exv4w2






Exhibit 4.2




CREDIT AGREEMENT



 







LEGACY ENERGY, INC.,

as Company




NIMIN ENERGY CORP.,

as Parent



CLMG CORP.,

as Administrative Agent



and



CERTAIN LENDERS



 




Senior Secured Credit Facility




June 30, 2010



 









 





TABLE OF CONTENTS




	 	 	 	 	 
	 	 	Page	 
	ARTICLE I — Definitions and References
	 	 	1	 
	Section 1.1. Defined Terms
	 	 	1	 
	Section 1.2. Exhibits and Schedules; Additional Definitions
	 	 	24	 
	Section 1.3. Amendment of Defined Instruments
	 	 	24	 
	Section 1.4. References and Titles
	 	 	24	 
	Section 1.5. Calculations and Determinations
	 	 	24	 
	Section 1.6. Joint Preparation; Construction of Indemnities and Releases
	 	 	25	 
	Section 1.7. Permitted Security
	 	 	25	 
	 
	 	 	 	 
	ARTICLE II — The Loans
	 	 	25	 
	Section 2.1. Loans; Notes
	 	 	25	 
	Section 2.2. The Notes
	 	 	26	 
	Section 2.3. Requests for Loans
	 	 	26	 
	Section 2.4. Use of Proceeds
	 	 	26	 
	Section 2.5. Interest Rates; Fees
	 	 	26	 
	Section 2.6. Collateral Account
	 	 	27	 
	Section 2.7. Mandatory Prepayments
	 	 	29	 
	Section 2.8. Optional Prepayments
	 	 	30	 
	Section 2.9. Increase to Commitments
	 	 	33	 
	 
	 	 	 	 
	ARTICLE III — Payments to Lenders
	 	 	33	 
	Section 3.1. General Procedures
	 	 	33	 
	Section 3.2. Payment of Interest
	 	 	34	 
	Section 3.3. Place of Payment
	 	 	34	 
	Section 3.4. Capital Reimbursement
	 	 	34	 
	Section 3.5. Reimbursable Taxes
	 	 	35	 
	 
	 	 	 	 
	ARTICLE IV — Conditions Precedent to Lending
	 	 	36	 
	Section 4.1. Closing Date Conditions
	 	 	36	 
	Section 4.2. Additional Conditions Precedent
	 	 	38	 
	 
	 	 	 	 
	ARTICLE V — Representations and Warranties of Parent and Company
	 	 	39	 
	Section 5.1. No Default
	 	 	39	 
	Section 5.2. Organization and Good Standing
	 	 	39	 
	Section 5.3. Authorization
	 	 	39	 
	Section 5.4. No Conflicts or Consents
	 	 	39	 
	Section 5.5. Enforceable Obligations
	 	 	39	 
	Section 5.6. Initial Financial Statements
	 	 	40	 
	Section 5.7. Other Liabilities and Restrictions; Material Contracts
	 	 	40	 
	Section 5.8. Full Disclosure
	 	 	40	 
	Section 5.9. Litigation
	 	 	41	 
	Section 5.10. Labor Disputes and Acts of God
	 	 	41	 






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	 	 	Page	 
	Section 5.11. ERISA Plans and Liabilities
	 	 	41	 
	Section 5.12. Environmental and Other Laws
	 	 	41	 
	Section 5.13. Insurance
	 	 	42	 
	Section 5.14. Names and Places of Business
	 	 	42	 
	Section 5.15. Subsidiaries and Capital Structure
	 	 	42	 
	Section 5.16. Government Regulation
	 	 	43	 
	Section 5.17. Solvency
	 	 	43	 
	Section 5.18. Title to Properties; Licenses; Control over Accounts
	 	 	43	 
	Section 5.19. Regulation U
	 	 	44	 
	Section 5.20. Leases and Contracts; Performance of Obligations
	 	 	44	 
	Section 5.21. Marketing Arrangements
	 	 	45	 
	Section 5.22. Right to Receive Payment for Future Production
	 	 	45	 
	Section 5.23. Operation of Oil and Gas Properties
	 	 	46	 
	Section 5.24. Ad Valorem and Production Taxes
	 	 	46	 
	Section 5.25. Employment Agreements
	 	 	46	 
	Section 5.26. Transactions with Insiders
	 	 	46	 
	 
	 	 	 	 
	ARTICLE VI — Affirmative Covenants
	 	 	47	 
	Section 6.1. Payment and Performance
	 	 	47	 
	Section 6.2. Books, Financial Statements and Reports
	 	 	47	 
	Section 6.3. Other Information and Inspections
	 	 	50	 
	Section 6.4. Notice of Material Events and Change of Address
	 	 	51	 
	Section 6.5. Maintenance of Properties
	 	 	51	 
	Section 6.6. Maintenance of Existence and Qualifications
	 	 	52	 
	Section 6.7. Payment of Trade Liabilities, Taxes, etc
	 	 	52	 
	Section 6.8. Insurance
	 	 	52	 
	Section 6.9. Performance on Company’s Behalf
	 	 	53	 
	Section 6.10. Interest
	 	 	53	 
	Section 6.11. Compliance with Agreements and Law
	 	 	53	 
	Section 6.12. Reviews
	 	 	53	 
	Section 6.13. Separateness Covenants
	 	 	54	 
	Section 6.14. Environmental Matters; Environmental Reviews
	 	 	54	 
	Section 6.15. Evidence of Compliance
	 	 	55	 
	Section 6.16. Bank Accounts; Offset
	 	 	55	 
	Section 6.17. Guaranties of Subsidiaries
	 	 	55	 
	Section 6.18. Agreement to Deliver Security Documents
	 	 	56	 
	Section 6.19. Production Proceeds
	 	 	56	 
	Section 6.20. Leases and Contracts; Performance of Obligations
	 	 	57	 
	Section 6.21. Approved Plan of Development
	 	 	57	 
	Section 6.22. Hedging Contracts
	 	 	57	 
	Section 6.23. Updates of Mortgages
	 	 	58	 
	 
	 	 	 	 
	ARTICLE VII — Negative Covenants
	 	 	58	 
	Section 7.1. Indebtedness
	 	 	58	 
	Section 7.2. Limitation on Liens
	 	 	59	 
	Section 7.3. Limitation on Hedging Contracts and Marketing Arrangements
	 	 	59	 
	Section 7.4. Limitation on Mergers, Issuances of Securities
	 	 	60	 





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	 	 	Page	 
	Section 7.5. Limitation on Dispositions of Property
	 	 	60	 
	Section 7.6. Limitation on Distributions
	 	 	61	 
	Section 7.7. Limitation on Investments, Acquisitions and New Businesses
	 	 	61	 
	Section 7.8. Limitation on Credit Extensions
	 	 	61	 
	Section 7.9. Transactions with Affiliates
	 	 	61	 
	Section 7.10. Prohibited Contracts
	 	 	62	 
	Section 7.11. Amendments to Organizational Documents
	 	 	62	 
	Section 7.12. Collateral Coverage Ratios
	 	 	62	 
	Section 7.13. Maximum Leverage Ratio
	 	 	62	 
	Section 7.14. Minimum Interest Coverage Ratio
	 	 	63	 
	Section 7.15. Capital Expenditures
	 	 	63	 
	 
	 	 	 	 
	ARTICLE VIII — Events of Default and Remedies
	 	 	63	 
	Section 8.1. Events of Default
	 	 	63	 
	Section 8.2. Remedies
	 	 	66	 
	Section 8.3. Application of Proceeds After Acceleration
	 	 	66	 
	 
	 	 	 	 
	ARTICLE IX — Administrative Agent
	 	 	67	 
	Section 9.1. Appointment and Authority
	 	 	67	 
	Section 9.2. Exculpation, Administrative Agent’s Reliance, Etc.
	 	 	67	 
	Section 9.3. Credit Decisions
	 	 	68	 
	Section 9.4. Indemnification
	 	 	68	 
	Section 9.5. Rights as Lender
	 	 	68	 
	Section 9.6. Sharing of Set-Offs and Other Payments
	 	 	69	 
	Section 9.7. Investments
	 	 	69	 
	Section 9.8. Benefit of Article IX
	 	 	69	 
	Section 9.9. Resignation
	 	 	69	 
	Section 9.10. Notice of Default
	 	 	70	 
	Section 9.11. Limitation of Liability
	 	 	70	 
	Section 9.12. Reliance upon Documentation
	 	 	70	 
	 
	 	 	 	 
	ARTICLE X — Miscellaneous
	 	 	70	 
	Section 10.1. Waivers and Amendments; Acknowledgments
	 	 	70	 
	Section 10.2. Survival of Agreements; Cumulative Nature
	 	 	73	 
	Section 10.3. Notices
	 	 	73	 
	Section 10.4. Payment of Expenses; Indemnity
	 	 	74	 
	Section 10.5. Joint and Several Liability
	 	 	75	 
	Section 10.6. Successors and Assigns
	 	 	76	 
	Section 10.7. Confidentiality
	 	 	78	 
	Section 10.8. Governing Law; Submission to Process
	 	 	79	 
	Section 10.9. Limitation on Interest
	 	 	80	 
	Section 10.10. Severability
	 	 	81	 
	Section 10.11. Counterparts; Fax
	 	 	81	 
	Section 10.12. Third Party Beneficiaries
	 	 	81	 
	Section 10.13. USA PATRIOT Act Notice
	 	 	81	 
	Section 10.14. Anti-Money Laundering Legislation
	 	 	81	 
	Section 10.15. Waiver of Jury Trial, Punitive Damages, etc
	 	 	82	 





[Credit Agreement]



iii









 






Schedules and Exhibits:




	 	 	 	 	 

	Schedule 1

	 	-
	 	Disclosure Schedule
	Schedule 2

	 	-
	 	Security Schedule
	Schedule 3

	 	-
	 	Insurance Schedule
	Schedule 4

	 	-
	 	Lenders Schedule
	Schedule 5

	 	-
	 	Hedging Contracts
	 
	 	 	 	 
	Exhibit A

	 	-
	 	Promissory Note
	Exhibit B

	 	-
	 	Borrowing Notice
	Exhibit C

	 	-
	 	Prepayment Notice
	Exhibit D

	 	-
	 	Certificate Accompanying Financial Statements
	Exhibit E

	 	-
	 	APOD Certificate
	Exhibit F

	 	-
	 	Solvency Certificate
	Exhibit G

	 	-
	 	Legal Opinions
	Exhibit H

	 	-
	 	Form of Guaranty
	Exhibit I

	 	-
	 	Assignment and Assumption Agreement





[Credit Agreement]




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CREDIT AGREEMENT




          THIS CREDIT AGREEMENT is made as of June 30, 2010 by and among LEGACY ENERGY, INC., a Delaware
corporation, NIMIN ENERGY CORP., an Alberta corporation, CLMG CORP., a Nevada corporation, as
administrative and collateral agent (together with its successors in such capacity, the
“Administrative Agent”), and the Lenders referred to below.



W I T N E S S E T H:




          In consideration of the mutual covenants and agreements contained herein and the loans to be
made by Lenders, and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:



ARTICLE I — Definitions and References



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




          “Additional Loans” has the meaning given to such term in Section 2.1(b).



          “Administrative Agent” has the meaning given to such term in the preamble hereto.



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



          “Adjusted Consolidated EBITDA” means, for any Fiscal Quarter, Consolidated EBITDA for
such Fiscal Quarter adjusted to give effect to any acquisition or divestiture of any Person or
business unit of a Person that was made by Parent or any of its Consolidated Subsidiaries during
such Fiscal Quarter as if such transactions had occurred on the first day of such Fiscal Quarter,
regardless of whether the effect is positive or negative.



          “Affiliate” means, as to any Person, each other Person that directly or indirectly
(through one or more intermediaries or otherwise) controls, is controlled by, or is under common
control with, such Person. A Person shall be deemed to be “controlled by” any other Person if such
other Person possesses, directly or indirectly, power:



          (a) to vote 10% or more of the securities or other equity interests (on a fully diluted basis)
having ordinary voting power for the election of directors, the managing general partner or
partners or the managing member or members; or



          (b) to direct or cause the direction of the management and policies of such Person whether by
contract or otherwise.



          “Agreed Pricing” means:



[Note Purchase Agreement]



 









 





          (a) for anticipated sales of Hydrocarbons that are fixed in a firm fixed price sales contract
with an Approved Counterparty, the fixed price or prices provided for in such sales contract during
the term thereof;



          (b) for anticipated sales of Hydrocarbons that are hedged by a fixed price Hedging Contract
with an Approved Counterparty, the fixed price or prices provided for in such Hedging Contract
during the term thereof, as modified by any necessary adjustment specified from time to time by
Administrative Agent in its discretion for quality and geographical differentials;



          (c) for anticipated sales of Hydrocarbons that are hedged by a Hedging Contract with Approved
Counterparty which Hedging Contract provides for a range of prices between a floor and a ceiling,
the prices provided for in subsection (d) below, provided that during the term of such Hedging
Contract such prices shall in no event be less than such floor or exceed such ceiling, as such
floor and ceiling are modified by any necessary adjustment specified from time to time by
Administrative Agent in its discretion for quality and geographical differentials; and



          (d) for anticipated sales of Hydrocarbons, if such sales are not hedged by a Hedging Contract
or fixed by a sales contract that is described in paragraphs (a), (b), or (c) above:




     (i) For the remainder of the current calendar year:




     (1) if Agreed Pricing is being used to calculate the Proved Collateral Coverage
Ratio, eighty-five percent (85%) of the average NYMEX Pricing for the remaining
months in the current calendar year, and




     (2) if Agreed Pricing is being used to calculate the Proved Volume Coverage
Ratio, $3.75 per MMBtu of gas or $60.00 per barrel of oil,




     (ii) For each of the succeeding three complete calendar years:




     (1) if Agreed Pricing is being used to calculate the Proved Collateral Coverage
Ratio, eighty-five percent (85%) of the average NYMEX Pricing for the twelve months
in each such calendar year, and




     (2) if Agreed Pricing is being used to calculate the Proved Volume Coverage
Ratio, $3.75 per MMBtu of gas or $60.00 per barrel of oil, and




     (iii) For the succeeding fourth complete calendar year, and for each calendar year
thereafter:




     (1) if Agreed Pricing is being used to calculate the Proved Collateral Coverage
Ratio, eighty-five percent (85%) of the average NYMEX Pricing for the twelve months
in such fourth calendar year, and




     (2) if Agreed Pricing is being used to calculate the Proved Volume Coverage
Ratio, $3.75 per MMBtu of gas or $60.00 per barrel of oil,



[Credit Agreement]



2









 




determined for each of the preceding subsections (i), (ii) and (iii) as of the date of calculation
(or, if such date is not a Business Day, as of the first Business Day thereafter) and with any
necessary adjustment specified from time to time by Administrative Agent in its discretion for
quality and geographical differentials.




          “Agreement” means this Credit Agreement.



          “APOD Certificate” means a certificate in the form of Exhibit E given from time to
time by Administrative Agent, on behalf of Required Lenders, and by Company to confirm that the
document or documents attached thereto set out the APOD as then in effect.



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



          “Approved Counterparty” means a counterparty to a Hedging Contract that either (a) is
a Secured Third Party Hedge Counterparty, (b) is a Person whose senior unsecured long-term debt
obligations are rated A or higher by S&P and A3 or higher by Moody’s, or (c) is approved in writing
by Administrative Agent with respect to that particular Hedging Contract.



          “Approved Plan of Development” or “APOD” means Company’s written plan of
development with respect to budgeted capital expenditures (including maximum annual expenditures)
and other development activities that is attached to the APOD Certificate given on or about the
Closing Date, as such plan is amended, supplemented or restated from time to time with the consent
of Required Lenders (given or withheld in their discretion) as evidenced by one or more additional
APOD Certificates; provided that no such consent shall be required for amendments, modifications or
supplements to the extent, but only to the extent, that any such amendments, modifications or
supplements either (a) are administrative or ministerial in nature, or (b) would make non-material
amendments to the timing for the completion of any such particular development (other than an
amendment extending the timing of the substantial completion of the APOD).



          “APOD Capital Expenditures” means capital expenditures made or to be made by Company
on the Eligible Mortgaged Properties, to the extent the same either (a) have been approved in
writing by Required Lenders at the time in question, or (b) are included in the Approved Plan of
Development, as then in effect.



          “Assignment and Assumption Agreement” means an assignment and assumption entered into
by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by
Section 10.6), and accepted by Administrative Agent, in substantially the form of Exhibit I or any
other form approved by Administrative Agent.



          “Bankruptcy Code” means Title 11 of the United States Code entitled “Bankruptcy,” the
Bankruptcy and Insolvency Act (Canada), the Companies’ Creditors Arrangement Act (Canada), and all
other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors,
moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws
of the United States or Canada or other applicable jurisdictions from time to time in effect


[Credit Agreement]



3









 







and affecting the rights of creditors generally including, for the avoidance of doubt,
corporate legislation.



          “Barrel of Oil Equivalent” or “BOE” means, (a) with respect to oil, the amount
of such oil measured in Barrels, and (b) with respect to gas, the amount of Barrels determined by
multiplying the quantity of such gas (expressed in MMBtus) by a ratio the numerator of which is one
Barrel and the denominator of which is six MMBtus per Barrel. As used in this definition, “Barrel”
means 42 United States standard gallons and “MMBtu” means 1,000,000 British Thermal Units.



          “Borrowing” means a Loan or group of Loans made or to be made at the same time by
Lenders in accordance with their Percentage Shares.



          “Borrowing Notice” means a written or telephonic request, or a written confirmation,
made by Company that meets the requirements of Section 2.3.



          “BP Collateral Sharing Agreement” means that certain Intercreditor Agreement dated as
of June 30, 2010 by and among BP Corporation North America Inc., as Initial Swap Counterparty, any
other Person that becomes a party thereto as a Swap Counterparty, Company, Parent, and CLMG Corp.,
as administrative agent and collateral agent.



          “Business Day” means a day, other than a Saturday or Sunday, on which commercial banks
are open for business with the public in Las Vegas, Nevada.



          “Called Principal” has the meaning given to such term in Section 2.8(e).



          “Canadian GAAP” means such principles and practices which are set out in the “CICA
Handbook” published by the Canadian Institute of Chartered Accountants, in the case of the Credit
Parties and their Consolidated Subsidiaries, are applied for all periods after the date hereof in a
consistent manner. If any change in any accounting principle or practice is required by the
Canadian Institute of Chartered Accountants (or any successor) in order for such principle or
practice to continue as a generally accepted accounting principle or practice, all reports and
financial statements required hereunder with respect to any Credit Party or with respect to any
Credit Party and its Consolidated Subsidiaries may be prepared in accordance with such change, but
all calculations and determinations to be made hereunder may be made in accordance with such change
only after notice of such change is given to each Lender and Company, Required Lenders and
Administrative Agent agree to such change insofar as it affects such calculations and
determinations.



          “Canadian Securities Laws” means, all applicable securities laws in each of the
provinces and territories of Canada and the respective regulations and rules under such laws
together with applicable published policy statements, notices, instruments and orders of securities
commissions or similar regulatory authorities in each of the provinces and territories of Canada as
well as the applicable by-laws, rules and regulations of any stock exchange upon which the
securities of a Credit Party are listed.



          “Capital Lease” means a lease with respect to which the lessee is required
concurrently to recognize the acquisition of an asset and the incurrence of a liability in
accordance with GAAP.



[Credit Agreement]



4









 





          “Capital Lease Obligation” means, with respect to any Person and a Capital Lease, the
amount of the obligation of such Person as the lessee under such Capital Lease that should, in
accordance with GAAP, appear as a liability on the balance sheet of such Person.



          “Cash Equivalents” means Investments in:



          (a) marketable obligations, maturing within twelve months after acquisition thereof, issued or
unconditionally guaranteed by the United States of America or an instrumentality or agency thereof
and entitled to the full faith and credit of the United States of America; and



          (b) demand deposits, and time deposits (including certificates of deposit) maturing within
twelve months from the date of deposit thereof, with a domestic office of any national or state
bank or trust company that is organized under the Laws of the United States of America or any state
therein or Canada or any province or territory therein, that has capital, surplus and undivided
profits of at least $500,000,000, and whose long term certificates of deposit are rated at least
Aa3 by Moody’s or AA- by S & P.



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



          (a) any Person or two or more Persons acting as a group shall acquire beneficial ownership
(within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended, and including holding proxies to vote for the election of
directors other than proxies held by Parent’s or Company’s, as applicable, management or their
designees to be voted in favor of Persons nominated by Parent’s or Company’s Board of Directors, as
applicable) of 50% or more of the Equity in Parent or Company entitled to vote for members of the
board of directors or equivalent governing body of Parent or Company, as applicable (and taking
into account all such securities that such Person or group has the right to acquire pursuant to any
option right),



          (b) individuals, who, as of the Closing Date, constitute the Board of Parent (“Parent
Incumbent Board”) cease for any reason to constitute at least a majority of the Board of
Parent; provided, however, that any individual becoming a director subsequent to the Closing Date
whose (1) election, (2) appointment or (3) nomination for election by Parent’s stockholders was
approved by a vote of at least a majority of the directors then comprising the Parent Incumbent
Board, but excluding, for purpose of this definition, any such individual whose initial assumption
of office occurs as a result of an actual or publicly threatened election contest with respect to
the election or removal of directors or other actual or publicly threatened solicitation of proxies
or consents by or on behalf of a person or group other than the Parent Incumbent Board,



          (c) individuals, who, as of the Closing Date, constitute the Board of Company (“Company
Incumbent Board”) cease for any reason to constitute at least a majority of the Board of
Company; provided, however, that any individual becoming a director subsequent to the Closing Date
whose (1) election, (2) appointment or (3) nomination for election by the Company’s stockholders
was approved by a vote of at least a majority of the directors then comprising the Company
Incumbent Board, but excluding, for purpose of this definition, any such individual whose initial
assumption of office occurs as a result of an actual or publicly threatened election contest with
respect to the election or removal of directors or other actual or



[Credit Agreement]



5









 







publicly threatened solicitation of proxies or consents by or on behalf of a person or group
other than the Company Incumbent Board,



          (c) any two or more of Clarence Cottman III, Sven Hagen, Jon Wimbish, and Rick McGee shall for
any reason cease to serve as executive officers of Company and to devote a substantial amount of
their time to the management of the Credit Parties and successor executive officers acceptable to
Required Lenders are not appointed or elected within 60 days following such cessation,



          (d) Parent shall cease to own and control at least 100% of the voting and economic interest in
the Equity in Company, or



          (e) Parent shall cease to own and control 100% of the voting and economic interest in the
Equity in each Guarantor that is a Subsidiary of Parent.



          “Closing Date” means the date on which all of the conditions precedent set forth in
Section 4.1 shall have been satisfied or waived.



          “Closing Date Loans” has the meaning given to such term in Section 2.1(a).



          “Collateral” means all assets or property of any kind of the Credit Parties, including
all property of any kind that is subject to a Lien in favor of Lenders (or in favor of
Administrative Agent for the benefit of Lenders) or that, under the terms of any Security Document,
is purported to be subject to such a Lien, in each case that secures the Secured Obligations.



          “Collateral Account” means deposit account number 9512018561 established in the name
of Company with the Collateral Account Bank, or such other deposit account as may be established by
Company from time to time with the prior written consent of Administrative Agent, which consent may
be given or withheld in its discretion.



          “Collateral Account Agreement” means all documents or agreements governing or
evidencing the Collateral Account.



          “Collateral Account Bank” means Rabobank, N.A. or any successor bank at which the
Collateral Account is maintained.



          “Collateral Sharing Agreement” means the BP Collateral Sharing Agreement and any other
intercreditor and collateral sharing agreement by and among an Approved Counterparty,
Administrative Agent and the applicable Credit Parties, in form, scope and substance satisfactory
to Administrative Agent in its discretion.



          “Commitment” means, as to each Lender, its obligation to make Loans to Company
pursuant to Section 2.1 in an aggregate principal amount at any one time outstanding not to exceed
the amount set forth opposite such Lender’s name on the Lenders Schedule under the heading
“Commitment” or in the Assignment Agreement pursuant to which such Lender becomes a party hereto,
as applicable, as such amount may be adjusted from time to time in accordance with this Agreement.
Notwithstanding that the Security Documents may be documented with reference to a higher credit
amount, it is expressly understood and



[Credit Agreement]



6









 







agreed that Lenders have no obligation to make Loans in excess of their aggregate Commitments
or to increase the amount of the commitments set forth on the Lenders Schedule or such Assignment
Agreement, as applicable, and that Lenders’ commitments to make Loans hereunder is determined by
reference to the “Commitment” set forth on such Lenders Schedule or such Assignment Agreement, as
applicable.



          “Commitment Increment” means (a) the initial aggregate Commitments of $36,000,000 and
(b) each aggregate increase of Commitments pursuant to Section 2.9. On the date hereof there is
only one Commitment Increment of $36,000,000.



          “Company” means Legacy Energy, Inc., a Delaware corporation.



          “Consolidated” refers to the consolidation of any Person, in accordance with GAAP,
with its properly consolidated subsidiaries. References herein to a Person’s Consolidated
financial statements, financial position, financial condition, liabilities, etc. refer to the
consolidated financial statements, financial position, financial condition, liabilities, etc. of
such Person and its properly consolidated subsidiaries.



          “Consolidated EBITDA” means, for any period (without duplication), the sum of (1)
Consolidated Net Income during such period (excluding extraordinary gains and losses), plus (2) all
interest paid or accrued during such period on Indebtedness (including amortization of original
issue discount and the interest component of any deferred payment obligations and Capital Lease
Obligations) that was deducted in determining such Consolidated Net Income, plus (3) all income
taxes that were deducted in determining such Consolidated Net Income, plus (4) all depreciation,
amortization (including amortization of good will and debt issue costs), depletion, and other
non-cash charges (including any provision for the reduction in the carrying value of assets
recorded in accordance with GAAP and including those resulting from the requirements of FASB 133,
143 or 144) that were deducted in determining such Consolidated Net Income, minus (5) all non-cash
items of income that were included in determining such Consolidated Net Income.



          “Consolidated Funded Debt” means the categories of Liabilities of Parent and its
properly Consolidated Subsidiaries described in clauses (a), (b), (c), (f), (h) and (j) of the
definition of “Indebtedness” in Section 1.1 (without duplication).



          “Consolidated Interest Charges” means, for any period, all interest paid or accrued
during such period on Indebtedness (including premium payments, capitalized interest, amortization
of original issue discount, and the interest component of any deferred payment obligations and
Capital Lease Obligations) that was deducted in determining Consolidated Net Income during such
period.



          “Consolidated Net Income” means, for any period, Parent’s and its properly
Consolidated subsidiaries’ gross revenues for such period, including any cash dividends or
distributions actually received from any other Person during such period, minus Parent’s and such
subsidiaries’ expenses and other proper charges against income (including taxes on income, to the
extent imposed), determined on a Consolidated basis, after eliminating earnings or losses


[Credit Agreement]



7









 







attributable to outstanding minority interests and excluding the net earnings of any Person
(other than a Credit Party) in which Parent or any of its subsidiaries has an ownership interest.



          “Credit Parties” means Parent, Company and each Subsidiary of Parent.



          “Current Federal Funds Rate” has the meaning given to such term in Section 2.8(e).



          “Default” means any Event of Default and any default, event or condition that would,
with the giving of any requisite notices and the passage of any requisite periods of time,
constitute an Event of Default.



          “Default Rate” means the rate per annum equal to two percent (2%) above the Fixed
Rate, provided that no Default Rate charged by any Person shall ever exceed the Highest Lawful
Rate.



          “Deposit Account” means a demand, time, savings, passbook or like account with a bank,
savings and loan association, credit union or like organization (other than an account evidenced by
a negotiable certificate of deposit), and any other deposit account, as defined in the UCC.



          “Direct Taxes” means any severance, ad valorem, or other direct taxes on properties
owned by any Credit Party or the production therefrom or the proceeds of such production; provided
that federal, state, or local income or franchise taxes shall in no event be considered Direct
Taxes.



          “Disclosure Schedule” means Schedule 1 hereto.



          “Discounted Value” has the meaning given to such term in Section 2.8(e).



          “Distribution” means (a) any dividend or other distribution made by a Credit Party on
or in respect of any Equity in such Credit Party or any other Credit Party, or (b) any payment made
by a Credit Party to purchase, redeem, acquire or retire any Equity in such Credit Party or any
other Credit Party.



          “Eligible Assignee” means (a) a Lender, (b) an Affiliate of a Lender, (c) an Approved
Fund, and (d) any other Person (other than a natural person), approved by Administrative Agent;
provided that notwithstanding the foregoing, “Eligible Assignee” shall not include Parent
or any of Parent’s Affiliates or Subsidiaries.



          “Eligible Mortgaged Properties” means, collectively, those Oil and Gas Properties (a)
that are owned by Company or any other Credit Party and mortgaged to Administrative Agent to secure
the Obligations, (b) for which Administrative Agent has received title opinions or other title
information concerning such interests in form, substance and authorship satisfactory to
Administrative Agent, and (c) that are free and clear of all Liens other than Permitted Liens.



          “Engineering Report” means the Initial Engineering Report and each annual or
semiannual engineering report delivered pursuant to Section 6.2(l), in each case as reviewed and
adjusted by the Independent Lender Engineer.



[Credit Agreement]



8









 





          “Environmental Advisor” means Environmental Compliance Associates Inc.



          “Environmental Laws” means any and all Laws relating to the environment or to
emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or
industrial, toxic or hazardous substances or wastes into the environment including ambient air,
surface water, ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes.



          “Equity” in a Person means any share of capital stock issued by such Person, any
general or limited partnership interest, profits interest, capital interest, membership interest,
or other equity interest in such Person, any option, warrant or any other right to acquire any
share of capital stock or any partnership, profits, capital, membership or other equity interest in
such Person, and any other voting security issued by such Person.



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



          “ERISA Affiliate” means each Credit Party and all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under common control that,
together with such Credit Party, are (or were at any time in the past six years) treated as a
single employer under Section 414 of the Internal Revenue Code.



          “ERISA Plan” means any “employee pension benefit plan” as defined in Section 3(2) of
ERISA (other than a Multiemployer Plan) that is subject to Title IV of ERISA or Section 412 of the
Internal Revenue Code and maintained, contributed to or required to be contributed to by any ERISA
Affiliate and with respect to which any Credit Party has a fixed or contingent liability.



          “ERISA Plan Funding Rules” means the rules in the Internal Revenue Code and ERISA (and
related regulations and other guidance) regarding minimum funding standards and minimum required
contributions to ERISA Plans as set forth in Sections 412, 430 and 436 of the Internal Revenue Code
and Sections 302 and 303 of ERISA (and as set forth in Section 412 of the Internal Revenue Code and
Section 302 of ERISA for periods prior to the effective date of the Pension Protection Act of
2006).



          “Event of Default” has the meaning given to such term in Section 8.1.



          “Existing Senior Acquisition Indebtedness” means the existing senior secured
Indebtedness of any Person acquired by a Credit Party on or before June 30, 2011 (or to be acquired
on or before June 30, 2011) pursuant to clause (e) of the definition of Permitted Investments.



          “Fiscal Quarter” means a three-month period ending on March 31, June 30, September 30
or December 31 of any year.



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



[Credit Agreement]



9









 





          “Fixed Rate” means the rate of twelve and one-half percent (12.50%) per annum.



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



          “GAAP” means:



          (a) Prior to registration of Parent’s Equity pursuant to the Securities Act, Canadian GAAP or,
if required by any applicable securities exchange or Governmental Authority, IFRS GAAP.



          (b) Upon and following the registration of Parent’s Equity pursuant to the Securities Act (or
earlier, if Parent so elects), those generally accepted accounting principles and practices that
are recognized as such by the Financial Accounting Standards Board (or any generally recognized
successor) and that, in the case of the Credit Parties and their Consolidated Subsidiaries, are
applied for all periods after the date hereof in a manner consistent with the manner in which such
principles and practices were applied to the Initial Financial Statements. If any change in any
accounting principle or practice is required by the Financial Accounting Standards Board (or any
such successor) in order for such principle or practice to continue as a generally accepted
accounting principle or practice, all reports and financial statements required hereunder with
respect to any Credit Party or with respect to any Credit Party and its Consolidated Subsidiaries
may be prepared in accordance with such change, but all calculations and determinations to be made
hereunder may be made in accordance with such change only after notice of such change is given to
each Lender and Company, Required Lenders and Administrative Agent agree to such change insofar as
it affects such calculations and determinations.



          “Governmental Authority” means any federal, state, provincial, municipal, national,
tribal, Indian nation, or other government, governmental department, commission, board, bureau,
court, agency or instrumentality or political subdivision thereof or any entity or officer
exercising executive, legislative, judicial, regulatory or administrative functions of or
pertaining to any government or any court, in each case whether associated with a state of the
United States, a province of Canada, the United States, Canada, an Indian nation, or a foreign
entity or government.



          “Gross Cash Receipts” means all cash revenues and cash receipts of Parent and its
Subsidiaries on a Consolidated basis during any Fiscal Quarter from any source or activity
(excluding only (a) funds received from sales or issuance of new Equity by Parent, and (b) funds
belonging to or received for the credit of third parties, such as royalty, working interest or
other interest owners, that are received for transfer or payment to such third parties).



          “Guarantor” means Parent and any Subsidiary of Parent that now or hereafter executes
and delivers a Guaranty to Administrative Agent as required herein.



          “Guaranty” means an absolute and unconditional guaranty of the timely repayment of the
Obligations and the due and punctual performance of the obligations of Company hereunder,
substantially in the form of Exhibit H and satisfactory in all respects to Administrative Agent.



[Credit Agreement]



10









 





          “Hazardous Materials” means any substances regulated under any Environmental Law,
whether as pollutants, contaminants, or chemicals, or as industrial, toxic or hazardous substances
or wastes, or otherwise.



          “Hedging Contract” means (a) any agreement providing for options, swaps, floors, caps,
collars, forward sales or forward purchases involving interest rates, commodities or commodity
prices (including basis risk), equities, currencies, bonds, or indexes based on any of the
foregoing, (b) any option, futures or forward contract traded on an exchange, and (c) any other
derivative agreement or other similar agreement or arrangement.



          “Highest Lawful Rate” means, with respect to each Lender Party to whom Obligations are
owed, the maximum nonusurious rate of interest that such Lender Party is permitted under applicable
Law to contract for, take, charge, or receive with respect to such Obligations. All determinations
herein of the Highest Lawful Rate, or of any interest rate determined by reference to the Highest
Lawful Rate, shall be made separately for each Lender Party (but shall take into account all
Obligations owing to such Lender Party) as appropriate to assure that the Loan Documents are not
construed to obligate any Person to pay interest to any Lender Party at a rate in excess of the
maximum rate or amount of interest that such Lender Party is permitted under applicable Law to
contract for, take, charge, or receive with respect to such Obligations.



          “Hydrocarbon Interests” means (a) all oil, gas and/or mineral leases, oil, gas or
mineral properties, mineral servitudes and/or mineral rights of any kind (including mineral fee
interests, lease interests, farmout interests, overriding royalty and royalty interests, net
profits interests, oil payment interests, production payment interests and other types of mineral
interests), and (b) all oil and gas gathering, treating, compression, storage, processing and
handling assets of any kind, including all pipelines, wells, wellhead equipment, pumping units,
flowlines, tanks, buildings, injection facilities, saltwater disposal facilities, compression
facilities, gathering systems, processing plants, and other related equipment of any kind.



          “Hydrocarbons” means crude oil, natural gas, condensate, or other liquid or gaseous
hydrocarbons.



          “IFRS GAAP” means those generally accepted accounting principles and practices which
are as set out in the International Financial Reporting Standards (“IFRS”) adopted by the
International Accounting Standards Board (“IASB”). If any change in any accounting
principle or practice is required by the IASB (or any successor) in order for such principle or
practice to continue as a generally accepted accounting principle or practice, all reports and
financial statements required hereunder with respect to any Credit Party or with respect to any
Credit Party and its Consolidated Subsidiaries may be prepared in accordance with such change, but
all calculations and determinations to be made hereunder may be made in accordance with such change
only after notice of such change is given to each Lender and Company, Required Lenders and
Administrative Agent agree to such change insofar as it affects such calculations and
determinations.



          “Indebtedness” of any Person means Liabilities in any of the following categories:



          (a) Liabilities for borrowed money;



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11









 





          (b) Liabilities constituting an obligation to pay the deferred purchase price of property or
services;



          (c) Liabilities evidenced by a bond, debenture, note or similar instrument;



          (d) Liabilities that (i) would under GAAP be shown on such Person’s balance sheet as a
liability, and (ii) are payable more than one year from the date of creation or incurrence thereof
(other than reserves for taxes and reserves for contingent obligations);



          (e) Capital Lease Obligations;



          (f) Liabilities arising under conditional sales or other title retention agreements;



          (g) Liabilities owing under direct or indirect guaranties of Indebtedness of any other Person
or otherwise constituting obligations to purchase or acquire or to otherwise protect or insure a
creditor against loss in respect of Indebtedness of any other Person (such as obligations under
working capital maintenance agreements, agreements to keep-well, or agreements to purchase
Liabilities, assets, goods, securities or services), but excluding endorsements in the ordinary
course of business of negotiable instruments in the course of collection;



          (h) Indebtedness of others that is secured by a Lien on any asset of such Person, regardless
of whether such Indebtedness has been assumed by such Person or is otherwise a Liability of such
Person;



          (i) Liabilities (for example, repurchase agreements, mandatorily redeemable preferred stock
and sale/leaseback agreements) consisting of an obligation to purchase or redeem securities or
other property, if such Liabilities arise out of or in connection with the sale or issuance of the
same or similar securities or property;



          (j) Liabilities with respect to letters of credit or applications or reimbursement agreements
therefor or with respect to banker’s acceptances;



          (k) Liabilities with respect to payments received in consideration of oil, gas, or other
minerals yet to be acquired or produced at the time of payment (including obligations under
“take-or-pay” contracts to deliver gas in return for payments already received and the undischarged
balance of any production payment created by such Person or for the creation of which such Person
directly or indirectly received payment); or



          (l) Liabilities with respect to other obligations to deliver goods or services in
consideration of advance payments therefor;


provided however, that the “Indebtedness” of any Person shall not include Liabilities that were
incurred by such Person on ordinary trade terms to vendors, suppliers, or other Persons providing
goods and services for use by such Person in the ordinary course of its business, unless and until
such Liabilities are outstanding more than 90 days past the incurrence thereof, or if earlier, when
due in accordance with its terms, except to the extent that any such Liabilities described in this
proviso clause not exceeding the aggregate amount of $500,000 are being contested in good faith



[Credit Agreement]





12









 







by appropriate proceedings and for which adequate reserves have been maintained in accordance with
GAAP.




          “Indemnitee” means each Lender Party and each director, officer, agent, trustee,
attorney, employee, representative and Affiliate of or for any such Person.



          “Independent Company Engineer” means (a) Huddleston & Company, Inc. or (b) any
nationally recognized independent petroleum engineering company that is designated by Company with
the consent of Administrative Agent.



          “Independent Lender Engineer” means (a) Cawley, Gillespie & Associates, Inc. or (b)
any nationally recognized independent petroleum engineering company that is retained by
Administrative Agent.



          “Initial Engineering Report” means the reserve engineering report with respect to the
Oil and Gas Properties prepared as of December 31, 2009 by the Independent Company Engineer, as
reviewed and adjusted by the Independent Lender Engineer.



          “Initial Financial Statements” means (a) Parent’s audited Consolidated annual
financial statements as of December 31, 2009 and (b) Parent’s unaudited quarterly Consolidated
financial statements as of March 31, 2010.



          “Insurance Advisor” means EnRisk Services, Inc. or another reputable insurance advisor
reasonably acceptable to the Required Lenders.



          “Insurance Schedule” means Schedule 3 hereto.



          “Internal Revenue Code” means the United States Internal Revenue Code of 1986, as
amended from time to time and any successor statute or statutes, together with all rules and
regulations promulgated with respect thereto.



          “Investment” means any investment, made directly or indirectly, in any Person, whether
by purchase or acquisition of Equity, Indebtedness or other obligations or securities or by
extension of credit, loan, advance, capital contribution or otherwise and whether made in cash, by
the transfer of property, or by any other means.



          “Law” means any statute, law, regulation, ordinance, rule, treaty, judgment, order,
decree, permit, concession, franchise, license, agreement or other governmental restriction of the
United States or Canada or any state, province or political subdivision thereof or of any foreign
country or any department, province or other political subdivision thereof. Any reference to a Law
includes any amendment or modification to such Law, and all regulations, rulings, and other Laws
promulgated under such Law.



          “Lender Parties” means Administrative Agent and all Lenders.



          “Lenders” means Beal Bank Nevada, and its successors and assigns as holders of Notes.



          “Lenders Schedule” means Schedule 4 hereto.


[Credit Agreement]



13









 





          “Liabilities” means, as to any Person, all indebtedness, liabilities and obligations
of such Person, whether matured or unmatured, liquidated or unliquidated, primary or secondary,
direct or indirect, absolute, fixed or contingent, and whether or not required to be considered
pursuant to GAAP.



          “Lien” means, with respect to any property or assets, any right or interest therein of
a creditor to secure Liabilities owed to it or any other arrangement with such creditor that
provides for the payment of such Liabilities out of such property or assets or that allows such
creditor to have such Liabilities satisfied out of such property or assets prior to the general
creditors of any owner thereof, including any lien, mortgage, security interest, pledge, deposit,
production payment, rights of a vendor under any title retention or conditional sale agreement or
lease substantially equivalent thereto, tax lien, mechanic’s or materialman’s lien, or any other
charge or encumbrance for security purposes, whether arising by Law or agreement or otherwise, but
excluding any right of offset that arises without agreement in the ordinary course of business.
“Lien” also means any filed financing statement, any registration of a pledge (such as with an
Lender of uncertificated securities), or any other arrangement or action that would serve to
perfect a Lien described in the preceding sentence, regardless of whether such financing statement
is filed, such registration is made, or such arrangement or action is undertaken before or after
such Lien exists.



          “Loans” means the Closing Date Loans and the Additional Loans (if any).



          “Loan Documents” means this Agreement, the Notes, the Security Documents, the
Collateral Sharing Agreements, and all other agreements, certificates, documents, instruments and
writings at any time delivered in connection herewith or therewith (exclusive of term sheets and
commitment letters).



          “Make-Whole Amount” has the meaning given to such term in Section 2.8(e).



          “Material Adverse Change” means a material and adverse change, from the state of
affairs presented in the most recently delivered audited financial statements delivered pursuant to
Section 6.2(a) (or the Initial Financial Statements until the delivery of such financial
statements) or from the state of affairs represented or warranted in any Loan Document, to (a)
Company’s or Parent’s Consolidated financial condition, (b) Company’s or Parent’s Consolidated
business, assets, operations, properties or prospects, considered as a whole, (c) Company’s ability
to timely pay the Obligations, or (d) the enforceability of the material terms of any Loan
Document. Representations, warranties or statements that a condition or event “could cause” or
“could result in” a Material Adverse Change do not mean that a Material Adverse Change is remotely
possible but instead mean that the possibility of a Material Adverse Change exists and that the
probability of such Material Adverse Change is more than a remote probability.



          “Material Contract” means, with respect to any Person, each contract to which such
Person is a party involving aggregate consideration payable to or by such Person of $1,500,000 or
more in any Fiscal Year or otherwise material to the business, condition (financial or otherwise),
operations, performance, properties or prospects of such Person.



          “Maturity Date” means June 30, 2015.



[Credit Agreement]



14









 





          “Modified NPV10” means the sum of:



          (a) with respect to any Proved Developed Producing Reserves attributable to the Eligible
Mortgaged Properties, the NPV10 of such Reserves (calculated utilizing 95% of the expected future
revenues of Company attributable to such Reserves and 95% of expected expenses (including Direct
Taxes, leasehold operating expenses, and capital expenditures)); plus



          (b) with respect to any Proved Developed Non-Producing Reserves attributable to the Eligible
Mortgaged Properties, the NPV10 of such Reserves (calculated utilizing 60% of the expected future
revenues of Company attributable to such Reserves and 60% of expected expenses (including Direct
Taxes, leasehold operating expenses, and capital expenditures)); plus



          (c) with respect to any Proved Undeveloped Reserves attributable to the Eligible Mortgaged
Properties, the NPV10 of such Reserves (calculated utilizing 60% of the expected future revenues of
Company attributable to such Reserves and 60% of expected expenses, provided that if the
Independent Lender Engineer has designated any such Proved Undeveloped Reserves (other than any
such reserves in the Plieto Creek Field (California), Ferguson Ranch Field (Wyoming), and Hunt
Field (Wyoming)) as “Tier 2” reserves, such calculation will be made utilizing 25% of the expected
future revenues of Company attributable to such Reserves and 25% of expected expenses (in each
case, including Direct Taxes, leasehold operating expenses, and capital expenditures));


provided, however, that (i) the NPV10 of all Proved Developed Nonproducing Reserves and Proved
Undeveloped Reserves included in Modified NPV10 must not exceed the Applicable Non-PDP Percentage
of all such Proved Reserves, and (ii) the Modified NPV10 for any particular Proved Developed
Non-Producing Reserves or Proved Undeveloped Reserves shall be zero unless such capital is
reasonably expected to be available to Company. For purposes of this definition, “Applicable
Non-PDP Percentage” means, at the time in question, (a) 50% during the period commencing on the
Closing Date through December 31, 2010, (b) 45% during the period commencing on January 1, 2011
through March 31, 2011, and (c) 40% thereafter.




          “Modified Proved Volumes” means the sum of:



          (a) with respect to any Proved Developed Producing Reserves attributable to the Eligible
Mortgaged Properties, 95% of the Proved Volumes related to such Reserves; plus



          (b) with respect to any Proved Developed Non-Producing Reserves attributable to the Eligible
Mortgaged Properties, 60% of the Proved Volumes related to such Reserves; plus



          (c) with respect to any Proved Undeveloped Reserves attributable to the Eligible Mortgaged
Properties, 60% of the Proved Volumes related to such Reserves, provided that if the Independent
Lender Engineer has designated any such Proved Undeveloped Reserves (other than any such reserves
in the Plieto Creek Field (California), Ferguson Ranch Field (Wyoming), and Hunt Field (Wyoming))
as “Tier 2” reserves, such calculation will be made utilizing 25% of the Proved Volumes related to
such “Tier 2” Reserves;


provided, however, that (i) the Proved Volumes of all Proved Developed Nonproducing Reserves and
Proved Undeveloped Reserves included in Modified Proved Volumes must not exceed the




[Credit Agreement]




15









 







Applicable Non-PDP Percentage of the Proved Volumes of all such Proved Reserves, and (ii) the
Modified Proved Volumes for any particular Proved Developed Non-Producing Reserves or Proved
Undeveloped Reserves shall be zero unless such capital is reasonably expected to be available to
Company. For purposes of this definition, “Applicable Non-PDP Percentage” means, at the
time in question, (a) 50% during the period commencing on the Closing Date through December 31,
2010, (b) 45% during the period commencing on January 1, 2011 through March 31, 2011, and (c) 40%
thereafter.




          “Moody’s” means Moody’s Investors Service, Inc., or its successor.



          “Mortgage” means each deed of trust or mortgage from time to time given by Company or
any Guarantor to secure any of the Obligations, as each may be amended, supplemented or otherwise
modified from time to time.



          “Multiemployer Plan” means any plan described in Section 4001(a)(3) of ERISA.



          “Note” means a promissory note in the form of Exhibit A evidencing one or more Loans,
as amended, supplemented or otherwise modified from time to time.



          “NPV10” means, with respect to any Proved Reserves expected to be produced from the
Eligible Mortgaged Properties, the net present value of the future net revenues expected to accrue
to Company’s interests in such Reserves during the remaining expected economic lives of such
Reserves, discounted at 10% per annum. Each calculation of such expected future net revenues shall
be made as of the date requested in accordance with the then existing standards of the Society of
Petroleum Engineers and Society of Petroleum Evaluation Engineers, provided that in any event:



          (a) appropriate deductions shall be made for (i) Direct Taxes and existing burdens that are
Permitted Liens, (ii) leasehold operating expenses, (iii) losses from and expenses of gathering,
compression, treating, processing, transportation, and marketing, and (iv) capital expenditures
included in the Approved Plan of Development or otherwise approved in writing by Administrative
Agent on behalf of Required Lenders (including plugging and abandonment costs and capital
expenditures for any additional processing plant capacity and treatment facilities that will be
required in order for such Reserves to be produced and sold); and



          (b) the pricing assumptions used in determining NPV10 for any particular Proved Reserves shall
be the Agreed Pricing.


NPV10 shall be calculated hereunder in connection with each Engineering Report, either by Company,
by Administrative Agent, or by the engineering firm who prepares such Engineering Report; in the
event of any conflict, Administrative Agent’s calculation shall be conclusive and final, absent
manifest error.




          “NYMEX Pricing” means, as of any date of determination:



          (a) for crude oil, the closing settlement price for the Light, Sweet Crude Oil futures
contract for the applicable month, and


[Credit Agreement]




16









 







          (b) for natural gas, the closing settlement price for the Henry Hub Natural Gas futures
contract for the applicable month,


in each case as published by New York Mercantile Exchange (NYMEX) on its website currently located
at www.nymex.com, or any successor thereto (as such price may be corrected or revised from
time to time by the NYMEX in accordance with its rules and regulations).




          “Obligations” means all Liabilities from time to time owing by any Credit Party to any
Lender Party or Indemnitee under or pursuant to any of the Loan Documents. “Obligation” means any
part of the Obligations.



          “Oil and Gas Properties” means all Hydrocarbon Interests that are, at the time in
question, owned by any of the Credit Parties.



          “Parent” means NiMin Energy Corp., an Alberta corporation.



          “Participant” has the meaning given to such term in Section 10.6(c).



          “PBGC” means the Pension Benefit Guaranty Corporation.



          “Percentage Share” means, with respect to any Lender (a) when used in Section 2.1 or
Section 2.2, in any Borrowing Notice or when no Loans are outstanding hereunder, the percentage set
forth below such Lender’s name on Lenders Schedule, and (b) when used otherwise, the percentage
obtained by dividing (i) the sum of the unpaid principal balance of such Lender’s Loans at the time
in question, by (ii) the sum of the aggregate unpaid principal balance of all Loans at such time.



          “Permitted Investments” means



          (a) Cash Equivalents;



          (b) normal and prudent extensions of credit by the Credit Parties to their customers for
buying goods and services in the ordinary course of business, which extensions shall not be for
longer periods than those extended by similar businesses operated in a normal and prudent manner
and in no event shall the payment terms therefor exceed 30 days after the delivery of such goods or
the rendition of such services;



          (c) Investments in Equity in any Person that is a Subsidiary of Parent prior to the making of
such Investments or that, in full compliance herewith, is being formed or acquired by Parent as a
new Subsidiary;



          (d) loans from Parent to one of its Subsidiaries, provided that the borrowing of such loan is
permitted under Section 7.1; and



          (e) the purchase or other acquisition of all of the Equity in, or all or substantially all of
the property of, any Person that, upon the consummation thereof, will be wholly-owned directly by
Company or one or more of its wholly-owned Subsidiaries (including as a result of a



[Credit Agreement]



17









 







merger or consolidation); provided that, with respect to each purchase or other acquisition
made pursuant to this clause (e):




     (i) any such newly-created or acquired Subsidiary shall immediately comply with the
requirements of Sections 6.17 and 6.18;




     (ii) the lines of business of the Person to be (or the property of which is to be) so
purchased or otherwise acquired shall be substantially the same lines of business as one or
more of the principal businesses of Parent and its Subsidiaries in the ordinary course;




     (iii) such purchase or other acquisition shall not include or result in any contingent
liabilities that could reasonably be expected to be material to the business, financial
condition, operations or prospects of Parent and its Subsidiaries, taken as a whole (as
determined in good faith by the board of directors (or the persons performing similar
functions) of Parent or such Subsidiary if the board of directors is otherwise approving
such transaction and, in each other case, by the principal executive officer or principal
financial officer of such Person);




     (iv) the total cash and noncash consideration (including the fair market value of all
Equity issued or transferred to the sellers thereof, all indemnities, earnouts and other
contingent payment obligations to, and the aggregate amounts paid or to be paid under
noncompete, consulting and other affiliated agreements with, the sellers thereof, all
write-downs of property and reserves for liabilities with respect thereto and all
assumptions of debt, liabilities and other obligations in connection therewith) paid by or
on behalf of Company and its Subsidiaries for any such purchase or other acquisition, when
aggregated with the total cash and noncash consideration paid by or on behalf of Company and
its Subsidiaries for all other purchases and other acquisitions made by Company and its
Subsidiaries pursuant to this clause (e), shall not exceed $200,000,000;




     (v) (A) immediately before and immediately after giving pro forma effect to any such
purchase or other acquisition, no Default shall have occurred and be continuing and (B)
immediately after giving effect to such purchase or other acquisition, Parent and its
Subsidiaries shall be in pro forma compliance with all of the covenants set forth in
Sections 7.12, 7.13, and 7.14, such compliance to be determined on the basis of the
financial information most recently delivered to Administrative Agent and Lenders pursuant
to Section 6.2(a) or (b) as though such purchase or other acquisition had been consummated
as of the first day of the fiscal period covered thereby; and




     (vi) Company shall have delivered to Administrative Agent and each Lender, at least
five Business Days prior to the date on which any such purchase or other acquisition is to
be consummated, a certificate of principal executive officer or principal financial officer
of Company, in form and substance reasonably satisfactory to the Administrative Agent and
the Required Lenders, certifying that all of the requirements set forth in this clause (e)
have been satisfied or will be satisfied on or prior to the consummation of such purchase or
other acquisition.



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          “Permitted Liens” means:



          (a) statutory Liens for taxes, assessments or other governmental charges or levies that are
not yet delinquent or that are being contested in good faith by appropriate action and for which
adequate reserves have been maintained in accordance with GAAP;



          (b) landlords’, operators’, carriers’, warehousemen’s, repairmen’s, mechanics’, materialmen’s,
or other like Liens that do not secure Indebtedness, in each case only to the extent arising in the
ordinary course of business and only to the extent securing obligations that are not delinquent or
that are being contested in good faith by appropriate proceedings and for which adequate reserves
have been maintained in accordance with GAAP;



          (c) easements, servitudes, and minor defects and irregularities in title to any property, so
long as such easements, servitudes, defects and irregularities neither secure Indebtedness nor
materially impair the value of such property or the use of such property for the purposes for which
such property is held;



          (d) deposits of cash or securities to secure the performance of bids, trade contracts, leases,
statutory obligations and other obligations of a like nature (excluding Indebtedness or appeal
bonds) incurred in the ordinary course of business and not constituting Indebtedness;



          (e) Liens under the Security Documents;



          (f) with respect only to property subject to any particular Security Document, additional
Liens burdening such property that are expressly allowed by such Security Document; and



          (g) (i) Liens on fixed or capital assets acquired, constructed or improved by Company or its
Subsidiaries; provided, that (A) such Liens secure Indebtedness permitted under Section 7.1(c), (B)
such Liens and the Indebtedness secured thereby are incurred substantially simultaneously with the
acquisition, construction or improvement of such fixed or capital assets or within 180 days
thereafter, (C) such Liens do not at any time encumber any property other than the property
financed by such Indebtedness, and (D) the amount of Indebtedness secured thereby is not more than
100% of the purchase price, and (ii) Liens in the nature of precautionary financing statements
filed against leased property by lessors holding Capital Lease Obligations included in Indebtedness
permitted under Section 7.1.



          “Person” means an individual, corporation, general partnership, limited partnership,
limited liability company, association, joint stock company, trust or trustee thereof, estate or
executor thereof, Governmental Authority, or any other legally recognizable entity.



          “Plan” any employee benefit plan (as defined in Section 3(3) of ERISA) established by
a Credit Party and any ERISA Plan.



          “Prepayment Notice” means a Prepayment Notice in the form of Exhibit C.



          “Projected PDP Oil and Gas Production” means the projected production of oil or gas
(measured by volume unit or BTU equivalent, not sales price) from properties and interests



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19









 







owned by the Credit Parties that are located in or offshore of the United States and that have
attributable to them Proved Developed Producing Reserves, as such production is projected in the
Engineering Report most recently delivered, after deducting projected production from any
properties or interests sold or under contract for sale that had been included in such report and
after adding projected production from any properties or interests that had not been reflected in
such Engineering Report but that are reflected in a separate or supplemental reserve engineering
report meeting the requirements of Section 6.2(l), and otherwise are satisfactory to Administrative
Agent, provided that in no event will production from any oil or gas well be included in Projected
PDP Oil and Gas Production until such well has a production history of at least 90 consecutive days
(or such shorter period mutually acceptable to Company and Administrative Agent) and the
Independent Lender Engineer has confirmed its agreement that such production constitutes Proved
Developed Producing Reserves.



          “Proved Collateral Coverage Ratio” means the quotient of (i) the Total Modified NPV10
with respect to all Proved Reserves attributable to the Eligible Mortgaged Properties, divided
by (ii) Consolidated Funded Debt. In calculating the Proved Collateral Coverage Ratio with
respect to any date, such Modified NPV10 shall be derived from the Engineering Report prepared as
of such date (or, if no such Engineering Report is to be prepared as of such date, the then most
recent Engineering Report), and Consolidated Funded Debt shall be calculated as of such date after
giving effect to any Borrowings made on such date.



          “Proved Reserves” means “Proved Reserves” as defined in the Petroleum Resources
Management System as in effect at the time in question (in this definition, the “PRMS”)
prepared by the Oil and Gas Reserves Committee of the Society of Petroleum Engineers and reviewed
and jointly sponsored by the World Petroleum Council, the American Association of Petroleum
Geologists and the Society of Petroleum Evaluation Engineers (or any generally recognized successor
organizations). “Proved Developed Producing Reserves” means Proved Reserves that are
categorized as “Developed Producing Reserves” in the PRMS, “Proved Developed
Nonproducing Reserves” means Proved Reserves that are categorized as “Developed
Nonproducing Reserves” in the PRMS, and “Proved Undeveloped Reserves” means Proved
Reserves that are categorized as “Undeveloped Reserves” in the PRMS.



          “Proved Volumes” means, with respect to any Proved Reserves expected to be produced
from the Eligible Mortgaged Properties, the Barrels of Oil Equivalent of the future production of
oil and gas expected to accrue to Company’s interests in such Proved Reserves during the remaining
expected economic lives of such Proved Reserves. Each calculation of such expected future
production shall be made as of the date requested in accordance with the then existing standards of
the Society of Petroleum Engineers and Society of Petroleum Evaluation Engineers, provided that in
any event the calculation of Proved Volumes will be based upon the following:



          (a) appropriate deductions shall be made for (i) Direct Taxes and existing burdens that are
Permitted Liens, (ii) leasehold operating expenses, (iii) losses from and expenses of gathering,
compression, treating, processing, transportation, and marketing, and (iv) associated capital
expenditures (including plugging and abandonment costs and capital expenditures for any additional
processing plant capacity and treatment facilities that will be required in order for such Reserves
to be produced and sold);


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20









 





          (b) the pricing assumptions used in determining Proved Volumes for any particular Proved
Reserves shall be the Agreed Pricing; and



          (c) leasehold operating expenses and capital expenditures in the most recently delivered
Engineering Report will be escalated at the then current inflation rate.


Proved Volumes shall be calculated hereunder in connection with each Engineering Report, either by
Company, by Administrative Agent, or by the engineering firm who prepares such Engineering Report;
in the event of any conflict, Administrative Agent’s calculation shall be conclusive and final,
absent manifest error.




          “Proved Volume Coverage Ratio” means the quotient of (i) the Total Risked Volumes with
respect to all Proved Reserves attributable to the Eligible Mortgaged Properties multiplied by
$13.00 per BOE, divided by (ii) Consolidated Funded Debt. In calculating the Proved Volume
Coverage Ratio with respect to any date, such Total Risked Volumes shall be derived from the
Engineering Report prepared as of such date (or, if no such Engineering Report is to be prepared as
of such date, the then most recent Engineering Report), and Consolidated Funded Debt shall be
calculated as of such date after giving effect to any Borrowings made on such date.



          “Quarterly Payment Date” means the last Business Day of each calendar quarter.



          “Regulation D” means Regulation D of the Board of Governors of the Federal Reserve
System as from time to time in effect.



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



          “Remaining Scheduled Interest Payments” has the meaning given to such term in Section
2.8(e).



          “Required Lenders” means Lenders whose aggregate Percentage Shares exceed fifty
percent (50.0%).



          “Reserves” means estimated volumes of crude oil, condensate, natural gas, natural gas
liquids, and associated substances anticipated to be commercially recoverable from known
accumulations from a given date forward, under then existing economic conditions, by established
operating practices, and under current government regulations. Reserve estimates are based on
interpretation of geologic or engineering data available at the time of the estimate. Reserves do
not include volumes of crude oil, condensate, natural gas, or natural gas liquids that have been
produced (whether held in tanks, pipelines, processing plants, or in a formation or aquifer that is
being used for storage).



          “S & P” means Standard & Poor’s Ratings Services (a division of The McGraw Hill
Companies), or its successor.



          “Scheduled Quarterly Principal Payment” means, with respect to any Quarterly Payment
Date beginning with June 29, 2012, and on each Quarterly Payment Date thereafter until the



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21









 







Maturity Date, an amount of principal of the Loans that corresponds to such Quarterly Payment
Date as follows:



	 	 	 
	Quarterly Payment Date	 	Principal Prepayment Amount
	June 29, 2012 through March 31,
2014

	 	An amount equal to 3.75% (which
percentage shall be increased to 5.0%
if an Event of Default exists on any
such date and shall be without
limitation of any other remedies of the
Lender Parties) of the aggregate amount
of the Loans made by the Lenders since
the Closing Date
	 
	 	 
	June 30, 2014 and thereafter

	 	An amount equal to 5.0% of the
aggregate amount of the Loans made by
the Lenders since the Closing Date





“Secured Hedging Obligations” means all obligations arising from time to time under Hedging
Contracts entered into from time to time between any Credit Party and a Secured Third Party Hedge
Counterparty, provided that if such Secured Third Party Hedge Counterparty ceases to be a party to
a Collateral Sharing Agreement and therefore ceases to be a Secured Third Party Hedge Counterparty,
the Secured Hedging Obligations shall only include such obligations to the extent arising from
transactions entered into at or prior to the time such counterparty was a Secured Third Party Hedge
Counterparty and shall not include any obligations arising from any transaction entered into after
such counterparty ceases to be a Secured Third Party Hedge Counterparty.




          “Secured Obligations” means all Obligations and all Secured Hedging Obligations.



          “Secured Third Party Hedge Counterparty” means BP Corporation North America Inc. and
any other Person satisfactory to Administrative Agent in its discretion that is a counterparty of
any Credit Party to a Hedging Contract, in each case only if that counterparty has executed and
delivered a Collateral Sharing Agreement.



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



          “Security Documents” means the instruments and agreements listed in the Security
Schedule and all other security agreements, deeds of trust, mortgages, chattel mortgages, pledges,
guaranties, financing statements, continuation statements, extension agreements, account control
agreements, and other agreements or instruments now, heretofore, or hereafter delivered by any
Credit Party to Administrative Agent in connection with this Agreement or any transaction
contemplated hereby to secure or guarantee the payment of any part of the Secured Obligations or
the performance of any Credit Party’s other duties and obligations under the Loan Documents,
excluding any Separate Hedge Guaranty.



          “Security Schedule” means Schedule 2 hereto.



          “Separate Hedge Guaranty” means any guaranty provided to an Approved Counterparty by
Parent or another Credit Party (other than Company), so long as such guaranty is either unsecured
or is secured only by the Security Documents.



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22









 





          “Settlement Date” has the meaning given to such term in Section 2.8(e).



          “Subordinated Debt” means all unsecured Indebtedness of the Credit Parties on a
Consolidated basis for money borrowed that is (a) incurred with the written approval of Required
Lenders and (b) subordinated, upon terms satisfactory to Administrative Agent and Required Lenders
in their discretion, in right of payment to the payment in full in cash of all Secured Obligations.



          “Subsidiary” means, with respect to any Person, any corporation, association,
partnership, limited liability company, joint venture, or other business or corporate entity,
enterprise or organization that is directly or indirectly (through one or more intermediaries)
controlled by or owned fifty percent or more by such Person.



          “Terminated Indebtedness” means all Indebtedness owed by the Credit Parties to Ionic
Capital Corp. (including interest and fees thereon) that is contemporaneously herewith being paid
in full by Company and extinguished.



          “Termination Event” means (a) the occurrence with respect to any ERISA Plan of (i) a
reportable event described in Section 4043(c)(5) or (6) of ERISA or (ii) any other reportable event
described in Section 4043(c) of ERISA other than such a reportable event for which the 30-day
notice requirement has been waived, or (b) the withdrawal by any ERISA Affiliate from an ERISA Plan
subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as
defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a
withdrawal under Section 4062(e) of ERISA, or (c) the filing of a notice of intent to terminate any
ERISA Plan or the treatment of any ERISA Plan amendment as a termination under Section 4041 of
ERISA, or (d) the institution of proceedings to terminate any ERISA Plan by the PBGC under Section
4042 of ERISA, or (e) any other event or condition which might constitute grounds under Section
4042 of ERISA for the termination of, or the appointment of a trustee to administer, any ERISA
Plan, or (f) any failure by any ERISA Plan to satisfy the ERISA Plan Funding Rules, whether or not
waived, or (g) the filing pursuant to Section 412(c) of the Internal Revenue Code or Section 302(c)
of ERISA of an application for a waiver of the minimum funding standard with respect to any ERISA
Plan, the failure to make by its due date a required installment under Section 430(j) of the
Internal Revenue Code with respect to any ERISA Plan, or (h) a determination that any ERISA Plan
is, or is expected to be, an at-risk plan (as defined in Section 430 of the Internal Revenue Code
or Section 303 of ERISA) and the funding target attainment percentage (as defined in Section 430
of the Internal Revenue Code or Section 303 of ERISA) for such plan is, or is expected to be, less
than 60 percent, or (i) the imposition of any liability under Title IV of ERISA, other than for
PBGC premiums due but not delinquent, upon any ERISA Affiliate.



          “Total Modified NPV10” means the sum of the Modified NPV10s for all Proved Developed
Producing Reserves, Proved Developed Non-Producing Reserves and Proved Undeveloped Reserves
attributable to Eligible Mortgaged Properties of the Credit Parties, as determined by
Administrative Agent from the Engineering Report most recently prepared as of such time.


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23









 





          “Total Risked Volumes” means the sum of the Modified Proved Volumes for all Proved
Developed Producing Reserves, Proved Developed Non-Producing Reserves and Proved Undeveloped
Reserves attributable to Eligible Mortgaged Properties of the Credit Parties, as determined by
Administrative Agent from the Engineering Report most recently prepared as of such time.



          “UCC” means the Uniform Commercial Code (or any similar or equivalent legislation) as
in effect in any applicable jurisdiction.


          Section 1.2. Exhibits and Schedules; Additional Definitions. All Exhibits and Schedules attached to
this Agreement are a part hereof for all purposes. Reference is hereby made to the Security
Schedule for the meaning of certain terms defined therein and used but not defined herein, which
definitions are incorporated herein by reference.



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



          Section 1.4. References and Titles. All references in this Agreement to Exhibits, Schedules, articles,
sections, subsections, definitions and other subdivisions refer to the Exhibits, Schedules,
articles, sections, subsections, definitions and other subdivisions of this Agreement unless
expressly provided otherwise. Exhibits and Schedules to any Loan Document shall be deemed
incorporated by reference in such Loan Document. References to any document, instrument, or
agreement (a) shall include all exhibits, schedules, and other attachments thereto, and (b) shall
include all documents, instruments, or agreements issued or executed in replacement thereof.
Titles appearing at the beginning of any subdivisions are for convenience only and do not
constitute any part of such subdivisions and shall be disregarded in construing the language
contained in such subdivisions. The words “this Agreement”, “this instrument”, “herein”, “hereof”,
“hereby”, “hereunder” and words of similar import refer to this Agreement as a whole and not to any
particular subdivision unless expressly so limited. The phrases “this section” and “this
subsection” and similar phrases refer only to the sections or subsections hereof in which such
phrases occur. The word “or” is not exclusive, and the word “including” (in its various forms)
means “including without limitation”. Except as expressly provided otherwise, references to a
Person’s “discretion” means its sole and absolute discretion. Pronouns in masculine, feminine and
neuter genders shall be construed to include any other gender, and words in the singular form shall
be construed to include the plural and vice versa, unless the context otherwise requires.
Accounting terms have the meanings assigned to them by GAAP, as applied by the accounting entity to
which they refer. References to “days” shall mean calendar days, unless the term “Business Day” is
used. Unless otherwise specified, references herein to any particular Person also refer to its
successors and permitted assigns.



          Section 1.5. Calculations and Determinations. All calculations under the Loan Documents of fees shall
be made on the basis of actual days elapsed (including the first day but excluding the last) and a
year of 360 days. All calculations of interest made under the Loan




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24









 







Documents shall be made on the basis of actual days elapsed (including the first day but excluding
the last) and a year of 365 or 366 days, as appropriate. Each determination by a Lender Party of
amounts to be paid under Article III or any other matters that are to be determined hereunder by a
Lender Party shall, in the absence of manifest error, be conclusive and binding. Unless otherwise
expressly provided herein or unless Required Lenders otherwise consent all financial statements and
reports furnished to any Lender Party hereunder shall be prepared and all financial computations
and determinations pursuant hereto shall be made in accordance with GAAP.



          Section 1.6. Joint Preparation; Construction of Indemnities and Releases. This Agreement and the other
Loan Documents have been reviewed and negotiated by sophisticated parties with access to legal
counsel and no rule of construction shall apply hereto or thereto that would require or allow any
Loan Document to be construed against any party because of its role in drafting such Loan Document.
All indemnification and release provisions of this Agreement shall be construed broadly (and not
narrowly) in favor of the Persons receiving indemnification or being released.



          Section 1.7. Permitted Security. Notwithstanding any other provision of the Loan Documents, any
reference in any of the Loan Documents to a Lien which is permitted thereunder is not intended to
subordinate or postpone, and shall not be interpreted as subordinating or postponing, or as any
agreement to subordinate or postpone, any Lien created by any of the Loan Documents to any Lien
permitted thereunder.




ARTICLE II — The Loans



          Section 2.1. Loans; Notes.




          (a) Subject to the terms and conditions hereof, each Lender severally agrees to make a single
loan to Company (collectively, the “Closing Date Loans”) on the Closing Date in an amount
equal to such Lender’s Commitment. All Closing Date Loans made simultaneously by the Lenders in
accordance with their respective Percentage Shares shall constitute a Borrowing. The obligation of
Company to repay to each Lender the aggregate amount of the Closing Date Loan made by such Lender,
together with interest accruing in connection therewith, shall be evidenced by a single Note
payable to the order of such Lender in the form of Exhibit A with appropriate insertions.



          (b) In the event that Lenders agree to increase their aggregate Commitments hereunder pursuant
to a Commitment Increment under Section 2.9, then subject to the terms and conditions hereof, each
Lender severally agrees to make a single loan to Company (collectively, the “Additional
Loans”) on the effective date of any such Commitment Increment in an amount equal to such
Lender’s Percentage Share of such Commitment Increment. All Additional Loans (if any) made by the
Lenders on or about the same date in accordance with their respective Percentage Shares shall
constitute a Borrowing. The obligation of Company to repay to each Lender the aggregate amount of
all Additional Loans (if any) made by such Lender, together
with interest accruing in connection therewith, shall be evidenced by a single Note payable to
the order of such Lender in the form of Exhibit A with appropriate insertions.



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25









 





          Section 2.2. The Notes. The amount of principal owing on any Note of any Lender at any given time
shall be the aggregate amount of all Loans theretofore made by such Lender minus all payments of
principal theretofore received by such Lender on such Note. Interest on each Note shall accrue and
be due and payable as provided herein. Each Note shall be due and payable as provided herein, and
shall be due and payable in full on the Maturity Date. Company may not borrow, repay, and reborrow
hereunder or under the Notes.



          Section 2.3. Requests for Loans. Company must give to Administrative Agent written or electronic
notice of any requested Borrowing of new Loans to be advanced by Lenders in the form and substance
of the “Borrowing Notice” attached hereto as Exhibit B, duly completed. Each such notice
constitutes a “Borrowing Notice” hereunder and must (a) specify the aggregate amount of any
such Borrowing of new Loans and the date on which such Loans are to be advanced; and (b) be
received by Administrative Agent not later than 11:00 a.m., Las Vegas, Nevada time, on the
5th Business Day preceding the day on which any such Loans are to be made. Upon receipt
of any such Borrowing Notice, Administrative Agent shall give each Lender prompt notice of the
terms thereof. If all conditions precedent to such new Loans have been met, each Lender will on
the date requested promptly remit to Administrative Agent the amount of such Lender’s new Loan in
immediately available funds, and upon receipt of such funds, unless to its actual knowledge any
conditions precedent to such Loans have been neither met nor waived as provided herein,
Administrative Agent shall promptly make such Loans available to Company, minus the fees and
discounts due and payable to Administrative Agent or Lenders on the date thereof pursuant to
Section 2.5. The failure of any Lender to make any new Loan to be made by it hereunder shall not
relieve any other Lender of its obligation hereunder, if any, to make its new Loan, but no Lender
shall be responsible for the failure of any other Lender to make any new Loan to be made by such
other Lender.



          Section 2.4. Use of Proceeds. Company will use the proceeds of all Loans as follows: (a) to pay in
full the Terminated Indebtedness, (b) pay the fees described in Section 2.5, (c) to fund the
Approved Plan of Development, (d) to pay up to $1,800,000 of closing expenses, costs and fees, and
(e) to make other expenditures from time to time approved by Administrative Agent. In no event
shall the funds from any Loan be used directly or indirectly by any Person (y) for personal,
family, household or agricultural purposes, or (z) for the purpose, whether immediate, incidental
or ultimate, of purchasing, acquiring or carrying any “margin stock” (as such term is defined in
Regulation U promulgated by the Board of Governors of the Federal Reserve System) or to extend
credit to others directly or indirectly for the purpose of purchasing or carrying any such margin
stock.



          Section 2.5. Interest Rates; Fees.



          (a) Interest Rate; Default Rate. Each Note shall bear interest on each day
outstanding at the Fixed Rate, provided that if an Event of Default shall have occurred and be
continuing, all outstanding Notes (and all past due interest thereon) shall bear interest at the
Default Rate until
the earlier of (i) the first date thereafter upon which there shall be no Event of Default
continuing and (ii) the date on which Required Lenders shall elect for the Notes to bear interest
at the Fixed Rate.


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26









 





          (b) Interest Payment Dates. On each Quarterly Payment Date (commencing with June 30,
2010), Company shall pay all interest then accrued on the Notes in immediately available funds.



          (c) Placement Fees. Company will pay to Administrative Agent, for the account of the
Lenders (in accordance with their respective Percentage Shares) (i) a fee equal to 1.0% of the
aggregate Commitments on the Closing Date (payable on the Closing Date) and (ii) a fee equal to
1.0% of the aggregate amount of any increase in the Commitments (which fee shall be earned and
payable upon the funding of Loans in respect of any such increase). These fees shall be paid by
Company from the proceeds of the Loans.



          (d) Commitment Fee. In consideration of each Lender’s commitment to make Loans,
Company will pay to the Lenders (in accordance with their respective Percentage Shares) a
commitment fee equal to 1.0% of the aggregate Commitments on the Closing Date, which is to be paid
to Administrative Agent, for the several accounts of the Lenders. In consideration of each
Lender’s commitment (if any) to make Additional Loans, Company will pay to the Lenders (in
accordance with their respective Percentage Shares) a commitment fee equal to 1.0% of any increase
in the Commitments (which fee shall be earned and payable on the effective date of any such
increase). These fees shall be paid by Company from the proceeds of the Loans.



          (e) Commercial Loan Discount. In consideration of each Lender’s commitment to make
Loans, Company hereby agrees that Administrative Agent (for the account of Lenders in accordance
with their respective Percentage Shares) shall be entitled to receive a commercial loan discount
(i) equal to 7.5% of the aggregate Commitments on the Closing Date (payable on the Closing Date),
and (ii) equal to 7.5% of the aggregate amount of any increase in the Commitments (which shall be
earned upon the funding of Loans in respect of any such increase and paid by Company by deduction
from the proceeds of such Loans).



          Section 2.6. Collateral Account.



          (a) Establishment of Collateral Account; Rules for Application.




     (i) Company shall establish and maintain at its expense the Collateral Account pursuant
to the Collateral Account Agreement.




     (ii) The Credit Parties shall deposit or cause to be deposited into the Collateral
Account all Gross Cash Receipts (other than proceeds of Loans paid by wire transfer pursuant
to instructions provided by Company to Administrative Agent in any Borrowing Notice) from
and after the Closing Date through the date on which all Obligations are paid in full.




     (iii) Prior to its receipt of a Notice of Exclusive Control (defined below), Company
may instruct the Collateral Account Bank to transfer or disburse amounts from the Collateral
Account to Company’s operating account from time to time for use and
application in the ordinary course of Company’s business, subject to the terms and
provisions of this Agreement. Administrative Agent may at any time during the continuance
of a Default determine to exercise exclusive dominion and control over the Collateral
Account, and, upon receipt of notice from Administrative Agent of such



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27









 







determination (a
“Notice of Exclusive Control”), Company shall cease giving the instructions
described in the preceding sentence to the Collateral Account Bank. During the time when a
Notice of Exclusive Control is in effect, Administrative Agent shall, subject to the
provisions of subsection (a)(v) below, transfer or disburse amounts from the Collateral
Account to Company’s operating account (or, in Administrative Agent’s discretion, directly
to the Persons entitled to receive payment of such amounts) from time to time for use in the
ordinary course of Company’s business, subject to the terms and provisions of this
Agreement.




     (iv) After the occurrence of an Event of Default under any Loan Document or Company’s
failure to comply with the terms of this Section 2.6, Administrative Agent may, at its
option, from time to time apply all sums in the Collateral Account to the reduction of
outstanding Obligations and need not comply with any request of Company for funds to be
released from the Collateral Account.




     (v) Upon termination of this Agreement, Administrative Agent shall cease to have any
rights with respect to amounts remaining in the Collateral Account.



          (b) Notice. Not later than 5 Business Days after the initial Borrowing and at all
times thereafter, each Credit Party shall send a notice, substantially in form acceptable to
Administrative Agent, to all existing or new purchasers of Hydrocarbons produced from such Credit
Party’s Oil and Gas Properties, directing them to forward all amounts payable to such Credit Party
directly to the Collateral Account at the address of the Collateral Account Bank. The failure of
such purchasers to comply with any such notice shall not constitute a Default hereunder by any
Credit Party, provided that (i) such purchaser’s failure to comply with such notice is not done at
the request of Company or any Affiliate of Company, and (ii) each Credit Party (and its Affiliates)
shall forward all amounts received from such purchaser to the Collateral Account by the second
Business Day after such Credit Party’s or its Affiliate’s receipt thereof.



          (c) Acknowledgments. Company hereby acknowledges that:




     (i) Each Credit Party has granted and assigned to Administrative Agent a first
priority, perfected security interest in the Collateral Account, all funds therein and all
proceeds thereof pursuant to the Collateral Account Banks Agreements; and




     (ii) No Credit Party shall be permitted to withdraw, transfer or disburse any funds
from the Collateral Account except in accordance with the terms hereof, the Collateral
Account Bank Agreements and each other Loan Document.



          (d) Authority to Act. Each Credit Party hereby authorizes Administrative Agent to
take the following actions (whether acting in the name of Administrative Agent, or Lenders, or as
Company’s attorney-in-fact, with full power of substitution): (i) to execute or file any financing
statement, continuation statement, instrument of further assurance, direction, or
agreement to more effectively exercise and protect the Lender Parties’ rights in the
Collateral Account or (ii) to perfect, continue or confirm the provisions of this Section 2.6, any
agreement entered into by Company, Administrative Agent and the Collateral Account Bank, or the
security



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28









 







interest granted in the Collateral Account. This power, being coupled with an interest,
shall be irrevocable until all amounts due in connection with the Notes have been paid in full.



          Section 2.7. Mandatory Prepayments.



          (a) On each Quarterly Payment Date, beginning with June 29, 2012, and on each Quarterly
Payment Date thereafter to and including the Quarterly Payment Date immediately preceding the
Maturity Date, Company shall (unless otherwise specified in writing by Administrative Agent) make a
principal payment in respect of the Notes in an aggregate amount equal to the Scheduled Quarterly
Principal Payment. If any principal or interest amount payable under the Notes remains outstanding
at the Maturity Date, such amount will be paid in full by Company to Lenders in immediately
available funds on the Maturity Date. The payments required under this subsection (a) shall be
made without Make-Whole Amount. Except with respect to any mandatory payments described in the
following subsection (b), Make Whole Amount or Prepayment Premium (as applicable) is required to be
paid with all other payments, of principal on the Notes prior to the Maturity Date, any optional
prepayments made under Section 2.8, and any payments made following acceleration of the Notes
pursuant to Section 8.1.



          (b) If the Required Lenders shall, in their discretion, approve the sale or other transfer of
any Oil and Gas Property requested by Company, then (unless otherwise specified in such consent)
Company shall make a payment in respect of the Notes in an amount equal to the sales proceeds
received by the Credit Parties from such sale or other transfer, net only of reasonable
out-of-pocket costs of such sale or transfer that are paid to non-Affiliates of Company and
approved by Administrative Agent. The payments required under this subsection (b) shall be made
without Make-Whole Amount or Prepayment Premium.



          (c) If a Change of Control occurs, Company will give prompt notice thereof to Administrative
Agent and Lenders, and Required Lenders will have the option, as provided below, to require Company
to repay all or any part of the Loans in cash in an amount (the “Change of Control Repayment
Amount”) equal to 100% of the aggregate unpaid principal amount of the Loans to be repaid plus
a prepayment premium equal to 2% of such aggregate unpaid principal amount plus accrued and unpaid
interest to the date of repayment. Within 60 days following receipt of the Company’s notice of
such Change of Control, Administrative Agent will give written notice to Company as to whether or
not Required Lenders are electing to exercise such option on behalf of all Lenders. If Required
Lenders elect to exercise such option, or if Administrative Agent fails to give written notice of
the Required Lenders’ election whether or not to exercise such option within such 60 day period,
Company will pay the Change of Control Repayment Amount to Administrative Agent, on behalf of
Lenders, within 15 days after receipt of Administrative Agent’s written notice of exercise (or, if
Administrative Agent fails to so provide such written notice, within 15 days after the end of such
60 day period). If Administrative Agent provides written notice to Company that Required Lenders
are electing not to exercise such option, the Lenders’ option will terminate (unless and until a
later Change of Control occurs).



          (d) If any principal or interest amount payable under the Notes remains outstanding at the
Maturity Date, such amount will be paid in full by Company to Lenders in immediately available
funds on the Maturity Date.



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          Section 2.8. Optional Prepayments.



          (a) Company may, at its option, upon notice as provided below, prepay all or any part of the
Loans, on any date that occurs after the Closing Date and on or before June 30, 2012, at 100% of
the principal amount so prepaid, provided that:




     (i) such prepayment must occur on a Business Day,




     (ii) any partial payment of the Loans must not be less than $2,500,000 in the aggregate
for all Loans then outstanding,




     (iii) each such prepayment of principal shall be accompanied by all interest accrued on
such principal to the date of prepayment and by the Make-Whole Amount determined for the
prepayment date with respect to such prepayment of principal, and




     (iv) Company must give each Lender Party written notice as provided in subsection (c)
below of each prepayment under this section.



          (b) Company may, at its option, upon notice as provided below, prepay all or any part of the
Loans, on any date that occurs after June 30, 2012, an amount equal to 100% of the aggregate unpaid
principal amount of the Loans to be prepaid plus a prepayment premium equal to 100% of the
principal amount so prepaid times the percentage set forth in the following table opposite the same
time period in which such prepayment occurs (the “Prepayment Premium”):



	 	 	 	 	 
	                   Time Period	 	Percentage
	July 1, 2012 through June 30, 2013

	 	 	2.0	%
	Thereafter

	 	 	0.0	%





provided that:





     (i) such prepayment must occur on a Business Day,




     (ii) any partial payment of the Loans must not be less than $2,500,000 in the aggregate
for all Loans then outstanding,




     (iii) each such prepayment of principal shall be accompanied by all interest accrued on
such principal to the date of prepayment and by the Prepayment Premium determined for the
prepayment date with respect to such prepayment of principal, and




     (iv) Company must give each Lender Party written notice as provided in subsection (c)
below of each prepayment under this section.



          (c) Each such notice pursuant to subsection (a) or (b) above shall be in the form of Exhibit
C, duly completed, given not less than 30 days and not more than 45 days prior to the date fixed
for such prepayment and shall specify (1) the Business Day on which such prepayment will be made,
(2) the aggregate principal amount of the Loans to be prepaid, and (3) the interest and Make-Whole
Amount or Prepayment Premium (as applicable) to be paid on the



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prepayment date with respect to such
principal amount being prepaid. Upon the giving of such notice, the principal to be prepaid as
described therein shall become due and payable, along with the applicable interest and Make-Whole
Amount or Prepayment Premium (as applicable), on the prepayment date specified in such notice.



          (d) Any principal prepaid pursuant to subsection (a), (b), or (f) of this section shall be in
addition to, and not in lieu of, all payments otherwise required to be paid under the Loan
Documents at the time of such prepayment, and until the Notes have been paid in full the mandatory
prepayments required under Section 2.7(a) shall not be reduced. Each such prepayment of Loans
shall be allocated among all Lenders in proportion to their unpaid Loans.



          (e) In determining any Make-Whole Amount, the following terms shall have the following
meanings:




     “Make-Whole Amount” means, with respect to any Note, an amount equal to the
Discounted Value of the Remaining Scheduled Interest Payments with respect to the Called
Principal of such Note, provided that such amount shall in no event be less than zero, plus
(b) 3.0% of the amount of the Called Principal.




     “Called Principal” means, with respect to any Note, the principal of such Note
that is to be prepaid pursuant to Section 2.8(a) or has become or is declared to be
immediately due and payable pursuant to Section 8.1, as the context requires.




     “Discounted Value” means, with respect to the Called Principal of any Note, the
amount obtained by discounting all Remaining Scheduled Interest Payments with respect to
such Called Principal from their respective scheduled due dates to the Settlement Date with
respect to such Called Principal, in accordance with accepted financial practice and at a
discount factor (applied on the same periodic basis as that on which interest on the Notes
is payable) equal to the Current Federal Funds Rate with respect to such Called Principal.




     “Current Federal Funds Rate” means, with respect to the Called Principal of any
Note, the yield to maturity implied by the rate per annum equal to the weighted average of
the rates on overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of
New York on the Business Day next succeeding the date of determination, provided that (a) if
the day for which such rate is to be determined is not a Business Day, the Federal Funds
Rate for such day shall be such rate on such transactions on the next preceding Business Day
as so published on the next succeeding Business Day, and (b) if such rate is not so
published for any day, the Federal Funds Rate for such day shall be the average rate quoted
to Administrative Agent on such day on such
transactions as determined by Administrative Agent. The Current Federal Funds Rate
shall be rounded to two decimal places.




     “Remaining Scheduled Interest Payments” means, with respect to the Called
Principal of any Note, all payments of interest thereon that would be due after the
Settlement Date with respect to such Called Principal if no payment of such Called



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 Principal
were made prior to the Maturity Date other than a proportionate part of the Scheduled
Quarterly Principal Payment due on each Quarterly Payment Date.




     “Settlement Date” means, with respect to the Called Principal of any Note, the
date on which such Called Principal is to be prepaid pursuant to Section 2.8(a) or has
become or is declared to be immediately due and payable pursuant to Section 8.1, as the
context requires.



          (f) Until the payment in full of all Obligations, each Credit Party hereby agrees with the
Lender Parties that, with respect to any additional financings sought by such Credit Party to
refinance Existing Senior Acquisition Indebtedness (an “Acquisition Refinancing”), such
Credit Party will provide Lender Parties with the first opportunity to provide such Acquisition
Refinancing. Company shall provide written notice to Administrative Agent of any Acquisition
Refinancing sought by a Credit Party (a “Refinancing Notice”), who shall promptly provide a
copy of such notice to the other Lender Parties. Administrative Agent shall notify Company of the
election by one or more Lender Parties to exercise its right to provide such Acquisition
Refinancing within 30 Business Days after Administrative Agent receives such Refinancing Notice.
During such 30 Business Day period, the Credit Parties will provide Lender Parties with access to
all relevant cost estimates, financial data, and any other information as may be requested by a
Lender Party in order to permit each Lender Party to evaluate the proposed Acquisition Refinancing,
the creditworthiness of the proposed borrower(s) and guarantor(s), and the proposed collateral
package and to permit the Lender Parties to evaluate and determine whether to provide such
Acquisition Refinancing. In the event that one or more of the Lender Parties elects to provide
such Acquisition Refinancing during such 30 Business Day Period by written notice to Company of the
material terms and conditions thereof (the “Lender Refinancing Proposal”), then Company
must affirmatively accept or reject such Lender Refinancing Proposal in writing within 10 Business
Days after its receipt of such written notice. In the event that Company rejects such Lender
Refinancing Proposal within such 10 Business Day period, then Company may, at its option, upon
notice provided below in this subsection (f), prepay all (but not less than all) of the Loans in
cash in an amount equal to 100% of the aggregate unpaid principal amount of the Loans to be repaid
plus a prepayment premium equal to 2% of such aggregate unpaid principal amount plus accrued and
unpaid interest to the date of repayment and all other Obligations that are then payable with (and
only with) the proceeds of an alternative financing from a financing source that is not an
Affiliate of any Credit Party, without the payment of the Prepayment Premium or Make-Whole Amount;
provided that (i) any such prepayment must be made pursuant to the applicable provisions of this
Agreement, (ii) no such prepayment may be made after the date that is the earlier of (x) 60 days
immediately following such rejection and (y) June 30, 2011, and (iii) the “all in” pricing with
respect to such alternative financing must be at least 2.0% (calculated on a per annum basis)
cheaper than the “all in” pricing contained in the Lender Refinancing Proposal, as determined by
Administrative Agent in its reasonable discretion. In the event that no Lender Party Refinancing
Proposal is delivered to
Company as provided above in this subsection (f) within the 30 Business Day Period described
above, then Company may, at its option, upon notice provided below in this subsection (f), prepay
all (but not less than all) of the Loans in cash in an amount equal to 100% of the aggregate unpaid
principal amount of the Loans to be repaid plus a prepayment premium equal to 2% of such aggregate
unpaid principal amount plus accrued and unpaid interest to the date of repayment and all other
Obligations that are then payable with (and only with) the proceeds of an



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alternative financing
from a financing source that is not an Affiliate of any Credit Party, without the payment of the
Prepayment Premium or Make-Whole Amount; provided that (i) any such prepayment must be made
pursuant to the applicable provisions of this Agreement, and (ii) no such prepayment may be made
after the date that is 90 days after the expiration of the 30 Business Day Period. For the
avoidance of doubt, all other optional prepayments of the Loans (including, in the event that a
Lender Refinancing Proposal is timely delivered to Company as provided above in this subsection
(f), any optional prepayment with any such proceeds from an alternative financing source that does
not meet the pricing criteria specified in clause (iii) in the proviso of the preceding sentence)
must be made in accordance with Section 2.8(a) and (b), including the payment of Make-Whole Amount
or Prepayment Premium (as applicable). Any prepayment notice pursuant to this subsection (f) shall
be in the form of Exhibit C, duly completed, given not less than 10 days and not more than 30 days
prior to the date fixed for such prepayment. Upon the giving of such notice, the principal to be
prepaid as described therein shall become due and payable, along with the applicable interest and
all other Obligations that are then payable, on the prepayment date specified in such notice. No
Credit Party will agree, directly or indirectly, to any restriction with any Person that limits the
ability of a Lender Party to consummate a proposed financing with any Credit Party. It is
expressly understood and agreed that Lenders have no obligation to increase their Commitments or
provide any requested Acquisition Refinancing and that any such determination will be made in the
exercise of their discretion.



          Section 2.9. Increase to Commitments. If Company requests Lenders to increase their
Commitments to an amount that does not exceed the aggregate amount of $75,000,000 and Lenders agree
to do so in the exercise of their discretion, then the amount of such increase, if any, will be
confirmed to Company in writing as an additional Commitment Increment hereunder. As part of making
any such request, Company will (a) certify to the Lender Parties that no Default or Event of
Default then exists, and (b) deliver to the Lender Parties such information concerning their
business, assets, operations, properties or prospects as Administrative Agent or any Lender may
request. It is expressly understood and agreed that Lenders have no obligation to
increase their Commitments and that any such determination will be made in the exercise of their
discretion.



ARTICLE III — Payments to Lenders



          Section 3.1. General Procedures. Company will make each payment that it owes under the Loan Documents
to Administrative Agent for the account of the Person to whom such payment is owed, in lawful money
of the United States of America, without set-off, deduction or
counterclaim, and in immediately available funds. Each such payment must be received by
Administrative Agent not later than 10:00 a.m. (local time at the designated place of payment) on
the date such payment becomes due and payable. Any payment received by Administrative Agent after
such time will be deemed to have been made on the next following Business Day. Should any such
payment become due and payable on a day other than a Business Day, the maturity of such payment
shall be extended to the next succeeding Business Day, and, in the case



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of a payment of principal
or past due interest, interest shall accrue and be payable thereon for the period of such extension
as provided in the Loan Document under which such payment is due. When Administrative Agent
collects or receives money on account of the Obligations, Administrative Agent shall distribute all
money so collected or received, and each Lender Party shall apply all such money so distributed, as
follows:




          (a) first, for the payment of all Obligations that are then due (and if such money is
insufficient to pay all such Obligations, first to any reimbursements due Administrative Agent
under Section 6.9 or 10.4 and then to the partial payment of all other Obligations then due in
proportion to the amounts thereof, or as Lender Parties shall otherwise agree);



          (b) then for the prepayment of amounts owing under the Loan Documents (other than principal of
the Loans) if so specified by Company;



          (c) then for the prepayment of principal of the Loans, together with accrued and unpaid
interest on the principal so prepaid; and



          (d) last, for the payment or prepayment of any other Obligations.


All payments applied to principal or interest on any Note shall be applied first to any interest
then due and payable, then to principal then due and payable, and last to any prepayment of
principal and interest in compliance with Section 2.5. All distributions of amounts described in
any of subsections (b), (c) or (d) above shall be made by Administrative Agent pro rata to each
Lender Party then owed Obligations described in such subsection in proportion to all amounts owed
to all Lender Parties that are described in such subsection; provided that if any Lender then owes
payments to Administrative Agent under Section 9.4, any amounts otherwise distributable under this
section to such Lender shall be deemed to belong to Administrative Agent to the extent of such
unpaid payments, and Administrative Agent shall apply such amounts to make such unpaid payments
rather than distribute such amounts to such Lender.



          Section 3.2. Payment of Interest. On each Quarterly Payment Date, Company shall pay the interest then
accrued on the Loans in full in immediately available funds.



          Section 3.3. Place of Payment. Payments becoming due and payable on the Notes and under the other Loan
Documents shall be made by wire transfer to a bank and account located in the State of Nevada
specified by Administrative Agent. Administrative Agent may at any time, by notice to Company,
change the place of payment of any such payments so long as such place of payment shall be in the
State of Nevada.



          Section 3.4. Capital Reimbursement. If either (a) the introduction or implementation after the date
hereof of or the compliance with or any change after the date hereof in or in the interpretation of
any Law regarding capital adequacy, or (b) the introduction or implementation
after the date hereof of or the compliance with any request, directive or guideline issued after
the date hereof from any central bank or other Governmental Authority (whether or not having the
force of Law) regarding capital requirements has or would have the effect of reducing the rate of
return on any Lender Party’s capital, or on the capital of any corporation controlling such Lender
Party, as a consequence of the Loans made by such Lender Party, to a level below that which such
Lender Party or such corporation could have achieved but for such change (taking into



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consideration
such Lender Party’s policies and the policies of any such corporation with respect to capital
adequacy), then from time to time Company will pay to Administrative Agent for the benefit of such
Lender Party, within three Business Days after demand therefor by such Lender Party, such
additional amount or amounts that such Lender Party shall determine to be appropriate to compensate
such Lender Party for such reduction.



          Section 3.5. Reimbursable Taxes. Company covenants and agrees that:




          (a) Company will indemnify each Lender Party against and reimburse each Lender Party for all
present and future income, stamp and other taxes, levies, costs and charges whatsoever imposed,
assessed, levied or collected on or in respect of this Agreement or any Loans (whether or not
legally or correctly imposed, assessed, levied or collected), excluding, however, (i) taxes imposed
on or measured by its overall net income, and franchise taxes imposed on it (in lieu of net income
taxes), by the jurisdiction (or any political subdivision thereof) under the Laws of which it is
organized or otherwise resides for tax purposes or maintains the office, branch, or agency through
which it administers this Agreement, (ii) with respect to each Lender Party, taxes imposed by
reason of any present or former connection between such Lender Party and the jurisdiction imposing
such taxes, other than solely as a result of this Agreement or any Note or any transaction
contemplated hereby, and (iii) any United States withholding tax imposed on any payment by Company
pursuant to this Agreement or under any Loans, but not excluding any portion of such tax that
exceeds the United States withholding tax that would have been imposed on such a payment to such
Lender Party under the laws and treaties in effect when such Lender Party first becomes a party to
this Agreement (all such non-excluded taxes, levies, costs and charges being collectively called
“Reimbursable Taxes”). Such indemnification shall be on an after-tax basis and paid within
3 Business Days after a Lender Party makes demand therefor.



          (b) All payments on account of the principal of, and interest on, each Lender Party’s Loans
and Note, and all other amounts payable by Company to any Lender Party hereunder, shall be made in
full without set-off or counterclaim and shall be made free and clear of and without deductions or
withholdings of any nature by reason of any Reimbursable Taxes, all of which will be for the
account of Company. In the event of Company being compelled by Law to make any such deduction or
withholding from any payment to any Lender Party, Company shall pay on the due date of such
payment, by way of additional interest, such additional amounts as are needed to cause the amount
receivable by such Lender Party after such deduction or withholding to equal the amount that would
have been receivable in the absence of such deduction or withholding. If Company should make any
deduction or withholding as aforesaid, Company shall within 60 days thereafter forward to such
Lender Party an official receipt or other official document evidencing payment of such deduction or
withholding.



          (c) Notwithstanding the foregoing provisions of this section, Company shall be entitled, to
the extent it is required to do so by Law, to deduct or withhold (and not to make any
indemnification or reimbursement for) income or other similar taxes imposed by the United States of
America from interest, fees or other amounts payable hereunder for the account of any Lender Party,
other than a Lender Party (i) who is a U.S. person for Federal income tax purposes or (ii) who has
the Prescribed Forms on file with Administrative Agent (with copies provided to Company) for the
applicable year to the extent deduction or withholding of such taxes is not


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required as a result of
the filing of such Prescribed Forms, provided that if Company shall so deduct or withhold any such
taxes, it shall provide a statement to Administrative Agent and such Lender Party, setting forth
the amount of such taxes so deducted or withheld, the applicable rate and any other information or
documentation that such Lender Party may reasonably request for assisting such Lender Party to
obtain any allowable credits or deductions for the taxes so deducted or withheld in the
jurisdiction or jurisdictions in which such Lender Party is subject to tax. As used in this
section, “Prescribed Forms” means such duly executed forms or statements, and in such number of
copies, which may, from time to time, be prescribed by Law and which, pursuant to applicable
provisions of (x) an income tax treaty between the United States and the country of residence of
the Lender Party providing the forms or statements, (y) the Internal Revenue Code, or (z) any
applicable rules or regulations thereunder, permit Company to make payments hereunder for the
account of such Lender Party free of such deduction or withholding of income or similar taxes.



ARTICLE IV — Conditions Precedent to Lending



          Section 4.1. Closing Date Conditions. The obligation of any Lender to make its Loan hereunder is
subject to the satisfaction, or waiver in accordance with Section 10.1, of the following conditions
on or before the Closing Date:




          (a) Closing Documents. Administrative Agent shall have received all of the following,
duly executed and delivered and in form, substance and date satisfactory to Administrative Agent:




     (i) this Agreement and any other documents that Lenders are to execute in connection
herewith.




     (ii) a Note for each Lender in the form set forth in Exhibit A.




     (iii) each Security Document listed in the Security Schedule.




     (iv) the following certificates of Company and Parent:




     (A) An “Omnibus Certificate” of the Secretary and of the President of Company,
which shall contain the names and signatures of the officers or representatives
authorized to execute Loan Documents to which it is a party and which shall certify
to the truth, correctness and completeness of the following exhibits attached
thereto: (1) a copy of resolutions duly adopted by the Board of Directors and in
full force and effect at the time this Agreement is entered into, authorizing the
execution of this Agreement and the other Loan Documents to which it is a party
delivered or to be delivered in connection herewith and the
consummation of the transactions contemplated herein and therein, (2) a copy of
the charter documents and all amendments thereto, certified by the appropriate
official of the state or province of organization, and (3) a copy of the bylaws; and




     (B) A “Compliance Certificate” of the President of Company, of even date with
such Loan, in which such officer certifies to the satisfaction of the conditions set
out in Section 4.2.



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     (v) a certificate (or certificates) of the due formation, valid existence and good
standing of Company in its state of organization, issued by the appropriate authorities of
such jurisdiction, and certificates of Company’s good standing and due qualification to do
business, issued by appropriate officials in any states in which Company owns property
subject to Security Documents.




     (vi) documents similar to those specified in subsections (iv)(A) and (v) of this
subsection with respect to Parent and each Guarantor.




     (vii) a solvency certificate of Company and Parent in the form set forth in Exhibit F,
dated the Closing Date and confirming solvency after giving effect to the consummation of
the Loan Documents.




     (viii) the Initial Financial Statements.




     (ix) favorable opinions of Baker & Hostetler LLP and of Borden Ladner Gervais LLP,
counsel for the Credit Parties, and of local counsel acceptable to Administrative Agent,
collectively addressing the matters set forth in Exhibit G.



          (b) Due Diligence. Administrative Agent and Lenders shall have completed a due
diligence investigation of the Credit Parties in scope, and with results, satisfactory to Lenders,
and shall have been given such access to the management, records, books of account, contracts and
properties (including their Oil and Gas Properties) of the Credit Parties and shall have received
such financial, business and other information regarding each of the foregoing Persons and
businesses as they shall have requested, including each of the following:




     (i) a report of the Insurance Advisor concerning Company’s insurance program and
certificates of Company’s insurance agents or brokers evidencing that Company is carrying
insurance as required in the Loan Documents.




     (ii) an environmental report prepared by the Environmental Advisor, confirming
satisfactory compliance with all applicable environmental laws and regulations.




     (iii) the Initial Engineering Report.




     (iv) title opinions and other title information satisfactory to Administrative Agent
confirming the Credit Parties’ title to their Oil and Gas Properties.



          (c) Collateral Account. Company shall have established the Collateral Account as
required hereunder.



          (d) Payment of Expenses. The Lender Parties and their counsel shall have received all
fees and other amounts due and payable on or prior to the Closing Date with respect to this
Agreement including the fees and reimbursement or payment of all out-of-pocket expenses required to
be reimbursed or paid by Company hereunder or under each mandate or expense letter executed by
Company or any Affiliate thereof.



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          (e) Initial Hedging Contracts. The Hedging Contracts described on Schedule 5 shall be
in full force and effect.



          (f) Payoff of Terminated Indebtedness. Administrative Agent shall have received
documents, in form and substance satisfactory to Administrative Agent, (1) confirming that with the
making of the Borrowing by Lenders on the Closing Date, all lien terminations, UCC-3 termination
statements and other documentation evidencing the termination of Liens, if any, on any Credit
Party’s property securing the Terminated Indebtedness shall be delivered to Administrative Agent,
and (2) providing for the payment in full of the Terminated Indebtedness by Company.



          (g) Other Documentation. Administrative Agent shall have received all documents and
instruments (in form and substance satisfactory to Administrative Agent) that Administrative Agent
has then reasonably requested, in addition to those described in this Section 4.1.



          Section
4.2.  Additional Conditions Precedent. No Lender has any obligation to make any Loan
(including its first) unless the following conditions precedent have been satisfied:



          (a) All representations and warranties made by any Person in any Loan Document shall be true
in all respects on and as of the date of such Loan as if such representations and warranties had
been made as of the date of such Loan (except to the extent that such representation or warranty
was made as of a specific date, in which case such representation or warranty shall be true in all
respects as of such specific date).



          (b) No Default shall exist at the date of such Loan.



          (c) No Material Adverse Change shall have occurred, and no event or circumstance shall have
occurred that could cause a Material Adverse Change.



          (d) Each Credit Party shall have performed and complied with all agreements and conditions
required in the Loan Documents to be performed or complied with by it on or prior to the date of
such Loan.



          (e) The making of such Loan shall not be prohibited by any Law and shall not subject any
Lender to any penalty or other onerous condition under or pursuant to any such Law.



          (f) Administrative Agent shall have received all documents and instruments that Administrative
Agent has then requested, in addition to those described in Section 4.1 (including opinions of
legal counsel for the Credit Parties and Administrative Agent; corporate documents
and records; documents evidencing governmental authorizations, consents, approvals, licenses
and exemptions; and certificates of public officials and of officers and representatives of Company
and other Persons), as to (i) the accuracy and validity of or compliance with all representations,
warranties and covenants made by any Credit Party in this Agreement and the other Loan Documents,
(ii) the satisfaction of all conditions contained herein or therein, and (iii) all other matters
pertaining hereto and thereto. All such additional documents and instruments shall be satisfactory
to Administrative Agent in form, substance and date.


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ARTICLE V — Representations and Warranties of Parent and Company




          To confirm each Lender Party’s understanding concerning the Credit Parties and the Credit
Parties’ businesses, properties and obligations and to induce each Lender to enter into this
Agreement and to extend credit hereunder, each of Parent and Company represents and warrants that:


          Section 5.1. No Default. No Credit Party is in default in the performance of any of its covenants and
agreements contained in any Loan Document. No event has occurred and is continuing that
constitutes a Default.



          Section 5.2. Organization and Good Standing. Each Credit Party is duly organized, validly existing and
in good standing under the Laws of its jurisdiction of organization, having all powers required to
carry on its business and enter into and carry out the transactions contemplated hereby. Each
Credit Party is duly qualified, in good standing, and authorized to do business in all other
jurisdictions within the United States and Canada wherein the character of the properties owned or
held by it or the nature of the business transacted by it makes such qualification necessary. Each
Credit Party has taken all actions and procedures customarily taken in order to enter, for the
purpose of conducting business or owning property, each jurisdiction outside the United States
wherein the character of the properties owned or held by it or the nature of the business
transacted by it makes such actions and procedures desirable. Parent is in compliance in all
respects with all applicable listing and governance rules of the Toronto Stock Exchange. Parent is
in compliance in all respects with Canadian Securities Laws.



          Section 5.3. Authorization. Each Credit Party has duly taken all action necessary to authorize the
execution and delivery by it of the Loan Documents to which it is a party and to authorize the
consummation of the transactions contemplated thereby and the performance of its obligations
thereunder. Company is duly authorized to borrow funds hereunder.



          Section 5.4. No Conflicts or Consents. The execution and delivery by the various Credit Parties of the
Loan Documents to which each is a party, the performance by each of its obligations under such Loan
Documents, and the consummation of the transactions contemplated by the various Loan Documents, do
not and will not (a) conflict with any provision of (i) any Law, (ii) the organizational documents
of any Credit Party, or (iii) any material agreement, judgment, license, order or permit applicable
to or binding upon any Credit Party or its property, (b) result in the acceleration of any
Indebtedness owed by any Credit Party, or (c) result in or require the creation of any Lien upon
any property of any Credit Party except as expressly contemplated or permitted in the Loan
Documents. Except as expressly contemplated in the Loan Documents no permit, consent, approval,
authorization or order of, and no notice to or
filing with, any Governmental Authority or third party is required in connection with the
execution, delivery or performance by any Credit Party of any Loan Document or to consummate any
transaction contemplated by a Loan Document.



          Section 5.5. Enforceable Obligations. This Agreement is, and the other Loan Documents when duly
executed and delivered will be, legal, valid and binding obligations of each of the Credit Parties
and each of their respective Affiliates that is a party hereto or thereto, enforceable in
accordance with their terms except as such enforcement may be limited by



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bankruptcy, insolvency or
similar Laws of general application relating to the enforcement of creditors’ rights and by general
principles of equity.



          Section 5.6. Initial Financial Statements. Company has heretofore delivered to each Lender true,
correct and complete copies of the Initial Financial Statements. The Initial Financial Statements
fairly present the Consolidated financial position, income, and cash flows of the Persons reported
on therein, in each case at the date thereof. The Initial Financial Statements were prepared on a
pro forma basis in accordance with GAAP, except as otherwise indicated therein.



          Section 5.7. Other Liabilities and Restrictions; Material Contracts. No Credit Party has any
outstanding Liabilities of any kind (including contingent obligations, tax assessments, and unusual
forward or long-term commitments) that are, in the aggregate, material to Company or Parent or
material with respect to Company’s or Parent’s Consolidated financial condition, other than
Liabilities shown in the most recently delivered financial statements and Liabilities disclosed in
Section 5.7 of the Disclosure Schedule. Except as shown in the Initial Financial Statements or
disclosed in Section 5.7 of the Disclosure Schedule, no Credit Party is subject to or restricted by
any franchise, contract, deed, charter restriction, or other instrument or restriction that could
cause a Material Adverse Change. Except as listed in Section 5.7 of the Disclosure Schedule, no
Credit Party has any Material Contracts (other than oil and gas leases, unit agreements, unit
operating agreements, and joint operating agreements that are specifically listed on the property
descriptions attached to the Mortgage). All Hedging Contracts to which any Credit Party is a party
as of the Closing Date are listed in Schedule 5, which sets forth the type, term, effective date,
termination date and notional amounts or volumes and the counterparty to each such agreement.



          Section 5.8. Full Disclosure. The certificates, statements and other information at any time delivered
to Administrative Agent by or on behalf of Company or any of Company’s Affiliates in connection
with the negotiation of this Agreement or in connection with any transaction contemplated hereby do
not contain any untrue statement of a material fact and do not omit to state any material fact
known to Company or its Affiliates (other than industry-wide risks normally associated with the
types of businesses conducted by the Credit Parties) necessary to make the statements contained
herein or therein not misleading as of the date made or deemed made. No Material Adverse Change
has occurred since the date of the audited balance sheet included in the Initial Financial
Statements. There is no fact known to Company or its Affiliates (other than industry-wide risks
normally associated with the types of businesses conducted by the Credit Parties) that has not been
disclosed to Administrative Agent in writing that could cause a Material Adverse Change. Company
has heretofore delivered to each Lender true, correct and complete copies of the Initial
Engineering Report. There are no statements or
conclusions in any Engineering Report that are based upon or include misleading information or fail
to take into account material information regarding the matters reported therein, it being
understood that each Engineering Report is necessarily based upon professional opinions, estimates
and projections and that Company does not warrant that such opinions, estimates and projections
will ultimately prove to have been accurate (although Company has no reason to believe that such
opinions, estimates and projections are not accurate and complete).



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          Section 5.9. Litigation. Except as disclosed in the Initial Financial Statements or in Section 5.9 or
Section 5.24 of the Disclosure Schedule: (a) there are no actions, suits or legal, equitable,
arbitrative or administrative proceedings pending, or to the knowledge of any Credit Party
threatened, against any Credit Party or affecting any Collateral before any Governmental Authority
that could cause a Material Adverse Change, (b) there are no outstanding judgments, injunctions,
writs, rulings or orders by any such Governmental Authority against any Credit Party or any Credit
Party’s stockholders, partners, members, directors or officers or affecting any Collateral or any
of its material assets or property that could cause a Material Adverse Change, and (c) there are no
actions, suits or legal, equitable, arbitrative or administrative proceedings or demands pending
(or, to any Credit Party’s knowledge, threatened) that could adversely affect the rights of Company
and its Subsidiaries in and to any such Collateral, including any that challenge or otherwise
pertain to Company’s or any of its Subsidiaries’ title to such Collateral or the rights to produce
and sell Hydrocarbons therefrom.



          Section 5.10. Labor Disputes and Acts of God. Except as disclosed in Section 5.10 of the Disclosure
Schedule, neither the business nor the properties of any Credit Party has been affected by any
fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy or other casualty (whether or not covered by
insurance) that could cause a Material Adverse Change.



          Section 5.11. ERISA Plans and Liabilities. All currently existing ERISA Plans are listed in Section 5.11
of the Disclosure Schedule. Except as disclosed in the Initial Financial Statements or in Section
5.11 of the Disclosure Schedule, no Termination Event has occurred with respect to any ERISA Plan,
and no event or circumstance has occurred or exists that could reasonably be expected to constitute
or result in a Termination Event. All ERISA Affiliates are in compliance in all material respects
with ERISA, the Internal Revenue Code and other applicable Laws with respect to each Plan. No
ERISA Affiliate is required to contribute to, or has any other absolute or contingent liability in
respect of, any Multiemployer Plan or any ERISA Plan subject to Section 4064 of ERISA. There are
no pending or, to the knowledge of Company, threatened claims, actions or lawsuits with respect to
any Plan that could reasonably be expected to have a Material Adverse Effect, and there has been no
prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan
that has resulted or could reasonably be expected to result in a Material Adverse Effect. Except
as set forth in Section 5.11 of the Disclosure Schedule: (a) the current value of each ERISA
Plan’s benefits does not exceed the current value of such ERISA Plan’s assets available for the
payment of such benefits by more than the Threshold Amount, (b) neither Company nor any other ERISA
Affiliate is obligated to provide benefits to any retired employees (or their dependents) under any
employee welfare benefits plan (as defined in Section 3(1) of ERISA) other than as required by
applicable Law and (c) neither Company nor any other ERISA Affiliate has engaged in a transaction
that could be subject to Section 4069 or Section 4212(c) of ERISA.



          Section 5.12. Environmental and Other Laws. Except as disclosed in Section 5.12 of the Disclosure
Schedule: (a) the Credit Parties are conducting their businesses in material compliance with all
applicable Laws, including Environmental Laws, and have and are in compliance with all licenses and
permits required under any such Laws; (b) none of the operations or properties of any Credit Party
is the subject of federal, state or local investigation evaluating whether any material remedial
action is needed to respond to a release of any



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Hazardous Materials into the environment or to the
improper storage or disposal (including storage or disposal at offsite locations) of any Hazardous
Materials; (c) no Credit Party (and to the knowledge of Company and its Affiliates, no other
Person) has filed any notice under any Law indicating that any Credit Party is responsible for the
improper release into the environment, or the improper storage or disposal, of any material amount
of any Hazardous Materials or that any Hazardous Materials have been improperly released, or are
improperly stored or disposed of, upon any Collateral; (d) no Credit Party has transported or
arranged for the transportation of any Hazardous Material to any location that is (i) listed on the
National Priorities List under the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, listed for possible inclusion on such National Priorities List by the
Environmental Protection Agency in its Comprehensive Environmental Response, Compensation and
Liability Information System List, or listed on any similar state list or (ii) the subject of
federal, state or local enforcement actions or other investigations that may lead to claims against
any Credit Party for clean-up costs, remedial work, damages to natural resources or for personal
injury claims (whether under Environmental Laws or otherwise); and (e) no Credit Party otherwise
has any known material contingent liability under any Environmental Laws or in connection with the
release into the environment, or the storage or disposal, of any Hazardous Materials. Each Credit
Party undertook, at the time of its acquisition of each of its material properties, all appropriate
inquiry into the previous ownership and uses of such properties and any potential environmental
liabilities associated therewith.



          Section 5.13. Insurance. The Insurance Schedule contains an accurate and complete description of all
material policies of property and casualty, liability, workmen’s compensation and other forms of
insurance owned or held by or on behalf of any Credit Party. Such policies constitute all policies
of insurance required to be maintained under Section 6.8 hereof or any other applicable provision
of the Loan Documents. All such policies are in full force and effect, all premiums due with
respect thereto have been paid, and no notice of cancellation or termination in any material
respect has been received with respect to any such policy. Such policies are sufficient for
compliance in all material respects with all requirements of law and of all agreements to which any
Credit Party is a party; are valid, outstanding and enforceable policies; provide adequate
insurance coverage in at least such amounts and against at least such risks (but including in any
event public liability) as are usually insured against in the same general area by companies
engaged in the same or a similar business for the assets and operations of the Credit Parties; and
will not in any way be affected by, or terminate or lapse by reason of, the transactions
contemplated by this Agreement and the other Loan Documents.



          Section 5.14. Names and Places of Business. No Credit Party has, during the preceding five years, had,
been known by, or used any other trade or fictitious name, except as disclosed in Section 5.14 of
the Disclosure Schedule. Except as otherwise indicated in Section 5.14 of the Disclosure Schedule,
the chief executive office and principal place of business of each Credit Party are (and for the
preceding five years have been) located at the address of Company set out
in Section 10.3. Except as indicated in Section 5.14 of the Disclosure Schedule or otherwise
disclosed in writing to Administrative Agent, no Credit Party has any other office.



          Section 5.15. Subsidiaries and Capital Structure.



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          (a) Section 5.15 of the Disclosure Schedule (as supplemented from time to time by Company in
written notices to Administrative Agent and Lenders) sets forth a true, correct and complete
description of (i) the Subsidiaries of Parent and the ownership of such Subsidiaries’ outstanding
Equity and (ii) any other Equity in any other Person that is owned by Parent or any of its
Subsidiaries. All of Parent’s Equity in its Subsidiaries, and all other Equity set forth in such
section of the Disclosure Schedule, has been duly authorized and is validly issued, fully paid and
non-assessable. Except for Liens under the Loan Documents, Company and Parent and its indicated
Subsidiaries own such Subsidiaries and Equity free and clear of any Liens and other restrictions
(including any restrictions on the right to vote, sell or otherwise dispose of any such Equity) and
free and clear of any preemptive rights, rescission rights, or other rights to subscribe for or to
purchase or repurchase any such Equity.



          (b) Except as set forth in Section 5.15 of the Disclosure Schedule, there is (i) no
outstanding Equity issued by Subsidiary of Parent, (ii) no outstanding security of any such
Subsidiary convertible into or exchangeable for Equity in such Subsidiary, (iii) no outstanding
obligation of any Person to issue or sell any Equity in such Subsidiary or any other security of
such Subsidiary convertible into or exchangeable for such Equity, and (iv) no outstanding
obligation of Parent or any of its Subsidiaries to repurchase, redeem, or otherwise acquire from
other Persons any such Equity, security or obligation.



          (c) Except as set forth in Section 7.1 as permitted Indebtedness, neither Parent nor any of
its Subsidiaries has any obligation to repurchase, redeem or retire any of its issued and
outstanding Equity. Section 5.15 of the Disclosure Schedule (as supplemented from time to time by
Company in written notices to Administrative Agent and Lenders) sets forth a true, correct and
complete description of the issued and outstanding Equity issued by Parent and the ownership of
such outstanding Equity.


          Section 5.16. Government Regulation. Neither Company nor Parent nor any other Credit Party is (a) an
“investment company” or a company “controlled” by an “investment company” within the meaning of the
Investment Company Act of 1940, as amended, or (b) subject to regulation under the Federal Power
Act, as amended, or any other Law that regulates the incurring by such Person of Indebtedness,
including Laws relating to common contract carriers or the sale of electricity, gas, steam, water
or other public utility services.



          Section 5.17. Solvency. Upon giving effect to the issuance of the Notes, the execution of the Loan
Documents by the parties thereto and the consummation of the transactions contemplated hereby and
thereby, each Credit Party will be solvent (as such term is used in applicable bankruptcy,
liquidation, receivership, insolvency or similar Laws), and the sum of each Credit Party’s absolute
and contingent liabilities, including the Obligations or guarantees thereof, shall not exceed the
fair market value of such Credit Party’s assets, and (ii) each Credit Party’s capital is adequate
for the businesses in which such Credit Party is engaged and intends to be engaged. No Credit
Party has incurred (whether under the Loan Documents or otherwise),
nor does any Credit Party intend to incur or believe that it will incur, debts that will be beyond
its ability to pay as such debts mature.



          Section 5.18. Title to Properties; Licenses; Control over Accounts. Each Credit Party has good and
defensible title to, or valid leasehold interests in, all of the Collateral owned or



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leased by such
Credit Party and all of its other material properties and assets necessary or used in the ordinary
conduct of its business, free and clear of all Liens, encumbrances, or adverse claims other than
Permitted Liens and free and clear of all material impediments to the use of such properties and
assets in such Credit Party’s business. Each Engineering Report at any time delivered pursuant to
Section 6.2(l) correctly states the working interests and net revenue interests of the Credit
Parties in the Proved Reserves that are the subject of such Engineering Report. Except for
obligations to contribute a proportionate share of the costs of defaulting co-owners, no Credit
Party is obligated to bear any percentage share of the costs and expenses relating to the drilling,
development and production of such Proved Reserves in excess of such working interests, and
(subject to the Loan Documents) each Credit Party is entitled to receive percentage shares of the
revenues from the production of such Proved Reserves that are at least equal to such net revenue
interests. Each Credit Party possesses all licenses, permits, franchises, patents, copyrights,
trademarks and trade names, and other intellectual property (or otherwise possesses the right to
use such intellectual property without violation of the rights of any other Person) that are
necessary to carry out its business as presently conducted and as presently proposed to be
conducted hereafter, and no Credit Party is in violation in any material respect of the terms under
which it possesses such intellectual property or the right to use such intellectual property. No
Credit Party has granted control over any Deposit Accounts to any Person, other than Administrative
Agent and the bank with which any Deposit Account is maintained. No Credit Party has any
“securities accounts” as defined and described in the UCC.



          Section 5.19. Regulation U. Neither Parent nor any of its Subsidiaries is engaged in the business of
extending credit for the purpose of purchasing or carrying Margin Stock, and no proceeds of any
Loans will be used for a purpose that violates Regulation U.



          Section 5.20. Leases and Contracts; Performance of Obligations. Each lease, deed, or other agreement
forming any part of the Oil and Gas Properties of the Credit Parties to which Proved Reserves are
attributed in each Engineering Report is in full force and effect. All rents, royalties and other
payments due and payable under such leases, deeds, and other agreements have been properly and
timely paid with respect to all Oil and Gas Properties operated by a Credit Party (and to the
knowledge of the Credit Parties with respect to all Oil and Gas Properties not operated by a Credit
Party) except to the extent such nonpayment could not reasonably be expected to cause the loss or
forfeiture of any such Proved Reserves or result in a Material Adverse Change. No Credit Party is
in default with respect to its obligations (and no Credit Party is aware of any default by any
third party with respect to such third party’s obligations) under any such leases, deeds, and other
agreements, or under any Permitted Liens, or otherwise attendant to the ownership or operation of
any part of the Oil and Gas Properties except to the extent such default could not reasonably be
expected to affect adversely the ownership or operation of the Oil and Gas Properties to which any
such Proved Reserves are attributed or result in a Material Adverse Change. Except as reflected in
the most recently delivered Engineering Report, no Credit Party is currently accounting for any
royalties, overriding royalties or other payments out of production on a basis (other than delivery
in kind)
that is less favorable to such Credit Party than proceeds received by such Credit Party (calculated
at the well) from the sale of such production, and no Credit Party has any liability (or alleged
liability) to account for the same on any such less favorable basis.



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          Section 5.21. Marketing Arrangements. Except as set forth in Section 5.21 of the Disclosure Schedule, no
Oil and Gas Property is subject to any contractual or other arrangement (a) whereby payment for
production is or can be deferred for a substantial period after the month in which such production
is delivered (in the case of oil, not in excess of 60 days, and in the case of gas, not in excess
of 90 days) or (b) whereby payments are made to a Credit Party other than by checks, drafts, wire
transfers, or other similar writings, instruments or communications for the immediate payment of
money. Except for production sales contracts, processing agreements, transportation agreements and
other agreements relating to the marketing of production that are listed in Section 5.21 of the
Disclosure Schedule in connection with the Oil and Gas Properties to which such contract or
agreement relates: (i) no Oil and Gas Property is subject to any contractual or other arrangement
for the sale, processing or transportation of production (or otherwise related to the marketing of
production) that cannot be canceled by such Credit Party on 120 days’ (or less) notice or that does
not provide for the prices to be paid for such production to float with the market at least as
often as monthly, and (ii) all contractual or other arrangements for the sale, processing or
transportation of production (or otherwise related to the marketing of production) are bona fide
arm’s length transactions made on the best terms reasonably available with third parties not
affiliated with Company. Each Credit Party is presently receiving a price for all production from
(or attributable to) each Oil and Gas Property covered by a production sales contract or marketing
contract that is computed in all material respects in accordance with the terms of such contract,
and no Credit Party is having deliveries of production from such Oil and Gas Property curtailed
materially below such property’s delivery capacity, except for curtailments caused (1) by an act or
event of force majeure not reasonably within the control of and not caused by the fault or
negligence of a Credit Party and which by the exercise of reasonable diligence such Credit Party is
unable to prevent or overcome, or (2) by routine maintenance requirements in the ordinary course of
business.



          Section 5.22. Right to Receive Payment for Future Production. Except as set forth in Section 5.22 of the
Disclosure Schedule, no Credit Party, and to the knowledge of the Credit Parties no predecessor in
title of any Credit Party, has received prepayments (including payments for gas not taken pursuant
to “take or pay” or other similar arrangements) for any Hydrocarbons produced or to be produced
from any Oil and Gas Properties after the date hereof. Except as set forth in Section 5.22 of the
Disclosure Schedule, no Oil and Gas Property is subject to any “take or pay”, gas imbalances or
other similar arrangement (a) as a result of which Hydrocarbons produced from such Oil and Gas
Property may be required to be delivered to one or more third parties without current payment (or
without full payment) therefor or (b) that is determined in whole or in part by reference to the
production or transportation of Hydrocarbons from other properties. Except as set forth in Section
5.22 of the Disclosure Schedule, there is no Oil and Gas Property with respect to which any Credit
Party or, to the knowledge of any Credit Party, such Credit Party’s predecessors in title, has,
prior to the date hereof, taken more (“overproduced”), or less (“underproduced”), gas from the
lands covered thereby (or pooled or unitized therewith) than its ownership interest in such Oil and
Gas Property would entitle it to take; and Section 5.22 of the Disclosure Schedule accurately
reflects, for each well or unit with respect to which such an imbalance is shown thereon to exist,
(i) whether such Credit Party is
overproduced or underproduced and (ii) the volumes (in cubic feet or British thermal units) of such
overproduction or underproduction and the effective date of such information. Since the date of
this Agreement, no material changes have occurred in such overproduction or underproduction except
those that have been reported as required pursuant to Section 6.2. No



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Oil and Gas Property is
subject to any regulatory refund obligation and, to the best of each Credit Party’s knowledge, no
facts exist that might cause the same to be imposed.




          Section 5.23. Operation of Oil and Gas Properties.
The Oil and Gas Properties (and all
properties unitized therewith) are being (and, to the extent the same could adversely affect the
ownership or operation of the Oil and Gas Properties after the date hereof, have in the past been)
maintained, operated and developed in a good and workmanlike manner, in accordance with prudent
industry standards, in material conformity with all applicable Laws, all oil, gas or other mineral
leases and other contracts and agreements forming a part of the Oil and Gas Properties, and all
Permitted Liens. Except as disclosed in Section 5.23 of the Disclosure Schedule, (a) no Oil and
Gas Property is subject to having allowable production after the date hereof reduced below the full
and regular allowable production (including the maximum permissible tolerance) because of any
overproduction (whether or not the same was permissible at the time) prior to the date hereof and
(b) none of the wells located on the Oil and Gas Properties (or properties unitized therewith) are
or will be intentionally deviated from the vertical more than the maximum permitted by applicable
laws, regulations, rules and orders, and such wells are bottomed under and producing from, with the
well bores wholly within, the Oil and Gas Properties (or, in the case of wells located on
properties unitized therewith, such unitized properties). Each Credit Party has all governmental
licenses and permits necessary or appropriate to own and operate its Oil and Gas Properties, and no
Credit Party has received notice of any violations in respect of any such licenses or permits.




          Section 5.24. Ad Valorem and Production Taxes.
Except as set forth in Section 5.24 of the
Disclosure Schedule, each Credit Party has paid and discharged all ad valorem taxes assessed
against its Oil and Gas Properties or any part thereof and all production, severance and other
taxes assessed against, or measured by, the production or the value, or proceeds, of the production
therefrom and there are no suits, actions, claims, investigations, inquiries, proceedings or
demands pending (or, to any Credit Party’s knowledge, threatened) with respect to any such taxes.




          Section 5.25. Employment Agreements.
Section 5.25 of the Disclosure Schedule sets forth a
true, correct and complete list of all employment contracts or agreements, agency, independent
contractor and sales representative agreements, golden parachute agreements, change of control
agreements and employee-related non-competition and non-solicitation agreements, in each case to
which any Credit Party is a party. The Credit Parties have previously delivered true, correct and
complete copies of all such agreements, including all amendments thereto. Each such agreement is
in writing, is a valid and binding agreement enforceable against the respective parties thereto in
accordance with its terms, and no Credit Party nor any other Person that is a party to any such
agreement is in breach of, or in default with respect to, any of its obligations thereunder, nor is
any Credit Party aware of any facts or circumstances that might give rise to any breach or default
thereunder that could cause a Material Adverse Change.




          Section 5.26. Transactions with Insiders.
Except as disclosed on Section 5.25 or Section
5.26 of the Disclosure Schedule, no shareholder, director, officer, or employee of Parent or any of
its Affiliates, and no associate of any such shareholder, director, officer, or employee, is,
directly or indirectly, a party to any transaction, agreement, arrangement, or understanding,
written or oral, with any Credit Party that provides for the employment of, furnishing of services



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by, rental of real or personal property from, or otherwise requiring payments to any such
shareholder, director, officer, employee, or associate. For purposes of this Section only, an
“associate” of any shareholder, director, officer, or employee means any member of the immediate
family of such shareholder, director, officer, or employee or any corporation, partnership, trust,
or other entity in which such shareholder, director, officer, or employee has a substantial
ownership or beneficial interest (other than an interest in a public corporation that does not
exceed three percent of its outstanding securities) or is a director, officer, partner, or trustee
or person holding a similar position.




ARTICLE VI — Affirmative Covenants




          To conform with the terms and conditions under which each Lender is willing to have credit
outstanding to Company, and to induce each Lender to enter into this Agreement and extend credit
hereunder, each of Parent and Company warrants, covenants and agrees that until the full and final
payment of the Obligations and the termination of this Agreement, unless Required Lenders have
previously agreed otherwise:




          Section 6.1. Payment and Performance.
Each Credit Party will pay all amounts due under the
Loan Documents, to which it is a party, in accordance with the terms thereof and will observe,
perform and comply with every covenant, term and condition set forth in the Loan Documents to which
it is a party, and Parent will cause each of its Subsidiaries to observe, perform and comply with
every such term, covenant and condition in any Loan Document.




          Section 6.2. Books, Financial Statements and Reports.
Each Credit Party will at all times
maintain full and accurate books of account and records. Parent will maintain and will cause its
Subsidiaries to maintain a standard system of accounting, will maintain its Fiscal Year, and will
furnish the following statements and reports to each Lender Party at its own expense:




          (a) As soon as available, and in any event contemporaneously with filing with the Alberta
Securities Commission or the Securities and Exchange Commission (as applicable), but in no event
later than one hundred twenty (120) days after the end of each Fiscal Year, complete Consolidated
and consolidating financial statements of Parent together with all notes thereto, prepared in
reasonable detail in accordance with GAAP, together with an unqualified opinion, based on an audit
using generally accepted auditing standards, by an independent certified public accounting firm
selected by it and acceptable to Administrative Agent, stating that such Consolidated financial
statements have been so prepared. These financial statements shall contain a Consolidated and
consolidating balance sheet as of the end of such Fiscal Year and Consolidated and consolidating
statements of earnings, of cash flows, and of changes in owners’ equity for such Fiscal Year, each
setting forth in comparative form the corresponding figures for the preceding Fiscal Year.




          (b) As soon as available, and in any event contemporaneously with filing with the Alberta
Securities Commission or the Securities and Exchange Commission (as applicable), but in no event
later than sixty (60) days after the end of each Fiscal Quarter, Parent’s Consolidated and
consolidating balance sheet as of the end of such Fiscal Quarter and Consolidated and consolidating
statements of Parent’s earnings and cash flows for the period from the beginning of the then
current Fiscal Year to the end of such Fiscal Quarter, all in reasonable detail and



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prepared in accordance with GAAP, subject to changes resulting from normal year-end adjustments.




          (c) In addition Parent will, together with each set of financial statements furnished under
subsections (a) and (b) of this Section, furnish a certificate in the form of Exhibit D signed by
the chief financial officer of Parent stating that such financial statements are accurate and
complete (subject to normal year-end adjustments), stating that he has reviewed the Loan Documents,
containing calculations showing compliance (or non-compliance) at the end of such Fiscal Quarter
with the requirements of Sections 7.12 through 7.16 and stating that no Default exists at the end
of such Fiscal Quarter or at the time of such certificate or specifying the nature and period of
existence of any such Default.




          (d) Promptly upon their becoming available, copies of all financial statements, reports,
notices and proxy statements sent by any Credit Party to its equity holders and all registration
statements, periodic reports and other statements and schedules filed by any Credit Party with any
securities exchange, the SEC or any similar Governmental Authority.




          (e) Promptly after any request by Administrative Agent or any Lender, copies of any detailed
audit reports, management letters or recommendations submitted to the board of directors (or the
audit committee of the board of directors) of any Credit Party by independent accountants in
connection with the accounts or books of any Credit Party or any of its Subsidiaries, or any audit
of any of them;




          (f) Promptly, and in any event within three Business Days after receipt thereof by any Credit
Party or any Subsidiary thereof, copies of each notice or other correspondence received from the
SEC (or comparable agency in any applicable non-U.S. jurisdiction) concerning any investigation or
possible investigation or other inquiry by such agency regarding financial or other operational
results of any Credit Party or any Subsidiary thereof;




          (g) Together with each set of financial statements furnished under subsections (a) and (b) of
this Section, Company will furnish (i) an accounts payable and receivable aging report (in form
reasonably satisfactory to Administrative Agent) of the accounts payable and receivable of Company
and the other Credit Parties, and (ii) a report (in form reasonably satisfactory to Administrative
Agent) of all Hedging Contracts of Company and the other Credit Parties, setting forth the type,
term, effective date, termination date and notional amounts or volumes and the counterparty to each
such agreement.




          (h) As soon as available, and in any event on or before December 31 of each year, a business
and financial plan, together with a capital expenditure schedule, for Company and the other Credit
Parties (in form reasonably satisfactory to Administrative Agent), prepared by a senior financial
officer of Company, setting forth for the immediately following Fiscal Year,
quarterly financial projections and budgets, and thereafter yearly financial projections and
budgets.




          (i) Concurrently with the annual renewal of Company’s insurance policies, certificates,
schedules and reports required under subsections (c) (5) and (c) (6) of Schedule 3.


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          (j) By the thirtieth (30th) day after the end of each month, monthly operating
reports on the Oil and Gas Properties of Company and the other Credit Parties which shall include a
description by field of leasehold operating expenses and of the gross quantities of Hydrocarbons
and water produced from the Eligible Mortgaged Properties during such month, and a description by
plant of the volumes of gas processed and treated at such plant, the amounts of natural gas and
plant products sold, and the prices received (setting out the elements of such calculation in
detail acceptable to Administrative Agent);




          (k) On each Quarterly Payment Date, a consolidated report in detail acceptable to
Administrative Agent containing:





     (i) a summary of wells drilled, completed or worked over on the Oil and Gas Properties
during the reporting period and upon request copies of any well logs across the pay sectors;




     (ii) a discussion of any current material operating problems with any wells and any
proposed solutions;




     (iii) a summary of any third-party technical studies conducted during the reporting
period of performance; and




     (iv) a projection of capital expenditures for the next Fiscal Quarter and a comparison
of the projection of capital expenditures for the Fiscal Quarter then ended to the actual
capital expenditures for such Fiscal Quarter.



          (l) an annual Engineering Report, prepared as of December 31 of each year, beginning December
31, 2010, and delivered to Administrative Agent by the following March 31, and an Engineering
Report, prepared as of March 31, June 30, and September 30 of each year, beginning June 30, 2010,
and delivered to Administrative Agent by the following May 31, August 31, and November 30,
respectively. Each such Engineering Report shall:





     (i) be prepared at Company’s expense by the Independent Company Engineer, concerning
all of the Oil and Gas Properties of the Credit Parties to which Proved Reserves are
attributed, provided that each such report prepared as of any March 31 or September 30 may
at Company’s option be prepared by Company’s in-house engineering staff;




     (ii) separately report on Proved Developed Producing Reserves, Proved Developed
Non-Producing Reserves and Proved Undeveloped Reserves of the Eligible Mortgaged Properties,
and separately calculate the NPV10 of each such category of Reserves;




     (iii) use Agreed Pricing;




     (iv) take into account Company’s actual experiences with leasehold operating expenses
and other costs in determining projected leasehold operating expenses and other costs;



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     (v) take into account any “over-produced” status under gas balancing arrangements; and




     (vi) otherwise be in form and substance satisfactory to Administrative Agent.


In the event that Company and Administrative Agent disagree over whether or not any workovers or
other remedial capital expenditures should be included in an Engineering Report for the purposes of
calculating NPV10, the engineers preparing the report shall resolve such disagreement by
determining whether such expenditures are likely to be required in accordance with prudent industry
practice and shall include or exclude such expenditures based upon such determination. Upon
Administrative Agent’s receipt of each such Engineering Report, the Independent Lender Engineer
shall review such report and make any adjustments thereto that it in its discretion deem
appropriate or advisable. The Credit Parties acknowledge and agree that (i) the Independent Lender
Engineer has been retained by Administrative Agent, (ii) its services, reports, findings, and
conclusions are rendered or delivered, as applicable, solely for the benefit of the Lender Parties,
and (iii) the Credit Parties shall not be entitled to rely upon or otherwise disclose any such
information.




          (m) Upon request by Administrative Agent, a list, by name and address, of those Persons who
have purchased production during such Fiscal Quarter from the Eligible Mortgaged Properties, in
form and substance satisfactory to Administrative Agent.




          (n) Promptly, such additional information regarding the business, financial, legal or
corporate affairs of any Credit Party or any Subsidiary thereof, or compliance with the terms of
the Loan Documents, as Administrative Agent or any Lender may from time to time reasonably request.




          Section 6.3. Other Information and Inspections.
Each Credit Party will furnish to each
Lender any information which Administrative Agent may from time to time request concerning any
provision of the Loan Documents, any Collateral, or any matter in connection with the businesses,
properties, prospects, financial condition and operations of any Credit Party, including all
evidence which Administrative Agent from time to time reasonably requests in writing as to the
accuracy and validity of or compliance with all representations, warranties and covenants made by
any Credit Party in the Loan Documents, the satisfaction of all conditions contained therein, and
all other matters pertaining thereto. Upon reasonable advance notice, each Credit Party will
permit representatives appointed by Administrative Agent (including independent accountants,
auditors, agents, attorneys, appraisers and any other Persons) to visit and inspect during normal
business hours any of such Credit Party’s property, including its books of account, other books and
records, and any facilities or other business assets, and to make extra copies therefrom and
photocopies and photographs thereof, and to write down and record any information such
representatives obtain, and each Credit Party shall permit
Administrative Agent or its representatives to investigate and verify the accuracy of the
information furnished to Administrative Agent or any Lender in connection with the Loan Documents
and to discuss all such matters with its officers, employees and representatives, provided that to
the extent Administrative Agent requests access to any Oil and Gas Property operated by a Person
other than a Credit Party, the applicable Credit Party’s obligation pursuant



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to this sentence shall
be to use commercially reasonable efforts to cause such operator to grant Administrative Agent the
requested access.



          Section 6.4. Notice of Material Events and Change of Address.
Company will promptly notify
each Lender Party in writing, stating that such notice is being given pursuant to this Agreement,
of:




          (a) occurrence of any Material Adverse Change,




          (b) the occurrence of any Default,




          (c) the acceleration of the maturity of any Indebtedness in excess of $500,000 owed by any
Credit Party or of any default by any Credit Party under any indenture, mortgage, agreement,
contract or other instrument to which any of them is a party or by which any of them or any of
their properties is bound, if such default could cause a Material Adverse Change,




          (d) the occurrence of any Termination Event,




          (e) any claim of $100,000 or more, any notice of potential liability under any Environmental
Laws that might exceed such amount, or any other material adverse claim that is asserted against
any Credit Party or with respect to any Credit Party’s properties,




          (f) the filing of any suit or proceeding against any Credit Party in which an adverse decision
could cause a Material Adverse Change;




          (g) to the extent not previously disclosed to Administrative Agent in writing, promptly upon
the acquisition thereof, a listing of any Oil and Gas Property acquired by any Credit Party; and




          (h) the occurrence of any sale, transfer, lease, exchange or other disposition any property or
assets of any Credit Party (other than any such dispositions permitted under Section 7.5).



Upon the occurrence of any of the foregoing the Credit Parties will take all necessary or
appropriate steps to remedy promptly any such Material Adverse Change, Default, acceleration,
default or Termination Event, to protect against any such adverse claim, to defend any such suit or
proceeding, and to resolve all controversies on account of any of the foregoing. Company will also
notify Administrative Agent and Administrative Agent’s counsel in writing at least twenty Business
Days prior to the date that any Credit Party changes its name or the location of its chief
executive office or its location under the Uniform Commercial Code.




          Section 6.5. Maintenance of Properties.
Each Credit Party will maintain, preserve,
protect, and keep all Collateral and all other property used or useful in the conduct of its
business
in good condition (normal wear and tear excepted) and in accordance with prudent industry
standards, and will from time to time make all repairs, renewals and replacements needed to enable
the business and operations carried on in connection therewith to be conducted at all times
consistent with prudent industry practices. All Collateral is, and will remain, located on
property subject to a Mortgage, except for that portion thereof which is or shall be located



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elsewhere in the course of the normal operation of the Properties. Each Credit Party will
maintain, good and defensible title to the fee interests in real property and the oil and gas
leasehold interests comprising the Collateral, free and clear of all Liens except for Permitted
Liens. Nothing herein shall prohibit the conveyance of Oil and Gas Property as otherwise permitted
under the terms of this Agreement or any Security Document.




          Section 6.6. Maintenance of Existence and Qualifications.
Each Credit Party will maintain
and preserve its existence and its rights and franchises in full force and effect and will qualify
to do business in all states or jurisdictions where required by applicable Law, except where the
failure so to qualify could cause a Material Adverse Change.




          Section 6.7. Payment of Trade Liabilities, Taxes, etc.
Each Credit Party will (a) timely
file all required tax returns including any extensions; (b) timely pay all taxes, assessments, and
other governmental charges or levies imposed upon it or upon its income, profits or property before
the same become delinquent; (c) within ninety (90) days past the original invoice billing date
therefor same becomes due pay all Liabilities owed by it on ordinary trade terms to vendors,
suppliers and other Persons providing goods and services used by it in the ordinary course of its
business; (d) pay and discharge when due all other Liabilities now or hereafter owed by it, other
than royalty payments suspended in the ordinary course of business; and (e) maintain appropriate
accruals and reserves for all of the foregoing in accordance with GAAP. Each Credit Party may,
however, delay paying or discharging any of the foregoing so long as it is in good faith contesting
the validity thereof by appropriate proceedings, if necessary, and has set aside on its books
adequate reserves therefor that are required by GAAP.




          Section 6.8. Insurance.




          (a) Parent and Company will, and will cause each of their Subsidiaries to, (i) keep and
maintain all of its property in good working order and condition, ordinary wear and tear excepted,
and (ii) maintain insurance with responsible and reputable insurance companies or associations
(including comprehensive general liability and hazard insurance) with respect to its business and
properties (including all real properties leased or owned by it), in such amounts and covering such
risks as required by any Governmental Authority having jurisdiction with respect thereto or as
carried generally in accordance with sound business practice by similarly situated companies in
similar businesses, and, in any event in amount, adequacy and scope as required by the Insurance
Schedule or by Administrative Agent in its discretion. If Parent or any of its Subsidiaries fails
to maintain such insurance, Administrative Agent or any Lender may arrange for such insurance, but
at Parent’s and Company’s expense and without any responsibility on the part of Administrative
Agent or any Lender for obtaining the insurance, the solvency of the insurance companies, the
adequacy of the coverage, or the collection of claims. Upon the occurrence and during the
continuance of an Event of Default, Administrative Agent shall have the sole right (both in the
name of Lenders and in the name of Company, Parent or any of its other Subsidiaries), to file
claims under any insurance policies, to receive, receipt and give
acquittance for any payments that may be payable thereunder, and to execute any and all
endorsements, receipts, releases, assignments, reassignments or other documents that may be
necessary to effect the collection, compromise or settlement of any claims under any such insurance
policies.



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          (b) On or prior to the Closing Date and thereafter, upon request of Administrative Agent, each
Credit Party will furnish or cause to be furnished to Administrative Agent from time to time a
summary of the respective insurance coverage of such Credit Party in form and substance reasonably
satisfactory to Administrative Agent, and, if requested, will furnish Administrative Agent copies
of the applicable policies. Each Credit Party will cause any insurance policies covering any
Collateral to be endorsed (i) to provide that such policies may not be cancelled, reduced or
affected in any manner for any reason without 30 days prior notice to Administrative Agent, (ii) to
name Administrative Agent as an additional insured (in the case of all liability insurance
policies) and loss payee (in the case of all casualty and property insurance policies), and (iii)
to provide for such other matters as any Lender Party may reasonably require.




          (c) All insurance payments received from any casualty or condemnation event shall be applied
by the applicable Credit Party to repair or replace the assets of such Credit Party that have been
damaged, destroyed or lost as a result of any casualty event or condemnation. Upon the occurrence
and during the continuance of an Event of Default, all insurance payments in respect of such
Collateral shall be paid to Administrative Agent and shall be applied to the prepayment of the
Obligations unless otherwise agreed to by Administrative Agent and Company.




          Section 6.9. Performance on Company’s Behalf.
If any Credit Party fails to pay any taxes,
insurance premiums, expenses, attorneys’ fees or other amounts it is required to pay under any Loan
Document, Administrative Agent may pay the same. Company shall immediately reimburse
Administrative Agent for any such payments and each amount paid by Administrative Agent shall
constitute an Obligation owed hereunder that is due and payable on the date such amount is paid by
Administrative Agent.




          Section 6.10. Interest.
In addition to its obligations to pay interest on the Loans (and
any past due interest thereon) at the Default Rate as and when provided in Section 2.5, Company
hereby promises to each Lender Party to pay interest at the Default Rate on all other Obligations
that Company has in this Agreement promised to pay to such Lender Party and that are not paid when
due. Such interest shall accrue from the date such Obligations become due until they are paid.




          Section 6.11. Compliance with Agreements and Law.
Each Credit Party will perform all
material obligations it is required to perform under the terms of each indenture, mortgage, deed of
trust, security agreement, lease, franchise, agreement, contract or other instrument or obligation
to which it is a party or by which it or any of its properties is bound. Each Credit Party will
conduct its business and affairs in compliance with all Laws applicable thereto. Each Credit Party
will cause all licenses and permits necessary or appropriate for the conduct of its business and
the ownership and operation of its property used and useful in the conduct of its business to be at
all times maintained in good standing and in full force and effect.




          Section 6.12. Reviews. Company will meet with Administrative Agent and Lenders
from time to time as reasonably requested by Administrative Agent or Required Lenders (which, as of
the Closing Date, is anticipated to be on a quarterly basis), at the offices of Company (and at the
expense of Company) or at such other location as Administrative Agent and Company may



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agree and
with the Lenders electing to attend such meeting, to review all operational activities of Company
with respect to the Eligible Mortgaged Properties and all financial reports of the Credit Parties
since the date of the prior review. Each review shall be in scope reasonably satisfactory to
Administrative Agent and Required Lenders, but will include at a minimum, an update by Company on
the development activities made pursuant to Company’s business plan, any requests by Company that
changes be made to Company’s business plan, any cost or expense overruns or underruns, any
mechanical problems incurred, and any differences in reserves or production estimates. In
addition, Parent will, and will cause each Credit Party to, provide Administrative Agent and
Lenders with copies of all written materials distributed to its board of directors (or similar
body) relating to financial positions, operation reviews, asset overviews, and strategic
discussions and all minutes of previous actions and proceedings (other than any such materials or
minutes that relate to any proposed refinancing of the Obligations).




          Section 6.13. Separateness Covenants.




          (a) No Credit Party will commingle its assets with those of any other Person (except for funds
held by a Credit Party as operator belonging to other interest owners in a lease pending the
payment thereof to such interest owners in the ordinary course of business).




          (b) Each Credit Party will conduct its business separately and in its own name from any direct
or ultimate parent of such Person.




          (c) Each Credit Party will maintain separate financial accounts, financial statements, books
and records from those of any other Person.




          (d) Except as expressly permitted under Section 7.9, each Credit Party will maintain an
“arm’s-length” relationship with its Affiliates.




          (e) Each Credit Party will use separate stationery, invoices and checks and will hold itself
out as a separate and distinct entity from any other Person.




          (f) Each Credit Party will observe all normal corporate or company formalities.




          (g) Each Credit Party will correct any known misunderstanding regarding its separate identity.




          (h) Each Credit Party will maintain adequate capital in light of its contemplated business
operations.




          Section 6.14. Environmental Matters; Environmental Reviews.




          (a) Each Credit Party will comply in all material respects with all Environmental Laws now or
hereafter applicable to it, as well as all contractual obligations and agreements with respect to
environmental remediation or other environmental matters, and will obtain, at or prior to the time
required by applicable Environmental Laws, all environmental, health and safety permits, licenses
and other authorizations necessary for its operations and will maintain such authorizations in full
force and effect. No Credit Party will do anything or permit anything to be done that will subject
any of the properties of any Credit Party to any remedial obligations under,



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or result in
noncompliance with applicable permits and licenses issued under, any applicable Environmental Laws,
assuming disclosure to the applicable governmental authorities of all relevant facts, conditions
and circumstances. Upon Administrative Agent’s reasonable request, at any time and from time to
time (but no more than once per calendar year so long as no Event of Default exists that is
continuing), Company will provide at its own expense an environmental inspection of any of its and
the other Credit Parties’ material real properties and audit of their environmental compliance
procedures and practices, in each case from an engineering or consulting firm approved by
Administrative Agent.




          (b) Company will promptly furnish to Administrative Agent all written notices of violation,
orders, claims, citations, complaints, penalty assessments, suits or other proceedings received by
any Credit Party, or of which any Credit Party otherwise has notice, with respect to any alleged
violation of or non-compliance with any Environmental Laws, with respect to the properties or
operations of Company and its Subsidiaries, or with respect to any permits, licenses or
authorizations in connection with the ownership or use of such properties or in connection with any
such operations.




          (c) Company will promptly furnish to Administrative Agent all requests for information,
notices of claim, demand letters, and other notifications, received by any Credit Party in
connection with the ownership or use of any of its properties or the conduct of its business,
relating to potential responsibility with respect to any investigation or clean-up of Hazardous
Material at any location.




          Section 6.15. Evidence of Compliance.
Each Credit Party will furnish to each Lender at
such Credit Party’s or Company’s expense all evidence that Administrative Agent from time to time
reasonably requests in writing as to the accuracy and validity of or compliance with all
representations, warranties and covenants made by any Credit Party in the Loan Documents, the
satisfaction of all conditions contained therein, and all other matters pertaining thereto.




          Section 6.16. Bank Accounts; Offset.
To secure the repayment of the Obligations each
Credit Party that is a party to this Agreement hereby grants to each Lender a security interest, a
lien, and a right of offset, each of which shall be in addition to all other interests, liens, and
rights of any Lender at common Law, under the Loan Documents, or otherwise, and each of which shall
be upon and against (a) any and all moneys, securities or other property (and the proceeds
therefrom) of such Credit Party that are now or hereafter held or received by or in transit to any
Lender from or for the account of such Person, whether for safekeeping, custody, pledge,
transmission, collection or otherwise, (b) any and all deposits (general or special, time or
demand, provisional or final) of such Credit Party with any Lender, and (c) any other credits and
claims of such Credit Party at any time existing against any Lender. At any time and from time to
time after the occurrence of any Event of Default, each Lender is hereby authorized to
foreclose upon, or to offset against the Obligations then due and payable (in either case without
notice to such Credit Party), any and all items hereinabove referred to. The remedies of
foreclosure and offset are separate and cumulative, and either may be exercised independently of
the other without regard to procedures or restrictions applicable to the other.




          Section 6.17. Guaranties of Subsidiaries.
Each Subsidiary of Parent now existing or
created, acquired or coming into existence after the date hereof shall promptly execute and




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deliver
a Guaranty to Administrative Agent. Each Subsidiary of Parent existing on the date hereof, if any,
shall duly execute and deliver a Guaranty prior to the making of any Loan hereunder. Parent will
cause each of its Subsidiaries to deliver to Administrative Agent, simultaneously with its delivery
of any Guaranty, written evidence satisfactory to Administrative Agent and its counsel that such
Subsidiary has taken all company action necessary to duly approve and authorize its execution,
delivery and performance of such Guaranty and any other documents that it is required to execute.




          Section 6.18. Agreement to Deliver Security Documents.
Each of Parent and Company agrees
to deliver and to cause each other Credit Party to deliver, to further secure the Obligations
whenever requested by Administrative Agent in its discretion, deeds of trust, mortgages, chattel
mortgages, security agreements, financing statements and other Security Documents in form and
substance satisfactory to Administrative Agent for the purpose of granting, confirming, and
perfecting first and prior liens or security interests in any real or personal property now owned
or hereafter acquired by any Credit Party. Each of Parent and Company agrees to deliver and to
cause each other Credit Party to deliver, whenever requested by Administrative Agent, in its
discretion, transfer orders or letters in lieu thereof with respect to the production and proceeds
of production from the Collateral, in form and substance satisfactory to Administrative Agent.
Each of Parent and Company also agrees to deliver, whenever requested by Administrative Agent in
its discretion, favorable title opinions from legal counsel acceptable to Administrative Agent with
respect to any Credit Party’s properties and interests designated by Administrative Agent, based
upon abstract or record examinations to dates acceptable to Administrative Agent and (a) stating
that such Credit Party has good and defensible title to such properties and interests, free and
clear of all Liens other than Permitted Liens, (b) confirming that such properties and interests
are subject to Security Documents securing the Obligations that constitute and create legal, valid
and duly perfected first deed of trust or mortgage liens in such properties and interests and first
priority assignments of and security interests in the oil and gas attributable to such properties
and interests and the proceeds thereof, subject only to Permitted Liens, and (c) covering such
other matters as Administrative Agent may request. Each of Parent and Company agrees to deliver,
and to cause each other Credit Party to deliver, duly executed control agreements from each
institution holding any of its or their Deposit Accounts pursuant to which such institution
recognizes Administrative Agent’s Lien in such Deposit Accounts and, upon the occurrence and during
the continuance of a Default, agrees to transfer collected balances in all such Deposit Accounts to
Administrative Agent pursuant to its instructions from time to time; provided that no such control
agreement shall be required with respect to Deposit Accounts that are designated solely as (a)
payroll funding accounts or (b) royalty or joint interest owner accounts in which only funds that
do not belong to a Credit Party are deposited.




          Section 6.19. Production Proceeds.
Notwithstanding that, by the terms of the various
Security Documents, the Credit Parties are and will be assigning to Administrative Agent and
Lenders all of the “Production Proceeds” (as defined therein) accruing to the property covered
thereby, so long as no Default has occurred the Credit Parties may continue to receive from the
purchasers of production all such Production Proceeds into the Collateral Account, subject,
however, to the Liens created under the Security Documents, which Liens are hereby affirmed and
ratified. Upon the occurrence of a Default, Administrative Agent and Lenders may exercise all
rights and remedies granted under the Security Documents, including the right to obtain possession
of all production proceeds then held by the Credit Parties or to receive directly from



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the
purchasers of production all other Production Proceeds. In no case shall any failure (whether
before or after any Default and whether purposed or inadvertent) by Administrative Agent or Lenders
to collect directly any such Production Proceeds constitute in any way a waiver, remission or
release of any of their rights under the Security Documents, nor shall any release of any
Production Proceeds by Administrative Agent or Lenders to any Credit Party constitute a waiver,
remission, or release of any other Production Proceeds or of any rights of Administrative Agent or
Lenders to collect other Production Proceeds thereafter.




          Section 6.20. Leases and Contracts; Performance of Obligations.
Each Credit Party will
maintain in full force and effect all oil, gas or mineral leases, contracts, servitudes and other
agreements forming a part of any Oil and Gas Property, to the extent the same cover or otherwise
relate to such Oil and Gas Property, and each will timely perform all of its obligations
thereunder, provided that this sentence shall not prevent any Credit Party from abandoning and
releasing any such leases (i) upon their termination as the result of cessation of production in
paying quantities that did not result from the failure of any Credit Party to maintain such
production as a reasonably prudent operator or (ii) if a reasonably prudent operator would abandon
or release such lease. Each Credit Party will properly and timely pay all rents, royalties and
other payments due and payable under any such leases, contracts, servitudes and other agreements,
or under the Permitted Liens, or otherwise attendant to its ownership or operation of any Oil and
Gas Property. Company will promptly notify Administrative Agent of any claim (or any conclusion by
a Credit Party) that a Credit Party is obligated to account for any royalties, or overriding
royalties or other payments out of production, on a basis (other than delivery in kind) less
favorable to such Credit Party than the proceeds received by such Credit Party (calculated at the
well) from sale of production.




          Section 6.21. Approved Plan of Development.
The Credit Parties will (a) timely develop the
Oil and Gas Properties and make capital expenditures on the Oil and Gas Properties in accordance
with the Approved Plan of Development, and (b) except to the extent regulatory approval has not yet
been obtained, have each producing and injection well that is hereafter completed put into normal
operation. Company will obtain and pay for the services of all engineering and professional staff
and other Persons needed to prudently execute the Approved Plan of Development.




          Section 6.22. Hedging Contracts.
Upon Administrative Agent’s written request from time to
time, Company and its Subsidiaries will enter into Hedging Contracts with one or more Approved
Counterparties upon terms and conditions acceptable to Administrative Agent in its discretion that,
when combined with Company’s and its Subsidiaries then existing Hedging Contracts, cause the
percentage (not to exceed 75%) of their aggregate Projected PDP Oil and Gas Production that is from
time to time specified by Administrative Agent to be subject to Hedging Contracts that fix the
prices of such production (or provide floors or collars for such
prices or hedge the basis differentials with respect to such production) for up to 4 years
following such request. Company and its Subsidiaries shall maintain in effect for their full term
(and will not sell, assign, transfer or novate) all Hedging Contracts that are in existence on the
Closing Date or required under this Section 6.22. As of the Closing Date, Administrative Agent has
not required Company and its Subsidiaries to enter into any Hedging Contracts pursuant to this
Section 6.22.



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          Section 6.23. Updates of Mortgages.
Until the Loans have been paid in full, Company and
its Subsidiaries will, as they acquire new Oil and Gas Properties (or earn any such new Oil and Gas
Properties pursuant to farmout or exploration agreements), amend and supplement the Security
Documents to make such new Oil and Gas Properties subject thereto. Such instruments shall be
delivered (a) concurrently with any new Borrowing, (b) within fifteen (15) days after any Credit
Party receives the executed assignment of any Oil and Gas Properties, and (c) within fifteen (15)
days after delivery of each Engineering Report, with respect to any Oil and Gas Properties to which
Proved Reserves are attributed but not properly covered by a Mortgage. The effective date of each
such instrument will be the effective date of the conveying Credit Party’s acquisition of its
interests in the properties subject to such instrument.




ARTICLE VII — Negative Covenants




          To conform with the terms and conditions under which each Lender is willing to have credit
outstanding to Company, and to induce each Lender to enter into this Agreement and make the Loans,
each of Parent and Company warrants, covenants and agrees that until the full and final payment of
the Obligations and the termination of this Agreement, unless Required Lenders have previously
agreed otherwise:




          Section 7.1. Indebtedness.
No Credit Party will in any manner owe or be liable for
Indebtedness except:




          (a) the Obligations.




          (b) unsecured intercompany Indebtedness arising in the ordinary course of business of Company
or any of its Subsidiaries owing to Parent, provided that such Subsidiary is in compliance with
Sections 6.17, 6.18 and 6.23.




          (c) Indebtedness in respect of Capital Leases and purchase money obligations for fixed or
capital oil and gas assets in an aggregate principal amount not to exceed $500,000 at any time.




          (d) Unsecured bonds and letters of credit issued in the ordinary course of the operations of
the Credit Party and as otherwise may be required to comply with applicable statutory requirements.




          (e) Subordinated Debt.




          (f) Hedging Contracts permitted under Section 7.3 and Separate Hedge Guaranties of such
Hedging Contracts.




          (g) Indebtedness in respect of plugging and abandonment Liabilities of any Credit Party in the
ordinary course of its oil and gas business.




          (h) miscellaneous items of unsecured Indebtedness of the Credit Parties not described in
subsections (a) through (g) which do not in the aggregate (taking into account all such
Indebtedness of all Credit Parties) exceed $500,000 at any one time outstanding.



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          Section 7.2. Limitation on Liens.
Except for Permitted Liens, no Credit Party will create,
assume or permit to exist any Lien upon any of the properties or assets that it now owns or
hereafter acquires.




          Section 7.3. Limitation on Hedging Contracts and Marketing Arrangements.
No Credit Party
will be a party to or in any manner be liable on any Hedging Contract, except for (a) the Hedging
Contracts described in Schedule 5, Section 4.1(e), and Section 6.22, (b) other Hedging Contracts
approved in writing by Administrative Agent from time to time in its discretion, and (c) other
Hedging Contracts that Company elects to enter into with the purpose and effect of fixing prices on
oil or gas expected to be produced by Company, provided that at all times: (i) no such contract
fixes a price for a period later than 24 months after such contract is entered into; (ii) the
aggregate monthly production covered by all Hedging Contracts of Company (determined, in the case
of contracts that are not settled on a monthly basis, by a monthly proration acceptable to
Administrative Agent) for any single month does not in the aggregate exceed 60% of Company’s
aggregate Projected PDP Oil and Gas Production anticipated (at the time such Hedging Contract is
entered into) to be sold in the ordinary course of Company’s businesses for such month, (iii)
except for the Collateral under the Security Documents with respect to Secured Third Party Hedging
Obligations, no such contract requires any Credit Party to put up money, assets, or other security
against the event of its nonperformance prior to actual default by such Credit Party in performing
its obligations thereunder, and (iv) each such contract is with an Approved Counterparty. Except
for production sales contracts, processing agreements, transportation agreements and other
agreements relating to the marketing of production that are either listed in Section 5.21 of the
Disclosure Schedule in connection with the Oil and Gas Properties to which such contract or
agreement relates or assumed after the Closing Date as part of the acquisition of the Oil and Gas
Properties subject thereto, none of Company and its Subsidiaries will enter into any contractual or
other arrangement for the sale, processing or transportation of production (or otherwise related to
the marketing of production) that cannot be canceled by such Credit Party on 120 days’ (or less)
notice or that does not provide for the prices to be paid for such production to float with the
market at least as often as monthly. In the event that Company desires to enter into Hedging
Contracts with a Secured Third Party Hedge Counterparty with the purpose and effect of fixing
prices on oil or gas expected to be produced by Company that (i) fixes a price for a period later
than 24 months after such contract is entered into (but not more than 48 months after such contract
is entered into), or (ii) would result in the aggregate monthly production covered by all Hedging
Contracts of Company (determined, in the case of contracts that are not settled on a monthly basis,
by a monthly proration acceptable to Administrative Agent) for any single month to in the aggregate
exceed 60% of Company’s aggregate Projected PDP Oil and Gas Production anticipated (at the time
such Hedging Contract
is entered into) to be sold in the ordinary course of Company’s businesses for such month
(“Incremental Hedging Contracts”), then Company may request in writing that Administrative
Agent approve any such Incremental Hedging Contract and, unless Administrative Agent declines such
request in writing on or before the second Business Day following its receipt of such request, may
enter into any such Hedging Contract, provided that (x) no Default then exists that is continuing
and (y) Company may not make any request pursuant to this sentence to the extent that any
Incremental Hedging Contract would result in the aggregate monthly production covered by all
Hedging Contracts of Company (determined, in the case of contracts that are not settled on a
monthly basis, by a monthly proration acceptable to Administrative Agent) for any single month to
in the aggregate exceed 75% of Company’s aggregate Projected PDP Oil and



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Gas Production anticipated
(at the time such Hedging Contract is entered into) to be sold in the ordinary course of Company’s
businesses for such month.




          Section 7.4. Limitation on Mergers, Issuances of Securities.
No Credit Party will issue
any Equity, provided that, so long as Company gives prompt written notice thereof to Administrative
Agent and Lenders, (i) the Subsidiaries of Parent may issue additional Equity to Parent and its
wholly-owned Subsidiaries and (ii) Parent may issue additional common Equity to its existing and
future owners. No Subsidiary of Parent will otherwise allow any diminution of Parent’s Equity
(direct or indirect) in such Subsidiary. No Credit Party will merge, dissolve, liquidate,
consolidate with or into another Person, except that, so long as no Default exists or would result
therefrom:




          (a) any Subsidiary of Parent may merge with (i) Company, provided that Company shall be the
continuing or surviving Person, or (ii) any one or more other Subsidiaries, provided that when any
such Subsidiary is merging with another Subsidiary, a wholly-owned Subsidiary shall be the
continuing or surviving Person;




          (b) any Credit Party (other than Company) may Dispose of all or substantially all of its
assets (upon voluntary liquidation or otherwise) to the Company or to another Credit Party (other
than Parent); and




          (c) in connection with any acquisition permitted under clause (e) of the definition of
Permitted Investments, any Subsidiary of the Company may merge into or consolidate with any other
Person or permit any other Person to merge into or consolidate with it; provided that (i) the
Person surviving such merger shall be a wholly-owned Subsidiary of the Company and (ii) in the case
of any such merger to which any Credit Party (other than the Company) is a party, such Credit Party
is the surviving Person.




          Section 7.5. Limitation on Dispositions of Property.
No Credit Party will sell, transfer,
lease, exchange or otherwise dispose of any of its Oil and Gas Properties or other material assets
or properties or any material interest therein, or discount, sell, pledge or assign any notes
payable to it, accounts receivable or future income, except, to the extent not otherwise forbidden
under this Agreement or the Security Documents:




          (a) equipment that is worthless or obsolete or that is replaced by equipment of equal
suitability and value.




          (b) inventory (including oil and gas sold as produced and seismic data) and Oil and Gas
Properties to which no Proved Reserves are attributed, which in each case is sold in the ordinary
course of business on ordinary trade terms either (i) to Company or a Guarantor or (ii) to third
parties that are not Affiliates of Company.



No Credit Party will abandon or consent to the abandonment of, any oil or gas well constituting
Collateral so long as such well is capable (or is subject to being made capable through drilling,
reworking or other operations that it would be commercially feasible to conduct) of producing oil,
gas, or other hydrocarbons or other minerals in commercial quantities (as determined without
considering the effect of any Mortgage). For the avoidance of doubt, with respect to any
particular oil or gas well, the preceding sentence shall not be construed to prohibit a Credit
Party



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from producing Hydrocarbons from one formation over another formation if a reasonably prudent
operator would (in consideration of all factors) produce from such formation. No Credit Party will
elect not to participate in a proposed operation on any oil and gas property constituting
Collateral to which Proved Reserves are attributed where the effect of such election would be the
forfeiture either temporarily (e.g., until a certain sum of money is received out of the forfeited
interest) or permanently of any interest in the Collateral, except with the written approval of
Administrative Agent (not to be unreasonably withheld or delayed). No Credit Party will discount,
sell, pledge or assign any notes payable to it, accounts receivable or future income except under
the Loan Documents.




          Section 7.6. Limitation on Distributions.
No Credit Party will declare, make or pay any
Distribution, other than:




          (a) Distributions payable to Company, to the extent not in violation of the investment
restrictions of Section 7.7.




          (b) Distributions that are payable only in common Equity of the Person making such
Distribution, so long as neither Parent’s nor Company’s Equity in its Subsidiaries is thereby
reduced.




          Section 7.7. Limitation on Investments, Acquisitions and New Businesses.
No Credit Party
will:




          (a) engage in any business other than (i) the development, production and sale of Hydrocarbons
on the Oil and Gas Properties located onshore United States and similar or related businesses and
(ii) such other lines of business as may be consented to by Required Lenders.




          (b) make any Investments in any Person, other than Permitted Investments, or hold any
Permitted Investments in any “securities account” (as defined in the UCC).



Parent will not engage in any business or activity other than (a) the ownership of all outstanding
Equity in Company and other Subsidiaries of Parent, (b) maintaining its corporate existence, (c)
participating in tax, accounting and other administrative activities as the parent of the
consolidated group of companies, including the Credit Parties, (d) the execution and delivery of
the Loan Documents to which it is a party and the performance of its obligations thereunder, and
(e) activities incidental to the businesses or activities described in clauses (a) through (d) of
this sentence.




          Section 7.8. Limitation on Credit Extensions.
Except for Permitted Investments, no Credit
Party will extend credit, make advances or make loans other than (a) normal and prudent extensions
of credit to customers buying goods and services in the ordinary course of business, which
extensions shall not be for longer periods than those extended by similar businesses operated in a
normal and prudent manner, and (b) loans resulting in Indebtedness permitted under Section 7.1(b).




          Section 7.9. Transactions with Affiliates.
Neither Parent nor any of its Subsidiaries will
engage in any material transaction with any of its Affiliates, except for executing, delivering,
and performing obligations under the Loan Documents.



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          Section 7.10. Prohibited Contracts.
Except as expressly provided for in the Loan
Documents, no Credit Party will, directly or indirectly, enter into, create, or otherwise allow to
exist any contract or other consensual restriction (direct or indirect) on the ability of any
Subsidiary of Parent to: (a) pay dividends or make other distributions to Parent or Company, (b)
to redeem Equity held in it by Parent or Company, (c) to repay loans and other indebtedness owing
by it to Parent or Company, or (d) to transfer any of its assets to Parent or Company. No Credit
Party will enter into any “take-or-pay” contract or other contract or arrangement for the purchase
of goods or services that obligates it to pay for such goods or service regardless of whether they
are delivered or furnished to it. No Credit Party will amend or permit any amendment to any
contract or lease that releases, qualifies, limits, makes contingent or otherwise detrimentally
affects the rights and benefits of Administrative Agent or any Lender under or acquired pursuant to
any Security Documents. No ERISA Affiliate will incur any obligation to contribute to any
Multiemployer Plan or any plan subject to Section 4064 of ERISA.




          Section 7.11. Amendments to Organizational Documents.
No Credit Party will enter into or
permit any modification of its certificate or articles of incorporation, limited liability company
agreement, partnership agreement, articles of organization, bylaws, regulations, or other
organizational documents and no Credit Party will waive any of its rights under any such document
or agreement, other than amendments, modifications and waivers that could not, individually or in
the aggregate, result in a Material Adverse Change.




          Section 7.12. Collateral Coverage Ratios.




          (a) Proved Collateral Coverage Ratio. Company will not permit the Proved Collateral
Coverage Ratio (i) determined as of September 30, 2010 to be less than 1.0 to 1.0, (ii) determined
as of any time after September 30, 2010 through December 31, 2010 to be less than 1.35 to 1.0,
(iii) determined as of any time after December 31, 2010 through March 31, 2011 to be less than 1.45
to 1.0, or (iv) determined as of any time thereafter to be less than 1.55 to 1.0.




          (b) Proved Volume Coverage Ratio. Company will not permit the Proved Volume Coverage
Ratio (i) determined as of September 30, 2010 to be less than 1.0 to 1.0, (ii) determined as of any
time after September 30, 2010 through December 31, 2010 to be less than 1.35 to 1.0, (iii)
determined as of any time after December 31, 2010 through March 31, 2011 to be less than 1.45 to
1.0, or (iv) determined as of any time thereafter to be less than 1.55 to 1.0.




          Section 7.13. Maximum Leverage Ratio.
As of the end of each Fiscal Quarter, beginning
September 30, 2011, the ratio of (a) Consolidated Funded Debt as of the end of such Fiscal Quarter
to (b) Adjusted Consolidated EBITDA for the 12 month period ending on such date, will not be
greater than the amount set forth below with respect to such Fiscal Quarter:



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	Fiscal Quarter	 	Maximum Leverage Ratio
	Fiscal Quarter ending September 30, 2011 through
Fiscal Quarter ending June 30, 2012

	 	10.0 to 1.00
	 
	 	 
	Fiscal Quarter ending September 30, 2012 through
Fiscal Quarter ending June 30, 2013

	 	4.0 to 1.00
	 
	 	 
	Fiscal Quarter ending September 30, 2013 through
Fiscal Quarter ending June 30, 2014

	 	3.0 to 1.00
	 
	 	 
	Fiscal Quarter ending September 30, 2014 and
thereafter

	 	2.0 to 1.00






          Section 7.14. Minimum Interest Coverage Ratio. As of the end of each Fiscal Quarter,
beginning September 30, 2011, the ratio of (a) Adjusted Consolidated EBITDA for the 12 month period
ending on such date to (b) Consolidated Interest Charges for such period, will not be less than the
amount set forth below with respect to such Fiscal Quarter:




	 	 	 
	Fiscal Quarter	 	Minimum Interest Coverage Ratio
	Fiscal Quarter ending September 30,
2011 through Fiscal Quarter ending
June 30, 2012

	 	1.0 to 1.00
	 
	 	 
	Fiscal Quarter ending September 30,
2012 through Fiscal Quarter ending
June 30, 2013

	 	2.0 to 1.00
	 
	 	 
	Fiscal Quarter ending September 30,
2013 and thereafter

	 	3.0 to 1.00






          Section 7.15. Capital Expenditures.
No Credit Party will make or become legally obligated
to make any expenditure in respect of the purchase or other acquisition of any fixed or capital
asset, except for (a) normal replacements and maintenance which are properly charged to current
operations, (b) APOD Capital Expenditures, and (c) those consented to by Administrative Agent from
time to time in writing (which consent will not be unreasonably withheld or delayed).




ARTICLE VIII — Events of Default and Remedies




          Section 8.1. Events of Default.
Each of the following constitutes an Event of Default
under this Agreement:



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          (a) Any Credit Party fails to pay any principal component of any Obligation when due and
payable, whether at a date for the payment of a fixed installment or as a contingent or other
payment becomes due and payable or as a result of acceleration or otherwise;




          (b) Any Credit Party fails to pay any interest or any other Obligation (other than the
Obligations in subsection (a) above) when due and payable, whether at a date for the payment of a
fixed installment or as a contingent or other payment becomes due and payable or as a result of
acceleration or otherwise, within two Business Days after the same becomes due;




          (c) Any Credit Party fails to duly observe, perform or comply with any covenant, agreement or
provision of Section 6.4, 6.8, 6.10, 6.17, 6.18, 6.23, or Article VII (other than Sections 7.12,
7.13, and 7.14);




          (d) Any Credit Party fails to duly observe, perform or comply with Section 7.12, 7.13, or 7.14
and Company fails to prepay the Loans in accordance with the provisions of this Agreement to an
amount that would have resulted in compliance with such Section as of the date of such failure
within 30 days after the occurrence thereof (and with respect to Section 7.14, measuring
Consolidated Interest Charges on a pro forma basis as if the Loans had been prepaid on the first
day of the applicable Fiscal Quarter), provided that such 30 day prepayment cure option may only be
used once during any period of 12 months;




          (e) Any Credit Party fails (other than as referred to in subsections (a), (b), (c), or (d) of
this section) to duly observe, perform or comply with any covenant, agreement, condition or
provision of any Loan Document to which it is a party, and such failure remains unremedied for a
period of thirty (30) days after notice of such failure is given by Administrative Agent to
Company;




          (f) Any representation or warranty previously, presently or hereafter made in writing by or on
behalf of any Credit Party in connection with any Loan Documents shall prove to have been false or
incorrect in any material respect on any date on or as of which made, or any Loan Document at any
time ceases to be valid, binding and enforceable for any reason other than its release by
Administrative Agent;




          (g) Any Credit Party fails to duly observe, perform or comply with any agreement with any
Person or any term or condition of any instrument, if such agreement or instrument is materially
significant to Company, Parent, or any Guarantor, and such failure is not remedied within the
applicable period of grace (if any) provided in such agreement or instrument;




          (h) Any Credit Party (i) fails to pay any portion, when such portion is due, of any of its
Indebtedness (other than the Obligations) in excess of $500,000, or (ii) breaches or defaults in
the performance of any agreement or instrument by which any such Indebtedness is issued, evidenced,
governed, or secured, and any such failure, breach or default continues beyond any applicable
period of grace provided therefor;




          (i) (i) A Termination Event occurs which, when taken together with all other Termination
Events that have occurred, has resulted or would reasonably be expected to result in, liability of
any Credit Party in an aggregate amount in excess of $50,000 or (ii) any other event or condition
shall occur or exist with respect to a Plan and such event or condition, together with



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all other
such events or conditions and Termination Events, if any, would reasonably be expected to result in
a Material Adverse Effect;




          (j) The occurrence of any Change of Control;




          (k) Any Credit Party:





     (i) suffers the entry against it of a judgment, decree or order for relief by a
Governmental Authority of competent jurisdiction in an involuntary proceeding commenced
under any applicable Bankruptcy Code, as from time to time amended, or has any such
proceeding commenced against it that remains undismissed for a period of sixty days; or




     (ii) commences a voluntary case under any applicable Bankruptcy Code, as from time to
time amended; or applies for or consents to the entry of an order for relief in an
involuntary case under any such Law; or makes a general assignment for the benefit of
creditors; or is generally not paying (or admits in writing its inability to pay) its debts
as such debts become due; or takes corporate, company or other action authorizing any of the
foregoing; or




     (iii) suffers the appointment of or taking possession by a receiver, liquidator,
monitor, assignee, custodian, trustee, sequestrator or similar official of all or a
substantial part of its assets or of any part of the Collateral in a proceeding brought
against or initiated by it, and such appointment or taking possession is neither made
ineffective nor discharged within thirty days after the making thereof, or such appointment
or taking possession is at any time consented to, requested by, or acquiesced to by it; or




     (iv) suffers the entry against it of a final judgment for the payment of money in
excess of $1,000,000 (not covered by insurance satisfactory to Administrative Agent in its
discretion), unless the same is discharged within thirty days after the date of entry
thereof or an appeal or appropriate proceeding for review thereof is taken within such
period and a stay of execution pending such appeal is obtained; or




     (v) suffers a writ or warrant of attachment or any similar process to be issued by any
Governmental Authority against all or any substantial part of its assets or any part of the
Collateral, and such writ or warrant of attachment or any similar process is not stayed or
released within thirty days after the entry or levy thereof or after any stay is vacated or
set aside.


Upon the occurrence of an Event of Default described in subsection (k)(i), (k)(ii) or (k)(iii) of
this section with respect to a Credit Party, all of the Obligations shall thereupon be immediately
due and payable, without demand, presentment, notice of demand or of dishonor and nonpayment,
protest, notice of protest, notice of intention to accelerate, declaration or notice of
acceleration, or any other notice or declaration of any kind, all of which are hereby expressly
waived by Parent, Company and each other Credit Party who at any time ratifies or approves this
Agreement. Upon any such acceleration, any obligation of any Lender to make any further Loans
hereunder shall be permanently terminated. During the continuance of any other Event of Default,
Administrative Agent at any time and from time to time may (and upon written



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instructions from
Required Lenders, Administrative Agent shall), without notice to Parent, Company or any other
Credit Party, do either or both of the following: (1) terminate any obligation of Lenders to make
Loans hereunder, and (2) declare any or all of the Obligations immediately due and payable, and all
such Obligations shall thereupon be immediately due and payable, without demand, presentment,
notice of demand or of dishonor and nonpayment, protest, notice of protest, notice of intention to
accelerate, declaration or notice of acceleration, or any other notice or declaration of any kind,
all of which are hereby expressly waived by Parent, Company and each other Credit Party who at any
time ratifies or approves this Agreement. Upon any acceleration of the entire unpaid balance of
any Note pursuant to this Section 8.1 on or before June 30, 2012, the Lender thereof shall be
entitled to any Make-Whole Amount on such Note (calculated in accordance with Section 2.8) in
addition to all other amounts due and payable in respect of such Note and any other Obligations.
Upon any acceleration of the entire unpaid balance of any Note pursuant to this Section 8.1 after
June 30, 2012 but on or prior to June 30, 2013, the Lender thereof shall be entitled to any
Prepayment Premium on such Note (calculated in accordance with Section 2.8) in addition to all
other amounts due and payable in respect of such Note and any other Obligations.




          Section 8.2. Remedies.
If any Default shall occur and be continuing, Required Lenders, or
Administrative Agent at the direction of Required Lenders, may protect and enforce their rights
under the Loan Documents by any appropriate proceedings, including proceedings for specific
performance of any covenant or agreement contained in any Loan Document. All rights, remedies and
powers conferred upon Lender Parties under the Loan Documents shall be deemed cumulative and not
exclusive of any other rights, remedies or powers available under the Loan Documents or at Law or
in equity.




          Section 8.3. Application of Proceeds After Acceleration.
After the exercise of remedies
provided for in Section 8.2 (or after the Loans have automatically become immediately due and
payable), any amounts received on account of the Secured Obligations shall be applied by
Administrative Agent in the following order:





          First, to payment of that portion of the Obligations constituting fees,
indemnities, expenses and other amounts (including fees, charges and disbursements of counsel to




Administrative Agent (including fees and time charges for attorneys who may be employees of
Administrative Agent) and amounts payable under Article III) payable to Administrative
Agent in its capacity as such;




          Second, to payment of that portion of the Obligations constituting fees,
indemnities and other amounts (other than principal interest) payable to Lenders and Secured
Third Party Hedge Counterparties (including fees, charges and disbursements of counsel to the
respective Lenders and amounts payable under Article III), ratably among them in
proportion to the respective amounts described in this clause Second payable to them and
the Lender;




          Third, to payment of that portion of the Secured Obligations constituting accrued
and unpaid interest on the Loans and Secured Hedging Obligations, ratably among Lenders and the
Secured Third Party Hedge Counterparties in proportion to the respective amounts described in
this clause Third payable to them;




          Fourth, to payment of that portion of the Secured Obligations constituting unpaid
principal of the Loans and settlements under Hedging Contracts, ratably among Lenders and



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the
Secured Third Party Hedge Counterparties in proportion to the respective amounts described in
this clause Fourth held by them; and




          Last, the balance, if any, after all of the Secured Obligations have been
indefeasibly paid in full, to Company or as otherwise required by Law.


Administrative Agent shall have no responsibility to determine the existence or amount of Secured
Hedging Obligations and may reserve from the application of amounts under this Section amounts
distributable in respect of Secured Hedging Obligations until it has received evidence satisfactory
to it of the existence and amount of such Secured Hedging Obligations.




ARTICLE IX — Administrative Agent




          Section 9.1. Appointment and Authority.
Each of the Lenders hereby irrevocably appoints
CLMG Corp. to act on its behalf as Administrative Agent hereunder and under the other Loan
Documents and authorizes Administrative Agent to take such actions on its behalf and to exercise
such powers as are delegated to Administrative Agent by the terms hereof or thereof, together with
such actions and powers as are reasonably incidental thereto. The provisions of this Article are
solely for the benefit of Administrative Agent and the Lenders, and neither Company nor any other
Credit Party shall have rights as a third party beneficiary of any of such provisions.




          Section 9.2. Exculpation, Administrative Agent’s Reliance, Etc.
Neither Administrative
Agent nor any of its directors, officers, agents, attorneys, or employees shall be liable for any
action taken or omitted to be taken by any of them under or in connection with the Loan Documents,
including their negligence of any kind, except that each shall be liable for its own gross
negligence or willful misconduct. Without limiting the generality of the foregoing, Administrative
Agent (a) may treat the Person whose name is set forth on the Register as the holder of any Note as
the holder thereof until Administrative Agent receives written notice of the assignment or transfer
thereof in accordance with this Agreement, signed by such Person and in form satisfactory to
Administrative Agent; (b) may consult with legal counsel (including counsel for Company),
independent public accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken in good faith by it in accordance with the
advice of such counsel, accountants or experts; (c) makes no warranty or representation to any
other Lender and shall not be responsible to any other Lender Party for any statements, warranties
or representations made in or in connection with the Loan Documents; (d) shall not have any duty to
ascertain or to inquire as to the performance or observance of any of the terms, covenants or
conditions of the Loan Documents on the part of any Credit Party or to inspect the property
(including the books and records) of any Credit Party; (e) shall not be responsible to any other
Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value
of any Loan Document or any instrument or document furnished in connection therewith; (f) may rely
upon the representations and warranties of each Credit Party or Lender Party in exercising its
powers hereunder; and (g) shall incur no liability under or in respect of the Loan Documents by
acting upon any notice, consent, certificate or other instrument or writing (including any
facsimile, telegram, cable or telex) believed by it to be genuine and signed or sent by the proper
Person or Persons.



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          Section 9.3. Credit Decisions.
Each Lender Party acknowledges that it has, independently
and without reliance upon any other Lender Party, made its own analysis of the Credit Parties and
the transactions contemplated hereby and its own independent decision to enter into this Agreement
and the other Loan Documents. Each Lender Party also acknowledges that it will, independently and
without reliance upon any other Lender Party and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in taking or not
taking action under the Loan Documents.




          Section 9.4. Indemnification.
Each Lender agrees to indemnify Administrative Agent (to the
extent not reimbursed by Company within ten (10) days after demand) from and against such Lender’s
Percentage Share of any and all liabilities, obligations, claims, losses, damages, penalties,
fines, actions, judgments, suits, settlements, costs, expenses or disbursements (including
reasonable fees of attorneys, accountants, experts and advisors) of any kind or nature whatsoever
(in this section collectively called “liabilities and costs”) that to any extent (in whole or in
part) may be imposed on, incurred by, or asserted against Administrative Agent growing out of,
resulting from or in any other way associated with any of the Collateral, the Loan Documents and
the transactions and events (including the enforcement thereof) at any time associated therewith or
contemplated therein (whether arising in contract or in tort or otherwise, and including any
violation or noncompliance with any Environmental Laws by any Person or any liabilities or duties
of any Person with respect to Hazardous Materials found in or released into the environment).



The foregoing indemnification shall apply whether or not such liabilities and costs are in
any way or to any extent owed, in whole or in part, under any claim or theory of strict liability,
or are caused, in whole or in part, by any negligent act or omission of any kind by Administrative
Agent,



provided only that no Lender shall be obligated under this section to indemnify Administrative
Agent for that portion, if any, of any liabilities and costs that is proximately caused by
Administrative Agent’s own individual gross negligence or willful misconduct, as determined in a
final judgment. Cumulative of the foregoing, each Lender agrees to reimburse Administrative
Agent promptly upon demand for such Lender’s Percentage Share of any costs and expenses to be paid
to Administrative Agent by Company under Section 10.4(a) to the extent that Administrative Agent is
not timely reimbursed for such expenses by Company as provided in such section. As used in this
section the term “Administrative Agent” shall refer not only to the Person designated as such in
Section 1.1 but also to each director, officer, agent, attorney, employee, representative and
Affiliate of such Person.




          Section 9.5. Rights as Lender.
In its capacity as a Lender, Administrative Agent shall
have the same rights and obligations as any Lender and may exercise such rights as though it were
not Administrative Agent. Administrative Agent may accept deposits from, lend money to, act as
trustee under indentures of, and generally engage in any kind of business with any Credit Party or
their Affiliates, all as if it were not Administrative Agent hereunder and without any duty to
account therefor to any other Lender.



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          Section 9.6. Sharing of Set-Offs and Other Payments.
Each Lender Party agrees that if it
shall, whether through the exercise of rights under Security Documents or rights of banker’s lien,
set off, or counterclaim against Company or otherwise, obtain payment of a portion of the aggregate
Obligations owed to it that, taking into account all distributions made by Administrative Agent
under Section 3.1, causes such Lender Party to have received more than it would have received had
such payment been received by Administrative Agent and distributed pursuant to Section 3.1, then
(a) it shall be deemed to have simultaneously purchased and shall be obligated to purchase
interests in the Obligations as necessary to cause all Lender Parties to share all payments as
provided for in Section 3.1, and (b) such other adjustments shall be made from time to time as
shall be equitable to ensure that Administrative Agent and all Lender Parties share all payments of
Obligations as provided in Section 3.1; provided, however, that nothing herein contained shall in
any way affect the right of any Lender Party to obtain payment (whether by exercise of rights of
banker’s lien, set-off or counterclaim or otherwise) of Liabilities other than the Obligations.
Company expressly consents to the foregoing arrangements and agrees that any holder of any such
interest or other participation in the Obligations, whether or not acquired pursuant to the
foregoing arrangements, may to the fullest extent permitted by Law exercise any and all rights of
banker’s lien, set-off, or counterclaim as fully as if such holder were a holder of the Obligations
in the amount of such interest or other participation. If all or any part of any funds transferred
pursuant to this section is thereafter recovered from the seller under this section which received
the same, the purchase provided for in this section shall be deemed to have been rescinded to the
extent of such recovery, together with interest, if any, if interest is required pursuant to the
order of a Governmental Authority order to be paid on account of the possession of such funds prior
to such recovery.




          Section 9.7. Investments.
Whenever Administrative Agent in good faith determines that it
is uncertain about how to distribute to Lender Parties any funds that it has received, or whenever
Administrative Agent in good faith determines that there is any dispute among Lender Parties about
how such funds should be distributed, Administrative Agent may choose to defer distribution of the
funds that are the subject of such uncertainty or dispute. If Administrative Agent in good faith
believes that the uncertainty or dispute will not be promptly resolved, or if Administrative Agent
is otherwise required to invest funds pending distribution to Lender Parties, Administrative Agent
shall invest such funds pending distribution; all interest on any such Investment shall be
distributed upon the distribution of such Investment and in the same
proportion and to the same Persons as such Investment. All moneys received by Administrative Agent
for distribution to Lender Parties (other than to the Person who is Administrative Agent in its
separate capacity as a Lender Party) shall be held by Administrative Agent pending such
distribution solely as Administrative Agent for such Lender Parties, and Administrative Agent shall
have no equitable title to any portion thereof.




          Section 9.8. Benefit of Article IX.
The provisions of this Article are intended solely for
the benefit of Lender Parties, and no Credit Party shall be entitled to rely on any such provision
or assert any such provision in a claim or defense against any Lender. Lender Parties may waive or
amend such provisions as they desire without any notice to or consent of Company or any Credit
Party.




          Section 9.9. Resignation.
Administrative Agent may resign at any time by giving written
notice thereof to Lenders and Company. Each such notice shall set forth the date of such



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resignation. Upon any such resignation, Required Lenders shall have the right to appoint a
successor Administrative Agent. A successor must be appointed for any retiring Administrative
Agent, and such Administrative Agent’s resignation shall become effective only when such successor
accepts such appointment. If, within thirty days after the date of the retiring Administrative
Agent’s resignation, no successor Administrative Agent has been appointed and has accepted such
appointment, then the retiring Administrative Agent may appoint (with, unless an Event of Default
shall have occurred and be continuing, the consent of Company, such consent not to be unreasonably
withheld or delayed) a successor Administrative Agent. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor Administrative Agent, the retiring Administrative
Agent shall be discharged from its future duties and obligations under this Agreement and the other
Loan Documents. After any retiring Administrative Agent’s resignation hereunder the provisions of
this Article IX shall continue to inure to its benefit as to any actions taken or omitted to be
taken by it while it was Administrative Agent under the Loan Documents.




          Section 9.10. Notice of Default. Administrative Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default, except with respect to defaults in the
payment of principal, interest and fees required to be paid to Administrative Agent for the account
of Lenders, unless Administrative Agent shall have received written notice from a Lender or Company
referring to this Agreement, describing such Default and stating that such notice is a “notice of
default.” Administrative Agent will notify Lenders of its receipt of any such notice.
Administrative Agent shall take such action with respect to such Default as may be directed by
Required Lenders in accordance with Article IX; provided, however, that unless and until
Administrative Agent has received any such direction, Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect to such Default as
it shall deem advisable or in the best interest of Lenders.




          Section 9.11. Limitation of Liability. Administrative Agent and its respective officers,
directors, employees, agents, attorneys-in-fact and affiliates shall not: (a) be liable for any
action taken or omitted to be taken by any of such Persons or for any error in judgment under or in
connection with this Agreement, the Notes and the Security Documents, except for any such Person’s
gross negligence or willful misconduct; or (b) be responsible in any manner to any
Lender or any other Person for any failure of any other party to perform its obligations under this
Agreement, the Notes and the Security Documents.




          Section 9.12. Reliance upon Documentation. Administrative Agent shall be entitled to rely,
and shall be fully protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message,
statement, order or other document or any telephone conversation believed by Administrative Agent
to be genuine and correct and to have been signed, sent, made or spoken by the proper person or
persons, and upon the advice and statements of legal counsel, independent accountants and other
experts selected by Administrative Agent.





ARTICLE X — Miscellaneous



          Section 10.1. Waivers and Amendments; Acknowledgments.




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          (a) Waivers and Amendments. No failure or delay (whether by course of conduct or
otherwise) by any Lender in exercising any right, power or remedy that such Lender Party may have
under any of the Loan Documents shall operate as a waiver thereof or of any other right, power or
remedy, nor shall any single or partial exercise by any Lender Party of any such right, power or
remedy preclude any other or further exercise thereof or of any other right, power or remedy. No
waiver of any provision of any Loan Document and no consent to any departure therefrom shall ever
be effective unless it is in writing and signed as provided below in this section, and then such
waiver or consent shall be effective only in the specific instances and for the purposes for which
given and to the extent specified in such writing. No notice to or demand on any Credit Party
shall in any case of itself entitle any Credit Party to any other or further notice or demand in
similar or other circumstances. This Agreement and the other Loan Documents set forth the entire
understanding between the parties hereto with respect to the transactions contemplated herein and
therein and supersede all prior discussions and understandings with respect to the subject matter
hereof and thereof, and no waiver, consent, release, modification or amendment of or supplement to
this Agreement or the other Loan Documents shall be valid or effective against any party hereto
unless the same is in writing and signed by (i) if such party is Company or Parent, by Company or
Parent, (ii) if such party is Administrative Agent, by Administrative Agent, and (iii) if such
party is a Lender, by such Lender or by Administrative Agent on behalf of Lenders with the written
consent of Required Lenders. Notwithstanding the foregoing or anything to the contrary herein,
Administrative Agent shall not, without the prior consent of each individual Lender, execute and
deliver on behalf of such Lender any waiver or amendment that would: (1) waive any of the
conditions specified in Article IV (provided that Administrative Agent may in its discretion
withdraw any request it has made under Section 4.2(f)), (2) increase the maximum amount that such
Lender is committed hereunder to lend, (3) reduce any fees payable to such Lender hereunder, or the
principal of, or interest on, such Lender’s Note, (4) extend the Maturity Date, or postpone any
date fixed for any payment of any such fees, principal or interest, (5) amend the definition herein
of “Required Lenders” or otherwise change the aggregate amount of Percentage Shares that is
required for Administrative Agent, Lenders or any of them to take any particular action under the
Loan Documents, (6) release Company from its obligation to pay such Lender’s Obligations or any
Guarantor from its guaranty of such payment, (7) release any Collateral, except for such
releases relating to sales or dispositions of property permitted by the Loan Documents, or (8)
amend this Section 10.1(a).




          (b) Amendment Consideration. Neither Company nor any of its Subsidiaries or
Affiliates will, directly or indirectly, request or negotiate for, or offer or pay any remuneration
or grant any security as an inducement for, any proposed amendment or waiver of any of the
provisions of this Agreement or any of the other Loan Documents unless each Lender is informed
thereof by Company, is afforded the opportunity of considering the same, is supplied by Company and
any other party hereto with sufficient information to enable it to make an informed decision with
respect thereto, and is offered (and, if such offer is accepted, paid) such remuneration and
granted such security on the same terms.




          (c) Acknowledgments and Admissions. Each Credit Party that is a party to this
Agreement hereby represents, warrants, acknowledges and admits that:




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     (i) it has been advised by counsel in the negotiation, execution and delivery of the
Loan Documents to which it is a party,




     (ii) it has made an independent decision to enter into this Agreement and the other
Loan Documents to which it is a party, without reliance on any representation, warranty,
covenant or undertaking by Administrative Agent or any Lender, whether written, oral or
implicit, other than as expressly set out in this Agreement or in another Loan Document
delivered on or after the date hereof,




     (iii) there are no representations, warranties, covenants, undertakings or agreements
by any Lender Party as to the Loan Documents except as expressly set out in this Agreement
or in another Loan Document delivered on or after the date hereof,




     (iv) no Lender Party has any fiduciary obligation toward it with respect to any Loan
Document or the transactions contemplated thereby,




     (v) the relationship pursuant to the Loan Documents between the Credit Parties, on one
hand, and the Lender Parties, on the other hand, is and shall be solely that of debtor and
creditor, respectively, provided that, solely for purposes of Section 10.6(a),
Administrative Agent shall act as Administrative Agent of Company in maintaining the
Register as set forth therein,




     (vi) no partnership or joint venture exists with respect to the Loan Documents between
any Credit Party and any Lender Party,




     (vii) Administrative Agent is not any Credit Party’s Administrative Agent, but
Administrative Agent for Lenders, provided that, solely for purposes of Section 10.6(a),
Administrative Agent shall act as Administrative Agent of Company in maintaining the
Register as set forth therein,




     (viii) Thompson & Knight L.L.P. and Hunton & Williams L.L.P. are counsel for the
Administrative Agent and are not counsel for any Credit Party,




     (ix) should an Event of Default or Default occur or exist, each Lender Party will
determine in its discretion and for its own reasons what remedies and actions it will or
will not exercise or take at that time,




     (x) without limiting any of the foregoing, no Credit Party is relying upon any
representation or covenant by any Lender Party, or any representative thereof, and no such
representation or covenant has been made, that any Lender Party will, at the time of an
Event of Default or Default, or at any other time, waive, negotiate, discuss, or take or
refrain from taking any action permitted under the Loan Documents with respect to any such
Event of Default or Default or any other provision of the Loan Documents, and




     (xi) all Lender Parties have relied upon the truthfulness of the acknowledgments in
this section in deciding to execute and deliver this Agreement and to become obligated
hereunder.



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          (d) Joint Acknowledgments. This written Agreement and the other Loan Documents
represent the final agreement between the parties and may not be contradicted by evidence of prior,
contemporaneous, or subsequent oral agreements of the parties. 




          There are no unwritten oral agreements between the parties.




          Section 10.2. Survival of Agreements; Cumulative Nature. All of the Credit Parties’
various representations, warranties, covenants and agreements in the Loan Documents shall survive
the execution and delivery of this Agreement and the other Loan Documents and the performance
hereof and thereof, including the making or granting of the Loans and the delivery of the Notes
and the other Loan Documents, and shall further survive until all of the Obligations are paid in
full to each Lender Party and all of Lender Parties’ obligations to Company are terminated. All
statements and agreements contained in any certificate or other instrument delivered by any Credit
Party to any Lender Party under any Loan Document shall be deemed representations and warranties by
Company or agreements and covenants of Company under this Agreement. The representations,
warranties, indemnities, and covenants made by the Credit Parties in the Loan Documents, and the
rights, powers, and privileges granted to Lender Parties in the Loan Documents, are cumulative,
and, except for expressly specified waivers and consents, no Loan Document shall be construed in
the context of another to diminish, nullify, or otherwise reduce the benefit to any Lender Party of
any such representation, warranty, indemnity, covenant, right, power or privilege. In particular
and without limitation, no exception set out in this Agreement to any representation, warranty,
indemnity, or covenant herein contained shall apply to any similar representation, warranty,
indemnity, or covenant contained in any other Loan Document, and each such similar representation,
warranty, indemnity, or covenant shall be subject only to those exceptions that are expressly made
applicable to it by the terms of the various Loan Documents.




          Section 10.3. Notices. All notices, requests, consents, demands and other communications
required or permitted under any Loan Document shall be in writing, unless otherwise specifically
provided in such Loan Document (provided that Administrative Agent may give telephonic notices to
the other Lender Parties), and shall be deemed sufficiently given or furnished if delivered by
personal delivery, by facsimile, by delivery service with proof of delivery, or by registered or
certified United States mail, postage prepaid, to Company and the Credit Parties at the address of
Company specified below and to each Lender Party, at the address specified below (unless changed by
similar notice in writing given by the particular Person whose address is to be changed). Any such
notice or communication shall be deemed to have been given (a) in the case of personal delivery or
delivery service, as of the date of first attempted delivery during normal business hours at the
address provided herein, (b) in the case of facsimile, upon receipt, or (c) in the case of
registered or certified United States mail, three days after deposit in the mail; provided,
however, that no Borrowing Notice shall become effective until actually received by Administrative
Agent. Electronic mail and internet and intranet websites may be used only to distribute routine
communications, such as financial statements




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and other information as provided in Section 6.2, and
to distribute Loan Documents for execution by the parties thereto, and may not be used for any
other purpose.



If to Company, Parent, or any other Credit Party:



1160 Eugenia Place, Ste. 100

Carpinteria, California 93013

Attention: Clarence Cottman III

Telephone: (805) 566-2900

Facsimile: (805) 566-2917

Email: ccottman@niminenergy.com



If to Administrative Agent:



c/o Beal Bank Nevada

1970 Village Center Circle, Suite 1

Las Vegas, Nevada 89134

Attention: James Erwin

Telephone: (469) 467.5414

Facsimile: (469) 467.5550

Email: jerwin@clmgcorp.com



If to Lender:



Beal Bank Nevada

1970 Village Center Circle, Suite 1

Las Vegas, Nevada 89134

Attention: Stephen Costas

Telephone: (469) 467-5580

Facsimile: 469-467-5012

Email: scostas@bealservice.com




          Section 10.4. Payment of Expenses; Indemnity.




          (a) Payment of Expenses. Whether or not the transactions contemplated by this
Agreement are consummated, Company will promptly (and in any event, within 30 days after any
invoice or other statement or notice) pay: (i) all transfer, stamp, mortgage, documentary or other
similar taxes, assessments or charges levied by any governmental or revenue authority in respect of
this Agreement or any of the other Loan Documents or any other document or transaction referred to
herein or therein, (ii) all reasonable costs and expenses incurred by or on behalf of
Administrative Agent (including fees and expenses of attorneys, consultants, reserve engineers,
accountants, the Environmental Advisor, the Insurance Advisor, the Independent Lender Engineer, and
other advisors, travel costs and miscellaneous expenses) in connection with (1) the negotiation,
preparation, execution and delivery of the Loan Documents, and any and all consents, waivers or
other documents or instruments relating thereto, (2) the filing, recording, refiling and
re-recording of any Loan Documents and any other documents or instruments or further assurances
required to be filed or recorded or refiled or re-recorded by the




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terms of any Loan Document, (3)
any action reasonably required in the course of administration hereof, or (4) monitoring or
confirming (or preparation or negotiation of any document related to) any Credit Party’s compliance
with any covenants or conditions contained in this Agreement or in any Loan Document, and (iii) all
costs and expenses incurred by or on behalf of any Lender Party (including fees and expenses of
attorneys, consultants, reserve engineers, accountants, the Environmental Advisor, the Insurance
Advisor and other advisors, travel costs, court costs, and miscellaneous expenses) in connection
with the preservation of any rights under the Loan Documents, the exercise or enforcement of any
rights or remedies under the Loan Documents (including this section), or the defense of any such
exercise or enforcement.




          (b) Indemnity. Each Credit Party agrees to indemnify each Lender Party and each other
Indemnitee, upon demand, from and against any and all liabilities, obligations, broker’s fees,
claims, losses, damages, penalties, fines, actions, judgments, suits, settlements, costs, expenses
or disbursements (including reasonable fees of attorneys, accountants, experts and advisors) of any
kind or nature whatsoever (in this section collectively called “liabilities and costs”) that to any
extent (in whole or in part) may be imposed on, incurred by, or asserted against such Indemnitee
growing out of, resulting from or in any other way associated with any of the Collateral, the Loan
Documents and the transactions and events (including the enforcement or defense thereof) at any
time associated therewith or contemplated therein (whether arising in contract or in tort or
otherwise). Among other things, the foregoing indemnification covers all liabilities and costs
incurred by any Indemnitee related to any breach of a Loan Document by a Credit Party, any bodily
injury to any Person or damage to any Person’s property, or any violation or noncompliance with any
Environmental Laws by any Indemnitee or any other Person or any liabilities or duties of any
Indemnitee or any other Person with respect to Hazardous Materials found in or released into the
environment.



The foregoing indemnification shall apply whether or not such liabilities and costs are in
any way or to any extent owed, in whole or in part, under any claim or theory of strict liability
or caused, in whole or in part by any negligent act or omission of any kind by any Indemnitee (in
each case whether alleged, arising or imposed in a 
legal proceeding brought by or against any Credit Party, any Indemnitee, or any other
Person),



provided only that no Indemnitee shall be entitled under this section to receive
indemnification for that portion, if any, of any liabilities and costs that is proximately caused
by its own individual gross negligence or willful misconduct, as determined in a final judgment.
If any Person (including Company or any of its Affiliates) ever alleges such gross negligence or
willful misconduct by any Indemnitee, the indemnification provided for in this section shall
nonetheless be paid upon demand, subject to later adjustment or reimbursement, until such time as a
court of competent jurisdiction enters a final judgment as to the extent and effect of the alleged
gross negligence or willful misconduct.




          Section 10.5. Joint and Several Liability. All Obligations that are incurred by two or
more Credit Parties shall be their joint and several obligations and liabilities.




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          Section 10.6. Successors and Assigns.




          (a) Successors and Assigns Generally. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective successors and
assigns permitted hereby, except that neither Company nor any other Credit Party may assign or
otherwise transfer any of its rights or obligations under any Loan Document without the prior
written consent of Administrative Agent and each Lender and no Lender may assign or otherwise
transfer any of its rights or obligations hereunder except (i) to an Eligible Assignee in
accordance with the provisions of subsection (b) of this Section, (ii) by way of participation in
accordance with the provisions of subsection (d) of this Section, or (iii) by way of pledge or
assignment of a security interest subject to the restrictions of subsection (f) of this Section
(and any other attempted assignment or transfer by any party hereto shall be null and void).
Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person
(other than the parties hereto, their respective successors and assigns permitted hereby,
Participants to the extent provided in subsection (d) of this Section and, to the extent expressly
contemplated hereby, the Related Parties of each of Administrative Agent and the Lenders) any legal
or equitable right, remedy or claim under or by reason of this Agreement.




          (b) Assignments by Lenders. Any Lender may at any time assign to one or more Eligible
Assignees all or a portion of its rights and obligations under this Agreement and the other Loan
Documents (including all or a portion of its Commitment and the Loans at the time owing to it);
provided that:





     (i) except in the case of an assignment of the entire remaining amount of the assigning
Lender’s Commitment and the Loans at the time owing to it or in the case of an assignment to
a Lender or an Affiliate of a Lender or an Approved Fund with respect to a Lender, the
aggregate amount of the Commitment (which for this purpose includes Loans outstanding
thereunder) or, if the applicable Commitment is not then in effect, the principal
outstanding balance of the Loans of the assigning Lender subject to each such assignment
(determined as of the date the Assignment and Assumption with respect to
such assignment is delivered to Administrative Agent or, if “Trade Date” is specified
in the Assignment and Assumption, as of the Trade Date) shall not be less than $1,000,000,
unless Administrative Agent otherwise consents (each such consent not to be unreasonably
withheld or delayed);




     (ii) each partial assignment shall be made as an assignment of a proportionate part of
all the assigning Lender’s rights and obligations under this Agreement with respect to the
Loan or the Commitment assigned;




     (iii) the parties to each assignment shall execute and deliver to Administrative Agent
an Assignment and Assumption, together with the Note subject to such assignment and a
processing and recordation fee of $3,500, and the Eligible Assignee, if it shall not be a
Lender, shall deliver to Administrative Agent an Administrative Questionnaire in form
satisfactory to Administrative Agent; and




     (iv) no such assignment shall be made (x) to Company or any of Company’s Affiliates or
Subsidiaries, or (y) to a natural person.



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Subject to acceptance and recording thereof by Administrative Agent pursuant to subsection (c) of
this Section, from and after the effective date specified in each Assignment and Assumption, the
Eligible Assignee thereunder shall be a party to this Agreement and, to the extent of the interest
assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this
Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by
such Assignment and Assumption, be released from its obligations under this Agreement (and, in the
case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations
under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be
entitled to the benefits, and subject to the requirements of, of Sections 3.2, 3.4, 3.5 and 10.4
with respect to facts and circumstances occurring prior to the effective date of such assignment.
Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not
comply with this subsection shall be treated for purposes of this Agreement as a sale by such
Lender of a participation in such rights and obligations in accordance with subsection (d) of this
Section.




          (c) Register. Administrative Agent shall maintain a copy of each Assignment and
Assumption Agreement and a register for the recordation of the names and addresses of Lenders and
the Percentage Shares of, and principal amount of the Loans owing to, each Lender from time to time
(in this section called the “Register”). The entries in the Register shall be conclusive,
in the absence of manifest error, and Company and each Lender Party may treat each Person whose
name is recorded in the Register as a Lender hereunder for all purposes. The Register shall be
available for inspection by Company or any Lender Party at any reasonable time and from time to
time upon reasonable prior notice.




          (d) Participations. Any Lender may at any time, without the consent of, or notice to,
Company or Administrative Agent, sell participations to any Person (other than Company or any of
Company’s Affiliates or Subsidiaries ) (each, a “Participant”) in all or a portion of such
Lender’s rights and/or obligations under this Agreement (including all or a portion of its
commitment and/or the Loans owing to it); provided that (i) such Lender’s obligations under this
Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations, and (iii) Company, Administrative
Agent and the Lenders shall continue to deal solely and directly with such Lender in connection
with such Lender’s rights and obligations under this Agreement.




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Any agreement or instrument pursuant to which a Lender sells such a participation shall provide
that such Lender shall retain the sole right to enforce this Agreement and to approve any
amendment, modification or waiver of any provision of this Agreement; provided that such agreement
or instrument may provide that such Lender will not, without the consent of the Participant, agree
to any amendment, modification or waiver described in the fifth sentence of Section 10.1(a) that
affects such Participant. Subject to subsection (e) of this Section, Company agrees that each
Participant shall be entitled to the benefits of, and subject to the requirements of, Sections 3.2,
3.4 and 3.5 to the same extent as if it were a Lender and had acquired its interest by assignment
pursuant to subsection (b) of this Section. To the extent permitted by law, each Participant also
shall be entitled to the benefits of Section 6.16 as though it were a Lender, provided such
Participant agrees to be subject to Section 9.6 as though it were a Lender.




          (e) Limitations upon Participant Rights. A Participant shall not be entitled to
receive any greater payment under Sections 3.2 and 3.5 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant, unless the sale of
the participation to such Participant is made with Company’s prior written consent.




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




          Section 10.7. Confidentiality. Each of Administrative Agent and the Lenders agrees to
maintain the confidentiality of the Information (as defined below), except that Information may be
disclosed (a) to its Affiliates and to its and its Affiliates’ respective partners, directors,
officers, employees, agents, advisors and other representatives (it being understood that the
Persons to whom such disclosure is made will be informed of the confidential nature of such
Information and instructed to keep such Information confidential), (b) to the extent requested by
any regulatory authority purporting to have jurisdiction over it (including any self-regulatory
authority, such as the National Association of Insurance Commissioners), (c) to the extent required
by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other
party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Loan
Document or any action or proceeding relating to this Agreement or any other Loan Document or the
enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions
substantially the same as those of this Section, to (i) any assignee of or Participant in, or any
prospective assignee of or Participant in, any of its rights or obligations under this Agreement or
(ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction
relating to a Credit Party and its obligations, (g) with the consent of Company, or (h) to the
extent such Information (x) becomes publicly available other than as a result of a breach of this
Section or (y) becomes available to Administrative Agent, any Lender, or any of their respective
Affiliates on a nonconfidential basis from a source other than a Credit Party.



For purposes of this Section, “Information” means all information received from Parent or
any of its Subsidiaries relating to Parent or any of its Subsidiaries or any of their respective
businesses,




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other than any such information that is available to Administrative Agent or any Lender
on a nonconfidential basis prior to disclosure by Parent or any of its Subsidiaries, provided that,
in the case of information received from Parent or any of its Subsidiaries after the date hereof,
such information is clearly identified at the time of delivery as confidential. Any Person
required to maintain the confidentiality of Information as provided in this Section shall be
considered to have complied with its obligation to do so if such Person has exercised the same
degree of care to maintain the confidentiality of such Information as such Person would accord to
its own confidential information.




          Section 10.8. Governing Law; Submission to Process.  




          (a) Except to the extent that the Law of another jurisdiction is
expressly elected in a Loan Document, this Agreement and the other Loan Documents shall be governed
by and construed in accordance with the Laws of the State of Nevada, without regard to principles
of conflicts of law.




          (b) Administrative Agent and Lenders may bring any action or proceeding to
enforce this Agreement or any action or proceeding arising out of this Agreement in any court or
courts in the State of Nevada, County of Clark, or the United States District Court for the
District of Nevada. Each of Parent and Company hereby irrevocably (i) submits itself to the
non-exclusive jurisdiction of the state and federal courts sitting in the State of Nevada and
County of Clark, (ii) agrees and consents that service of process may be made upon it and any of
its Subsidiaries in any legal proceeding relating to the Loan Documents or the Obligations by any
means allowed under Nevada or United States federal law and agrees that it will acknowledge receipt
of a copy of the summons and complaint within the statutory time limit and in the manner set forth
on the notice and summons, and (iii) waives any objection that it may now or hereafter have to the
venue of any such proceeding being in such a court and any claim that any such proceeding brought
in such a court has been brought in an inconvenient 
forum and will not attempt to have such action dismissed or abated or transferred on the
grounds of forum nonconvenience or similar grounds, provided, however, that nothing contained
herein shall prohibit Company or Parent from seeking, by appropriate motion, to remove an action
brought in a Nevada




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state court to the United States District Court for the District of Nevada. If
such action is so removed, however, neither Company nor Parent shall seek to transfer such action
to any other district nor shall either of them seek to transfer to any other district any action
which Administrative Agent or any Lender originally commenced in the United States District Court
for the District of Nevada. 




          (c) Each of Parent and Company hereby makes the foregoing submissions,
agreements, consents and waivers on behalf of and with respect to each of its Subsidiaries, and
each Guarantor (by its execution of a guaranty of this Agreement) hereby also makes such
submissions, agreements, consents and waivers for itself.




          Section 10.9. Limitation on Interest. The Lender Parties, the Credit Parties and the
other parties to the Loan Documents intend to contract in strict compliance with applicable usury
Law from time to time in effect. In furtherance thereof such Persons stipulate and agree that none
of the terms and provisions contained in the Loan Documents shall ever be construed to create a
contract to pay, for the use, forbearance or detention of money, interest in excess of the maximum
amount of interest permitted to be contracted for, charged, or received by applicable Law from time
to time in effect. Neither any Credit Party nor any present or future guarantors, endorsers, or
other Persons hereafter becoming liable for payment of any Obligation shall ever be liable for
unearned interest thereon or shall ever be required to pay interest thereon in excess of the
maximum amount that may be lawfully contracted for, charged, or received under applicable Law from
time to time in effect, and the provisions of this section shall control over all other provisions
of the Loan Documents that may be in conflict or apparent conflict herewith. The Lender Parties
expressly disavow any intention to contract for, charge, or collect excessive unearned interest or
finance charges in the event the maturity of any Obligation is accelerated. If (a) the maturity of
any Obligation is accelerated for any reason, (b) any Obligation is prepaid and as a result any
amounts held to constitute interest are determined to be in excess of the legal maximum, or (c) any
Lender Party or any other holder of any or all of the Obligations shall otherwise collect moneys
that are determined to constitute interest that would otherwise increase the interest on any or all
of the Obligations to an amount in excess of that permitted to be charged by applicable Law then in
effect, then all sums determined to constitute interest in excess of such legal limit shall,
without penalty, be promptly applied to reduce the then outstanding principal of the related
Obligations or, at such Lender Party’s or other holder’s
option, promptly returned to Company or the other payor thereof upon such determination. In
determining whether or not the interest paid or payable, under any specific circumstance, exceeds
the maximum amount permitted under applicable Law, the Lender Parties and the Credit Parties (and
any other payors thereof) shall to the greatest extent permitted under applicable Law (i)
characterize any non-principal payment as an expense, fee or premium rather than as interest, (ii)
exclude voluntary prepayments and the effects thereof, and (iii) amortize, prorate, allocate,




[Credit Agreement]




80









 







and
spread the total amount of interest throughout the entire contemplated term of the instruments
evidencing the Obligations in accordance with the amounts outstanding from time to time thereunder
and the maximum legal rate of interest from time to time in effect under applicable Law in order to
lawfully contract for, charge, or receive the maximum amount of interest permitted under applicable
Law.




          Section 10.10. Severability. If any term or provision of any Loan Document shall be
determined to be illegal or unenforceable all other terms and provisions of the Loan Documents
shall nevertheless remain effective and shall be enforced to the fullest extent permitted by
applicable Law.




          Section 10.11. Counterparts; Fax. This Agreement may be separately executed in any number
of counterparts and by different parties hereto in separate counterparts, each of which when so
executed shall be deemed to constitute one and the same Agreement. This Agreement and the Loan
Documents may be validly executed and delivered by facsimile or other electronic transmission, and
the exchange of executed signature pages hereto or thereto by such means shall constitute execution
and delivery hereof or thereof.




          Section 10.12. Third Party Beneficiaries. The Credit Parties agree that each Indemnitee
that is not a signatory to this Agreement (collectively, the “Third Party Beneficiaries”) is an
express and intended third party beneficiary of the representations, agreements and promises made
in this Agreement, which are made for the benefit of Lenders, Administrative Agent and each Third
Party Beneficiary (which benefits are immediate and not incidental). Except as stated above in
this section, there are no third party beneficiaries of this Agreement.




          Section 10.13. USA PATRIOT Act Notice. Pursuant to the requirements of the USA PATRIOT Act
(Title III of Pub. L. 107-56 (signed into law October 26, 2001), and as from time to time amended,
herein called the “Patriot Act”), each Lender Party that is subject to the Patriot Act
hereby notifies Company that it is required to obtain, verify and record information that
identifies Company, which information includes the name and address of Company and other
information that will allow such Lender Party to identify Company in accordance with the Patriot
Act.




          Section 10.14. Anti-Money Laundering Legislation.




          (a) Each Credit Party acknowledges that, pursuant to the Proceeds of Crime (Money Laundering)
and Terrorist Financing Act (Canada) and other applicable anti-money laundering, anti-terrorist
financing, government sanction and “know your client” Laws, whether within Canada or elsewhere
(collectively, including any guidelines or orders thereunder, “AML Legislation”), the
Lender Parties may be required to obtain, verify and record information regarding any of the
Credit Parties, their directors, authorized signing officers, direct or indirect
shareholders or other Persons in control of a Credit Party, and the transactions contemplated
hereby. The Credit Parties shall promptly provide all such information, including supporting
documentation and other evidence, as may be reasonably requested by any Lender Party, or any
prospective assign or participant of a Lender Party, in order to comply with any applicable AML
Legislation, whether now or hereafter in existence.




[Credit Agreement]




81









 








          (b) If the Administrative Agent has ascertained the identity of a Credit Party or any
authorized signatories of a Credit Party for the purposes of applicable AML Legislation, then the
Administrative Agent:





     (i) shall be deemed to have done so as an agent for each Lender, and this Agreement
shall constitute a “written agreement” in such regard between each Lender and the
Administrative Agent within the meaning of applicable AML Legislation; and




     (ii) shall provide to each Lender copies of all information obtained in such regard
without any representation or warranty as to its accuracy or completeness.


Notwithstanding the preceding sentence and except as may otherwise be agreed in writing, each of
the Lenders agrees that the Administrative Agent has no obligation to ascertain the identity of any
Credit Party or any authorized signatories of a Credit Party on behalf of any other Lender Party,
or to confirm the completeness or accuracy of any information it obtains from any Credit Party or
any such authorized signatory in doing so.




          Section 10.15. Waiver of Jury Trial, Punitive Damages, etc. Each Credit Party and
each Lender Party that is a party to this Agreement hereby knowingly, voluntarily, intentionally,
and irrevocably with and upon the advice of competent counsel:




          (a) waives, relinquishes and forever foregoes, to the maximum extent
not prohibited by Law, any right it may have to a trial by jury in respect of any litigation based
hereon, or directly or indirectly at any time arising out of, under or in connection with the Loan
Documents or any transaction contemplated thereby or associated therewith, before or after
maturity, in each of the foregoing cases whether sounding in contract, tort or otherwise,




          (b) waives, to the maximum extent not prohibited by Law, any right it
may have to claim or recover in any such litigation any “Special Damages” as defined below,




          (c) certifies that no party hereto and no representative or agent or
counsel for any party hereto has represented, 
expressly or otherwise, or implied that such party would not, in the event of litigation,
seek to enforce the foregoing waivers, 




          (d) acknowledges that it has been induced to enter into this Agreement,
the other Loan Documents and the




[Credit Agreement]




82









 







transactions contemplated hereby and thereby by, among other
things, the mutual waivers and certifications contained in this section, and




          (e) agrees that in no event will any Lender Party be subject to any
equitable remedy or relief, including specific performance, arising from or relating to any default
by such Lender Party in the performance of any of its obligations hereunder. 



As used in this section, “Special Damages” includes all punitive, consequential, special or
other damages (regardless of how named), but does not include any payments or funds that any party
hereto has expressly promised to pay or deliver to any other party hereto.




[The remainder of this page is intentionally left blank]



[Credit Agreement]






83









 








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




	 	 	 	 	 
	COMPANY:                    	LEGACY ENERGY, INC.

 	 
	 	By:  	/s/
Clarence Cottman, III	 
	 	 	Clarence Cottman, III 	 
	 	 	Chief Executive Officer 	 
	 
	PARENT:                     	NIMIN ENERGY CORP.

 	 
	 	By:  	/s/
Clarence Cottman, III	 
	 	 	Clarence Cottman, III 	 
	 	 	Chief Executive Officer 	 
	 
	ADMINISTRATIVE AGENT:       	CLMG CORP.,

Administrative Agent

 	 
	 	By:  	/s/
James Erwin	 
	 	 	Name:  	James Erwin	 
	 	 	Title:  	E.V.P.	 
	 
	LENDERS:                    	BEAL BANK NEVADA

 	 
	 	By:  	Kathleen
Yodice	 
	 	 	Name:  	Kathleen Yodice	 
	 	 	Title:  	Authorized Signatory	 
	 



[Signature
Page – Credit Agreement (NiMin Energy)]






 










 








SCHEDULE 1




DISCLOSURE SCHEDULE




          To supplement the following sections of the Agreement of which this Schedule is a part,
Company hereby makes the following disclosures:




[Credit Agreement]







Schedule 1 - Page 1









 








SCHEDULE 2




SECURITY SCHEDULE





	 	1.	 	Guaranty executed by the Credit Parties (other than Company) in favor of
Administrative Agent.
	 
	 	2.	 	Security Agreement executed by the Credit Parties in favor of Administrative
Agent.
	 
	 	3.	 	Mortgage, Assignment, Security Agreement, Fixture Filing and Financing
Statement by Company in favor of Administrative Agent. [California and Wyoming
properties]
	 
	 	4.	 	Act of Mortgage, Assignment, Security Agreement, Fixture Filing and Financing
Statement by Company in favor of Administrative Agent. [Louisiana properties]
	 
	 	5.	 	UCC-1 Financing Statements related to the foregoing.
	 
	 	6.	 	Debenture executed by Parent in favor of Administrative Agent.





[Credit Agreement]







Schedule 2 - Page 1









 








SCHEDULE 3




INSURANCE SCHEDULE



(A) Insurance by Company:





Company shall procure (or cause to be procured) and maintain in full force and effect at all
times on and after the Closing Date (unless otherwise specified below) and continuing throughout
the term of this Agreement, insurance policies with insurance companies authorized to do
business where operations are conducted (if required by law or regulation) with (i) a A.M. Best
rating of “A-” or better and an financial size category of “IX” or higher, (ii) a S&P financial
strength rating of “A-” or higher, or (iii) other companies acceptable to Administrative Agent,
with limits and coverage provisions sufficient to satisfy Company’s material contracts, but in
no event less than provisions set forth below.




	 	(1)	 	Workers’ Compensation Insurance: Workers’ compensation insurance as
required by applicable Laws. A maximum deductible or self-insured retention of $25,000
per occurrence or as approved by Administrative Agent shall be allowed.
	 
	 	(2)	 	Employer’s Liability Insurance: Employer’s liability insurance for
Company’s liability arising out of injury to or death of employees of Company in the
amount of $1,000,000 per accident. A maximum deductible or self-insured retention of
$25,000 per occurrence or as approved by Administrative Agent shall be allowed.




(3) General Liability Insurance: Liability insurance on an occurrence basis against claims
for Company’s liability arising out of claims for personal injury (including bodily injury and
death) and property damage. Such insurance shall provide coverage for products-completed
operations, liability assumed under contract, broad form property damage, personal injury,
underground resources and equipment and independent contractors with a $1,000,000 minimum limit per
occurrence for combined bodily injury and property damage. The policy shall not exclude coverage
for action over claims without limitations as respects the sole negligence of Additional Insured.
A maximum deductible or self-insured retention of $25,000 per occurrence or as approved by
Administrative Agent shall be allowed.





	 	(4)	 	Automobile Liability Insurance: Automobile liability insurance for
Company’s liability arising out of claims for bodily injury and property damage
covering all owned (if any), leased, non-owned and hired vehicles of Company, including
loading and unloading, with a $1,000,000 minimum limit per accident for combined bodily
injury and property damage and containing appropriate no-fault insurance provisions
wherever applicable. A maximum deductible or self-insured retention of $25,000 per
occurrence or as approved by Administrative Agent shall be allowed.
	 
	 	(5)	 	Pollution Liability Insurance: Pollution legal liability insurance, in
an amount not less that $1,000,000 per occurrence insuring for (i) bodily injury or
property damage arising out of sudden and accidental pollution, and (ii) cleanup of
pollutants on Company’s premises or which have migrated beyond Company’s





[Credit Agreement]





Schedule 3 - Page 1









 










	 	 	 	premises. A maximum deductible or self-insured retention of $25,000 per occurrence
or as approved by Administrative Agent shall be allowed.






	 	(6)	 	Excess Liability Insurance: Excess liability insurance on an
occurrence basis covering claims (on at least a following form basis) in excess of the
underlying insurance described in the foregoing subsections (2), (3), (4) and (5), with
a $20,000,000 minimum limit per occurrence. Such excess liability shall also include
coverage for bodily injury or property damage to third parties arising out of sudden
and accidental off-site pollution. The policy shall drop down to cover exhausted
primary policies with a self-insured retention not to exceed $25,000.
	 
	 	 	 	The amounts of insurance required in the foregoing subsections (2), (3), (4), and
this subsection (6) may be satisfied by Company purchasing coverage in the amounts
specified or by any combination of primary and excess insurance, so long as the
total amount of insurance meets the requirements specified above.
	 
	 	(7)	 	Aircraft Liability Insurance: If Company uses an aircraft (fixed wing
or helicopter) that is owned, operated or chartered by Company, Aircraft liability
insurance for liability arising out of the operation of such aircraft. The insurance
shall be provided for a combined single limit not less than $15,000,000 each occurrence
and such limit shall apply to bodily injury (including passengers) and property damage
liability. Such insurance shall (i) name Administrative Agent, on behalf of the Lender
Parties, as additional insured, (ii) include an insurer’s waiver of subrogation in
favor of the additional insureds, (iii) state that it is primary insurance as regards
the additional insureds and (iv) contain a cross-liability or severability of interest
clause. In the event the aircraft hull is insured such insurance shall provide for an
insurer’s waiver of subrogation rights in favor of Company. In the event Company
charters aircraft, the foregoing insurance and evidence of insurance may be furnished
by the owner of the aircraft.
	 
	 	(8)	 	Operators Excess Expense Insurance (Control of Well): Company is
required to maintain this with limits of no less than 5 times the Dry Hole Cost of the
well(s). Coverage shall include Well Control, Sudden & Accidental Pollution, Evacuation
Expenses, Replacement Cost Redrill. The policy shall provide Care, Custody and Control
limits of no less than $1,000,000, and shall include coverage for damage to
drilling/workover rigs caused by “unsound locations” The policy will have a Priority
of Payments Clause, and claims shall be paid in the following order; (1) Well Control,
(2) Restoration and Redrill, and (3) Pollution.
	 
	 	(9)	 	Property Damage Insurance: Property damage insurance on an “all risk”
basis, including coverage against damage or loss caused by earth movement (including
but not limited to earthquake, landslide, subsidence and volcanic eruption), flood, and
windstorm.






	 	(a)	 	Property Insured: The property damage insurance shall
provide coverage for all property owned by or in the care, custody or control
Company or in which Company has any interest, including, but not limited to gas
plants





[Credit Agreement]





Schedule 3 - Page 2









 









	 	 	 	and production equipment, including coverage during any exploration and
drilling activities.






	 	(b)	 	Additional Coverages: The property damage insurance
shall insure (i) when actual exposure exceed the applicable property
deductibles, transit and off-site repair, including marine and air transit with
sub-limits sufficient to insure the full replacement value of the property or
equipment prior to its being moved to or from the locations where operations
are conducted and while located away from the locations where operations are
conducted, (ii) salvage expenses with a minimum limit of 25% of the loss (iii)
the cost of preventive measures to reduce or prevent a loss (sue & labor), (v)
property in the course of construction or installation.
	 
	 	(c)	 	Sum Insured: The property damage policy shall (i)
value losses at their repair or replacement cost or stated value, (ii) provide
a limit not less than the actual cash value of the property insured.
	 
	 	(d)	 	Deductibles: The property damage deductibles shall not
exceed $25,000 unless previously approved by Administrative Agent.




(B) Amendment of Requirements:





	 	(1)	 	Amendment by Administrative Agent: Administrative Agent may at any
time amend the requirements and approved insurance companies of this Section due to (i)
new information not known by the Lender Parties on the Closing Date which poses a
material risk to Company’s assets or business, (ii) changed circumstances after the
Closing Date which in the reasonable judgment of Administrative Agent renders such
coverage materially inadequate, or (iii) inflationary factors and other changes in
valuations. Promptly following the receipt of a notice from Administrative Agent,
Company will from time to time make such modifications to the amounts of any insurance
policy as Administrative Agent specifies in that notice to take account of the
foregoing.






	(C)	 	Company Conditions and Requirements:






	 	(1)	 	Loss Notification: Company shall promptly notify Administrative Agent
of any single loss or event likely to give rise to a claim against an insurer for an
amount in excess of $100,000 covered by any insurance maintained pursuant to this
schedule
	 
	 	(2)	 	Loss Adjustment and Settlement: A loss under the insurance policies
providing property damage shall be adjusted with the insurance companies, including the
filing in a timely manner of appropriate proceedings, by Company, subject to the
approval of Administrative Agent if such loss is in excess of $500,000. In addition
Company may in its reasonable judgment consent to the settlement of any loss, provided
that in the event that the amount of the loss exceeds $500,000 the terms of such
settlement is concurred with by Administrative Agent.





[Credit Agreement]





Schedule 3 - Page 3









 









	 	(3)	 	Compliance With Policy Requirements: Company shall not violate or
permit to be violated any of the conditions, provisions or requirements of any
insurance policy required by this Section, and Company shall perform, satisfy and
comply with, or cause to be performed, satisfied and complied with, all conditions,
provisions and requirements of all insurance policies.
	 
	 	(4)	 	Waiver of Subrogation: Company hereby waives any and every claim for
recovery from any Lender Party for any and all loss or damage covered by any of the
insurance policies to be maintained under this Agreement to the extent that such loss
or damage is recovered under any such policy. If the foregoing waiver will preclude
the assignment of any such claim to the extent of such recovery, by subrogation (or
otherwise), to an insurance company (or other person), Company shall give written
notice of the terms of such waiver to each insurance company which has issued, or which
may issue in the future, any such policy of insurance (if such notice is required by
the insurance policy) and shall cause each such insurance policy to be properly
endorsed by Company thereof to, or to otherwise contain one or more provisions that,
prevent the invalidation of the insurance coverage provided thereby by reason of such
waiver.
	 
	 	(5)	 	Evidence of Insurance: Prior to the Closing Date and on an annual
basis at least 10 days prior to each policy anniversary, Company shall furnish
Administrative Agent with (1) certificates of insurance or binders, in a form
acceptable to Administrative Agent, evidencing all of the insurance required by the
provisions of this Section and (2) a schedule of the insurance policies held by or for
the benefit of Company and required to be in force by the provisions of this Section.
Upon request, Company will promptly furnish Administrative Agent with copies of all
insurance policies, binders and cover notes or other evidence of such insurance
relating to the insurance required to be maintained by Company.
	 
	 	(6)	 	Reports: Concurrently with the furnishing of the certification
referred to in Section (5), Company shall furnish Administrative Agent with a report of
Company’s insurance broker, signed by an officer of the broker, stating that in the
opinion of such broker, the insurance then carried or to be renewed is in accordance
with the terms of this Section and attaching an updated copy of the schedule of
insurance required by Section (5) above.
	 
	 	 	 	In addition Company will advise Administrative Agent in writing promptly of (1) any
material changes in the coverage or limits provided under any policy required by
this Section and (2) any default in the payment of any premium and of any other act
or omission on the part of Company which may invalidate or render unenforceable, in
whole or in part, any insurance being maintained by Company pursuant to this
Section.




(D) Insurance Policy Conditions and Requirements





	 	(1)	 	Policy Cancellation and Change: All policies of insurance required to
be maintained pursuant to this Section shall be endorsed so that if at any time they





[Credit Agreement]





Schedule 3 - Page 4









 









	 	 	 	are canceled, or their coverage is reduced (by any party including the insured) so
as to affect the interests of the Lender Parties, such cancellation or reduction
shall not be effective as to the Lender Parties for 60 days, except for non-payment
of premium which shall be for 10 days, after receipt by Administrative Agent of
written notice from such insurer of such cancellation or reduction.






	 	(2)	 	Separation of Interests: All policies (other than in respect to
workers compensation insurance) shall insure the interests of the Lender Parties
regardless of any breach or violation by Company or any other Person of warranties,
declarations or conditions contained in such policies, any action or inaction of
Company’s or others, or any foreclosure relating to the business or assets of Company
or any change in ownership of all or any portion of such business or assets.
	 
	 	(3)	 	Waiver of Subrogation: All policies of insurance to be maintained by
the provisions of this Section shall provide for waivers of subrogation in favor of the
Lender Parties and their respective officers and employees.
	 
	 	(4)	 	Endorsements: All policies of insurance referred to in this Schedule
shall be endorsed to name the Lender Parties and their respective officers and
employees as Additional Insureds.
	 
	 	 	 	All policies of Liability insurance referred to in this Agreement shall be endorsed
as follows:






	 	  (i)	 	To provide a severability of interests and cross liability
clause;
	 
	 	  (ii)	 	That the insurance shall be primary and not excess to or
contributing with any insurance or self-insurance maintained by Credit Parties.






	 	(5)	 	Payment of Loss Proceeds: All policies of insurance required to be
maintained pursuant to subsections (A) 8, and (A) 9 shall provide that the proceeds of
such policies shall be payable solely to Administrative Agent.




(E) Acceptable Policy Terms and Conditions:



All policies of insurance required to be maintained pursuant to this Section shall contain terms
and conditions reasonably acceptable to Administrative Agent after consultation with the Insurance
Advisor.



References in this Schedule 3 to “Company” shall be deemed to include the Credit Parties.




[Credit Agreement]





Schedule 3 - Page 5









 









SCHEDULE 4




LENDERS SCHEDULE




	 	 	 	 	 	 	 	 	 
	Lender	 	Allocation %	 	 	Commitment	 
	Beal Bank Nevada
	 	 	100	%	 	$	36,000,000	 
	 	 	 	 	 	 	 	 	 
	Total
	 	 	100	%	 	$	36,000,000	 






[Credit Agreement]






Schedule 4 -
Page 1









 








EXHIBIT A




FORM OF PROMISSORY NOTE




			
	 	 	 
	$________
	 	_______, ____






          FOR VALUE RECEIVED, Legacy Energy, Inc., a Delaware corporation (“Company”), hereby
promises to pay to ___________________ or its registered assigns (the “Lender”), in the
manner provided in the Credit Agreement referred to below, the principal sum of $____________, in
lawful money of the United States of America and in immediately available funds, on or before the
Maturity Date. The undersigned also promises to pay to the Lender hereof interest on the unpaid
principal amount of this Promissory Note, in like money, at the rate set forth in, and payable in
accordance with that certain Credit Agreement, as amended, modified or supplemented from time to
time, dated as of June 30, 2010 (the “Credit Agreement”) (capitalized terms used but not
defined herein shall have the meanings ascribed to them in the Credit Agreement), among Company,
NiMin Energy Corp., CLMG Corp., as Administrative Agent, and certain Lenders identified therein.




          This Promissory Note is one of the “Notes” issued pursuant to the Credit Agreement. Payments
of interest shall be computed in accordance with the Credit Agreement, and payments of interest and
principal shall be payable at the times and in the amounts provided in the Credit Agreement, until
this Promissory Note shall be paid in full. Payments of interest are to be made in lawful money of
the United States of America.




          The Credit Agreement provides for the acceleration of the maturity of this Promissory Note
upon the occurrence of certain events and for prepayments of this Promissory Note upon the terms
and conditions specified therein.




          This Promissory Note is entitled to the benefits provided in the Loan Documents to the extent
provided in said agreements.




          Notwithstanding the foregoing paragraph and all other provisions of this Note, in no event
shall the interest payable hereon, whether before or after maturity, exceed the maximum interest
which, under applicable Law, may be contracted for, charged, or received on this Note, and this
Note is expressly made subject to the provisions of the Credit Agreement which more fully set out
the limitations on how interest accrues hereon.




          If this Note is placed in the hands of an attorney for collection after default, or if all or
any part of the indebtedness represented hereby is proved, established or collected in any court or
in any bankruptcy, receivership, debtor relief, probate or other court proceedings, Borrower and
all endorsers, sureties and guarantors of this Note jointly and severally agree to pay reasonable
attorneys’ fees and collection costs to the holder hereof in addition to the principal and interest
payable hereunder.




          Borrower and all endorsers, sureties and guarantors of this Note hereby severally waive
demand, presentment, notice of demand and of dishonor and nonpayment of this Note, protest, notice
of protest, notice of intention to accelerate the maturity of this Note, declaration or notice




[Credit Agreement]






Exhibit A - Page 1









 







of acceleration of the maturity of this Note, diligence in collecting, the bringing of any
suit against any party and any notice of or defense on account of any extensions, renewals, partial
payments or changes in any manner of or in this Note or in any of its terms, provisions and
covenants, or any releases or substitutions of any security, or any delay, indulgence or other act
of any trustee or any holder hereof, whether before or after maturity.




          GOVERNING LAW; CHOICE OF FORUM; SERVICE OF PROCESS. THIS PROMISSORY NOTE SHALL BE
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH AND SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
NEVADA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW,




          LENDER MAY BRING ANY ACTION OR PROCEEDING TO ENFORCE THIS PROMISSORY NOTE, OR ANY ACTION OR
PROCEEDING ARISING OUT OF THIS PROMISSORY NOTE, IN ANY COURT OR COURTS IN THE STATE OF NEVADA OR
THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEVADA. IF THE LENDER COMMENCES SUCH AN
ACTION IN A COURT LOCATED IN THE STATE OF NEVADA, OR UNITED STATES DISTRICT COURT FOR THE DISTRICT
OF NEVADA, COMPANY HEREBY AGREES THAT COMPANY WILL SUBMIT AND DOES HEREBY IRREVOCABLY SUBMIT TO THE
PERSONAL JURISDICTION OF SUCH COURTS; IF SERVED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEVADA
OR FEDERAL LAW OR THE RULES OF SUCH COURTS, WILL ACKNOWLEDGE RECEIPT OF A COPY OF THE SUMMONS AND
COMPLAINT WITHIN THE STATUTORY TIME LIMIT AND IN THE MANNER SET FORTH ON THE NOTICE AND SUMMONS;
AND WILL NOT ATTEMPT TO HAVE SUCH ACTION DISMISSED, ABATED OR TRANSFERRED ON THE GROUND OF FORUM
NONCONVENIENCE OR SIMILAR GROUNDS; PROVIDED, HOWEVER, THAT NOTHING CONTAINED HEREIN SHALL PROHIBIT
COMPANY FROM SEEKING, BY APPROPRIATE MOTION, TO REMOVE AN ACTION BROUGHT IN A NEVADA STATE COURT TO
THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEVADA. IF SUCH ACTION IS SO REMOVED,
HOWEVER, COMPANY SHALL NOT SEEK TO TRANSFER SUCH ACTION TO ANY OTHER DISTRICT NOR SHALL COMPANY
SEEK TO TRANSFER TO ANY OTHER DISTRICT ANY ACTION WHICH THE LENDER ORIGINALLY COMMENCED IN THE
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEVADA. ANY ACTION OR PROCEEDING BROUGHT BY THE
COMPANY ARISING OUT OF THIS PROMISSORY NOTE SHALL BE BROUGHT SOLELY IN A COURT OF COMPETENT
JURISDICTION LOCATED IN THE STATE OF NEVADA OR IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT
OF NEVADA.




          WAIVER OF JURY TRIAL. COMPANY HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH
AND UPON THE ADVICE OF COMPETENT COUNSEL, WAIVES, RELINQUISHES AND FOREVER FOREGOES , TO THE
MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN
CONNECTION WITH OR RELATED TO THIS NOTE, OR ANY TRANSACTION CONTEMPLATED THEREBY OR ASSOCIATED
THEREWITH, IN EACH OF THE




[Credit Agreement]





Exhibit A - Page 2











 





FOREGOING CASES WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.




	 	 	 	 	 
	 	LEGACY ENERGY, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 



[Credit Agreement]






Exhibit A - Page 3









 








EXHIBIT B




FORM OF BORROWING NOTICE





     Reference is made to that certain Credit Agreement, as amended, modified or supplemented from
time to time, dated as of June 30, 2010 (the “Credit Agreement”) among Legacy Energy, Inc.
(“Company”), NiMin Energy Corp., certain Lenders identified therein, and CLMG Corp., as
Administrative Agent. Capitalized terms used but not defined herein shall have the meanings given
to them in the Credit Agreement.




	1.	 	Company hereby requests a Borrowing on [____________] in an amount equal to $______________
in accordance with the provisions of Section 2.3 of the Credit Agreement. The
proceeds of this Borrowing shall be applied as detailed below:
	 
	 	 	[Insert wire instructions and any specific applications of the loan proceeds with
instructions to net fees and discounts due to Lender Parties]
	 
	2.	 	Company hereby certifies as follows:






	 	(a)	 	All representations and warranties made by any Person in any Loan Document are
true in all respects on and as of the date of the requested Borrowing as if such
representations and warranties had been made as of the date of such Borrowing, except
to the extent that such representation or warranty was made as of a specific date or
updated, modified or supplemented as of a subsequent date with the consent of Required
Lenders and Administrative Agent.
	 
	 	(b)	 	All of the conditions set forth in Sections 4.1 and 4.2 of the Credit Agreement
have been satisfied.
	 
	 	(c)	 	The Borrowing is to be used solely for the purposes described in Section 2.4 of
the Credit Agreement.
	 
	 	(d)	 	There does not exist on the date hereof any condition or event that constitutes
a Default that has not been waived in writing as provided in Section 10.1(a) of the
Credit Agreement; nor will any such Default exist upon Company’s receipt and
application of the Borrowing requested hereby.
	 
	 	(e)	 	The Loan Documents have not been modified, amended or supplemented by any
unwritten representations or promises, by any course of dealing, or by any other means
not provided for in Section 10.1 of the Credit Agreement. The Credit Agreement and the
other Loan Documents are hereby ratified, approved, and confirmed in all respects.






	3.	 	The above certifications are effective as of the date of this Borrowing Notice and will
continue to be effective as of the date of the Borrowing. If any of the aforementioned
certifications shall no longer be valid as of or prior to the date of the Borrowing requested
hereby, Company will immediately notify the Administrative Agent and will





[Credit Agreement]




Exhibit B - Page 1









 









	 	 	repay the amount disbursed upon demand by the Administrative Agent if the Borrowing is made
prior to the receipt of such notice.
	 
	4.	 	This Borrowing Notice is dated __________________________ and is delivered on such date.





	 	 	 	 	 
	 	LEGACY ENERGY, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 



[Credit Agreement]







Exhibit B - Page 2









 








EXHIBIT C




FORM OF PREPAYMENT NOTICE





     Reference is made to that certain Credit Agreement, as amended, modified or supplemented from
time to time, dated as of June 30, 2010 (the “Credit Agreement”) among Legacy Energy, Inc.
(“Company”), NiMin Energy Corp., certain Lenders identified therein, and CLMG Corp., as
Administrative Agent. Capitalized terms used but not defined herein shall have the meanings given
to them in the Credit Agreement.



     Company hereby provides notice to the Lender Parties in accordance with Section 2.8 of the
Credit Agreement that:




	1.	 	Company will make a prepayment on the Loans on _____________, 2___.[which date must be a
Business Day]
	 
	2.	 	On such date Company will prepay $_____________ of the aggregate principal amount of the
Loans.
	 
	3.	 	On such date Company will also pay $_____________ in interest, which is the amount required
to be paid pursuant to Section 2.8 of the Credit Agreement.
	 
	4.	 	On such date Company will also pay the Make-Whole Amount as required under the Credit
Agreement. Company’s calculation of such Make-Whole Amount is set out on an annex attached
hereto.
	 
	5.	 	Company hereby requests Administrative Agent to calculate such interest and Make-Whole Amount
and confirm that Company’s calculation is correct.
	 
	6.	 	This Prepayment Notice is dated __________________________ and is delivered on such date.





	 	 	 	 	 
	 	LEGACY ENERGY, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 



[Credit Agreement]




Exhibit C - Page 1









 








EXHIBIT D




CERTIFICATE ACCOMPANYING

FINANCIAL STATEMENTS





     Reference is made to that certain Credit Agreement dated as of June 30, 2010 (as amended or
supplemented, the “Agreement”), by and among Legacy Energy, Inc. (“Company”), NiMin
Energy Corp., CLMG Corp., as Administrative Agent, and certain financial institutions
(“Lenders”), which Agreement is in full force and effect on the date hereof. Capitalized
terms used but not defined herein shall have the meanings given to them in the Agreement.



     This Certificate is furnished pursuant to Section 6.2 of the Agreement. Together herewith,
Company is furnishing to Administrative Agent and each Lender Company’s *[audited/unaudited]
financial statements (the “Financial Statements”) as at ____________ (the “Reporting
Date”). Company hereby represents, warrants, and acknowledges to Administrative Agent and each
Lender that:



     (a) The officer of Company signing this instrument is the duly elected, qualified and acting
____________ of Company and as such is Company’s chief financial officer.



     (b) The Financial Statements are accurate and complete and satisfy the requirements of the
Agreement.



     (c) Attached hereto is a schedule of calculations showing Company’s compliance as of the
Reporting Date with the requirements of Section(s) 7.12 through 7.16 of the Agreement *[and
Company’s non-compliance as of such date with the requirements of Section(s) ____________ of the
Agreement].



     (d) On the Reporting Date Company was, and on the date hereof Company is, in full compliance
with the disclosure requirements of Section 6.4 of the Agreement, and no Default otherwise existed
on the Reporting Date or otherwise exists on the date of this instrument *[except for Default(s)
under Section(s) ____________ of the Agreement, which *[is/are] more fully described on a schedule
attached hereto].



     (e) No Credit Party has changed (i) its name, (ii) its chief executive office, (iii) the type
of entity it is, or (iv) its state of incorporation or organization, without having given the
Administrative Agent the notice required by Section 6.4 of the Agreement.



     (f) *[Unless otherwise disclosed on a schedule attached hereto,] all representations and
warranties made by any Person in any Loan Document are true in all respects on and as of the
Reporting Date and the date hereof as if such representations and warranties had been made as of
such dates, except to the extent that such representation or warranty was made as of a specific
date or updated, modified or supplemented as of a subsequent date with the consent of Required
Lenders and Administrative Agent.]



     The officer of Company signing this instrument hereby certifies that he has reviewed the Loan
Documents and the Financial Statements and has otherwise undertaken such inquiry as is in his
opinion necessary to enable him to express an informed opinion with respect to the above



[Credit Agreement]





Exhibit D - Page 1









 







representations, warranties and acknowledgments of Company and, to the best of his knowledge,
such representations, warranties, and acknowledgments are true, correct and complete.




     IN WITNESS WHEREOF, this instrument is executed as of ____________, 20__.



	 	 	 	 	 
	 	LEGACY ENERGY, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 



[Credit Agreement]






Exhibit D - Page 2









 








EXHIBIT E




FORM OF APOD CERTIFICATION




[Date]




     Reference is made to the Credit Agreement, dated as of June 30, 2010 (as it may be amended,
supplemented or otherwise modified, the “Credit Agreement”), by and among Legacy Energy,
Inc. (“Company”), NiMin Energy Corp., the Lenders party thereto from time to time, and CLMG
Corp., as Administrative Agent. Reference is hereby made to the Credit Agreement for all purposes,
and capitalized terms defined therein shall have the same meanings when used herein.



     The Agreement provides for Administrative Agent and Company to certify the Agreed Plan of
Development (or APOD) that is from time to time in effect under the Agreement.



     Company and Administrative Agent hereby certify that the document(s) attached hereto
constitute the APOD as currently in effect under the Agreement.



     This certificate is a Loan Document, and all provisions of the Credit Agreement that apply to
Loan Documents shall apply hereto.



     This certificate may be separately executed in any number of counterparts and by the different
parties hereto in separate counterparts, each of which when so executed shall be deemed to
constitute one and the same APOD Certification.



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



	 	 	 	 	 
	 	CLMG CORP.,

as Administrative Agent

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	LEGACY ENERGY, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 



[Credit Agreement]






Exhibit E - Page 1









 








EXHIBIT F




SOLVENCY CERTIFICATE




[Credit Agreement]






Exhibit F - Page 1









 








EXHIBIT G




LEGAL OPINIONS




[Credit Agreement]






Exhibit G - Page 1









 








EXHIBIT H




FORM OF GUARANTY




[Credit Agreement]






Exhibit H - Page 1









 








EXHIBIT I




ASSIGNMENT AND ASSUMPTION





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



          For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the
Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to
and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the
Effective Date inserted by Administrative Agent as contemplated below (i) all of the Assignor’s
rights and obligations as a Lender under the Credit Agreement and any other documents or
instruments delivered pursuant thereto to the extent related to the amount and percentage interest
identified below and (ii) to the extent permitted to be assigned under applicable law, all claims,
suits, causes of action and any other right of the Assignor (in its capacity as a Lender) against
any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any
other documents or instruments delivered pursuant thereto or the loan transactions governed thereby
or in any way based on or related to any of the foregoing, including, but not limited to, contract
claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity
related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights
and obligations sold and assigned pursuant to clauses (i) and (ii) above being referred to herein
collectively as the “Assigned Interest”). Such sale and assignment is without recourse to
the Assignor and, except as expressly provided in this Assignment and Assumption, without
representation or warranty by the Assignor. Such sale and assignment is also made expressly
subject to the terms and conditions of the BP Collateral Sharing Agreement and any other Collateral
Sharing Agreement that may be in effect.



	 	 	 	 	 	 	 

	1.

	 	Assignor:	 	 	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	2.

	 	Assignee:	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	 	 	[and is an Affiliate/Approved Fund of [identify Lender]1 ]
	 
	 	 	 	 	 	 
	3.

	 	Borrower:
	 	Legacy Energy, Inc.	 	 





4.           Administrative Agent: CLMG Corp., as the administrative agent under the Credit Agreement



5.          Credit Agreement: Credit Agreement dated as of June 30, 2010 among Legacy Energy, Inc., NiMin
Energy Corp., the Lenders from time to time party thereto, and CLMG Corp., as Administrative Agent.






 




			
	1	 	Select as applicable.





[Credit Agreement]





Exhibit I - Page 1









 







6.          Assigned Interest:




	 	 	 	 	 
	Aggregate Amount	 	 	 	 
	of	 	Amount of	 	Percentage
	Commitment/Loans	 	Commitment/Loans	 	Assigned of
	for all Lenders	 	Assigned2	 	Commitment/Loans3
	$
	 	$
	 	%
	$
	 	$
	 	%
	$
	 	$
	 	%





7.          [Trade Date:                 ___________________________________ 4]






 




			
	2	 	Amount to be adjusted by the counterparties
to take into account any payments or prepayments made between the Trade Date
and the Effective Date.
	 
	3	 	Set forth, to at least nine decimals, as a
percentage of the Commitment/Loans of all Lenders thereunder.
	 
	4	 	To be completed if the Assignor and the
Assignee intend that the minimum assignment amount is to be determined as of
the Trade Date.





CREDIT AGREEMENT





Exhibit I - Page 2









 








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



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



	 	 	 	 	 
	 	ASSIGNOR

[NAME OF ASSIGNOR]

 	 
	 	By:  	 	 
	 	 	Title: 	 
	 	 	 	 
	 	ASSIGNEE

[NAME OF ASSIGNEE]

 	 
	 	By:  	 	 
	 	 	Title: 	 
	 	 	 	 



	 	 	 	 	 
	[Consented to and]5 Accepted:



CLMG CORP., as

Administrative Agent

 	 
	By:  	 	 
	 	Title 	 
	 	 	 
	[Consented to]6:



LEGACY ENERGY, INC.

 	 
	By:  	 	 
	 	Title 	 





 




			
	5	 	To be added only if the consent of
Administrative Agent is required by the terms of the Credit Agreement.
	 
	6	 	To be added only if the consent of Company is
required by the terms of the Credit Agreement.





CREDIT AGREEMENT




Exhibit I - Page 3









 








ANNEX 1 to Assignment and Assumption




LEGACY ENERGY, INC.




STANDARD TERMS AND CONDITIONS

FOR ASSIGNMENT AND ASSUMPTION




     1. Representations and Warranties.



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



     1.2. Assignee. The Assignee (a) represents and warrants that (i) it has full power
and authority, and has taken all action necessary, to execute and deliver this Assignment and
Assumption and to consummate the transactions contemplated hereby and to become a Lender under the
Credit Agreement, (ii) it meets all requirements of an Eligible Assignee under the Credit Agreement
(subject to receipt of such consents as may be required under the Credit Agreement) as a Lender
thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Lender
thereunder, (iv) it has received a copy of the Credit Agreement, together with copies of the most
recent financial statements delivered pursuant to Section 6.2 thereof, as applicable, and such
other documents and information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Assignment and Assumption and to purchase the Assigned Interest on the
basis of which it has made such analysis and decision independently and without reliance on
Administrative Agent or any other Lender, and (v) if applicable, attached to the Assignment and
Assumption is any Prescribed Forms, duly completed and executed by the Assignee; and (b) agrees
that (i) it will, independently and without reliance on Administrative Agent, the Assignor or any
other Lender, and based on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under the Loan Documents,
and (ii) it will perform in accordance with their terms all of the obligations that by the terms of
the Loan Documents are required to be performed by it as a Lender.



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



 









 





     3. General Provisions. This Assignment and Assumption shall be binding upon, and
inure to the benefit of, the parties hereto and their respective successors and assigns. This
Assignment and Assumption may be executed in any number of counterparts, which together shall
constitute one instrument. Delivery of an executed counterpart of a signature page of this
Assignment and Assumption by telecopy shall be effective as delivery of a manually executed
counterpart of this Assignment and Assumption. This Assignment and Assumption shall be governed
by, and construed in accordance with, the laws of the State of Nevada, without regard to principals
of conflicts of law.