities in an aggregate principal amount equal to the
principal amount of such Global Security, in exchange for such Global Security, only if such
transfer complies with Section 2.3 hereof and (i) the Depository notifies the Issuers that it is
unwilling or unable to continue as Depository for such Global Security and the Depository fails to
appoint a successor depository or if at any time such Depository ceases to be a “clearing agency”
registered under the Exchange Act, in either case, and a successor depository is not appointed by
the Company within 90 days of such notice, or (ii) an Event of Default has occurred and is
continuing or (iii) the Company, in its sole discretion, notifies the Trustee in writing that it
elects to cause the issuance of Definitive Securities under this Indenture.




          (b) Any Global Security that is transferable to the beneficial owners thereof pursuant to this
Section 2.4 shall be surrendered by the Depository to the Trustee




 









 








13




located at its principal corporate trust office in the Borough of Manhattan, The City of New York, to be so transferred, in
whole or from time to time in part, without charge, and the Trustee shall authenticate and deliver,
upon such transfer of each portion of such Global Security, an equal aggregate principal amount of
Definitive Securities of authorized denominations. Any portion of a Global Security transferred
pursuant to this Section 2.4 shall be executed, authenticated and delivered only in denominations
of $1,000 principal amount and any integral multiple thereof and registered in such names as the
Depository shall direct. Any Definitive Security delivered in exchange for an interest in the
Transfer Restricted Security shall, except as otherwise provided by Section 2.3(e) hereof, bear the
applicable restricted securities legend and definitive securities legend set forth in Exhibit 1
hereto.





(c) Subject to the provisions of Section 2.4(b) hereof, the registered Holder of a Global
Security shall be entitled to grant proxies and otherwise authorize any Person, including Agent
Members and Persons that may hold interests through Agent Members, to take any action which a
Holder is entitled to take under this Indenture or the Securities.




(d) In the event of the occurrence of one of the events specified in Section 2.4(a) hereof,
the Issuers shall promptly make available to the Trustee a reasonable supply of Definitive
Securities in definitive, fully registered form without interest coupons. In the event that such
Definitive Securities are not issued, the Issuers expressly acknowledge, with respect to the right
of any Holder to pursue a remedy pursuant to Section 6.06 or 6.07 of this Indenture, the right of
any beneficial owner of Securities to pursue such remedy with respect to the portion of the Global
Security that represents such beneficial owner’s Securities as if such Definitive Securities had
been issued.




 









 






EXHIBIT 1

to

RULE 144A/REGULATION S/ IAI APPENDIX




[FORM OF FACE OF INITIAL SECURITY]




[Global Securities Legend]




     UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION (“DTC”), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME
OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.



     TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO
NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR’S NOMINEE AND TRANSFERS OF PORTIONS OF
THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET
FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.



     [[FOR REGULATION S GLOBAL SECURITY ONLY] UNTIL 40 DAYS AFTER THE LATER OF COMMENCEMENT OR
COMPLETION OF THE OFFERING, AN OFFER OR SALE OF SECURITIES WITHIN THE UNITED STATES BY A DEALER (AS
DEFINED IN THE SECURITIES ACT) MAY VIOLATE THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT IF
SUCH OFFER OR SALE IS MADE OTHERWISE THAN IN ACCORDANCE WITH RULE 144A THEREUNDER.]



[Restricted Securities Legend for Securities offered otherwise than in Reliance on Regulation)




     THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND
THIS SECURITY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE
SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.



 









 





 2




     THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS SECURITY MAY
BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) TO THE ISSUERS, (II) WITHIN THE
UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
(AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (III) TO AN “ACCREDITED INVESTOR” WITHIN THE MEANING OF RULE 501(A)(1),(2),(3) OR (7)
UNDER THE SECURITIES ACT THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS SECURITY (THE
FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE
PRINCIPAL AMOUNT OF SECURITIES LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY
THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (IV) OUTSIDE THE UNITED STATES IN AN
OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (V) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE)
OR (VI) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES
(I) THROUGH (VI) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF
THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.



[Restricted Securities Legend for Securities Offered in Reliance on Regulation S.]




     THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION ORIGINALLY EXEMPT
FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND MAY NOT BE TRANSFERRED IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY
U.S. PERSON EXCEPT PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND ALL APPLICABLE STATE SECURITIES LAWS. TERMS USED ABOVE HAVE THE MEANINGS GIVEN
TO THEM IN REGULATION S UNDER THE SECURITIES ACT.



[Temporary Regulation S Global Security Legend]




     EXCEPT AS SET FORTH BELOW, BENEFICIAL OWNERSHIP INTERESTS IN THIS TEMPORARY REGULATION S
GLOBAL SECURITY WILL NOT BE EXCHANGEABLE FOR INTERESTS IN THE PERMANENT REGULATION S GLOBAL
SECURITY OR ANY OTHER SECURITY REPRESENTING AN INTEREST IN THE SECURITIES REPRESENTED HEREBY WHICH
DO NOT CONTAIN A LEGEND CONTAINING RESTRICTIONS ON



 









 





 3




TRANSFER, UNTIL THE EXPIRATION OF THE “40-DAY DISTRIBUTION COMPLIANCE PERIOD” (WITHIN THE
MEANING OF RULE 903(b)(2) OF REGULATION S UNDER THE SECURITIES ACT) AND THEN ONLY UPON
CERTIFICATION IN FORM REASONABLY SATISFACTORY TO THE TRUSTEE THAT SUCH BENEFICIAL INTERESTS ARE
OWNED EITHER BY NON-U.S. PERSONS OR U.S. PERSONS WHO PURCHASED SUCH INTERESTS IN A TRANSACTION THAT
DID NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT. DURING SUCH 40-DAY DISTRIBUTION COMPLIANCE
PERIOD, BENEFICIAL OWNERSHIP INTERESTS IN THIS TEMPORARY REGULATION S GLOBAL SECURITY MAY ONLY BE
SOLD, PLEDGED OR TRANSFERRED (I) TO THE ISSUERS, (II) OUTSIDE THE UNITED STATES IN A TRANSACTION IN
ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, OR (III) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (I) THROUGH (III) IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. HOLDERS OF
INTERESTS IN THIS TEMPORARY REGULATION S GLOBAL SECURITY WILL NOTIFY ANY PURCHASER OF THIS SECURITY
OF THE RESALE RESTRICTIONS REFERRED TO ABOVE, IF THEN APPLICABLE.




     AFTER THE EXPIRATION OF THE DISTRIBUTION COMPLIANCE PERIOD BENEFICIAL INTERESTS IN THIS
TEMPORARY REGULATION S GLOBAL SECURITY MAY BE EXCHANGED FOR INTERESTS IN A RULE 144A GLOBAL
SECURITY ONLY IF (1) SUCH EXCHANGE OCCURS IN CONNECTION WITH A TRANSFER OF THE SECURITIES IN
COMPLIANCE WITH RULE 144A AND (2) THE TRANSFEROR OF THE REGULATION S GLOBAL SECURITY FIRST DELIVERS
TO THE TRUSTEE A WRITTEN CERTIFICATE (IN THE FORM ATTACHED TO THIS CERTIFICATE) TO THE EFFECT THAT
THE REGULATION S GLOBAL SECURITY IS BEING TRANSFERRED (A) TO A PERSON WHO THE TRANSFEROR REASONABLY
BELIEVES TO BE A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A, (B) TO A PERSON WHO
IS PURCHASING FOR ITS OWN ACCOUNT OR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, AND (C) IN ACCORDANCE WITH ALL APPLICABLE
SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS.



     AFTER THE EXPIRATION OF THE DISTRIBUTION COMPLIANCE PERIOD, BENEFICIAL INTERESTS IN THIS
TEMPORARY REGULATION S GLOBAL SECURITY MAY BE EXCHANGED FOR INTERESTS IN AN IAI GLOBAL SECURITY
ONLY IF (1) SUCH EXCHANGE OCCURS IN CONNECTION WITH A TRANSFER OF THE SECURITIES IN COMPLIANCE WITH
AN EXEMPTION UNDER THE SECURITIES ACT AND (2) THE TRANSFEROR OF THE REGULATION S GLOBAL SECURITY
FIRST DELIVERS TO THE TRUSTEE A WRITTEN CERTIFICATE (IN THE FORM ATTACHED TO THIS CERTIFICATE) TO
THE EFFECT THAT THE REGULATION S GLOBAL SECURITY IS BEING TRANSFERRED (A) TO AN “ACCREDITED
INVESTOR” WITHIN THE MEANING



 









 





 4




OF RULE 501(A)(1),(2),(3) OR (7) UNDER THE SECURITIES ACT THAT, PRIOR TO SUCH TRANSFER,
FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO
THE TRANSFER OF THIS SECURITY (THE FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH
TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF SECURITIES LESS THAN $250,000, AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE
UNITED STATES AND OTHER JURISDICTIONS.




     BENEFICIAL INTERESTS IN A RULE 144A GLOBAL SECURITY OR AN IAI GLOBAL SECURITY MAY BE
TRANSFERRED TO A PERSON WHO TAKES DELIVERY IN THE FORM OF AN INTEREST IN THE REGULATION S GLOBAL
SECURITY, WHETHER BEFORE OR AFTER THE EXPIRATION OF THE 40-DAY DISTRIBUTION COMPLIANCE PERIOD, ONLY
IF THE TRANSFEROR FIRST DELIVERS TO THE TRUSTEE A WRITTEN CERTIFICATE (IN THE FORM ATTACHED TO THIS
CERTIFICATE) TO THE EFFECT THAT SUCH TRANSFER IS BEING MADE IN ACCORDANCE WITH RULE 903 OR 904 OF
REGULATION S OR RULE 144 (IF AVAILABLE).



[Definitive Securities Legend]




     IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT
SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM
THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.



 









 





 5




			
	No.                                        
	 	$                                        






103/8% Senior Notes Due 2012




     PetroQuest
Energy, Inc., a Delaware corporation, and PetroQuest Energy, ________L.L.C., a Louisiana
limited liability company, hereby jointly and severally promise to pay to
        , or registered
assigns, the principal sum of _______ Dollars on May
15, 2012.



     Interest Payment Dates: May 15 and November 15.



     Record Dates: May 1 and November 1.



     Additional provisions of this Security are set forth on the other side of this Security.



Dated:




	 	 	 	 	 
	 	PETROQUEST ENERGY, INC.,
	 
	 	 	 	 
	

	 	By	 	 
	

	 	 	 	

	

	 	 	 	Name:
	

	 	 	 	Title:
	 
	 	 	 	 
	

	 	By	 	 
	

	 	 	 	

	

	 	 	 	Name:
	

	 	 	 	Title:
	 
	 	 	 	 
	 	PETROQUEST ENERGY, L.L.C.,
	 
	 	 	 	 
	

	 	By	 	 
	

	 	 	 	

	

	 	 	 	Name:
	

	 	 	 	Title:
	 
	 	 	 	 
	

	 	By	 	 
	

	 	 	 	

	

	 	 	 	Name:
	

	 	 	 	Title:






 









 






 6




TRUSTEE’S CERTIFICATE OF AUTHENTICATION



THE BANK OF NEW YORK TRUST COMPANY, N.A.,



      as Trustee, certifies that this is one of
the Securities referred to in the Indenture.



 



By



                                                                      



          Authorized Signatory



 









 





 7




[FORM OF REVERSE SIDE OF INITIAL SECURITY]




103/8% Senior Note Due 2012




1. Interest




     PetroQuest Energy, Inc., a Delaware corporation (such corporation, and its successors and
assigns under the Indenture hereinafter referred to, being herein called the “Company”) and
PetroQuest Energy, L.L.C., a Louisiana limited liability company (such company, and its successors
and assigns under the Indenture hereinafter referred to, being herein called “PELLC” and, together
with the Company, the “Issuers”), jointly and severally promise to pay interest on the principal
amount of this Security at the rate per annum shown above; provided, however, that
if a Registration Default (as defined in the Registration Rights Agreement) occurs, additional
interest will accrue on this Security at a rate of 0.50% per annum (increasing by an additional
0.50% per annum after each consecutive 90-day period that occurs after the date on which such
Registration default occurs up to a maximum additional interest rate of 1.50%) from and including
the date on which any such Registration Default shall occur to but excluding the date on which all
Registration Defaults have been cured. The Issuers will pay interest semiannually on May 15 and
November 15 of each year, commencing November 15, 2005. Interest on the Securities will accrue
from the most recent date to which interest has been paid or, if no interest has been paid, from
May 11, 2005. Interest will be computed on the basis of a 360-day year of twelve 30-day months.
The Issuers will pay interest on overdue principal at the rate borne by this Security plus 1.0% per
annum, and it will pay interest on overdue installments of interest at the same rate to the extent
lawful.



2. Method of Payment




     The Issuers will pay interest on the Securities (except defaulted interest) to the Persons who
are registered holders of Securities at the close of business on the May 1 or November 1 next
preceding the interest payment date even if Securities are canceled after the record date and on or
before the interest payment date. Holders must surrender Securities to a Paying Agent to collect
principal payments. The Issuers will pay principal and interest in money of the United States that
at the time of payment is legal tender for payment of public and private debts. Payments in
respect of the Securities represented by a Global Security (including principal, premium and
interest) will be made by wire transfer of immediately available funds to the accounts specified by
the Depository. The Issuers will make all payments in respect of a certificated Security
(including principal, premium and interest) by mailing a check to the registered address of each
Holder thereof; provided, however, that payments on a certificated Security will be
made by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United
States if such Holder elects payment by wire transfer by giving written notice to the Trustee or
the Paying Agent to such effect designating such account no later than 30 days immediately
preceding the relevant due date for payment (or such other date as the Trustee may accept in its
discretion).



 









 





 8




3. Paying Agent and Registrar




     Initially, The Bank of New York Trust Company, N.A., a national banking association (the
“Trustee”), will act as Paying Agent and Registrar. The Company may appoint and change any Paying
Agent, Registrar or co-registrar without notice. The Company or any of its domestically
incorporated Wholly Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar.



4. Indenture




     The Issuers issued the Securities under an Indenture dated as of May 11, 2005 (“Indenture”),
among the Company, PELLC, the Subsidiary Guarantors and the Trustee. The terms of the Securities
include those stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939 (15 U.S.C. §§ 77aaa-77bbbb) (the “Act”) as in effect on the
date of the Indenture. Terms defined in the Indenture and not defined herein have the meanings
ascribed thereto in the Indenture. The Securities are subject to all such terms, and
Securityholders are referred to the Indenture and the Act for a statement of those terms.



     The Securities are general unsecured obligations of the Issuers. The Issuers shall be
entitled, subject to their compliance with Section 4.03 of the Indenture, to issue Additional
Securities pursuant to Section 2.13 of the Indenture. The Initial Securities issued on the Issue
Date, any Additional Securities and all Exchange Securities or Private Exchange Securities issued
in exchange therefor will be treated as a single class for all purposes under the Indenture. The
Indenture contains covenants that limit the ability of the Company and its subsidiaries to incur
additional indebtedness; pay dividends or distributions on, or redeem or repurchase capital stock;
make investments; issue or sell capital stock of subsidiaries; engage in transactions with
affiliates; create liens on assets; transfer or sell assets; guarantee indebtedness; restrict
dividends or other payments of subsidiaries; consolidate, merge or transfer all or substantially
all of its assets and the assets of its subsidiaries; and engage in sale/leaseback transactions.
These covenants are subject to important exceptions and qualifications.



5. Optional Redemption




     Except as set forth below, the Issuers shall not be entitled to redeem the Securities.



     On and after May 15, 2009, the Issuers shall be entitled at their option to redeem all or a
portion of the Securities upon not less than 30 nor more than 60 days’ notice, at the redemption
prices (expressed in percentages of principal amount on the redemption date), plus accrued interest
to the redemption date (subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date), if redeemed during the 12-month period
commencing on May 15 of the years set forth below:



 









 





	 	 	 	 	 
	 	 	Redemption	 
	Period	 	Price	 
	2009
	 	 	105.188	%
	2010
	 	 	102.594	%
	2011
	 	 	100.000	%






     In addition, prior to May 15, 2008, the Issuers shall be entitled at their option on one or
more occasions to redeem Securities (which includes Additional Securities, if any) in an aggregate
principal amount not to exceed 35% of the original aggregate principal amount of the Securities
(which includes Additional Securities, if any) at a redemption price (expressed as a percentage of
principal amount) of 110.375%, plus accrued and unpaid interest to the redemption date, with the
net cash proceeds from one or more Equity Offerings; provided, however, that (1) at
least 65% of such aggregate principal amount of Securities (which includes Additional Securities,
if any) remains outstanding immediately after the occurrence of each such redemption (other than
Securities held, directly or indirectly, by the Company or its Affiliates); and (2) each such
redemption occurs within 90 days after the date of the related Equity Offering.



6. Notice of Redemption




     Notice of redemption will be mailed at least 30 days but not more than 60 days before the
redemption date to each Holder of Securities to be redeemed at his registered address. Securities
in denominations larger than $1,000 principal amount may be redeemed in part but only in whole
multiples of $1,000. If money sufficient to pay the redemption price of and accrued interest on
all Securities (or portions thereof) to be redeemed on the redemption date is deposited with the
Paying Agent on or before the redemption date and certain other conditions are satisfied, on and
after such date interest ceases to accrue on such Securities (or such portions thereof) called for
redemption.



7. Put Provisions




     Upon a Change of Control, any Holder of Securities will have the right to cause the Issuers to
repurchase all or any part of the Securities of such Holder at a repurchase price equal to 101% of
the principal amount of the Securities to be repurchased plus accrued interest to the date of
repurchase (subject to the right of holders of record on the relevant record date to receive
interest due on the related interest payment date) as provided in, and subject to the terms of, the
Indenture.



8. Guaranty




     The payment by the Issuers of the principal of, and premium and interest on, the Securities is
fully and unconditionally guaranteed on a joint and several senior basis by each of the Subsidiary
Guarantors to the extent set forth in the Indenture.



 









 





 10




9. Denominations; Transfer; Exchange




     The Securities are in registered form without coupons in denominations of $1,000 principal
amount and whole multiples of $1,000. A Holder may transfer or exchange Securities in accordance
with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate
endorsements or transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture. The Registrar need not register the transfer of or exchange any Securities selected
for redemption (except, in the case of a Security to be redeemed in part, the portion of the
Security not to be redeemed) or any Securities for a period of 15 days before a selection of
Securities to be redeemed or 15 days before an interest payment date.



10. Persons Deemed Owners




     The registered Holder of this Security may be treated as the owner of it for all purposes.



11. Unclaimed Money




     If money for the payment of principal or interest remains unclaimed for two years, the Trustee
or Paying Agent shall pay the money back to the Issuers at their request unless an abandoned
property law designates another Person. After any such payment, Holders entitled to the money must
look only to the Issuers and not to the Trustee for payment.



12. Discharge and Defeasance




     Subject to certain conditions, the Issuers at any time shall be entitled to terminate some or
all of their obligations under the Securities and the Indenture if the Issuers deposit with the
Trustee money or U.S. Government Obligations for the payment of principal and interest on the
Securities to redemption or maturity, as the case may be.



13. Amendment; Waiver




     Subject to certain exceptions set forth in the Indenture, (a) the Indenture and the Securities
may be amended with the written consent of the Holders of at least a majority in principal amount
outstanding of the Securities and (b) any default or noncompliance with any provision may be waived
with the written consent of the Holders of a majority in principal amount outstanding of the
Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any
Securityholder, the Issuers, the Subsidiary Guarantors and the Trustee shall be entitled to amend
the Indenture or the Securities to cure any ambiguity, omission, defect or inconsistency, or to
comply with Article 5 of the Indenture, or to provide for uncertificated Securities in addition to
or in place of certificated Securities, or to add guarantees with respect to the Securities,
including Subsidiary Guaranties, or to secure the Securities, or to add additional covenants or
surrender rights and powers conferred on the Issuers or the Subsidiary Guarantors, or to comply
with any requirement of the SEC in connection with qualifying the Indenture under the Act, or to
make any change that does not adversely



 









 





 11




affect the rights of any Securityholder, or to make amendments to provisions of the Indenture
relating to the form, authentication, transfer and legending of the Securities.




14. Defaults and Remedies




     Under the Indenture, Events of Default include (a) default for 30 days in payment of interest
on the Securities; (b) default in payment of principal on the Securities at maturity, upon
redemption pursuant to paragraph 5 of the Securities, upon acceleration or otherwise, or failure by
the Issuers to redeem or purchase Securities when required; (c) failure by the Issuers or any
Subsidiary Guarantor to comply with other agreements in the Indenture or the Securities, in certain
cases subject to notice and lapse of time; (d) certain accelerations (including failure to pay
within any grace period after final maturity) of other Indebtedness of the Issuers, any Subsidiary
Guarantor or any Significant Subsidiary if the amount accelerated (or so unpaid) exceeds $5
million; (e) certain events of bankruptcy or insolvency with respect to the Issuers, the Subsidiary
Guarantors and the Significant Subsidiaries; (f) certain judgments or decrees for the payment of
money in excess of $5 million; and (g) certain defaults with respect to Subsidiary Guaranties. If
an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the Securities may declare all the Securities to be due and payable
immediately. Certain events of bankruptcy or insolvency are Events of Default which will result in
the Securities being due and payable immediately upon the occurrence of such Events of Default.



     Securityholders may not enforce the Indenture or the Securities except as provided in the
Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives
indemnity or security satisfactory to it. Subject to certain limitations, Holders of a majority in
principal amount of the Securities may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Securityholders notice of any continuing Default (except a Default in
payment of principal or interest) if it determines that withholding notice is in the interest of
the Holders.



15. Trustee Dealings with the Company




     Subject to certain limitations imposed by the Act, the Trustee under the Indenture, in its
individual or any other capacity, may become the owner or pledgee of Securities and may otherwise
deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise
deal with the Company or its Affiliates with the same rights it would have if it were not Trustee.



16. No Recourse Against Others




     A director, officer, employee, incorporator or stockholder, as such, of the Issuers or the
Trustee shall not have any liability for any obligations of the Issuers under the Securities or the
Indenture or for any claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder waives



 









 





 12




and releases all such liability. The waiver and release are part of the consideration for the
issue of the Securities.




17. Authentication




     This Security shall not be valid until an authorized signatory of the Trustee (or an
authenticating agent) manually signs the certificate of authentication on the other side of this
Security.



18. Abbreviations




     Customary abbreviations may be used in the name of a Securityholder or an assignee, such as
TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with
rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift
to Minors Act).



19. CUSIP Numbers




     The Issuers have caused CUSIP, ISIN and Common Code numbers to be printed on the Securities
and has directed the Trustee to use such numbers in notices of redemption as a convenience to
Securityholders. No representation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.



20. Holders’ Compliance with Registration Rights Agreement




     Each Holder of a Security, by acceptance hereof, acknowledges and agrees to the provisions of
the Registration Rights Agreement, including the obligations of the Holders with respect to a
registration and the indemnification of the Issuers to the extent provided therein.



21. Governing Law




THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF

NEW YORK.




     The Company will furnish to any Securityholder upon written request and without charge to the
Security holder a copy of the Indenture which has in it the text of this Security in larger type.
Requests may be made to:




PetroQuest Energy, Inc.

400 E. Kaliste Saloom Road

Suite 6000

Lafayette, Louisiana 70508





          Attention: Corporate Secretary



 









 





 13










ASSIGNMENT FORM




To assign this Security, fill in the form below:




I or we assign and transfer this Security to




     (Print or type assignee’s name, address and zip code)



     (Insert assignee’s soc. sec. or tax I.D. No.)



and irrevocably appoint            agent to transfer this Security on the books of
the Company. The agent may substitute another to act for him.










Date:                                        Your Signature:                                                                                










Sign exactly as your name appears on the other side of this Security.




In connection with any transfer of any of the Securities evidenced by this certificate occurring
prior to the expiration of the period referred to in Rule 144(k) under the Securities Act after the
later of the date of original issuance of such Securities and the last date, if any, on which such
Securities were owned by the Company or any Affiliate of the Company, the undersigned confirms that
such Securities are being transferred in accordance with its terms:




CHECK ONE BOX BELOW




	 	 	 	 	 	 	 	 	 
	o	 	to the Issuers; or	 	 
	 
	 	 	 	 	 	 	 	 
	

	 	 	(1	)	 	o
	 	pursuant to an effective registration
statement under the Securities Act of
1933; or
	 
	 	 	 	 	 	 	 	 
	

	 	 	(2	)	 	o
	 	inside the United States to a “qualified
institutional buyer” (as defined in Rule
144A under the Securities Act of 1933)
that purchases for its own account or for
the account of a qualified institutional
buyer to whom notice is given that such
transfer is being made in reliance on
Rule 144A, in each case pursuant to and
in compliance with Rule 144A under the
Securities Act of 1933; or
	 
	 	 	 	 	 	 	 	 
	

	 	 	(3	)	 	o
	 	outside the United States in an offshore
transaction within the meaning of
Regulation S under the Securities Act in
compliance with Rule 904 under the
Securities Act of 1933; or






 









 






 14




	 	 	 	 	 	 	 	 	 
	

	 	 	(4	)	 	o
	 	pursuant to the exemption from
registration provided by Rule 144 under
the Securities Act of 1933; or
	 
	 	 	 	 	 	 	 	 
	

	 	 	(5	)	 	o
	 	to an institutional “accredited investor”
(as defined in Rule 501(a)(1),(2),(3) or
(7) under the Securities Act of 1933)
that has furnished to the Trustee a
signed letter containing certain
representations and agreements.







Unless one of the boxes is checked, the Trustee will refuse to register any of the
Securities evidenced by this certificate in the name of any person other than the
registered holder thereof; provided, however, that if box (4) is
checked, the Trustee shall be entitled to require, prior to registering any such
transfer of the Securities, such legal opinions, certifications and other
information as the Company has reasonably requested to confirm that such transfer
is being made pursuant to an exemption from, or in a transaction not subject to,
the registration requirements of the Securities Act of 1933, such as the exemption
provided by Rule 144 under such Act.



	 	 	 
	

	 	                                                            

Signature






Signature Guarantee:




	 	 	 
	                                                            

Signature must be guaranteed

	 	                                                            

Signature






     Signatures must be guaranteed by an “eligible guarantor institution” meeting the requirements
of the Registrar, which requirements include membership or participation in the Security Transfer
Agent Medallion Program (“STAMP”) or such other “signature guarantee program” as may be determined
by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.











 









 








 15




TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED.




	 
	The undersigned represents and warrants that it is purchasing this Security for its own
account or an account with respect to which it exercises sole investment discretion and that it and
any such account is a “qualified institutional buyer” within the meaning of Rule 144A under the
Securities Act of 1933, and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the undersigned has
requested pursuant to Rule 144A or has determined not to request such information and that it is
aware that the transferor is relying upon the undersigned’s foregoing representations in order to
claim the exemption from registration provided by Rule 144A.







	 	 	 
	Dated:                                                             

	 	                                                                                                    

Notice: To be executed by an executive officer






 









 






 16




[TO BE ATTACHED TO GLOBAL SECURITIES]




SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY




The following increases or decreases in this Global Security have been made:




	 	 	 	 	 	 	 	 	 
	Date of

Exchange


	 	Amount of decrease
in Principal
amount of this
Global Security
	 	Amount of increase
in Principal amount
of this Global
Security
	 	Principal amount of
this Global
Security following
such decrease or
increase)
	 	Signature of
authorized officer
of Trustee or
Securities
Custodian






 









 





 17




OPTION OF HOLDER TO ELECT PURCHASE




     If you want to elect to have this Security purchased by the Issuers pursuant to Section 4.06
or 4.10 of the Indenture, check the box: o



     If you want to elect to have only part of this Security purchased by the Issuers pursuant to
Section 4.06 or 4.10 of the Indenture, state the amount in principal amount: $                                        



	 	 	 
	Dated:                                                             

	 	Your Signature:                                                             

	

	 	          (Sign exactly as your name appears on the other side of this Security.)






Signature Guarantee:                                                                                                                                                                                     



(Signature must be guaranteed)




     Signatures must be guaranteed by an “eligible guarantor institution” meeting the requirements
of the Registrar, which requirements include membership or participation in the Security Transfer
Agent Medallion Program (“STAMP”) or such other “signature guarantee program” as may be determined
by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.



 









 





EXHIBIT A




[FORM OF FACE OF [EXCHANGE] SECURITY

[OR PRIVATE EXCHANGE SECURITY]]




*/**/










	*/ [If the Security is to be issued in global form add the Global Securities Legend from
Exhibit 1 to Appendix A and the attachment from such Exhibit 1 captioned “[TO BE ATTACHED TO GLOBAL
SECURITIES] — SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY”.]
	 
	**/.[If the Security is a Private Exchange Security issued in a Private Exchange to an
Initial Purchaser holding an unsold portion of its initial allotment, add the Restricted Securities
Legend from Exhibit 1 to Appendix A and replace the Assignment Form included in this Exhibit A with
the Assignment Form included in such Exhibit 1.]




 









 










 2




			
	No.                                        
	 	$                                         






10 3/8% Senior Notes Due 2012




     PetroQuest Energy, Inc., a Delaware corporation, and PetroQuest Energy, L.L.C., a Louisiana
limited liability company, hereby jointly and severally promise to pay to  , or
registered assigns, the principal sum of   Dollars on May 15, 2012.



     Interest Payment Dates: May 15 and November 15.



     Record Dates: May 1 and November 1.



     Additional provisions of this Security are set forth on the other side of this Security.



     Dated:



	 	 	 	 	 
	 	PETROQUEST ENERGY, INC.
	 
	 	 	 	 
	

	 	by
	 	

	

	 	 	 	Name:
	

	 	 	 	Title:
	 
	 	 	 	 
	

	 	by
	 	

	

	 	 	 	Name:
	

	 	 	 	Title:
	 
	 	 	 	 
	 	PETROQUEST ENERGY, L.L.C.
	 
	 	 	 	 
	

	 	by	 	 
	

	 	 	 	

	

	 	 	 	Name:
	

	 	 	 	Title:
	 
	 	 	 	 
	

	 	by	 	 
	

	 	 	 	

	

	 	 	 	Name:
	

	 	 	 	Title:






 









 






 3




TRUSTEE’S CERTIFICATE OF AUTHENTICATION






THE BANK OF NEW YORK TRUST COMPANY, N.A.



            as Trustee, certifies that
this is one of the
Securities referred to in
the Indenture.



     by



                                                                      

          Authorized Signatory



 









 





 4




[FORM OF REVERSE SIDE OF [EXCHANGE] SECURITY

[OR PRIVATE EXCHANGE SECURITY]]




10 3/8% Senior Note Due 2012




1. Interest




     PetroQuest Energy, Inc., a Delaware corporation (such corporation, and its successors and
assigns under the Indenture hereinafter referred to, being herein called the “Company”), and
PetroQuest Energy, L.L.C., a Louisiana limited liability company (such company, and its successors
and assigns under the Indenture hereinafter referred to, being herein called “PELLC” and, together
with the Company, the “Issuers”), jointly and severally promise to pay interest on the principal
amount of this Security at the rate per annum shown above[; provided, however, that
if a Registration Default (as defined in the Registration Rights Agreement) occurs, additional
interest will accrue on this Security at a rate of 0.50% per annum (increasing by an additional
0.50% per annum after each consecutive 90-day period that occurs after the date on which such
Registration default occurs up to a maximum additional interest rate of 1.50%) from and including
the date on which any such Registration Default shall occur to but excluding the date on which all
Registration Defaults have been cured.]1 The Issuers will pay interest semiannually on
May 15 and November 15 of each year, commencing November 15, 2005. Interest on the Securities will
accrue from the most recent date to which interest has been paid or, if no interest has been paid,
from May 11, 2005. Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Issuers will pay interest on overdue principal at the rate borne by this Security plus
1.0% per annum, and it will pay interest on overdue installments of interest at the same rate to
the extent lawful.



2. Method of Payment




     The Issuers will pay interest on the Securities (except defaulted interest) to the Persons who
are registered holders of Securities at the close of business on the May 1 or November 1 next
preceding the interest payment date even if Securities are canceled after the record date and on or
before the interest payment date. Holders must surrender Securities to a Paying Agent to collect
principal payments. The Issuers will pay principal and interest in money of the United States that
at the time of payment is legal tender for payment of public and private debts. Payments in
respect of the Securities represented by a Global Security (including principal, premium and
interest) will be made by wire transfer of immediately available funds to the accounts specified by
the Depository. The Issuers will make all payments in respect of a certificated Security
(including principal, premium and interest) by mailing a check to the registered address of each
Holder thereof; provided, however, that payments on a certificated Security will be
made by wire









	1Insert if at the date of issuance of the Exchange
Security or Private Exchange Security (as the case may be) any Registration
Default has occurred with respect to the related Initial Securities during the
interest period in which such date of issuance occurs.




 









 










 5




transfer to a U.S. dollar account maintained by the payee with a bank in the United States if
such Holder elects payment by wire transfer by giving written notice to the Trustee or the Paying
Agent to such effect designating such account no later than 30 days immediately preceding the
relevant due date for payment (or such other date as the Trustee may accept in its discretion).




3. Paying Agent and Registrar




     Initially, The Bank of New York Trust Company, N.A., a national banking association (the
“Trustee”), will act as Paying Agent and Registrar. The Company may appoint and change any Paying
Agent, Registrar or co-registrar without notice. The Company or any of its domestically
incorporated Wholly Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar.



4. Indenture




     The Issuers issued the Securities under an Indenture dated as of May 11, 2005 (“Indenture”),
among the Company, PELLC, the Subsidiary Guarantors and the Trustee. The terms of the Securities
include those stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939 (15 U.S.C. §§ 77aaa-77bbbb) as in effect on the date of the
Indenture (the “Act”). Terms defined in the Indenture and not defined herein have the meanings
ascribed thereto in the Indenture. The Securities are subject to all such terms, and
Securityholders are referred to the Indenture and the Act for a statement of those terms.



     The Securities are general unsecured obligations of the Issuers. The Issuers shall be
entitled, subject to their compliance with Section 4.03 of the Indenture, to issue Additional
Securities pursuant to Section 2.13 of the Indenture. The Initial Securities issued on the Issue
Date, any Additional Securities and all Exchange Securities or Private Exchange Securities issued
in exchange therefor will be treated as a single class for all purposes under the Indenture. The
Indenture contains covenants that limit the ability of the Company and its subsidiaries to incur
additional indebtedness; pay dividends or distributions on, or redeem or repurchase capital stock;
make investments; issue or sell capital stock of subsidiaries; engage in transactions with
affiliates; create liens on assets; transfer or sell assets; guarantee indebtedness; restrict
dividends or other payments of subsidiaries; consolidate, merge or transfer all or substantially
all of its assets and the assets of its subsidiaries; and engage in sale/leaseback transactions.
These covenants are subject to important exceptions and qualifications.



5. Optional Redemption




     Except as set forth below, the Issuers shall not be entitled to redeem the Securities.



     On and after May 15, 2009, the Issuers shall be entitled at their option to redeem all or a
portion of the Securities upon not less than 30 nor more than 60 days’ notice, at the redemption
prices (expressed in percentages of principal amount on the redemption date), plus accrued interest
to the redemption date (subject to the right of Holders of



 









 





 6




record on the relevant record date to receive interest due on the relevant interest payment
date), if redeemed during the 12-month period commencing on May 15 of the years set forth below:




	 	 	 	 	 
	 	 	Redemption	 
	Period	 	Price	 
	2009
	 	 	105.188	%
	2010
	 	 	102.594	%
	2011
	 	 	100.000	%






     In addition, prior to May 15, 2008, the Issuers shall be entitled at their option on one or
more occasions to redeem Securities (which includes Additional Securities, if any) in an aggregate
principal amount not to exceed 35% of the original aggregate principal amount of the Securities
(which includes Additional Securities, if any) at a redemption price (expressed as a percentage of
principal amount) of 110.375%, plus accrued and unpaid interest to the redemption date, with the
net cash proceeds from one or more Equity Offerings; provided, however, that (1) at
least 65% of such aggregate principal amount of Securities (which includes Additional Securities,
if any) remains outstanding immediately after the occurrence of each such redemption (other than
Securities held, directly or indirectly, by the Company or its Affiliates); and (2) each such
redemption occurs within 90 days after the date of the related Equity Offering.



6. Notice of Redemption




     Notice of redemption will be mailed at least 30 days but not more than 60 days before the
redemption date to each Holder of Securities to be redeemed at his registered address. Securities
in denominations larger than $1,000 principal amount may be redeemed in part but only in whole
multiples of $1,000. If money sufficient to pay the redemption price of and accrued interest on
all Securities (or portions thereof) to be redeemed on the redemption date is deposited with the
Paying Agent on or before the redemption date and certain other conditions are satisfied, on and
after such date interest ceases to accrue on such Securities (or such portions thereof) called for
redemption.



7. Put Provisions




     Upon a Change of Control, any Holder of Securities will have the right to cause the Issuers to
repurchase all or any part of the Securities of such Holder at a repurchase price equal to 101% of
the principal amount of the Securities to be repurchased plus accrued interest to the date of
repurchase (subject to the right of holders of record on the relevant record date to receive
interest due on the related interest payment date) as provided in, and subject to the terms of, the
Indenture.



8. Guaranty




     The payment by the Issuers of the principal of, and premium and interest on, the Securities is
fully and unconditionally guaranteed on a joint and several senior basis by each of the Subsidiary
Guarantors to the extent set forth in the Indenture.



 









 





 7




9. Denominations; Transfer; Exchange




     The Securities are in registered form without coupons in denominations of $1,000 principal
amount and whole multiples of $1,000. A Holder may transfer or exchange Securities in accordance
with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate
endorsements or transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture. The Registrar need not register the transfer of or exchange any Securities selected
for redemption (except, in the case of a Security to be redeemed in part, the portion of the
Security not to be redeemed) or any Securities for a period of 15 days before a selection of
Securities to be redeemed or 15 days before an interest payment date.



10. Persons Deemed Owners




     The registered Holder of this Security may be treated as the owner of it for all purposes.



11. Unclaimed Money




     If money for the payment of principal or interest remains unclaimed for two years, the Trustee
or Paying Agent shall pay the money back to the Issuers at their request unless an abandoned
property law designates another Person. After any such payment, Holders entitled to the money must
look only to the Issuers and not to the Trustee for payment.



12. Discharge and Defeasance




     Subject to certain conditions, the Issuers at any time shall be entitled to terminate some or
all of their obligations under the Securities and the Indenture if the Issuers deposit with the
Trustee money or U.S. Government Obligations for the payment of principal and interest on the
Securities to redemption or maturity, as the case may be.



13. Amendment; Waiver




     Subject to certain exceptions set forth in the Indenture, (a) the Indenture and the Securities
may be amended with the written consent of the Holders of at least a majority in principal amount
outstanding of the Securities and (b) any default or noncompliance with any provision may be waived
with the written consent of the Holders of a majority in principal amount outstanding of the
Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any
Securityholder, the Issuers, the Subsidiary Guarantors and the Trustee shall be entitled to amend
the Indenture or the Securities to cure any ambiguity, omission, defect or inconsistency, or to
comply with Article 5 of the Indenture, or to provide for uncertificated Securities in addition to
or in place of certificated Securities, or to add guarantees with respect to the Securities,
including Subsidiary Guaranties, or to secure the Securities, or to add additional covenants or
surrender rights and powers conferred on the Issuers or the Subsidiary Guarantors, or to comply
with any requirement of the SEC in connection with qualifying the Indenture under the Act, or to
make any change that does not adversely affect the rights of any



 









 





 8




Securityholder, or to make amendments to provisions of the Indenture relating to the form,
authentication, transfer and legending of the Securities.




14. Defaults and Remedies




     Under the Indenture, Events of Default include (a) default for 30 days in payment of interest
on the Securities; (b) default in payment of principal on the Securities at maturity, upon
redemption pursuant to paragraph 5 of the Securities, upon acceleration or otherwise, or failure by
the Issuers to redeem or purchase Securities when required; (c) failure by the Issuers or any
Subsidiary Guarantor to comply with other agreements in the Indenture or the Securities, in certain
cases subject to notice and lapse of time; (d) certain accelerations (including failure to pay
within any grace period after final maturity) of other Indebtedness of the Issuers, any Subsidiary
Guarantor or any Significant Subsidiary if the amount accelerated (or so unpaid) exceeds $5
million; (e) certain events of bankruptcy or insolvency with respect to the Issuers, the Subsidiary
Guarantors and the Significant Subsidiaries; (f) certain judgments or decrees for the payment of
money in excess of $5 million; and (g) certain defaults with respect to Subsidiary Guaranties. If
an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the Securities may declare all the Securities to be due and payable
immediately. Certain events of bankruptcy or insolvency are Events of Default which will result in
the Securities being due and payable immediately upon the occurrence of such Events of Default.



     Securityholders may not enforce the Indenture or the Securities except as provided in the
Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives
indemnity or security satisfactory to it. Subject to certain limitations, Holders of a majority in
principal amount of the Securities may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Securityholders notice of any continuing Default (except a Default in
payment of principal or interest) if it determines that withholding notice is in the interest of
the Holders.



15. Trustee Dealings with the Company




     Subject to certain limitations imposed by the Act, the Trustee under the Indenture, in its
individual or any other capacity, may become the owner or pledgee of Securities and may otherwise
deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise
deal with the Company or its Affiliates with the same rights it would have if it were not Trustee.



16. No Recourse Against Others




     A director, officer, employee, incorporator or stockholder, as such, of the Issuers or the
Trustee shall not have any liability for any obligations of the Issuers under the Securities or the
Indenture or for any claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder waives and



 









 





 9




releases all such liability. The waiver and release are part of the consideration for the
issue of the Securities.




17. Authentication




     This Security shall not be valid until an authorized signatory of the Trustee (or an
authenticating agent) manually signs the certificate of authentication on the other side of this
Security.



18. Abbreviations




     Customary abbreviations may be used in the name of a Securityholder or an assignee, such as
TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with
rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift
to Minors Act).



19. CUSIP Numbers




     The Issuers have caused CUSIP, ISIN and Common Code numbers to be printed on the Securities
and has directed the Trustee to use such numbers in notices of redemption as a convenience to
Securityholders. No representation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.



20. [Holders’ Compliance with Registration Rights Agreement




     Each Holder of a Security, by acceptance hereof, acknowledges and agrees to the provisions of
the Registration Rights Agreement, including the obligations of the Holders with respect to a
registration and the indemnification of the Issuers to the extent provided therein.]2



21. Governing Law




     THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK.









	2	 	Delete if this Security is not being issued in
exchange for an Initial Security.




 









 










 10




     The Company will furnish to any Securityholder upon written request and without charge to the
Security holder a copy of the Indenture which has in it the text of this Security in larger type.
Requests may be made to:



PetroQuest Energy, Inc.

400 E. Kaliste Saloom Road

Suite 6000

Lafayette, Louisiana 70508



Attention: Corporate Secretary





 









 








 11










ASSIGNMENT FORM




To assign this Security, fill in the form below:




I or we assign and transfer this Security to




     (Print or type assignee’s name, address and zip code)



     (Insert assignee’s soc. sec. or tax I.D. No.)



and irrevocably appoint            agent to transfer this Security on the books of the
Company. The agent may substitute another to act for him.










Date:                                                              Your Signature:                                                                                










Sign exactly as your name appears on the other side of this Security.





 









 








OPTION OF HOLDER TO ELECT PURCHASE




     If you want to elect to have this Security purchased by the Issuers pursuant to Section 4.06
or 4.10 of the Indenture, check the box: o



     If you want to elect to have only part of this Security purchased by the Issuers pursuant to
Section 4.06 or 4.10 of the Indenture, state the amount in principal amount: $



	 	 	 
	Dated:                                                             

	 	Your Signature:                                                            

           Sign exactly as your name appears on the other side of this Security.)






Signature Guarantee:                                                                                                                                                                



(Signature must be guaranteed)




Signatures must be guaranteed by an “eligible guarantor institution” meeting the requirements of
the Registrar, which requirements include membership or participation in the Security Transfer
Agent Medallion Program (“STAMP”) or such other “signature guarantee program” as may be determined
by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.




 









 








EXHIBIT 2 to Rule 144A/REGULATION S/IAI APPENDIX




Form of

Transferee Letter of Representation




PetroQuest Energy, Inc.

PetroQuest Energy, L.L.C.

400 E. Kaliste Saloom Road

Suite 6000

Lafayette, Louisiana 70508



In care of

Corporate Secretary



Ladies and Gentlemen:




     This certificate is delivered to request a transfer of $[ ] principal amount of the 10?%
Senior Notes due 2012 (the “Securities”) of PetroQuest Energy, Inc. (the “Company”) and PetroQuest
Energy, L.L.C. (collectively, the “Issuers”).



     Upon transfer, the Securities would be registered in the name of the new beneficial owner as
follows:



Name:________________________




Address:______________________




Taxpayer ID Number:____________




     The undersigned represents and warrants to you that:



     1. We are an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act of 1933, as amended (the “Securities Act”)), purchasing for our own
account or for the account of such an institutional “accredited investor” at least $250,000
principal amount of the Securities, and we are acquiring the Securities not with a view to, or for
offer or sale in connection with, any distribution in violation of the Securities Act. We have
such knowledge and experience in financial and business matters as to be capable of evaluating the
merits and risks of our investment in the Securities, and we invest in or purchase securities
similar to the Securities in the normal course of our business. We, and any accounts for which we
are acting, are each able to bear the economic risk of our or its investment.



     2. We understand that the Securities have not been registered under the Securities Act and,
unless so registered, may not be sold except as permitted in the following



 









 





 2




sentence. We agree on our own behalf and on behalf of any investor account for which we are
purchasing Securities to offer, sell or otherwise transfer such Securities prior to the date that
is two years after the later of the date of original issue and the last date on which the Company
or any affiliate of the Company was the owner of such Securities (or any predecessor thereto) (the
“Resale Restriction Termination Date”) only (i) to the Issuers, (ii) in the United States to a
person whom the seller reasonably believes is a qualified institutional buyer in a transaction
meeting the requirements of Rule 144A, (iii) to an institutional “accredited investor” within the
meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act that is an institutional
accredited investor purchasing for its own account or for the account of an institutional
accredited investor, in each case in a minimum principal amount of the Securities of $250,000,
(iv) outside the United States in a transaction complying with the provisions of Rule 904 under the
Securities Act, (v) pursuant to an exemption from registration under the Securities Act provided by
Rule 144 (if available) or (vi) pursuant to an effective registration statement under the
Securities Act, in each of cases (i) through (vi) subject to any requirement of law that the
disposition of our property or the property of such investor account or accounts be at all times
within our or their control and in compliance with any applicable state securities laws. The
foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination
Date. If any resale or other transfer of the Securities is proposed to be made pursuant to clause
(iii) above prior to the Resale Restriction Termination Date, the transferor shall deliver a letter
from the transferee substantially in the form of this letter to the Issuers and the Trustee, which
shall provide, among other things, that the transferee is an institutional “accredited investor”
within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act and that it is
acquiring such Securities for investment purposes and not for distribution in violation of the
Securities Act. Each purchaser acknowledges that the Issuers and the Trustee reserve the right
prior to the offer, sale or other transfer prior to the Resale Restriction Termination Date of the
Securities pursuant to clause (iii), (iv) or (v) above to require the delivery of an opinion of
counsel, certifications or other information satisfactory to the Issuers and the Trustee.




TRANSFEREE:________________,




by:___________________